Financial sustainability of public sector entities: the relevance of accounting frameworks josette c
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Towards Integrated Reporting : Accounting Change in the Public Sector 1st Edition Epameinondas Katsikas
Athens University of Economics and Business Athens, Greece
Eugenio Caperchione University of Modena and Reggio Emilia Modena, Italy
Isabel Brusca University of Zaragoza Zaragoza, Spain
Francesca Manes Rossi University of Salerno Fisciano, Italy
This series brings together cutting edge research in public administration on the new budgeting and accounting methodologies and their impact across the public sector, from central and local government to public health care and education. It considers the need for better quality accounting information for decision-making, planning and control in the public sector; the development of the IPSAS (International Public Sector Accounting Standards) and the EPSAS (European Public Sector Accounting Standards), including their merits and role in accounting harmonisation; accounting information’s role in governments’ financial sustainability and crisis confrontation; the contribution of sophisticated ICT systems to public sector financial, cost and management accounting deployment; and the relationship between robust accounting information and performance measurement. New trends in public sector reporting and auditing are covered as well. The series fills a significant gap in the market in which works on public sector accounting and financial management are sparse, while research in the area is experiencing unprecedented growth.
More information about this series at http://www.palgrave.com/gp/series/15782
Josette Caruana • Isabel Brusca
Eugenio Caperchione
Sandra Cohen • Francesca Manes Rossi Editors
Financial Sustainability of Public Sector
Entities
The Relevance of Accounting Frameworks
Editors
Josette Caruana
Department of Accountancy
University of Malta Msida, Malta
Eugenio Caperchione
Department of Economics “Marco Biagi”
University of Modena and Reggio Emilia Modena, Italy
Francesca Manes Rossi
Department of Management and Innovation Systems
University of Salerno Fisciano, Italy
Isabel Brusca Department of Accounting and Finance University of Zaragoza Zaragoza, Spain
Sandra Cohen Department of Business Administration
Athens University of Economics and Business Athens, Greece
Public Sector Financial Management
ISBN 978-3-030-06036-7 ISBN 978-3-030-06037-4 (eBook)
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Preface
The theme of this book centres around the role of public sector accounting frameworks in the endeavour to make public sector entities financially sustainable. The overall objective of the book is to analyse the role of public sector accounting in the provision of information that would assist financially sustainable policy making, with a focus on the relevance of accounting frameworks in this process.
In this book, the term accounting frameworks is taken to encompass budgeting, management accounting, financial reporting, and other reporting requirements, for example, Governmental Financial Statistics. Besides analysing the suitability of current accounting frameworks for financial sustainability of public sector entities, the book also delves into emerging forms of reporting, for example, popular reporting and integrated reporting, which may also be considered by policy makers, standard setters, and managers of public sector entities as tools suitable to make citizens aware of the financial condition of a local government.
Financial sustainability in public administrations is an emerging area of research. Prior literature has attempted to explain how financial sustainability of public sector entities is assessed; to identify possible causes of financial distress; and to analyse the implementation of financial sustainability initiatives by governments. The usefulness of government financial statements for reporting on the financial sustainability of public sector entities is appreciated, but the literature does not elaborate on how governmental accounting, seen through a broad lens, can contribute towards this objective. In other words, the current literature lacks focus on the role of accounting frameworks in the endeavour to make public sector entities
financially sustainable. The underlying aim of the various chapters in this book is to contribute towards this gap in the literature.
Financial sustainability of a public sector entity embraces its ability to manage its financial capacity in the short- and long-term while maintaining the level of services. It requires the implementation of policies that ensure feasible provision of public services to the present generation, while protecting the needs of future ones, thus ensuring intergenerational equity. The evaluation of public value should take into consideration the long-term financial sustainability of political programmes and policies. Given that such information involves statistical and economic computations that do not normally fall in the domain of accountants, one could question how information from public sector accounting may support governments to achieve financial sustainability and more sustainable outcomes.
The book chapters refer to various national cases to touch upon the issue of sustainability based on different financial reporting accounting frameworks, including International Public Sector Accounting Standards (IPSAS) and the American Government Accounting Standards Board Statements (GASB statements). The main focus is on the European context due to the recent budgetary reforms aiming for financial sustainability, together with the interest being shown in IPSAS, which are based on International Financial Reporting Standards (IFRS), in the process of formulating specific European financial reporting standards for member states, namely, European Public Sector Accounting Standards (EPSAS). But IPSAS and accrual accounting are a worldwide phenomenon, as are Government Finance Statistics and the underlying System of National Accounts (SNA) framework.
The book is structured as follows.
The first chapter is prepared by Josette Caruana from the University of Malta, Isabel Brusca from the University of Zaragoza, Eugenio Caperchione from the University of Modena and Reggio Emilia, Sandra Cohen from the Athens University of Economics and Business, and Francesca Manes Rossi from the University of Salerno. The chapter starts by referring to the concept of accounting frameworks in order to define the scope of the book. After looking at the various definitions of financial sustainability, the authors elaborate how accounting frameworks may contribute to financial sustainability of public sector entities by expounding on the works contributed in the other chapters in this book. The objective is to provide a holistic approach of the contribution of public sector accounting towards
financial sustainability. For this reason, the notion of accounting frameworks in this book encapsulates financial reporting mainly through the lens of IPSAS, budgeting, management and cost accounting, national statistics, and financial and non-financial reporting with emphasis on integrated reporting and popular reporting. The fact that the different accounting frameworks are interrelated and intertwined in the pursuit of financial sustainability is clearly evidenced by the fact that the book chapters touch upon more than one facet of accounting frameworks when they discuss sustainability issues from a given standpoint.
Giovanna Dabbicco, from the Italian national statistics institution, focuses on users’ needs relating to information on financial sustainability of public sector entities.
Vicente Montesinos and Rosa Mª Dasí from the University of Valencia, together with Isabel Brusca from the University of Zaragoza, examine how information from governmental reporting systems (i.e., financial, budgetary, and government statistics) can be combined to spur financial sustainability.
Enrico Guarini, from the University of Milano-Bicocca, and Anna Francesca Pattaro, from the University of Modena and Reggio Emilia, explain the effect of budgetary rules on the financial sustainability of public sector entities in a multi-level government context.
André C. B. Aquino, from the University of São Paulo, and Ricardo Lopes Cardoso, from the Fundação Getulio Vargas and the Rio de Janeiro State University, take us to Brazil, where they analyse the reforms in government pension schemes and the relative reporting, showing how financial sustainability is viewed from a short-term and long-term lens, depending on the tensions experienced by various stakeholders in different contexts.
Cristian Carini and Claudio Teodori, from the University of Brescia, look at the role of consolidated financial statements in the assessment of financial sustainability of local governments.
Marco Bisogno, from the University of Salerno, and Beatriz CuadradoBallesteros, from the University of Salamanca, take the view that government effectiveness is an important component of financial sustainability, and then carry out a statistical analysis of data from 33 OECD countries to establish relationships of accrual accounting and IPSAS with the effectiveness of public sector entities.
Zachary Mohr, from the University of North Carolina, focuses on the role of cost accounting to inform decisions that present financial sustainability challenges. He presents a systems-practice framework that opens
the door for more discussion on how cost accounting can lead to financial sustainability in public sector entities.
Guido Modugno, from the University of Trieste, and Ferdinando Di Carlo, from the University of Basilicata, look at the particular context of higher education institutions and the complexities that this creates both to the meaning of financial sustainability and to its assessment.
Natalia Aversano, from the University of Basilicata; Paolo Tartaglia Polcini, from the University of Salerno; and Giuseppe Sannino and Francesco Agliata, from the University of Campania L. Vanvitelli, present a prototype integrated popular report: one that is designed to promote the participation of citizens in financial sustainability decisions relating to their locality.
All the chapters in this book add to current knowledge in the emerging research area on financial sustainability in public administration. The contents can potentially interest academics, researchers, policy makers, public managers, international organisations, and standard setters who are involved in, or are responsible for, the financial sustainability of public administrations.
