ACCOUNTING CONTROLS AND BUREAUCRATIC STRATEGIES IN MUNICIPAL-GOVERNMENT

We investigate the degree to which accounting and auditing characteris tics in municipal governments lead to effective control systems, i.e., systems which result in the production of services desired by the ele ctorate at minimum costs. Such control systems are subject to strategi c manipulation by the bureaucracy. The study examines the effects of a ccounting disclosure and auditing controls on the level of governmenta l expenditures. We adopt the Gonzalez-Mehay model (GM 1985) from the p ublic choice literature, which relates governmental expenditures to a number of structural and control variables. The GM model assumes that bureaucrats have a monopoly over information, disseminating little fin ancial information outside the bureaucracy (GM 1985, p. 90). In realit y, bureaucrats are subject to auditing, budgeting, and public reportin g controls. We found that budget control (as measured by surplus/defic it variables) generally supported a strategic manipulation interpretat ion, as did total debt (for capital outlays). However, a public accoun tant's audit opinion appears to be an effective control device when an unqualified opinion is obtained. The city manager form of government, especially when combined with a Certificate of Achievement, also supp orts a control interpretation. The results suggest that, as with comme rcial organizations, appropriate monitoring methods can lead to superi or governmental performance, but that such monitoring methods are subj ect to capture by agents.