| 4. In which ways is the initiative creative and innovative?
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① Implementing Organization
Bucheon created a task force team (TFT) to implement the cost accounting analysis system. The team consisted of public employees having experience with operating accrual accounting.
During the planning phase, an Advisory Group was created and included public finance experts and certified accountants. After the execution phase, the Advisory Group was changed to the Project Review Committee that modified potential problems in the execution phase and supported analytical results.
② Implementation Phase
The implementation phase consisted of a preliminary phase, planning phase, and execution phase.
In the preliminary phase, the city made preparations for a project: composing implementation personnel, obtaining budget, and creating an Advisory Group for strategic approach of a project.
During the planning phase, the city conducted interviews of related divisions such as the Project Review Division, surveyed assets for cost estimation, prepared for standards of setting indirect costs, wrote a cost accounting manual, conducted comparative analysis of cost allocation between local governments and the private sector, and produced assessment and assistance by an Advisory Group.
During the execution phase, the city chose a project and public facility to be analyzed, calculated costs, verified by the Audit Division and Project Review Committee, held reporting meetings and seminars, reassessed the cost accounting manual for practical application, and conducted customized education for public employees and City Council members.
③ Major Activities
- Obtaining Budget: obtained USD 100,000 from the central government thanks to positive assessment of innovativeness of the cost analysis system and its applicability
- Internal and External Assessment: assessment of a project by the Audit Division and Project Review Committee including external experts
- Examination Linked to Project Evaluation System: the link between existing project evaluation tools and the analysis system of costs
- Cost Accounting Manual: producing a manual for applying the cost accounting analysis system
- Education: customized education for staff-level public employees
④ History of the System
The development and introduction of the system went through the following steps.
- July 2010: creation of a task force team
- August 2010: selection of policy directions and agenda items
- September 2011: development of a cost analysis system based on local government accrual information
- October 2011: announcement of application results of the system such as costs using accrual accounting and analysis of loss; hosting open forums and collecting opinions from citizens, civil organizations, public employees, and scholars
- October 2011: presentation of the model in the Korean Association for Governmental Accounting and proposal of the system to the Ministry of Public Administration and Security
- December 2011: the system published in the Journal of Government Accounting Studies (Korean Association for Governmental Accounting)
- December 2011: the model certified by KRILA (Korea Research Institute for Local Administration) and Sungsan Accounting Corporation
- January 2012: preparing action plan for 2012
- January 2012: applied the cost analysis system for the first time
- June 2012: selected 13 projects to be reviewed in the first half of 2012 and conducted cost analysis
- August 2012: verified cost analysis reports and results
- September 2013: the system adopted in an international scholarly seminar
(CIGAR: Comparative International Governmental Accounting Research)
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| 5. Who implemented the initiative and what is the size of the population affected by this initiative?
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① Internal Divisions
In addition to a task force team consisting of accounting personnel which led the development of the cost analysis system, the Project Division was also involved in implementing the system throughout the planning and execution phases. In particular, analysis techniques and experiences of assessing projects and calculating expected costs significantly helped produce the cost analysis system.
Implementing the cost analysis system centered on Cost Analysis Team and in close cooperation with the Project Review Committee, Audit Division, Budgeting Division, and Project Division.
② Audit Division
The official in charge of auditing analyzed appropriateness of development directions of a given project. Through verification of cost information, the division helped secure internal trust of a given project.
The Audit Division of the city examined a project while the Advisory Group and Project Review Committee, consisting of public finance experts and certified accountants, also conducted external evaluations of the project. The results of the evaluations were reported to City Council.
③ Expert Group
In the planning phase of the cost analysis system, the Advisory Group, consisting of public finance scholars and certified accountants, was created and offered expert advice on the application field of the cost analysis system and examination of completeness of analysis items.
In the execution phase, the Advisory Group was expanded to the Project Review Committee which, in turn, helped select a project requiring the application of the cost analysis system and offered advice on cost analysis results.
④ Citizens and Non-Governmental Organizations
Member of civil and non-government organizations were involved in the development of the cost analysis system even before the execution phase and participated strongly in seminars and public hearings held by the city.
In particular, they were also involved in issues such as residential resistance to the reuse of the former waste treatment facility and reallocation of existing personnel due to private contracting out, creating mutual bonds through continual discussions with the city.
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| 6. How was the strategy implemented and what resources were mobilized?
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① Finance
Over USD 58,500 was invested into efforts that helped develop and apply the cost analysis system such as domestic and international seminars, public hearings, advisory meetings, producing a manual, and education and training.
Talent donation from public finance experts and certified accountants helped develop the system with the least amount of cost possible.
② Expertise
○ Domestic and International Scholarly Seminars
The local government cost analysis system combined public finance, accounting, and staff-level experience. Through three seminars, public employees in accounting, public finance experts, certified accountants, and public employees in related divisions exchanged ideas and opinions that were professional and practical.
○ Advisory Committees
Public finance experts and certified accountants offered expert advice on the system 19 times from the planning phase to the execution phase. Their advice was particularly useful in such areas as selection of a project requiring cost analysis, coming up with categories of the cost analysis, and allocation of indirect costs.
○ Education and Workshops
As users of cost information, staff-level public employees and City Council members participated in four education and workshop events to learn about the characteristics of the system, advantages and core contents of the system, its applicability.
○ Production of the Manual
A user manual was created to apply the cost analysis system and has served as educational material. It was also distributed to related divisions and utilized for project evaluation.
③ Human Resources
In the planning and development phase of the system, a task force team was created in 2010. It included seven public employees from the Accounting Division and other divisions that demonstrated passion, understanding, and expertise of accrual accounting and budget accounting.
