A Study on How to Improve the Accountability of National Defense Financial Information for Government Sustainability

Accrual-based accounting enables external users to make informed decisions by reporting an accounting entity’s management performance to them. It also helps managers accurately record resource usage and increase efficiency. Despite the Republic of Korea’s expectations for the introduction of accrual-based accounting in national accounting from 2011, aimed at achieving efficient resource management comparable to private companies, the results of the audit by the Board of Audit and Inspection indicate that the settlement of accruals in national accounting is still insufficient. This paper examines whether the financial reports compiled are suitable for competition in decentralized organizations. We present the status of accrual-based accounting in the Ministry of National Defense and analyze the actual cost index to control the efficient use of defense resources and financial information. For our analysis, we compared and analyzed the costs of two divisions and seven brigades in the Ministry of National Defense using cash-based budget spending and the actual cost index based on accrual basis, using data from the defense accounting system in 2015 and 2016. We found that the comparison result between the nominal cost and actual cost index was different. In particular, the actual cost index reflects the degree of control of the decision-maker who manages the resource. Our results show that evaluating the efficiency of resource management units in the Ministry of National Defense using the actual cost index can improve the Ministry’s accountability and achieve the purpose of introducing double-entry bookkeeping.