When I came across “Colour Accounting” in 2013, I was intrigued; but not sure if it would work for government accounting. All the examples in the workshop were for private sector entities and small business.
I called Peter Frampton, co-founder of the system and he told me: “The basic accounting principles apply to all entities. The only difference is the terminology and the focus.”
So I decided to try it out. I have now done five workshops for municipal governments and had many municipal employees participate in my open workshops. I can now unequivocally say: “it works amazingly well for municipal governments!”
Even though municipalities don’t make a profit; don’t have equity shareholders; even though they levy taxes; they still follow the exact same rules of accounting. They have Assets, Liabilities; Income, Expenses and Equity (Accumulated Surplus). As participants discover in the workshop, everything in accounting fits into one of those five segments. While governments have their own accounting standards (PSAB), these relate to transaction recognition and financial statement presentation; not basic accounting.
Colour Accounting is not for accountants anyway. It is for owners, managers, directors (Councilors) of an organization who need to understand the finances; but may not fully understand what the accountants are talking about. There’s a wide range of senior staff and council members required to make important financial decisions, They need to understand the financial data and Colour Accounting is for them.
What we do in the workshop is explore how the numbers are assembled and how they relate to each other. The participants then get to see the complete financial picture of their municipality showing the Assets, Liabilities, Income and Expenses on one page demonstrating how they relate to each other. For most, it is the first time they have seen it in such a simple, understandable presentation.
I started my experimentation with a group of staff and elected officials from the District of Metchosin and the Town of View Royal. The two mayors had more than twenty years of experience between them; but it was probably the first time that they truly understood how reserves are shown in the Balance Sheet and the importance of determining whether or not they were represented by cash.
One of the main things that stands out in any municipal financial statements displayed in this way is the relative size of the Tangible Capital Asset number. The Regional Municipality of Wood Buffalo for example is managing $561 million in operating expenses and $3,318 million in capital assets. Managers seeing this visually, get a clear understanding of the financial importance of managing their assets.
Perhaps the biggest benefit of the workshop for municipalities is getting everyone on the same level of understanding about their finances. In the City of Vernon, senior management staff were able to start speaking the same language and ask intelligent questions about their financial position. The Finance Director finally had a framework and a language with which he could show them what happened to a budget surplus, or how taking on a new service impacted their other financial operations.
Sam Weller CA MBA of Broadwell Services is a certified Colour Accounting trainer.