The financial management of a municipality should ensure accountability and transparency. This can improve the confidence of and support from central governments, the international community, civil society and local and international businesses – which in turn can lead to greater receipt of public and private funds. Accurate financial management can also enable better insight into which groups benefit most from the municipal budget, including various marginalised groups. Strong fiscal accountability and transparency are also likely to reduce or prevent corruption, thus leading to more efficient spending of public resources. Robust public financial management can also improve a city’s creditworthiness and enable better access to commercial debt and capital markets. Municipalities can take several steps to enhance their financial accountability and transparency, including: (i) ensuring that they apply accrual accounting in order to provide an accurate financial picture, which is then used to make fiscal and budgetary decisions; (ii) ensuring that well-defined systems are in place, with clearly defined auditing and control functions; (iii) publishing municipal financial statements regularly; and (iv) using any financial information combined with data analytics to identify inefficiencies, mismanagement or fraudulent behaviour.

Lack of local technical, administrative or financial capacity may prevent necessary improvements to municipal financial management. There may also be vested interests that do not want increased transparency. These obstacles or challenges may be addressed through adequate capacity-building programmes and well-defined action plans aimed at improving governance structures, with clearly defined auditing and control functions.

Belize has identified a need to address fiscal accountability as one factor that could contribute to improvements in municipal management. Despite beginning the process of decentralisation in the 1990s, there has since been little impact as local authorities do not have the technical, administrative or financial capacity to manage funds and powers effectively. The World Bank worked alongside the Belize government to leverage grant resources from the Public-Private Infrastructure Advisory Facility (PPIAF) to support capacity-building around fiscal management. Key activities included conducting a diagnosis of fiscal conditions, training practitioners in financial management, revenue collection, use of financial management software and designing a new accounting approach that included balance sheets.^[2]

This case of Belize demonstrates the absence of basic accounting procedures in many countries and cities, and the importance of supporting policies, for example, information and capacity-building (see policy option G5) to support improvements in fiscal accountability.

In Cape Town, South Africa, despite significant efforts to decentralise powers to local authorities, poor sector budgeting is significantly limiting urban development decisions. Current reporting of spending is ineffective (often done in a highly technical manner), resident participation occurs after decision-making and there is no clear public framework that outlines the process of spending decisions. This in turn leads to a lack of trust in the local authority and further lowers public participation. To address this, the Development Action Group convened a number of civic organisations to discuss a range of issues, but all were centred on the absence of accountability. From this measure, two civic coalitions were created. These held workshops and developed resolutions to improve accountability, while encouraging greater civic participation via their web-based platform. This case in Cape Town demonstrates the importance of stakeholder engagement as well as the value of providing a platform for local people to query and challenge public fiscal spending as well as bridging key knowledge gaps.^[3]