Principal Accounting Officer Issues & Challenges

Preamble

The issues and challenges surrounding Principal Accounting Officers (PAOs) in Pakistan center on the authoritative financial autonomy, paradox of delegation, economic efficiency, and the absence of “skin in the game.” The centralized role of PAOs, typically held by senior-most secretaries, hampers decision-making efficiency. Despite attempts at delegation, clauses in the Financial Management and Powers of Principal Accounting Officers Regulations 2021 create a paradox by reverting crucial information back to the Secretary, questioning the effectiveness of the delegated authority.

Economic efficiency concerns arise due to the lack of specialization in the multifaceted role of the Principal Accounting Officer. A specialized officer is proposed to navigate the complexities of Pakistan’s financial landscape, fostering economic competitiveness. The absence of personal responsibility and accountability in the current PAO structure diminishes effective financial management, urging a reevaluation of the role to align decisions with institutional interests.

The concept of “skin in the game” is emphasized, highlighting the need for personal commitment and accountability in financial decisions. The current centralized PAO structure leads to delays and opportunity costs, hindering swift resolutions and jeopardizing ministry effectiveness. A balanced and efficient delegation structure is advocated for addressing these challenges and ensuring proficient financial management.

Principal Accounting Officer

Principal Accounting Officer means the primary officer or the authorized agent of the Company responsible for the preparation and certification of financial statements. However, this definition of for private sector and in state structure, Principal Accounting Officer is head of financial management, responsible for all financial matters relating to all offices under his administrative control and he shall be custodian and operator of the financial resources. Apart from Defence Services, all Federal & Provincial Government ministries, divisions, attached departments and subordinate offices. Most of the time, as per practice, the Federal or Provincial Secretary of the concerned Ministry or the department is the Principal Accounting Officer. If someone else is going to take on this role, the secretary in charge needs to give clear reasons and explanations about the administrative and procedural aspects of the decision.

The Principal Accounting Officer is responsible for financial proprietary including compliance with laws and ensuring value for money. Moreover, the Principal Accounting officer shall also be responsible for effective, efficient, economical, and transparent use of funds, budget, assets and human resources available.

Financial Management and Powers of Principal Accounting Officers Regulations 2021 defines Principal Accounting Officer in clause 3 as:

The principal accounting officer shall be responsible for all financial matters relating to all offices under his administrative control and he shall be custodian and operator of the financial resources.

The secretary of the ministry/division is a principal accounting officer by default. But clause 5 of PAO regulations 2021 allows prime minister to designate the PAO to any departmental head.

The Prime Minister shall have the authority to designate any officer as principal accounting officer, on the recommendation of the administrative Secretary of the Division concerned and Finance Division. While recommending an officer as principal accounting officer, the Secretary of the Division concerned shall provide administrative, procedural, and other justifications and cogent reasons thereof. The Finance Division shall process the case and shall notify it in the official Gazette with the prior approval of the Prime Minister.

In practice, the power of PAO is centralized, and secretaries of ministries/divisions practice these financial power and autonomy. There are approximately Sixty-Seven PAOs in Federal Secretariat, Attached/ Subordinate Offices, Civil Armed Forces and Constitutional Bodies of federal government of Pakistan (Annexure – A). Surprisingly, sixty-seven Principal Accounting Officers (PAOs) were tasked with overseeing an enormous budget of 10 trillion PKR. This enormous amount, representative of the country’s financial scale, raises questions regarding the concentration of control in the hands of a relatively small group of people, particularly since many of these PAOs are not naturally experts in the complex fields of finance and economics. This situation highlights the possible dangers of giving someone with a vast financial portfolio who may be primarily knowledgeable in administrative or policy matters. The magnitude of the budget, combined with the diversity and complexity of financial functions, underscores the pressing need for a nuanced approach to financial governance—one that ensures not only the effective utilization of funds but also the application of specialized financial knowledge in safeguarding the economic well-being of the nation.

Source: Financial Allocation Budgeting System – year 2021

The Principal Accounting Officer (PAO) plays a crucial role in the proper management of public finances, even under Pakistan’s complex administrative system. Essential to the framework of financial governance, the PAO is a pivotal role held responsible for the careful monitoring of monies allotted for different government activities. When it comes to Pakistan, the PAO usually takes on the role of the ministry’s secretary, carrying the heavy burden of ensuring the country’s financial integrity in addition to creating policy. The PAO’s function as the guardian of public finances is essential to guaranteeing accountability, openness, and prudent resource use in the interest of national progress. But when these responsibilities are combined more often, concerns surface about how practical and effective it is for a senior government official to also be responsible for financial management. This investigation explores the complex role of the Principal Accounting Officer in Pakistan, examining its benefits and drawbacks in relation to the larger picture of efficient public financial administration.

The role of the PAO is typically held by the Secretary of the Ministry or the Director General of the institute. In this capacity, they handle fund disbursement, approvals, and serve as a watchdog for the same activities. This arrangement adds complexity and may seem absurd. However, in rare instances where a junior officer within the same office assumes the PAO role, they do not function as the head or boss of the institute or ministry.

Encompassing a formidable array of responsibilities, the Principal Accounting Officer (PAO) in Pakistan is mandated to execute no fewer than 21 distinct functions, as delineated by the Financial Management and Powers of Principal Accounting Officers Regulations 2021 clause 7.

The Principal Accounting Officer is responsible for financial proprietary including compliance with laws and ensuring value for money. Moreover, the Principal Accounting officer shall also be responsible for effective, efficient, economical, and transparent use of funds, budget, assets, and human resources available. Apart from these major responsibilities, Principal Accounting Officer has 21 key duties & tasks as per Finance Division. If the Secretary of the Ministry is holding this position, then it raises a big question how concerned the officer is giving adequate time and attention along with other official responsibilities.

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