1 Exploring the Relevance of Accounting Frameworks in the Pursuit of Financial Sustainability of Public Sector Entities: A Holistic Approach 1 Josette Caruana, Isabel Brusca, Eugenio Caperchione, Sandra Cohen, and Francesca Manes Rossi
2 The Potential Role of Public Sector Accounting Frameworks Towards Financial Sustainability Reporting 19 Giovanna Dabbicco
3 A Framework for Comparing Financial Sustainability in EU Countries: National Accounts, Governmental Accounting and the Challenge of Harmonization 41 Vicente Montesinos, Rosa Mª Dasí, and Isabel Brusca
4 The Role of Budgetary Rules in Multi-Level Governments 63 Enrico Guarini and Anna Francesca Pattaro
5 Accounting Framework (Re)Interpretation to Accommodate Tensions from Financial Sustainability Competing Concepts 83
André C. B. Aquino and Ricardo Lopes Cardoso
6 Making Financial Sustainability Measurement More Relevant: An Analysis of Consolidated Financial Statements 103
Cristian Carini and Claudio Teodori
7 The Role of Public Sector Accounting on Financial Sustainability and Governmental Ef fectiveness 123
Marco Bisogno and Beatriz Cuadrado-Ballesteros
8 Cost Accounting Systems and Practices in Public Organizations: A Framework for Understanding Costing Evolution and Connections to Sustainability Strategies 145
Zachar y Mohr
9 Financial Sustainability of Higher Education Institutions: A Challenge for the Accounting System 165
Guido Modugno and Ferdinando Di Carlo
10 Integrated Popular Reporting as a Tool for Citizen Involvement in Financial Sustainability Decisions 185
Natalia Aversano, Paolo Tartaglia Polcini, Giuseppe Sannino, and Francesco Agliata
notes on contributors
Francesco Agliata is Assistant Professor of Accounting and Financial Reporting at the University of Campania Luigi Vanvitelli where he teaches financial accounting and managerial control. He holds a PhD in International Financial Accounting from the University of Naples “Federico II”. His primary research areas include financial reporting, earnings management, corporate social responsibility, and performance management.
André C. B. Aquino is Professor of Public Sector Accounting at the School of Economics, Business Administration and Accounting at Ribeirão Preto—University of São Paulo, and Visiting Scholar at University of Birmingham, UK. He is also an associate researcher at the Institute of Advanced Studies of University of São Paulo, as principal investigator and chair of the research group “Financial Resilience of Contemporary Cities”. His research interests are on public financial management reforms and associated effects.
Natalia Aversano is Assistant Professor of Accounting at the University of Basilicata and she holds a PhD in Public Sector Accounting. She teaches accounting and management accounting for profit and non-profit organisations. Her publications mainly concern International Public Sector Accounting Standards (IPSAS), harmonisation of government financial information systems, heritage assets, performance measurement, intellectual capital, and accounting education.
Marco Bisogno is Associate Professor of Accounting in the Department of Management and Innovation Systems at the University of Salerno. He holds a PhD from the University of Naples “Federico II”. His current research interest is public sector accounting. He focuses on international harmonisation, disclosure, transparency and accountability, financial sustainability and financial distress, consolidated financial statements, and intellectual capital. He has attended many international conferences in accounting and public sector. He is a member of the editorial board of several international journals.
Isabel Brusca is Professor of Accounting in the Department of Accounting and Finance at the University of Zaragoza. Her research and professional interest is focused on public sector accounting and management. She has participated in numerous research projects in this field and is the author of several books and papers in prestigious journals, such as International Review of Administrative Sciences and Local Government Studies. She has been consultant of the Committee on Local and Regional Democracy (CDLR) of the Council of Europe. She has participated in the study designing the basic guidelines for the reform of the budgetary and accounting system of the European Commission. She is the vice president of the Spanish Association of University Professors of Accounting and co-chair of the XII Permanent Study Group of EGPA (European Group of Public Administration).
Eugenio Caperchione is Professor of Public Sector Accounting at the University of Modena and Reggio Emilia. His main research area is public sector accounting, and he privileges the comparative approach. He has published extensively on this subject, and is intensively involved in the work of the CIGAR network (Comparative International Governmental Accounting Research—http://www.cigar-network.net), where he is serving as the Chairman of the Board; and of EGPA, co-chairing the XII Permanent Study Group, Public Sector Financial Management. He has been an invited speaker and has presented papers in a number of international conferences and workshops.
Ricardo Lopes Cardoso is Senior Adjunct Professor of Accounting at the Brazilian School of Public and Business Administration FGV-EBAPE and an associate professor at the Faculty of Administration and Finance of the State University of Rio de Janeiro (FAF/UERJ). He holds a PhD in Accounting from the University of Sao Paolo (2005), a Master in Accounting from the FAF/UERJ (2001), and a Bachelor degree in
Accounting (1998) and Law (1998). His research interests are focused on behavioural accounting, regulation, quality of accounting information in the public and corporate sectors, Government Audit, Data Analytics, and Continuous Auditing. He is author/co-author of scientific papers published in relevant academic journals such as Accounting, Auditing & Accountability Journal, Frontiers in Psychology, PLOS One, Revista de Administração Pública RAP, Brazilian Business Review BBR, Advances in Scientific and Applied Accounting ASAA, Brazilian Administration Review BAR, Revista Contabilidade & Finanças RCF, among others; and books and book chapters published by Emerald Publishing, Atlas-Gen, Elsevier-Campus, Editora FGV.
Cristian Carini holds a PhD in Accounting and is Assistant Professor of International Accounting at the University of Brescia. Carini’s research focuses on international accounting and public sector accounting. He takes part in a national academic Italian research group on consolidated reporting in the public sector and is the author of publications on the public sector consolidated financial statement.
Josette Caruana is a certified public accountant and a senior lecturer at the Department of Accountancy of the University of Malta. Her area of research interest is public sector accounting, in particular, government accounting (to include financial reporting, auditing and budgeting at both central and local levels) and national accounting. She is a member of the CIGAR network board.
Sandra Cohen is Associate Professor of Accounting in the Department of Business Administration at the Athens University of Economics and Business. Her research interests lie in the fields of public sector accounting (accrual accounting adoption, accounting harmonisation), management accounting, and intellectual capital. Her research work has been published in several ranked journals, such as Accounting, Auditing and Accountability Journal and Financial Accountability and Management, and has been presented in numerous international conferences. She is a member of the Greek National Accounting Standards Setter and co-chair of the XII Permanent Study Group of EGPA. She is a co-author of four books in Greek and either author or co-author of numerous chapters in international books. She has participated in several consulting projects for both the private sector and the public sector mainly related to cost accounting and she has been a member of the research team in several European Commission (EC)-funded projects.
Beatriz Cuadrado-Ballesteros is Assistant Professor of Accounting in the Department of Management and Business Economics & Multidisciplinary Institute for Enterprise at the University of Salamanca, from where she received her PhD in Business. Her research interests are public administration and public sector reforms. In particular, she focuses on the role of efficiency and informative transparency, accountability, financial distress, and accounting systems. Her work has been published in such journals as the International Public Management Journal, Social Indicators Research, International Review of Administrative Sciences, and Government Information Quarterly. She has attended several international conferences in accounting and public sector, and was a visiting researcher at the Edinburgh University Business School, the Coimbra Business School, and the University of Salerno.
Giovanna Dabbicco is a researcher at the National Accounts Department, ISTAT, Rome. During 2018, she held a term contract as an adjunct assistant professor at the Department of Business Studies, Roma Tre University, Rome, Italy.
Rosa Mª Dasí is Associate Professor of Accounting and Finance in the Department of Accounting at the University of Valencia (UV), Spain. She is Head of the Department of Accounting in the Faculty of Economics at the UV. She is a regular consultant for public administrations and is actively involved in projects especially connected with modernization of public administration, governmental accounting reforms and governmental accounting diversity in the European Union.
