The Power of Accounting: A field study of local financial management in a police force

THE POWER OF ACCOUNTING: A FIELD STUDY OF LOCAL FINANCIAL MANAGEMENT IN A POLICE FORCE by Paul M Collier

Aston Business School, Aston University, Birmingham, B4 7ET, UK

RP9937 December 1999 ISBN No: 1 85449 359 0

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The Power of Accounting: A field study of local financial management in a police force

Abstract This paper describes the introduction of local financial management into a police force, West Mercia Constabulary, based on an ethnographic study. The study applies institutional theory at the organizational level of analysis in order to understand the introduction of devolved budgeting systems to the organization. The field study explains how the devolution of budgets in West Mercia was accompanied by a shift in power that helped to reconcile the interests of those pursuing a legitimating accountability with those who prioritized operational policing. This paper makes two contributions to institutional theory. First, is the development of understanding of relations of power, particularly where interests coincide and shifts in power are a by-product of legitimating processes. Second, is an explanation of how loose coupling can take place through accounting, in which the construction of a devolved budget can reinforce the interpretive scheme and satisfy both institutional and technical demands.

Key words: local financial management, police, power, institutional theory, loose coupling

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The Power of Accounting: A field study of local financial management in a police force

Introduction This paper describes the introduction of local financial management into a police force, West Mercia Constabulary, undertaken as part of a three-year field study. Police accountability is an area of the public sector that is not well researched and this study has been undertaken using the framework provided by the new institutionalism (Powell & DiMaggio, 1991).

The paper identifies shortcomings in institutional theory and proposes how that theory might be developed. The paper argues the lack of attention given in institutional theory to the organizational level of analysis, to issues of power, and to the role of management in reconciling institutional and technical demands. In particular, the paper focuses on the circumstances in which a shift in power took place in West Mercia. The concept of loose coupling is examined and this paper describes how, in the field study organization, accounting provided the mechanism for a loose coupling between external accountabilities and the day to day operation of policing.

This paper is arranged into four main sections. In the first section, the theoretical framework of power and the new institutional theory is introduced. This framework is related to accounting control systems and a review of six cases from the institutional literature identifies two shortcomings in existing institutional theory: power and the role of management. In the second section, the research methodology and methods are described. The third section describes the context of management change in the police service and the field study undertaken in West Mercia. The fourth section explains the findings of the study and its location in the police accountability literature and suggests the contributions that the study makes to the development of institutional theory.

Based on the field study, this paper proposes that relations of power need not reflect competing interests. The paper also proposes that accounting can be a mechanism that permits a reconciliation between institutional and technical demands. We begin with the theoretical framework of power and institutions.

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The Power of Accounting: A field study of local financial management in a police force

1. Materials Power and institutional theory The selection of institutional theory as the framework for the study is based on calls for studies of accounting in the context in which it operates (which date back to Hopwood, 1983). The circumstances in which devolved budgets were introduced in West Mercia were strongly influenced by new legislation, economic pressures and the activity of regulatory agencies. An institutional theory perspective emphasizes the importance of trans-organizational processes in organizational functioning and enables a consideration of relations of power as they affect the organization.

An organizational level of analysis concentrates the research on the interaction between the activities directed at institutional legitimation and those directed at purposive work activity. The selection of this level of analysis implies that we look at institutions as processes rather than outcomes, a distinction made explicit by Covaleski, Dirsmith, & Michelman (1993). Few studies have applied institutional theory to individual organizations (a notable exception is Covaleski & Dirsmith, 1988) and this paper is at least in part, a call for further studies in this neglected area.

Any discussion of the interaction between the institutional environment and organizations needs to be located amidst relations of power, although power is implicit, rather than explicit in much of the institutional literature. Weber (1922/1947) defined power as the probability that an actor within a social relationship will be able to carry out his own will despite resistance (p. 152). More recently, Pfeffer (1992) defined power as the ability to influence behaviour, "to overcome resistance, and to get people to do things that they would not otherwise do" (p. 30).

