Putting Teeth into the Efficiency and Effectiveness of Public Services

The Governmental Accounting Standards Board (GASB), which establishes accounting principles for state and local governments, embarked in 1985 upon a research effort which may have a profound impact on public financial management. If successful, the research could lead to the creation of accounting guidelines encouraging, perhaps ultimately requiring, state and local finance officers to include performance measures of efficiency and effectiveness in their annual financial reports. These reports, in turn, are readily available for decision making by governmental officials, taxpayers, the media, credit rating firms, and other financial institutions. This article reports on GASB's research effort, using the participation of the City of Wooster, Ohio, as well as ongoing research in the hospital field, to illustrate the details and potential impact of this endeavor. In a sense, the GASB research project is the culmination of decades of research-oriented attempts to measure efficiency and effectiveness in the public sector, to develop performance-based budget systems, and to encourage meaningful financial reporting.