Overview

Private finance operates based on speculation (Urgo, 1995; Silva, 1985) because the executives and financial staffs like to gamble with the company money (Van Epps, 2006) for quick and easy profits. Nevertheless, millions of bankrupt corporations, including the Wall Street Journal, JP Morgan Chase, Merrill Lynch which are the world leaders in financial institutions whose prediction becomes the standard for industries across the world to match their performance with, and the bankrupt of the Swiss Société Générale which is also a world financial and an insurance firm, witness the emptiness of speculative gain and management of finance and accounting. Besides these world financial institutions, there is also the Lehman Brothers, the innovator in global finance, which serves as the world banker for the corporations, federal/state/municipal governments, other private and government institutions, and wealthy individuals across the world, went bankrupt in 2008, the same year the Wall Street Journal seek a government bailout. They all operate the economically and perform financial management based on a false ideology (Hall, 1999) but believe it as a true doctrine (Schwarz, 1983).  

Prediction is a speculation and it is a false and forbidden knowledge (High, 1986; White, 1999). It should not be adopted as a true doctrine (Wong, 2000). Prediction is even a dangerous knowledge and those who use it are unwise because they are treading on the forbidden ground (White, 1999). Prediction causes millions of corporations lose their sense of reality because they juggle their financial records daily to meet their prediction or the prediction of the above financial institutions. Eventually, they become lost in the process. The bankrupt Fannie Mae and Freddie Mac, the two US leading private mortgage corporations that operate under the scheme of public-private partnership led the United States into financial crisis. All these speak that one must work based on scientific reality, not based on prediction. Prediction indicates lack of knowledge. Lao Tzu once stated, “Those who have knowledge don’t predict. Those who don’t have knowledge, predict.” 

Rev. Beecher in his Addresses to Young Men, published in 1805 stated that commercial speculation is thriving on dishonesty, all the calculations are uncertain, and those who “are drawn by the sagacity from probable events, are notoriously unsafe” (p. 72). He added that those who work based on speculation defraud themselves, their families, the communities, and even God. It is very dishonest because they venture something that is unforeseen and they lie to make it into a reality. They gamble to become wealthy and are not able to do better for the society. They are unable to be true to their people, true to themselves, and true to their country, argued Rev. Beecher.  

Public sector organization is difficult, vast and complex (Fisher, 1999; Blau & Scott, 2003) so are its financial and accounting system and management. Frederickson (2000) defined public administration and its finance as science and art. As science and art, its financial and accounting management is based on scientific reality, transparent and democratic principles (Maines, 2007), and carries high standard of ethics. Public sector finance and accounting system and management indicate accountability. Each decision and spending made (Siswana, 2007; Miller, 2009) are accounted for and it projects democratic leadership (Sakiene, 2009).  

Years of privatization, collaboration, the hiring of public servants based on heredity or political patronage (Palmer, 1959), contracting out or outsourcing of government functions, the involvement of the third party as independent auditor for the government books, and the frictional labor mobility between the private and the public sectors, all have resulted in the blurring of public finance and accounting. All these have caused a deep penetration of the private sector finance and accounting system into the public sector and has diminished the standards, norms and principles of the public sector finance and accounting (Chiapello & Medjad, 2009). This penetration causes a dramatic change in the management process of public finance and accounting – from the process of identification to the classification, the recording, approval, and presentation of accounts, financial reports, and the fiscal budget. It has created a misleading accounting system and management (Watkins & Arrington, 2007). Consequently, the government is becoming very vulnerable to systemic political and financial abuses (Casas-Zamora, Walecki, & Carlson). It also causes public finance to be prone to thefts, systemic corruptions, frauds, and embezzlements. Most funds used are not accountable and its presentation is becoming very ambiguous and non-transparent. Rhodes (1994) called it, the “hollowing out” of the state. 

The flaws of the current system of public administration are caused by the political process of the reinventing the government (Anechiarico & Jacobs, 1994; Rosen, Boothe, Dahlby, & Smith, 1999), the taming of the bureaucracy (Schorr, 1997), and the continuous reorganization of the bureaucracy using bad management theories, which have destroyed good management practices (Ghoshal, 2005). Even though it ain’t broke, it is being fixed and continuously being reorganized according to the vision of the newly appointed leaders who know very little about the government (Congleton, 2004) or illiterate about the government (Rotberg, 2006; Mao Tse-Tung, 1970). They are also clueless about the Constitution (Dube, 1963) but often claim their support for the Constitution. They claim they are reformers and reorganize the public system to suit what they know and can control as merchants (Smith, 1993). The suggestion of Osborne and Gaebler (1992), Schorr (1997), or McTigue (2004) was based on the desire of the interest groups, the lobbyists, and the advocacy groups, which is to have access to public resources (Lebovic, 2006) with an illusion of control (Harel & Partipilo, 1996). Osborne, Gaebler, Schorr, and McTigue also rationalized that transforming the government into small business units and the bureaucrats as plutocrats is for transparency and that transparency would lead to democracy. However, transparency has nothing to do with democracy (Lebovic, 2006). Their suggestion of both reinventing and the New Public Management system, argued Gruening (2001), are not scientifically based but representing a collection of ideas without theoretical foundation.  

Many are mystified by the ideology of reinventing the government or the New Public Management. They keep restructuring the bureaucratic system of the government according to their own vision and belief because they do not have the foundation in the public administration (Dube, 1963). They quickly decide to privatize the system they never learn, have never been trained for (Anderson, Hilderman, & Loat, 2010), and only very few of them know very little (Congleton, 2004). Ambitiously, they promote contracting out, decentralization, outsourcing jobs and functions, establishing line department with its customer service and supply chain, establishing state owned enterprises or special operating agencies, endorsing public-private partnership, commissioning the system, transforming it into a retail system, and endorsing freer trade. McShane (1992) stated that these leaders enter the government to promote individual interests. All come at the expense of the public. All the reengineering and establishments are for private benefits (George & La Manna, 1996) not for public benefits.  