Ferdinando Di Carlo is Associate Professor of Financial Accounting at the University of Basilicata, where he also teaches international accounting. He is the rector delegate for financial issues.
Enrico Guarini is Associate Professor of Business Administration and Management at the Department of Business and Law, University of Milano-Bicocca, Italy. His research interests include public budgeting and financial management, public management, and governance. He serves as co-chair of the Special Interest Group on Local Governance at the International Research Society for Public Management (IRSPM).
Francesca Manes Rossi is Associate Professor of Accounting at University of Salerno, where she teaches and conducts research on accounting and auditing. She has also trained government officials in Italy and has been
active in providing consulting services to public sector entities. Her research interests regard performance measurement in local government and cultural organizations, intellectual capital, sustainability and integrated reporting, auditing and accounting standards in both the private and public sectors. She has participated in the study designing the basic guidelines for the reform of the budgetary and accounting system of the European Commission. She has developed special skills in the field of International Financial Reporting Standards (IFRS) and IPSASs and is cochair of the XII Permanent Study Group of the European Group for Public Administration (EGPA).
Guido Modugno is Associate Professor of Public Institutions’ Financial Management at the University of Trieste.
Zachary Mohr is Assistant Professor of Political Science and Public Administration at the University of North Carolina at Charlotte. He recently edited a book on cost accounting in government entitled Cost Accounting in Government: Theory and Applications. His cost accounting work has also appeared in academic journals such as Public Budgeting and Finance, Public Administration Review, and Public Performance Management Review.
Vicente Montesinos is Professor of Accounting at the University of Valencia. His research and professional interests are focused on public administration management and audit. He has been the director of a project to reform the accounting system of the European Commission. At present, he is President of the Public Sector Committee of the Spanish Association of Business Administration and Accounting. He is the author of several books and articles in journals such as Public Money and Management and Critical Perspectives on Accounting
Anna Francesca Pattaro is Associate Professor of Business Administration and Management at the Department of Communication and Economics, University of Modena and Reggio Emilia, Italy. Her research interests include public management and governance, public financial management, transparency, and e-governance. She has been Marie Curie Research Fellow at Uppsala University, Sweden and a visiting scholar at Katholieke Universiteit, Leuven, Belgium.
Giuseppe Sannino is Full Professor of Accounting and Financial Reporting at the University of Campania Luigi Vanvitelli, where he teaches
financial accounting, managerial control and mergers, and acquisitions. He holds a PhD in International Financial Accounting from the University of Naples “Federico II”. His primary research areas include financial reporting, disclosure, earnings management, corporate governance, public sector accounting, and performance management.
Paolo Tartaglia Polcini is Full Professor of Accounting at the University of Salerno, where he teaches accounting and management accounting. His research interests are performance measurement in universities, fair value, business combinations, intellectual capital, and international accounting standards in both the private and public sectors.
Claudio Teodori is Full Professor of Accounting at the University of Brescia, Italy, where he serves as Member of the Board of Directors. Teodori’s research focuses on public accounting and financial accounting. He coordinates an Italian academic research group on consolidated reporting in the public sector.
Fig. 6.1 The change in financial sustainability for each local government
Fig. 7.1 Distribution of governmental effectiveness indicators by country
Fig. 7.2 Evolution of governmental effectiveness indicators
Fig. 8.1 Model of cost accounting cycle in public organizations
List of tabLes
Table 2.1 Academic literature on general user needs of PSA
Table 3.1 Sustainability indicators and differences between working balance and net lending/borrowing
Table 4.1 Budgetary rules in local and regional governments
Table 5.1 Approaches to the paradox during the AF implementation
Table 10.1 Financial health template to assess a city’s financial health
Table 10.2 Prototype integrated popular report
Table A.1 Submitted Comment Letters to IPSASB Consultation papers and Exposure Draft on FSR, retrieved on line on www.ifac. org (comment letters referred to in the chapter are shaded)
Table A.2
Table A.3
Table A.7
Table A.8
Table A.9
CHAPTER 1
Exploring the Relevance of Accounting Frameworks in the Pursuit of Financial Sustainability of Public Sector Entities: A Holistic Approach
J. Caruana et al. (eds.), Financial Sustainability of Public Sector Entities, Public Sector Financial Management, https://doi.org/10.1007/978-3-030-06037-4_1
1 IntroductIon
Financial sustainability in public administrations is an emerging area of research. Prior literature has focused on the possible causal factors of financial distress (Groves and Valente 2003; Kleine et al. 2003; Carmeli 2007; Jones and Walker 2007; Zafra Gómez et al. 2009; Padovani and Scorsone 2011; Cohen et al. 2012), and discussed the need to create favourable conditions to improve financial sustainability (Torres and Pina 2001; Adams et al. 2014; Ball et al. 2014; Drew and Dollery 2014; McKinney 2015). There is an emerging body of literature on the determinants of financial sustainability and the implementation of financial sustainability initiatives by governments (Brusca et al. 2015; Navarro-Galera et al. 2016; Rodríguez Bolívar et al. 2014, 2016). While international organizations (European Commission [EC] 2013; International Public Sector Accounting Standards Board [IPSASB] 2013) and prior literature (Navarro-Galera et al. 2016; Rodríguez Bolívar et al. 2016) appreciate the usefulness of government financial statements for reporting on the financial sustainability of public sector entities, there is no elaboration on how governmental accounting can contribute towards this objective. In other words, the current literature lacks focus on the role of accounting frameworks in the endeavour to make public sector entities financially sustainable.
Financial sustainability of a public sector entity embraces its ability to manage its financial capacity in the short and long term while maintaining the level of services. It requires the implementation of policies that ensure feasible provision of public services to the present generation, while protecting the needs of future ones, thus ensuring intergenerational equity (IPSASB 2013). The evaluation of public value should take into consideration the long-term financial sustainability of political programmes and policies. Liguori et al. (2012) highlighted the limitations of generalpurpose financial statements aimed at satisfying these information needs. From this perspective, Antonio and Hay (1990) identified important disclosures regarding present or expected events that would impact future
F. Manes Rossi
Department of Management and Innovation Systems, University of Salerno, Fisciano, Italy
e-mail: fmanesrossi@unisa.it J.
expenditures and revenues to include information on long-term debts, pension obligations and other employee benefits. Given that such information involves statistical and economical computations that do not normally fall in the domain of accountants, one could question how information from public sector accounting may support a financial sustainability framework for governments to achieve more sustainable outcomes.
In the next section, we present a broad view of what accounting frameworks are, since we intend to provide a holistic approach of the contribution of public sector accounting towards financial sustainability. However, it is still necessary to refer to extant conceptual frameworks for financial reporting in order to start exploring the usefulness of accounting frameworks as a reference for useful information to support financial sustainability, which is the objective of this chapter.
The need for financial sustainability in public administrations has been brought in the limelight by the financial and economic crisis (Rodríguez Bolívar 2017). The reaction of the European Union (EU) included a demand for better governmental accounting systems that would provide more reliable data that would ensure better monitoring of EU member states performance and financial condition.
2
AccountIng FrAmeworks
Accounting frameworks are not just conceptual frameworks designed by standard setters and the ensuing financial reporting standards. Accounting frameworks also refer to the underlying legislation of the jurisdiction in which the conceptual frameworks and financial reporting standards are made applicable, which legislation would ideally aim to consolidate good governance and oversight structures. In this sense, accounting frameworks would support accounting in a broader sense. They are not there only for financial reporting but also to enable management accounting and financial management, including budgeting and performance management, and also national accounts and other reporting practices that deviate from the traditional financial statements. Thus, the scope of accounting frameworks is wide enough to include financial reporting, budgetary systems, national accounts, management accounting and performance reporting systems.
