Mentors Comments:

• Ethics by Lexicon publications
• The question is aimed at analyzing the aspects of utilization of public funds in a country.
• One must discuss in detail the aspects of transparency and accountability associated with the utilization of public funds of the country.
• In the intro, discuss the importance of public funds.
• In the 1st part of the main body, explain what is meant by public funds – Public funds include all the money that belongs to the public and is held by the government as a custodian and not an owner. Its utilization must adhere to the principles of transparency and efficiency.
• Discuss the significance of Transparency and efficiency as tools for monitoring and supervising distribution of public funds.
• Explain various mechanisms through which it can be done – Public Fund Management System, Auditing agencies – CAG, Budgeting – Outcome-based budgeting, zero-base budgeting, Participation and transparency – Social Auditing and Citizen Charters, Financial Prudence – FRBM act etc.
• Conclude with way forwards to bring better accountability and transparency in the utilization of public funds.

Answer:

‘Public money ought to be touched with the most scrupulous conscientiousness of honour. It is not the produce of riches only, but of the hard earnings of labour and poverty.’ – Thomas Paine

Four principles underpin trust in public finances:

• Transparency −accurate records that show where money is raised and spent.
• Assurance − figures and processes are checked by independent experts.
• Accountability −decision makers are clearly identified and subject to strict rules and review of performance and outcomes.
• Objectivity − policies are based on accurate information and rigorous analysis

The question of utilization of public funds has different aspects.

• The first aspect relates to efficiency.
• The second aspect concerns the manner of fund utilization.
• The third aspect relates to the outputs and outcomes which result from the fund use.
• The fourth aspect is the source of funds.
• Finally, any fund utilization or expenditure has to meet the audit requirements.

Need to obey principles of transparency and efficiency:

• It is vital to uphold the ‘social contract’. Citizens must be confident that they are protected by the law and that public institutions and servants will act in accordance with it.
• Public institutions with operational independence from political control are more likely to be trusted to act in the public interest.
• A well-informed population is far more likely to be confident about investing for the future. This means both providing appropriate information in ways that are accessible and easy to understand, and educating citizens as well as inviting them to participate in decision making.
• Effective public financial management requires that decision-makers, citizens and other stakeholders, are able to ‘follow the money’ to see how taxes were raised, why decisions to spend it were made, how the money was actually spent and what was bought.
• Where government plans and activities are measured against expected outputs and outcomes, citizens and other stakeholders will be able to judge the performance of government. This, in turn, provides the basis for feedback and continuous improvement mechanisms.
• For the public to believe that public officials will do the right thing, a range of controls to promote integrity and ethical behaviour and to tackle fraud and corruption are required.
• Most importantly, the public must believe that individuals will be held responsible for their actions, no matter who they are.
• A climate for investment is created when investors believe a state is stable, well run and that political and fiscal risks will be managed effectively.

It is important for citizens to trust that the government will act in their interest, if they are to invest their own private resources and so create economic activity and employment.