Accounting Could Be Reform Catalyst

Accounting Could Be Reform Catalyst
February 1, 1998

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)



An accountant in green eyeshades, standing on the barricades and consulting a spreadsheet to direct the army of change, is an unlikely revolutionary figure in the battle for school reform. Yet, as public policy consultant Linda Morrison points out in a new study for Pennsylvania’s Commonwealth Foundation, the key to providing the “accountability” that elected officials, taxpayers, and parents all demand of public schools is to improve school-level accounting systems so that they provide detailed costs of a school’s outputs. A school-level activity-based accounting system is essential for effective management of the education enterprise and will soon be required by new government accounting standards.

“As usually put forth, ‘accountability’ means measuring student outcomes: test scores, dropout rates, college enrollment, etc.,” notes Morrison in “Improving School Accounting: A Catalyst for Reform.” But, she adds, accountability also means “How much did we spend per unit to get those outcomes?” In the private sector, knowing the up-to-date variable and fixed cost components of each business output is essential planning input for any decision to improve customer service or respond to competition. But that’s not the case in the public sector.

Government entities and businesses have markedly different accounting systems, with government focusing on who controls the spending and business focusing on who benefits from the spending. While business accounting systems are designed to help managers make better decisions and allocate scarce resources effectively, government accounting systems generally are designed to reassure taxpayers that their dollars are being spent on approved activities.

For example, before the New York City Board of Education issued a detailed 1996 report of school-by-school spending, “nobody could figure out where the money was going,” according to education special counsel Herman Badillo. (See “New York Schools Report Raises Questions about Special Ed Spending,” School Reform News, February 1997.)

While a car company knows how much it costs to produce each door or headlight, it’s rare for school officials to know how much it costs to teach a single English class. Even more rare is the ability to compare that cost with the results of student achievement tests.

“You cannot manage what you cannot measure. And you cannot improve what you cannot manage,” says Morrison, deftly summarizing the state of school reform without data-based decision-making. Her recommendation for Pennsylvania is for the state to add activity-based costing to its school accounting requirements so that easy-to-understand and useful cost-benefit information can be produced for management and the public.

The international accounting firm Coopers & Lybrand has developed a PC-based software package called In$ite that will import data from a school’s accounting system and generate comprehensive financial reports on all aspects of the school’s operations. The system is being phased-in statewide in South Carolina; implementation is in progress in Rhode Island; and the software has been used in individual districts in Montgomery County, Maryland, and in Lewisburg, Pennsylvania.

“It makes it a lot easier for a board member like myself to make sense of the figures,” commented Lewisburg school director Bob Hamm.

Activity-based accounting practices will become mandatory in the near future. The Governmental Accounting Standards Board (GASB) is establishing new methods of reporting by government units and school districts, including the use of net program costs. Those new standards are likely to be finalized by mid-1998 and to become effective as of July 2000.


George A. Clowes is managing editor of School Reform News. His email address is clowes@heartland.org.


For more information ...

Linda Morrison’s report, “Improving School Accounting: A Catalyst for Reform,” is available from The Commonwealth Foundation, 3544 North Progress Avenue #101, Harrisburg, PA 17110, telephone 717/671-1901.

George A. Clowes

George Clowes is a Heartland senior fellow addressing education policy. He served as founding... (read full bio)