ANALYSIS OF ACCOUNTING CENTRALISATION IN MUNICIPAL BUDGETARY INSTITUTIONS

Abstract

Modern globalisation and advances in information and communication technologies have brought about significant changes in financial management practices. Centralised accounting has become a strategic necessity to cope with the growing complexity of organisational financial systems and to meet the increasing need for better control and transparency. Over recent decades, public administration and public sector accounting have undergone substantial reforms, both within the European Union and nationally. To harmonise the accounting systems of EU Member States, public sector accounting and financial reporting standards have been developed and implemented. In order to optimise the functions of public administration institutions, Lithuania has introduced a reform aimed at centralising shared public sector functions. According to the provisions of the Government Resolution adopted in 2018, the financial accounting and human resources administration functions of ministries and other subordinate budgetary institutions must be carried out centrally. Some institutions merged these functions as early as 2018, while others followed in subsequent years. Municipalities independently decide whether to centralise the financial accounting and personnel administration functions of their budgetary institutions. Of the 60 municipalities in Lithuania, 31 have established centralised financial accounting departments or institutions responsible for managing the accounting of budgetary entities. The accounting of educational and cultural institutions has been centralised most extensively.

A centralised financial accounting model enables effective analysis of the financial condition of different institutions and ensures control over funding sources and their use. However, financial accounting within organisations is a complex process, and the implementation of centralised accounting can create various challenges. This raises the question of what advantages and disadvantages municipal budgetary institutions face after implementing accounting centralisation. When problems arise, the quality and efficiency of financial operations management may decline.

The aim of the research is to analyze the advantages and disadvantages of the centralization of accounting in Lithuanian municipal budgetary institutions.

Research methods: analysis and synthesis of academic literature, systematization, comparative analysis and a questionnaire survey.

An analysis of various scholars’ opinions the main advantages of accounting centralization have been identified: reduced amount of documents, clear chain of command and reduced administrative costs. The authors identify the following major disadvantages of centralization: lower employee motivation, slower adaptation to changes, bureaucracy and slower decision-making. There is no single optimal model of (de)centralisation. In most countries, a certain balance between centralisation and decentralisation is essential. The research findings indicate that an effective system for the transferring of accounting data between centralised accounting institutions (CAIs) and budgetary institutions relies on a clearly defined and well-structured communication framework. This framework enables smooth information exchange and ensures high-quality performance of accounting functions. Nevertheless, communication efficiency is limited by human factors such as inattentiveness, distraction, heavy workloads and resistance to change – particularly regarding compliance with procedures established by the CAIs. In addition, technological aspects present further challenges, such as the use of several incompatible data management systems, which complicates data accessibility and integration. These factors suggest that, to achieve greater communication efficiency, it is necessary not only to improve the compatibility of data management systems but also to strengthen staff competencies through additional training and to foster motivation for cooperation.