Harnessing Emerging Technologies for Financial Integrity: A Path to Inclusive and Accountable Public Enterprise Governance

Effective governance in public enterprises hinges on the principles of financial integrity, which is critical for fostering inclusivity and accountability. Financial integrity involves adherence to ethical financial practices, transparency, and accurate reporting, which are crucial for the smooth and equitable functioning of public enterprises that serve the collective interests of society.

A public enterprise for the purposes of this article refers to any public-facing entity including the various levels of government, nonprofits and PLCs.

Why Financial Integrity Matters

Building Public Trust: Transparency in financial operations helps build trust between public enterprises and the communities they serve. When financial records are clear and accessible, it reassures the public that their resources are managed responsibly and ethically.
Preventing Misuse of Resources: Financial integrity serves as a bulwark against corruption and mismanagement. By implementing strong financial controls and conducting regular audits, public enterprises can prevent the diversion of funds and ensure that resources are used for their intended purposes.
Promoting Inclusivity: Inclusive governance is achieved when resources are allocated fairly, without favouritism or bias. Financial integrity ensures that budgetary decisions are made based on transparent criteria, promoting equitable access to services and opportunities for all segments of society.
Enhancing Accountability: Accurate financial reporting and effective auditing mechanisms hold public enterprises accountable for their financial decisions. This accountability ensures that public funds are utilised efficiently, achieving desired outcomes and providing value for money.

Current Challenges

Despite its importance, achieving financial integrity in public enterprises can be challenging.
For instance, Integrated Financial Management Information Systems (IFMIS) offer numerous advantages in enhancing financial management, transparency, and efficiency in the public sector. However, several gaps and challenges can hinder their effectiveness and full potential.

Limited Capture of Beneficial Ownership Information: Traceable beneficial owner information when cross-matched with other public/historical information can be used to signal potential transparency issues, like conflict of interests and other risks.
Limited Public Engagement: Encouraging public involvement in monitoring and reporting financial activities, which enhances transparency and accountability.
Inflexible Use-cases: Most traditional IFMIS platforms are primarily concerned with financial management processes such as procurement, payments, and budgeting. They may not inherently support emerging use-cases such as Voluntary Carbon Markets which also effectively hinge on the principles of financial integrity.

Solution: A Federated Financial Transparency & Integrity (FFTI) Framework

In an era where technological advancements are reshaping every sector, public enterprises have a unique opportunity to leverage emerging technologies through a well structured suite of services to enhance financial integrity and governance.

At the core of the FFTI framework is a quasi-entity known as a Public Branch (PB). The PB is controlled fully by the parent legal entity and capture the entity's beneficial ownership information. For each country, PBs operate within a federated Node as would the parent legal entities within the country. Economic zones may be treated as parent node and federation restrictions set as appropriate.

Each PB has a multi-account wallet from where they can receive/make payments (Inter-PB only), receive/issue credit (Inter-PB only) as applicable and make Public Gains (PG) payments to the parent legal entity, this is basically the gains made from supply of goods and services to a public enterprise either directly or indirectly. The parent may load float into a PB account, which is in effect the equivalent of lending the PB a zero-rated loan which ought to be offset first when making a PG payment leaving the taxable gains.

The FFTI framework also incorporates a public feedback space associated with each PB. This ensures that public enterprises involve the public in monitoring and feedback processes to ensure that public-facing financial practices align with public interests.

At a high level, the framework leverages on emerging technologies such as blockchain, artificial intelligence (AI), and data analytics to offer transformative potential for public enterprises. From automated lifestyle audits for public officials to financial integrity scoring for the public enterprises and suppliers alike.

Conclusion

Financial integrity is a cornerstone of inclusive and accountable governance in public enterprises. By adhering to high standards of financial integrity, public enterprises can foster trust, prevent corruption, ensure fair resource distribution, and enhance overall accountability. This not only strengthens governance but also ensures that public enterprises effectively serve their communities and contribute to societal well-being.

Harnessing emerging technologies for financial integrity represents a significant step forward in the evolution of public enterprise governance.