The reengineering efforts cause a distortion of public mission (Smith, 1999), a malfunction of bureaucratic structure and organization (McCrohan, 1998), leadership and democratic deficits (Rose-Ackerman, 2007), as well as an impairment of public finance. It has also caused a deterioration of the administration of public service delivery (Durant, 1998), poor quality service and performance, and most of all a dysfunctional system of public administration (Aron, 2003). Dobbs (2006) noted that federal or national government is very dysfunctional. The reengineering also causes the government to lose its political control (Tambulasi, 2007) and its power is limited (Austin, 2000). 

After announcing his retirement from the Microsoft and that he will concentrate on his Bill and Melinda Gate Foundation, Bill Gate suggested that financial management of both the nonprofit and public organizations should be based on “cash in, cash out” basis. On one hand, Bill Gate increased the importance of the nongovernmental organization in the competitive market; on the other hand, he suggested the adoption of financial illiteracy in the world of science and professionalism. Many people believe in his suggestion because of his popularity and wealth, but also because they are financially illiterate in terms of public finance and accounting. Once the “cash in, cash out” principle is adopted into the public finance and accounting, it increases the flaws and generates unethical practices (Tirnbull, 2009; Edwards, 2003). Theft, corrupt, fraudulent, and embezzlement practices have been chronic, endemic, rampant, and pervasive across the private sector (United Nations, 1990), so is in the world of the nonprofit sector. It is infecting the public sector due to labor mobility from the private sector to the public sector at the executive levels and down to the front line staffs. As the government is operating in a businesslike manner (Gangi, 2007), what have been commonly practiced in the private sector become the practice as well. 

Public finance and accounting management system is not only difficult and complex, but also unique (Fox, 2004; Shalala, 1998). “Cash in, cash out” system undermines theory and its scientific and professional applications, but theory informs good framework, good application (Thompson, 2005), and a strategic approach to good practice (Whyatt, 2004). Theory represents a foundation or a skeleton for sustainable application (Höchtl, Lehringer, & Konold, 2006; Stead, 1994; Wen, 2007). “Cash in, cash out” also introduces loopholes and flaws in the management of public finance. It impairs public finance and social economy of the state (Gaffney, 1998). It even causes a chronic waste. People are attracted to the jobs in the public sector not as a lucrative academic field or scientific field, professional and managerial applications (Vigoda & Vigoda-Gadot, 2002) where they can apply their knowledge to improve social and well-being of their fellow citizens, but simply to become plutocrats who want to maximize their own financial return (Kato, 2006). Rotberg (2006) called them “kleptocrats” who are seeking to have access to public resources, added Lebovic (2006), Smith (1994) and O’Neal (1994).  

Due to their governance knowledge illiteracy (Rotberg, 2006; Mao Tse-Tung, 1970), they cannot differentiate between public finance and private finance. They establish the government as a means to an end (Jakopovich, 2009; Korhonen, 2003). Consequently, they contribute to the impairment of public finance. Once it is impaired, those who are in control of the fund would likely use the opportunity for their individual benefits. The fund is becoming as if their individual wealth and they can use it according to their discretion. They protect it from being used for public expenditures by speculating deficits but are spending it on private investments or on their cronies’ projects, as Blank (2001) put it, “There isn’t enough for everyone, so we must control whatever is available for ourselves and our inner circle” (p. 37). 

The financial and accounting management process of “cash in, cash out” has caused both developing and developed countries to have a chaotic public administration system while privatization and public-private partnership schemes have caused the government to become poor (Dreschler, 2000). Corruption schemes also skyrocketed, linger in the bureaucracy, lead the government into poverty (Litan, Pomerleano, & Sandararajana, 2002), and corrode public trust in the government (Zhang & Zhang, 2009). Corruptions also erode political legitimacy and public confidence in government’s ability to be their guardian (Chang, 2008). Most of the funds are not accountable because many in charge are clueless about the classification, the recording process, and the presentation of public finance and accounting (Ma & Ni, 2008). 

After being elected, President Clinton assembled a large group of financial experts to study government finance and stated, “We really don’t know exactly what to do, but we will try one thing, and if that doesn’t work, we’ll do something else, hoping that we will at last find whatever will make a difference” (Reid, 1993, p. 12). He never made a difference, and President Bush deconstructed it even further away from the true meaning of public finance and accounting management system. He promoted the adoption of entrepreneurialship, which leads the country into a more vulnerable state and financially, it is heading toward a crisis. Weick and Sutcliffe (2003) argued that crisis would bring creativity. However, their statement is a flaw. Crisis never brings creativity, but a calamity. Government works more effective and efficient in a stable environment. 

The issues associate with public finance and its analysis are not about trial and error, which is common in the private enterprise, particularly in manufacturing industry. Such analysis has no place in public finance or public policy (Schnellenbach, 2005) or even in public accounting management.  

Public finance and accounting management involve the size of government, the sources of funds received, the expenditures that include allocation and distribution, fiscal budgeting, the relationship between public finance and public policy, ownership, intergovernmental relationship, government roles and functions, economic equity and fairness, the relationship between political pacts and the bureaucracy, and myriad other factors both monetary and non-monetary. Equalizing public finance to private finance is similar to surfing the edge of chaos. Each field has its own characteristics, purposes, and goals. Each one is unique and cannot be standardized from one department to another or from one organization to another. Prudence handling of public fund is an element of good stewardship (Pope, 2005), good management, and democratic governance.