The use of management accounting information to support contracting out decision making in the public sector

Although notions of efficiency and effectiveness with regards to government operations are not new, there has been a fundamental shift in the manner in which services are provided. One objective of government is to provide services at least cost, whilst maintaining or improving service quality. This may be the main goal, but questions are now being asked whether the service ought to be provided directly by the government or by the private sector. The shift of services from the public to the private sector is known as outsourcing or competitive tendering and contracting out (CTC). The objective of this study is to investigate if and how accounting information is used by public sector managers in a major cultural institution to decide whether a service ought to be contracted out. The contracting out of security services for the State Library and Museum of Victoria is used as a case study of contracting out. An avoidable‐cost approach was used to determine the level of estimated savings from contracting out and these were verified by external accountants. There were diffeences of opinion among management staff as to the reason for contracting out security services. Some believed it was dollar driven, others believed that qualtiy and image were the underlying reasons. Nevertheless, the accounting system did drive, in part, the decision to investigate the possibility of contracting out security.