Members of the task force team took the lead in choosing agenda items, discussing implementation, and conducting on-site interviews. They were promised to receive personnel and financial incentives upon successful development of the system when they were recruited for the team. Consequently, after successful introduction of the system, they received such personnel and performance incentives.
④ Budget Obtainment and Contributors
The city secured the support of USD 100,000 from the central government thanks to the selection of the system along with internal budget practice as an excellent policy example. They money was invested into advancing the cost analysis system after the execution phase.
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| 7. Who were the stakeholders involved in the design of the initiative and in its implementation?
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① Classification of Asset by Cost Object
The system reclassified registered asset information such as assigning asset names to each facility among tangible assets, additional expenses by each facility, and survey of affiliated facilities, preparing for a comprehensive asset classification structure for costing.
For ease of costing, asset was systematically classified by individual facility and cost object.
② Building specified costing guidelines
The system came up with cost categories and their components necessary for analyzing projects.
The system defined basic components for costing: selection of cost categories befitting characteristics of public agencies, classification of direct costs from indirect costs, allocation standards of indirect costs, and separation of project division from support division.
③ Cost statement
The system produced full costs for constructing and managing public facilities that include depreciation costs, direct costs, and indirect costs.
Previously, project analyses of public facilities were exclusively economic ones, but the system included analyses of objective full costs.
The cost statement contained cost objects, cost elements, specifications of costing, costing bases, and ratio of cost categories etc.
④ Project Analysis System Using Cost Information
The system prepared for an analysis model for producing cost information, considering decision of project completion or contract cancellation, calculation of optimal management costs of public facilities, and comparative analysis of direct operation or contracting out.
The costing model made it easier for analysis by applying costs and benefits into a framework.
Determination of whether to pursue a project was based on a project analysis using the accounting analysis tool that considered costs invested before and after project completion as well as operation costs, maintenance costs, loss due to choosing an alternative, and benefits including admission fees. This was clearly differentiated from general cost benefit analyses of public facilities.
⑤ Cost Management Manual
To utilize the cost analysis system for project analysis, a cost management manual was created, including an classification of asset by cost object, costing guidelines for components of costs, full costs, a project analysis, and cost management methods.
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| 8. What were the most successful outputs and why was the initiative effective?
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The major contents of the implementation of the system as well as major activities of monitoring are as follows.
① Selection of a Project Requiring Cost Analysis
The Project Review Committee chose projects that require cost analysis.
These facilities included public facilities causing conflicts around their completion or expected to cause conflicts, those needing a decision of private contracting out, or core residential amenities demanding an annual assessment of its management efficiency.
② Costing and Analysis of Projects
The Accounting Division (Cost Analysis Team) collected basic materials from related divisions for analyzing a project and estimated its costs following the cost analysis manual.
When assessing the MBT facility, the completeness of cost elements based on cost-benefit analysis and appropriateness of details of costing and of calculation method of indirect cost allocation were assessed.
In terms of analysis of public facility management, the scope of operating costs, appropriateness of comparative public facilities, and division of direct and indirect costs were assessed.
In the case of the decision to manage the sports center directly or to contract it out, the application of user pay principle, elements of contracting out costs, and benefit-cost analysis were assessed.
③ Verification of Project Analysis Results
The Audit Division assessed the appropriateness of analysis directions of costing calculated by the Cost Analysis Team. It pointed to matters that required improvement and ensured they were implemented.
The Project Review Committee had assessed analysis results and notified the Accounting Division (Cost Analysis Team) of matters requiring improvement before they were reported to the City Council and Audit Division.
④ Decision to Pursue a Project
Decision-makers decided on pursuing a project based on assessment results. In this process, the results were explained to stakeholder such as citizens and non-government organizations. In turn, stakeholder gave their opinions on the project.
Opinions of stakeholder were reflected into a final decision on pursuing a project. If additional expenses were needed, an effort to obtain additional money was made.
⑤ Reporting Results to City Council
Policy decision-makers reported analysis and assessment results of pursuing a project to City Council.
In case additional budget was necessary, it required an budget deliberation by City Council.
⑥ Assessment of Major Policies
The Performance Evaluation Division conducted the assessment of major city policies including analysis results of public facilities. Assessment results were then reported to the mayor, and matters requiring improvement were subsequently implemented.
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| 9. What were the main obstacles encountered and how were they overcome?
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Unlike private companies, there were major barriers to implementing the system in Bucheon: fear of failure in an environment where accrual accounting infrastructures lacked, pressure to produce good performance of implementing the system, obtaining necessary budget and personnel, and internal organizational resistance. In addition, there were preliminary efforts to be made for developing the system and applying the concept of costs such as investigation and reclassification of assets and introduction of a cost center.
① Difficulty of Obtaining Expert and Implementation Personnel
One of the major barriers was lack of expertise to develop a manual and apply it by incorporating accrual cost information into project assessment.
To overcome the barrier, the Cost Analysis Team was created, consisting of public employees with experience of running accrual accounting. The team worked together with experts to solve problems.
② Internal Organizational Resistance
The strong will of the mayor helped reduce internal resistance to change due to the introduction of a new system.
In particular, education based on real examples was given to public employees and City Council members, helping to change the perception of public employees toward the system.
③ Lack of Basic Materials for Generating Cost Information
To apply the concept of costs, existing asset information was expanded and reclassified by supplementing asset information that reflect detailed information about individual assets. In addition, an officer in the Accounting Division was designated for asset management so that asset information is managed continuously and systematically from the budget execution phase.
There was difficulty in calculating costs due to confusion of direct and indirect costs common in the public sector. To clear the hurdle, costing rules were established.
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