J. CARUANA
Starting our discussion with financial reporting, we refer to Dennis (2018), who, in his exploration of what constitutes a conceptual framework for financial reporting in the private sector, reminds us that a conceptual framework is basically a legitimating tool for standard setters since they have no legal authority to impose their rules. The issuance of a conceptual framework would induce preparers to follow the rules in the standards that they promulgate. As a result, standard setters aim that financial reports would present information that satisfies the objectives of preparing such reports, while the preparers may tend to forget the objectives, because their main concern is to follow the rules issued by the standard setters. Having said this, Dennis (2018) points out that the starting point of designing a conceptual framework is to determine what is wanted from financial reporting, that is, what are the objectives. If different people want different things, then more than one conceptual framework can be envisaged, each starting from a different objective. This would undermine the whole purpose of standard setting, and experts working on conceptual frameworks have adopted different strategies to try and avoid the consequences of this difficulty. As a result, in spite of the years of debate surrounding financial reporting conceptual frameworks, there is still an impression of ‘unfinished business’ (Dennis 2018, p. 27).
Since the focus is on financial sustainability of public sector entities, reference is made to the IPSASB’s conceptual framework for public sector entities, which was finalized in October 2014. It is broadly based on the International Accounting Standards Board (IASB)’s conceptual framework designed for private sector entities, but takes into consideration public sector characteristics. The principles developed in the IPSASB conceptual framework provide guidance for the development of International Public Sector Accounting Standards (IPSAS) and the preparation of General Purpose Financial Reports (GPFRs), which include, but are not limited to, IPSAS financial statements (IPSASB 2014 ). The principles should assist public sector entities to prepare, for example, reports on long-term sustainability of their finances. These reports would require broader forward-looking information compared to traditional financial reports and would extend beyond the one-year time horizon. To this effect, the IPSASB extended its framework to include a Recommended Practice Guideline for Reporting on the Long-Term Sustainability of an entity’s finances, namely, RPG 1 (IPSASB 2013). Here, the IPSASB took the view that, provided an entity gives appropriate attention to three dimensions of long-term fiscal
sustainability (i.e., service, revenue and debt), users will be given adequate information about whether an entity can maintain existing service levels, meet obligations to the current and future beneficiaries of entitlement programmes and meet financial obligations without increasing revenue from taxation and other sources or increasing borrowing (IPSASB 2013).
But it is not only the financial reporting accounting framework that is relevant to financial sustainability. The framework of budgetary systems is important as well. It includes the rules and principles applicable for elaborating the budget and managing the use of resources. There are important differences among countries in relation to budgeting systems, mainly stemming from national legislation. In most cases, however, budgetary principles include some requirements that aim to prevent financial problems and to achieve financial sustainability at different levels of government. Interventions of the EU during the recent financial crisis on budgeting rules worked towards this aim, as budgeting is a tool for controlling and monitoring the use of public sector resources and it can help governments to achieve financial sustainability in the short and in the long run.
Given the European orientation of the chapters in this book, one cannot fail to mention another reporting framework that is considered fundamental for measuring and assessing the financial performance and financial position of EU member states. This is the European System of National and Regional Accounts (ESA 2010), which is the conceptual framework underlying the preparation of National Accounts from which Government Finance Statistics are calculated. In Chap. 3, Montesinos et al. remind us that the ESA 2010 is a legal requirement for EU member states, and that it is most important for assessing, controlling and comparing the financial sustainability of EU member states in order to maintain the single currency, that is, the Euro. Similarly, non-European jurisdictions report financial statistics information based on the International Monetary Fund (IMF)’s Government Finance Statistics Manual (GFSM) 2014 framework, which are just as relevant for assessing financial sustainability. Both the ESA 2010 and the GFSM 2014 are based on a common international framework issued by the United Nations, that is, the System of National Accounts (SNA) 2008.
Another useful tool that can be used for managing governments and improving financial sustainability in public sector entities is management accounting. Management accounting allows for the identification, measurement and analysis of information about the objectives of the entity and the level of their achievement, including performance measurement
J. CARUANA ET
and cost accounting. The calculation of the cost of services is an inherent dimension in this area; it is related to efficiency and economy estimations and it is therefore strongly linked to financial sustainability.
Finally, the accounting frameworks we touch upon also encapsulate the performance reporting systems that embrace both financial and nonfinancial information relevant for management and accountability. Performance reporting systems include information that can be used as the basis for decision-making related to financial sustainability. New trends in financial and non-financial reporting in the public sector, such as integrated reporting and popular reporting, would be grouped under such an extended umbrella of performance reporting systems.
3 deFInIng FInAncIAl sustAInAbIlIty
The importance for public sector entities to be sustainable is often linked with intergenerational equity, that is, meeting the demands of the current generation while protecting the needs of future ones. On this basis, the IPSASB defines long-term financial sustainability as the ability of an entity to meet service delivery and financial commitments both now and in the future. This ability is demonstrable through three dimensions: service, revenue and debt dimensions. As the chapters in this book shall reveal, the literature is rich with various attempts to define financial sustainability, but an actual definition of what financial sustainability for a public sector entity entails remains elusive and controversial. Some describe the term as a ‘social construct of reality’ (Berger and Luckmann 1966), which varies according to the perspectives of the preparer of information and the user. In Chap. 5, Aquino and Cardoso contend that the concept of financial sustainability is proposed and disseminated by regulation, frameworks and normative material. Furthermore, Lamberton (2005) points out that the process of reporting financial information is subject to manipulation by various vested interests being social, economic and political.
Financial sustainability of a public sector entity may refer to its ability to maintain its financial capacity in the long term (Bowman 2011). The IPSASB’s RPG 1 (2013) recognizes the importance of the debt dimension of long-term sustainability. Biondi (2018) emphasizes the need for the balance sheet’s negative net assets to be accompanied with further information that would help users to assess the entity’s ability to meet its financial commitments as they become due; and also on the entity’s ability to maintain, refinance or increase its levels of debt. The debt financial man-
agement of a public sector entity is substantially different from that of a private entity, due to the role that a government plays in the management of a country’s economy. ‘[P]ublic debt management relates to the use of borrowing to fulfil general interest missions with an overall redistributive purpose, including assurance of welfare obligations and guarantees, as well as to the monetary base management’ (Biondi 2018, p. 1). Users of financial statements may be misled by the representation of material negative net assets in the balance sheet. The negative net asset balance is proof that public debt is used to cover investment and operating expenses over time. In fact, it has never deterred potential investors (both local and foreign) from investing in a government’s structural debt. But the balance sheet falls short of illustrating the redistributive purpose underlying the functioning of government; and it also does not inform users on the specific use of public debt issuance and refinancing. Thus, the entity’s balance sheet and cash flow statements need to be re-designed to better represent the specific working of public finances (Biondi 2018).
The IPSASB’s definition of long-term financial sustainability takes into consideration the revenue dimension, which focuses on the capacity of an entity to change existing taxation levels and/or to tap new revenue sources (IPSASB 2013). In Chap. 4, Guarini and Pattaro remind us that a government’s sovereign power to tax makes its financial sustainability issues substantially different from those pertaining to other public sector entities. As Modugno and Di Carlo point out in Chap. 9, most public sector entities have limited discretion on their revenue, and depend on budget appropriations from the government. Their ability to raise debt may also be constitutionally limited; while they may be required to maintain, if not increase, the quantity and quality of services that they provide given that they are operating in a competitive environment. Assessing the long-term sustainability of such public sector entities on purely financial factors would be ambiguous and misleading.
Having said this, however, it would be obtuse to ignore the fact that the financial sustainability of public sector entities at micro level contributes towards the overall financial sustainability of a government at macro level, as pointed out by Guarini and Pattaro in Chap. 4. According to these authors, financial sustainability entails both consistent budgetary solvency and the maintenance of satisfactory liquidity, by all public sector entities and by all levels of government. This is in line with the EC’s definition of sustainability of public finances, that is, the ability of a government to sustain its current spending, tax and other policies in the long
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run without endangering its solvency or defaulting on liabilities or promised expenditures (EC 2017). Budgetary rules that control the levels of government debts and deficits have been strengthened in order to emphasize the financial sustainability of public finances. However, the budgetary rules at macro level are based on a different framework than that used by accounting systems at micro level. According to Guarini and Pattaro (Chap. 4), this inconsistency is causing uncertainties as to what needs to be measured and aggregated in order to adhere to the budgetary rules, undermining the scope of achieving financially sustainable public finances.
Carini and Teodori (Chap. 6) describe various frameworks that have been developed to measure and assess the level of financial sustainability at local government level. They conclude that while the different approaches utilize various dimensions that are generalizable, for example, sustainability, flexibility, vulnerability and solvency, they tend to use indicators that are particular for the jurisdiction under study. This can also be observed in Aversano et al.’s Chap. 10, where they choose the financial indicators suggested by Padovani et al. (2018) on the assumption that these shall be understood by local citizens, and perhaps even incite them to participate in their locality’s decision-making and thus promote financial sustainability.
At the macro level, the Canadian Institute of Chartered Accountants (CICA 1997) proposed two indicators to measure sustainability, being the debt-to-GDP (gross domestic product) and the deficit-to-GDP. The Government Finance Statistics framework incorporates these two macro indicators, making them the most important measures of financial sustainability in the EU context. However, according to Montesinos et al. (Chap. 3), the EC recognizes that a multi-dimensional approach is required to analyse fiscal sustainability, and has thus developed three composite indicators to assess the fiscal sustainability gap of member states over the short, medium and long term (EC 2016). The composite indicators are based on National Accounts and Government Finance Statistics. The data is based on the ESA 2010 framework, thus ensuring homogeneity.
4 users And objectIves oF FInAncIAl InFormAtIon
The identification of the users of financial information is an issue that has attracted scholars’ interest while discussing the development of accounting frameworks (Mack and Ryan 2007; Liguori et al. 2012).
When referring to the content of the GPFRs, the IPSASB asserts that these reports are intended to meet the information needs of users who are unable to require the preparation of financial reports tailored to meet their specific information needs. Some users may have the authority to request special purpose financial reports, which contain information they need for a particular purpose. The IPSASB contends that the requirements of IPSAS may also be applied effectively and usefully in the preparation of some special purpose financial reports, including long-term financial sustainability reports.
Chapter 2 of the conceptual framework (IPSASB 2014) deals with objectives and users of GPFRs. The IPSASB conceptual framework recognizes the fact that the primary objective of most public sector entities is to deliver services to the public, rather than to make profits and generate a return on equity to investors. Consequently, the conceptual framework recognizes that the performance of such entities can only be partially evaluated by examining their financial position, financial performance and cash flows.
For the purposes of the IPSASB conceptual framework, the primary users of GPFRs are service recipients and their representatives, and resource providers and their representatives. GPFRs provide information to users for accountability and decision-making purposes. The IPSASB recognizes that users of the GPFRs of public sector entities need information to support assessments on matters like, whether the entity provided its services in an efficient and effective manner; the resources available for future expenditures, and the conditions and restrictions of their use; to what extent the burden on future taxpayers to pay for current services has changed; and whether the entity’s ability to provide services has improved or deteriorated.
The GPFRs may include information that enhances, complements and supplements the financial statements, in order to respond to users’ information needs on the above matters, thus widening the scope of a set of financial statements. In fact, besides the core financial statements that provide information about an entity’s financial position, financial performance and cash flows, the IPSASB conceptual framework requires GPFRs to include information about compliance with the budget, service delivery achievements, prospective financial and non-financial information and narrative reports as necessary. However, all the ensuing IPSAS focus on the preparation of the core financial statements, with only one standard describing disclosures of comparison with the budget.
As already stated, the objectives of financial reporting by public sector entities are to provide information about the entity that is useful to users of GPFRs for accountability and decision-making purposes. Therefore, financial reporting is not an end in itself, and the objectives are determined by reference to the users and their information needs. Dabbicco (Chap. 2) depicts this like a ‘chicken and egg situation’. She claims that before attempting to widen the scope of financial statements, it seems more opportune to determine who the actual users are. In this way, their need for information relating to financial sustainability of the public sector entity can be determined. It is very difficult to envisage a set of financial statements that comprehensively covers the needs of all potential users. This problem is exacerbated when the users are not specified.
While one set of financial statements cannot cover the needs of all stakeholders, it may be possible to develop an aggregate information system from which different reports can be extracted for different purposes, as suggested by Montesinos et al. (Chap. 3). In their chapter, Montesinos et al. are referring to the preparation of budgetary, financial and national accounts, which all have different objectives and are targeted for a variety of users. It would be interesting to examine whether such an aggregated system would take into consideration the ‘imminent frictions among financial reporting, budgetary dynamics, and fiscal thresholds’, identified by Aquino and Cardoso (Chap. 5), ‘to accommodate the tensions among different stakeholders in different contexts’.
When it comes to decision-making, Aquino and Cardoso (Chap. 5) point out that, in a public sector context, short-termism dominates the long-term view, as the importance to maintain the current budgetary balance prevails over the need to preserve the sustainability of future payments. Their arguments, based on developments in Brazilian pension schemes, undermine the relevance of any particular form of accounting framework that would promote financial sustainability, as the accounting framework is not the more important factor that would affect decision-making.
Given the limitations of the traditional financial report described earlier, Aversano et al. (Chap. 10) explore developments in governmental reporting that would enhance accountability, transparency and decisionmaking. They discuss integrated and popular reporting, and then recommend the use of the Integrated Popular Report proposed by Cohen and Karatzimas (2015). The focus is on the information needs of citizens,
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“I couldn’t help it,” the boy declared. “He was standing there asleep. I found the old tin can, and I thought what fun it would be to hitch it to his tail. Then I got a string, tied it to the pail, made a loop, and slipped it onto Billy’s tail.”
“It’s a wonder Billy didn’t kick you.”
“He would if anybody else had tried the trick, but I don’t suppose he thought I’d do such a thing. I betrayed Billy’s confidence in me.”
“You won’t do it again, will you, Dick?”
“No. I wouldn’t have done it then if I’d stopped to think how much you would care.”
“Oh, you dear Dick!”
She gave him a loving hug.
“But it was awfully funny!” he cried, his laughter beginning to bubble up within him. “Oh, you should have seen Billy when I let the old thing bang against his heels! Oh, dear! how he did jump! Oh, my! how he did kick! Then he brayed and kicked, and the old pail came banging back against his heels every time. And he rolled his eyes round at it and looked so comical—so comical! Oh, ha! ha! ha! Ha! ha! ha! ha! ha!”
The elfish laughter of the strange lad filled the forest with its merry sound. Convulsed with merriment over the remembrance, Dick lay on the ground and clung to his sides, while Felicia stood near, compelled to laugh despite herself.
“Oh, you’re so happy, Dick!” she said.
Quick as a flash the laughter stopped and the merriment left his face.
“I’m not happy!” he said, sitting up.
“Not happy?” she gasped.
“No, I’m miserable!” he declared.
“Oh, dear!” cried Felicia. “Is it anything I have done?”
“No, no! It’s him!”
“Him?”
“My brother.”
“Frank?”
“Yes.”
“What has he done?”
“I hate him!”
“Did he punish you?”
“I guess not! You don’t think he’d dare? But I hate him!”
“Oh, Dick! you mustn’t forget that he is your brother!”
“I don’t care! What right has he to be my brother? I don’t want a brother! All I want is you, Felicia!”
“Oh, you mustn’t talk that way! It’s wrong!”
“I don’t care if it is! Do you know what he wants to do? Well, he wants to take me away—away from you!”
She gave a little cry and clung to him.
“He wants to put me in an old school. I’m not going to school, for I know enough of that kind of learning now.”
“You’ll have to do what he says.”
“Don’t you think so! He can’t make me do it! He’ll find that he can’t!”
“It was in your papa’s will.”
“That doesn’t make any difference; I won’t do it, just the same.”
“What can you do?”
“I am going to run away!” answered the boy promptly. “I’m going off where he can’t follow, and he’ll never get me—never, never, never!”
CHAPTER XVII.
AWAKENED JEALOUSY.
Little Felicia uttered a cry of horror, her face paling.
“Oh, no, no, Dick!” she exclaimed, getting hold of him with both hands. “You don’t mean that! Why, I’ll never see you again! Oh, Dick! Dick!”
She was filled with fear and distress at the thought, and she clung to him as if afraid that he would start at once.
“Oh, but you will see me again!” he quickly declared. “That is why I am running away. It’s so, after he is gone, I can come back to you.”
“But where will you go? Where can you go?”
“Old Joe knows. I have been with him before. He will take care of me.”
“Old Joe? Then he——”
“Is going with me. You mustn’t tell, Felicia. We are going away this night.”
“Oh, so soon?”
“The sooner the better. I can’t stay here, for I will not let that man be my master.”
“Oh, but you do not have to go so soon! He doesn’t wish to take you away from here yet. You may stay with me a little longer, Dick.”
“No one knows when he may make up his mind to take me away. He wants to carry me away off to the East, and put me into a school, where I know I should die. It is dangerous to wait, Felicia.”
The girl fell to sobbing, and he put his arm about her.
“There, there!” he said, in a soft and soothing voice. “Don’t cry about it, dear cousin—please don’t. I’ll come back to you—I swear it! Before long I will be a man, and then he can’t take me from you. I’ll stay with you always then.”
He soothed her after a little, kissing away the tears.
“But you must promise not to tell a soul about what I am going to do,” he suddenly said. “He must not know it, for he would try to stop me.”
“If he should——”
“He’d better not try it!” panted the boy, his dark eyes flashing. “I am going with Old Joe away into the mountains, and he can never find me. After a while he will get sick of hunting for me, and then he’ll go away. Joe will know when he goes away, and I’ll come back here to you.”
Her face brightened a little.
“Oh, I’m so glad you’ll come back! But do you think it is right?”
“What?”
“Running away.”
“What’s the difference?”
“He is so good, and—and I can’t help—liking him, Dick.”
“That’s the way. Once or twice I’ve almost felt that way, but I won’t let myself. I know what he means to do with me, and I just won’t like him!”
“But perhaps what he means to do would be for your good, Dick. Other boys go to school, and——”
“Some do, and some don’t! Old Joe says those who don’t are better off than those who do.”
“Do you suppose Old Joe knows?”
“Of course he does!” exclaimed the boy confidently. “Old Joe taught me to call the birds and the beasts. He taught me to follow a trail and
to shoot and do many things that no boy ever learns in school. He is a better teacher than all the schoolmasters in the whole world.”
“But some time you may have to do things that Old Joe does not understand, and then——”
“Never, for I’m going to live my whole life away from the big towns. You shall live with me, Felicia, and we’ll be just as happy as—as the birds. Now listen—to-night, when everything is still, I am going. Old Joe will be waiting for me over by the big Black Rock. When morning comes, and they find I am gone, we shall be so far away that no one can catch us. Then I want you to tell them that I ran away because I would not let my brother be my master. Will you tell them that, Felicia?”
“Yes, Dick—I’ll do anything for you.”
“Dear Felicia! Be brave, and I’ll come back to you. Don’t tell that I’m ever coming back, because then he might stay and watch for me. That would simply keep me away, for I shall know how long he stays and when he goes. If you wish me to return soon, don’t tell.”
She promised that she would not, though in her heart she felt that she was doing something wrong. For him, however, she would do it. He was the only playmate she had ever known, and she thought him the most wonderful boy in all the world.
Sometimes Felicia had sat quite still at a distance and watched Dick call the birds and the tiny wild things of the woods about him, delighted and amazed by his power. But when she had tried to approach they had fled; when she sought to call them they would not respond. She could not understand the mystery of it, but in her mind was the conviction that Dick was like the wild creatures that approached him without fear, and now it seemed wrong for any one to think of taking him from the scenes he loved and placing him in a school.
“I’ll think of you every day when I’m away, Felicia,” he promised.
“And I’ll think of you, Dick,” she murmured. “When I say my prayers at night I’ll pray for you.”
“Dear little Felicia!” he exclaimed again. “We won’t let my bad brother separate us.”
“Oh, I do not think he is bad, Dick—I can’t think that! He is handsome, and he has such a good face!”
A strange light appeared in the eyes of the lad, while he flushed hotly.
“He knows how to fool people,” said Dick; “but I know he’s bad.”
“No, no!” cried Felicia. “He has held me on his knee and told me stories and talked to me. You are wrong, Dick. He is not bad.”
“He is! he is!” panted the boy, in a sudden burst of jealousy. “Don’t ever let him take you on his knee again, Felicia!” He grasped her by the wrists and glared into her startled eyes. “Promise me that you will not let him take you on his knee again. Promise! promise!”
She was frightened by his sudden fierceness, and the clutch on her wrists caused her to cry out with pain:
“Oh, oh! you are hurting me! I’ll promise; only don’t hurt me!”
Her face paled and showed her pain, which struck him to the heart with remorse. Instantly he released her wrists and clasped his arm about her, saying pleadingly:
“Forgive me, please forgive me! I didn’t mean to hurt you—truly, I didn’t! But it made me mad to think about you sitting on his knee, and I didn’t know what I was doing. Oh, say I did not hurt you much!”
He kissed her wrists and showered her with caresses, his manner full of passionate devotion.
“You hurt just a little,” she declared bravely; “but it was only for a minute. It’s all gone now—now you have kissed it, Dick.”
“If you knew how I hate to leave you even for a little while!” he exclaimed.
“If you knew how I hate to have you go!” she breathed.
“My brave, sweet little cousin!” he said, with the air of a manly lover. “But you must not sit on Frank’s knee, and you must keep away from
him as much as you can. Promise me that you will do as I ask.”
“Oh, I’ll promise, Dick!”
“Don’t look at him when he talks to you—don’t look into his eyes. If you do, he will get the best of you, for there is something in his eyes that it is hard to resist. I don’t know what it is, but I have felt it.”
He led her to make many promises of the sort, and she did so, though she knew it would be difficult for her to keep some of them.
“There!” he exclaimed, in satisfaction; “he’ll find he cannot master me! He’ll find he cannot force me to the school that makes cowards and weak men.”
“But he is no coward,” asserted Felicia. “You should have seen him fight the ruffian who was carrying me off the day he first came into this valley. That man was a giant, and he was strong and fierce; but Frank grappled with him, grasped his wrist when he tried to use his knife, threw him, and knocked him senseless. Oh, he must be awfully strong!”
Again Dick was green with jealousy.
“Bah!” he cried. “The ruffian must have been drunk. Don’t tell me any more about it! In a few years I will be able to handle him. Now we will go back to the house, and you must be careful in your actions not to do anything that will make any one suspect what is going to happen. You will be careful?”
“Yes, Dick. What am I to do?”
“Act just as you always do—not differently. Be happy.”
“I’ll try.”
“Don’t speak a word about it near the house. Don’t let Old Joe know that I have told you.”
She promised, and they started for the cabin, walking hand in hand through the woods. They came to the path after a while, along which they made their way.
Just before they came within sight of the cabin, Felicia suddenly stopped and flung her arms about Dick’s neck, brokenly exclaiming:
“Oh, Dick! how can I let you go away to-night—how can I? I shall lay awake and think about it! I shall know when you meet Old Joe at Black Rock! I shall see you stealing away together! I shall see you hurrying into the mountains!”
“Hush!” he said. “You must not speak of it again till I am gone. We are too near the house.”
“Kiss me good-by!” she half-sobbed.
They exchanged kisses, and then they romped away toward the cabin, like thoughtless children. And Dick’s laugh rang loudly through the woods—the wild, elfish laughter that was characteristic of him.
Beside the cabin Old Joe Crowfoot smoked in grim silence.
But within the cabin Frank Merriwell was no longer writing. His chair and table were deserted, and he was gone.
CHAPTER XVIII.
AN INTERRUPTED DEPARTURE.
The night was still and serene, with a large round moon, clear as burnished silver, shedding its light down into Pleasant Valley. Away to the west stood the ragged mountains, with the stars gleaming bright above their snow-capped peaks.
In the Black Woods the shadows were dense. The moonlight sifted down and fell on the front of the little cabin, but the rear of the cabin was in darkness. From the back door moved a form that made no noise, but hastened away as lightly as possible, slipping round into the path. Before plunging into the woods, the form paused and turned back to the cabin, toward which a kiss was tossed.
“Good-by, home! good-by, Felicia!” murmured Dick Merriwell, for Dick it was. “I am driven out, but I’ll come back when he is gone. I am free as the birds, and free I will remain. Good-by.”
Then he turned his back on the cabin and hastened noiselessly along the path.
When he thought how amazed Frank would be in the morning he felt like dancing and shouting with delight.
“Oh, I’d like to see his face!” he chuckled. “It would be such fun! It would be more fun than it was to see Billy roll his eyes round at the old pail.”
When he came to the edge of the woods he did not hesitate to step out into the moonlight, for now there was no fear in his heart that any one save Old Joe would see him.
Straight toward Black Rock, at a little distance from the shore of the lake, he hastened. There were some trees near the rock, and Dick fancied the old Indian was waiting in their shadows.
At some distance from the rock Dick paused and gave the hoot of the horned owl. Immediately, from a point near the rock, the howl of a coyote rose and quavered on the still night air.
“Joe is there!” laughed the boy. “He is waiting, and all is well.”
Then he ran forward. Near the rock a figure rose to meet him. It was Crowfoot.
“Ugh!” grunted the Indian. “You come. Old Joe think it time.”
“I waited till I was sure everybody was asleep,” said Dick. “Besides, I was bound to let him know he was not my master and that I had beaten him.”
“What you do?”
“I wrote on a slip of paper, ‘Good-by, Frank Merriwell; I am gone, and you’ll never catch me. I ran away because I would not let you be my boss. It won’t do you a bit of good to try to find me.’ Then I signed my name to it. And I slipped into his room and put it where he would find it first thing in the morning.”
“Waste time,” declared the Indian. “Might been catched.”
“He was sound asleep in his bed. I could see his form under the clothes, but I could not hear him breathing. I got out just as quick as I could.”
“Now we get away,” said the Indian. “Get good start before morning.”
He had a rifle in his hands, while his old blanket was folded and fastened on his shoulders, so that he was in marching-trim.
“I’m ready,” said the boy. “I’ll follow you, Joe.”
“Come.”
The Indian started, with the boy at his heels, but as they passed round the rock they were amazed to see standing before them a silent figure in the moonlight—a man, with his arms folded over his breast.
Dick gave a little cry, while Old Joe stopped, half-lifting his rifle.
“Good evening,” said a pleasant voice. “Isn’t it rather late for a moonlight stroll?”
Frank Merriwell stood there before them!
“Ugh!” grunted the astounded redskin.
The boy was amazed and bewildered, for he had felt certain that Merry was fast asleep in bed in the cabin.
“It’s a lovely night, I know,” said Merry, in his calm, self-possessed manner; “but a boy like Dick should be in bed. Where were you thinking of going?”
“It’s none of your business!” cried the lad chokingly.
“I rather think it is,” was the serene retort. “If you will not tell me, I shall be compelled to tell you. I know all about it. You were thinking of going away, Dick. You were going to run away from me.”
“I am going to now!”
“I don’t think so.”
“I am! I will! You can’t stop me!”
“I have stopped you already. You will go no farther.”
“Boy go with me,” said Old Joe, fingering his rifle. “Get out of way!”
“He will return to the cabin with me,” asserted Frank confidently.
“No take him back!” declared Old Joe. “Get out way, or shoot um quick!”
“Don’t try it,” advised Merry. “I am his brother, and I know what is best for him.”
“He different from you,” said the redskin. “He like me better. He going to be like red man.”
“Hardly!” exclaimed Frank dryly. “I have no time to waste words with you, Crowfoot; but I tell you now, for the first and last time, that I will not have you monkeying with my brother or trying to thwart me in my plans. If you——”
The old Indian was enraged, and he suddenly flung his rifle up to shoot Frank straight through the body, but, with a sharp cry, the boy made a leap and knocked the barrel of the weapon aside.
Just in time! The rifle spoke, and the bullet whistled close to Frank.
“Thank you, Dick,” said Merriwell coolly, as he swiftly advanced. “That is the second time you have kept this old heathen from salting me, and I’ll not forget it.”
He stopped close to Old Joe, at whom he looked fearlessly.
“Crowfoot,” he said, “you have twice attempted my life. If you try the trick again, I’ll shoot you down like a dog! I don’t want to do it, but I do not propose to have you make a target of me. I could have shot you just now. See here!”
Then Merry displayed a revolver which he had held clasped in his hand all the while, the weapon being concealed under one arm as his hands were folded over his breast.
“I could shoot you now,” Frank went on; “but I do not wish to do so. You have filled this boy’s head with false notions, but I am going to drive those notions out of his head. You have taught him some things of value, but even you were not shrewd enough to discover me as I lay in the little hollow there and waited for this meeting. I was here ahead of you, and I concealed myself, as I was taught to do by one of your own race. In my bed I left a dummy figure, which deceived Dick, and——”
“How did you know anything about it?” panted the boy, in wonder.
“Did Felicia tell you?”
“Not a word.”
“Then how did you know?”
“Perhaps the birds told me,” said Frank, in a mysterious way. Dick started.
“The birds?” he said, thinking how he had called the feathered creatures of the woods about him just before he revealed his secret to Felicia.
Then a strange thought came to the lad. Had the birds listened as he told the little girl of his plans, and had Frank somehow obtained the knowledge from them? The fact that Merry had learned of those plans somehow, and had appeared to intercept the boy in his flight, seemed singular indeed; but the possibility that he had obtained his knowledge in some marvelously mysterious manner from the birds was bewildering.
A feeling of awe came upon Dick. He was struck by the conviction that it was impossible to keep anything from his wonderful brother.
Old Joe was not so much impressed, although he was not a little chagrined over his failure to discover Frank waiting in the vicinity of the rock.
“Come, Dick,” said Merry quietly; “we will go back to the cabin. Tomorrow we’ll talk over your plan to run away with Crowfoot, and, if you can convince me that it is for your good, I’ll let you go with him. I am going to do just what is for your good.”
This did not satisfy the boy by any means, but he was overawed and subdued by the powerful will of his brother, and he offered no further resistance.
Old Joe was disgusted and indignant.
“You go with him?” he asked of Dick.
The boy nodded.
“It’s no use now, Joe,” he said, with resignation. “He knows all about it. It wouldn’t do me any good to run away now. I’m going back.”
The old Indian grunted.
“Go!” he cried. “Old Joe, him go to the mountains.”
Then, to the surprise of both the boy and the Indian, Merry turned to Old Joe, saying:
“Crowfoot, come back to the cabin. I want you to stay and teach Dick all that you can.”
The Indian seemed incredulous.
“You fool Old Joe,” he declared.
“I am not in the habit of fooling,” Merry asserted. “I speak the truth; I want you to teach him as much as you can. I believe that no man acquires useless knowledge. It may seem that he does, but, some time during his life, he is certain to find need of it. It always has been my policy to keep my eyes and ears open and learn all that I could. I know something of Indian lore, for I am not quite the tenderfoot I look, and one of my friends was a young Indian by the name of John Swiftwing.”
“Ugh!” grunted Crowfoot. “Him go to Injun school, marry half-blood squaw?”
“Yes.”
“Old Joe know um.”
“You know him?”
“Him live in mountains, not hundred mile from here.”
“Crowfoot, are you telling me the truth?”
The Indian relapsed into indignant silence.
“You did not tell me the truth the first time I saw you,” said Frank. “Why should I not ask the question?”
“No know um then.”
“And, now that you know me, you are ready to shoot me in a moment. Still, I want you to come back to the cabin. Dick need not fear that I am going to take him away to school right off. I have no thought of doing so now, and he’ll not have to go until he is perfectly willing. If you, Crowfoot, know where Swiftwing is to be found, I want you to take me to him. I shall be glad to pay you in any possible way for your trouble.”
The Indian stood still and looked at the boy. Frank also looked at Dick, who immediately said:
“I am going back to the cabin, Joe. Won’t you come?”
But the old fellow seemed offended.
“No,” he said; “not now.”
Dick knew it was useless to try to persuade Old Joe, and so he did not make the attempt.
“Mebbe come in one, two day,” said Crowfoot. “Mebbe not come at all.”
Then, without even bidding Dick good-by, the strange old redskin turned and strode away, soon passing from the moonlight into the shadow of the deep woods, which hid him from view.
CHAPTER XIX. READY ARRIVES.
Not a word did Frank say about Dick’s attempt to run away, and, as they had returned to and entered the cabin quietly, Juan Delores knew nothing of it.
Of course, Felicia was amazed and overjoyed when, the following morning, she found Dick still there. Dick would say nothing save that he had decided not to go away for a while.
Old Joe was gone, but as the Indian had a habit of disappearing and appearing without warning, nothing was thought of this.
In spite of himself, deep down in his heart Dick Merriwell felt further respect for his brother. He was compelled to confess to himself that Frank was very clever, and he came to stand in some awe of him. Still, he persisted in his determination not to let Merry “boss” him.
“I’ll always be free,” he muttered over and over. “I’ll never go into a school. He can’t make me do that.”
But he wondered greatly how Frank had discovered that he was going away at all. He did not know that Merry had left the cabin by the back door, while Old Joe smoked by the wall, and strayed into the woods. He did not know that Merry had paused by the path and knelt to examine a wild flower he found growing there. And, while Frank was kneeling thus, Dick and Felicia came along the path. From the little portion of their talk, that Merriwell heard as they bade each other good-by, he learned that Dick was going away with Old Joe, whom he would meet that night near Black Rock.
And thus it happened that Frank was on hand at that meeting.
Merry was satisfied that his strange, wild, young brother cared for him more than he wished any one to know, else he would not have made such frantic haste to disconcert Old Joe’s aim. Had the Indian
shot Merry down, Dick would have been free forever, yet the boy sprang at once to prevent that act.
Frank wished to win his brother to him without using force. It was his desire to bend Dick’s strong will and passionate nature, but not to break either. The young athlete was convinced that there was in Dick the making of a remarkable lad, and he hoped to handle him in the proper manner to bring out his best qualities.
But first it was necessary to win the obstinate and wilful spirit to him, and that seemed like a difficult task indeed. However, Merry felt that he had scored heavily in preventing the runaway as he did. He had not resorted to force, but he had convinced Dick that he was in some things a match for Old Joe, whom the lad admired.
On the day after the attempted runaway, Bart Hodge and Jack Ready came riding up the valley. Business had called Ready to Denver, and Hodge had met him there. His business attended to, Jack was willing and eager to hasten to Frank in the quiet little valley under the shadow of the Rockies.
Frank was watching for them, and he sighted them through a fieldglass as they came galloping up the valley.
Dick and Felicia were also watching, with strange, silent Juan Delores not far away.
“It’s another of his friends,” said Dick, in a low tone to Felicia. “I’m sure this one will show signs of his long days spent in study. He must be round-shouldered and weak.”
As the two riders drew nearer they spurred on their horses and raced for the woods. It was a wild neck-and-neck dash, and, although Bart seemed to sit his horse a trifle better than Jack, the latter managed to be in at the finish.
“Hooray!” he whooped, waving his hat about his head and flinging himself from the saddle. “The pardon has arrived in time! Your royal muchness, here we are, hide, hoof and horns. Behold us, adorned in all the glory of the wild Western cowboy. Are we not peaches?”
Then he grasped Frank’s hand, gave it a furious shake, and bent to press his lips upon it.
“I salute ye, oh, mighty potentate, whatever that is,” said Jack, in his familiar breezy manner. “I know you are overjoyed to gaze once more on my beautiful countenance, and I am very, very glad because you are so happy.”
“He doesn’t seem to be round-shouldered,” whispered Felicia.
“Not—very—much,” faltered Dick.
“And he doesn’t look weak.”
“Not—very—weak,” admitted the boy.
“He doesn’t wear glasses.”
“He may have them in his pocket and put them on when he reads,” said the lad, as if he really hoped so.
“And he can ride well.”
“Pretty well,” confessed Dick. “But he’s just like the other one, in one thing; he acknowledged my brother as his superior.”
“I didn’t notice it.”
“I did. It was in his manner.”
“Why, I thought his manner very lofty and proud.”
“But, just the same, there was something in it that confessed Frank Merriwell his master. I wonder if all my brother’s friends are like that.”
The boy’s sharp eyes had read the truth, and his sensation was one of mingled regret and pride, for, despite himself, he could not help being proud that Frank was a leader of men.
“I’m glad to see you, Jack,” said Merriwell, in his hearty way, that left no doubt as to his sincerity.
“I told you that you were,” nodded Ready, with a haughty pose. “And I have traveled far to make you glad.”
“Wish you had brought all the fellows along with you.”
“Ha!” exclaimed Ready, with a wave of his hand. “Methinks I have a thought. Why not gather the clans together and once more swoop down on the wild and woolly? We wiped up everything on the turf last year; why not do a little wiping this year?”
“You mean——”
“Why not call the boys together, organize a baseball-team, and indulge in the lively sport of killing umpires? What sayest thou? Is it not a radiant thought?”
“I have thought of it myself.”
“What?” cried Jack, in dismay. “Wouldst even rob me of the only original thought I ever possessed? Alas!”
“He is very queer,” said Felicia to Dick.
“Very!” said Dick, frowning. “I saw a crazy man once that acted like him.”
Which Jack would not have regarded as very complimentary had he heard it.
Merry introduced Ready to Juan Delores, and then said:
“Ready, this is my little cousin Felicia, and this is my brother Dick.”
“Queen Felicia, I salute you,” said Jack, bowing low, his hat in his left hand and his right hand pressed over his heart. “Before I came, you must have been the sweetest thing in all this wild region. Of course I can’t help being sweet myself, for I was born that way, and you must not blame me if all the flies flock my way.”
Then he turned and looked at Dick.
“So you are Frank Merriwell’s brother!” he exclaimed. “Well, my boy, I want to tell you that there are a few million chaps like you who would just about give their blooming lives to be able to honestly call Frank Merriwell brother. They’d rather have him for a brother than to have the President of the United States for a father. You are a dead lucky chap, and that’s straight goods.”
The lips of the boy were pressed together for a moment, and then he retorted:
“Well, sir, I wish it was some one of those few million boys who want him for a brother who had him instead of me!”
“What’s this?” cried Jack, aghast. “Treason! Who ever heard of such a thing? Boy, you’re crazy!”
But Dick stood up defiantly, his proud lips curling with scorn.
“A regular heart-blow!” muttered Ready weakly. “Is this a sample of the brothers you pick up, Merry? Oh, my, my! And you the idol of Yale!”
Frank laughed.
“I enjoy it, Ready,” he said, and his manner seemed to indicate that he told the truth. “I don’t think I ever had anything satisfy me more than has this rebellious disposition of my high-spirited young brother here.”
This made Dick tremble with anger.
“I’m not doing it to please you!” he cried. “I won’t please you!”
But Merry simply smiled.
“You can’t help it, Dick,” he asserted. “In disliking me so ardently you have provided me with a new sensation. I assure you that it has given me pleasure to watch and study you.”
“I won’t be watched and studied!” cried the lad. “I’ll keep away from you! Oh, how I hate you!”
Then he turned and fled from the spot.
Dick felt humiliated and ashamed, for it seemed that Frank had laughed at him before his friends. Ridicule to a boy of his passionate disposition was a dreadful thing, which cut deeper than the keenest blade.
Jack Ready regarded the whole affair as a joke, and he sought to banter Merry about his peppery young brother.