The conceptualization of power at three levels by Fincham (1992) - institutional, organizational, and processual - is a scheme for understanding the influence and effects of power at different levels. Institutional power relies on an external legal or regulatory base from which power derives. Organizational power is hierarchical, based on a managerial structure with its external and/or internal power base, supported by a range of rewards and sanctions. Processual power comprises the micropolitics of coalition formation, often represented in

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The Power of Accounting: A field study of local financial management in a police force

cultures or coalitions. These are interlinked in Fincham's definition of "the institutional level as the ultimate source of power, organizational as providing the instruments, and processual as dealing with how effectively sources are operationalized through instruments" (p. 749).

The power of institutions arises both from the need for legitimation and from isomorphic processes. Our main concern in this paper, given an organizational level of analysis, is the impact of legitimating activity. For Scott (1995), the issue of legitimation is an important one. Organizations depend, to a greater or lesser extent, on support from the environment for their survival and continued operation. Organizations need the support of governmental institutions where their operations are regulated. Organizations are also dependent on the acquisition of resources to support purposive activity. If an organization is not legitimated, it may incur sanctions of a legal, economic or social nature.

The role of the State, particularly through legitimation processes is a powerful one, and it is in public sector organizations where this is most evident. The recent history of public sector management in the UK is emphasized by the Thatcher government’s Financial Management Initiative, a reform process that has led to the “New Public Management” (see for example Hood, 1995).

Against the background of external regulatory power is the purposive activity of the organization and its dominant coalitions (Cyert & March, 1963; Thompson, 1967) - the group within the organization that has the power, and the potential ability to change behaviour through politics and influence (Pfeffer, 1992). The dominant coalition defines the 'organizational frame of reference' (OFOR) (Shrivastava & Schneider, 1984) which serves to make sense of and explain events, providing a raison d'être or justification for being, as well as an external legitimation for the organization. The politics among decision participants result in 'negotiated belief structures' which recognize the interplay between beliefs and politics (Walsh & Fahey, 1986).

The OFOR, constructed through the negotiated belief structure, guides behaviour and creates a context for decision making and action, protecting the organization from intolerable levels of uncertainty and information overload. This context for action is reflected in organizational

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The Power of Accounting: A field study of local financial management in a police force

accountings, which identify what is important both to the dominant coalition and to actors in the institutional environment.

This potential conflict between legitimating activity and the frame of reference held by the dominant coalition is central to this paper. While institutional theory has been most attentive to legitimation and isomorphism, it has paid less attention to change, power and efficiency (DiMaggio & Powell, 1991). Powell (1991) believes that institutional theory "portrays organizations too passively and depicts environments as overly constraining" (p. 194).

The difficulty for organizations is to simultaneously gain legitimation while pursuing the technical work activity necessary to achieve organizational purposes. Thompson (1967) utilizes the distinction made by Parsons (1960) between three levels of responsibility and control in organizations: technical, institutional and managerial. Technical responsibility comprises exigencies imposed by the nature of the technical task, while institutional responsibility provides the source of meaning, legitimation and external support. Thompson contrasted the technical core with its goal achievement and control oriented rationality, implying a closed system and the elimination of uncertainty; with the organization's dependency and lack of control at an institutional level where the greatest uncertainty exists, implying an open system. Thompson argued that a function of management was to mediate between the two, through a range of manoeuvring devices and organizational structures.

Meyer & Rowan (1977) argue that organizations reflecting institutional rules tend to buffer their formal structures from the uncertainties of technical activities by becoming loosely coupled. The degree of alignment between these formal structures and technical work activities depends on whether organizational survival depends on managing the efficiency demands of technical work activity, or on ceremonial conformity with the institutional environment. They describe loose coupling as enabling organizations to “maintain standardized, legitimating, formal structures while their activities vary in response to practical considerations” (p. 357). Orton & Weick (1990) show how loose coupling explains the simultaneous existence of rationality and uncertainty, allowing for flexibility in responding to outside forces, but also allowing for physical or logical separateness (Weick, 1976) in dealing with technical work activity.

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The Power of Accounting: A field study of local financial management in a police force

This paper will explain how accounting is implicated in managerial efforts to gain legitimation and pursue technical work activity. In the field study, accounting can be seen as a mechanism for loose coupling. There is a clear link between institutional theory and the study of accounting control systems. In the accounting literature, Hopwood (1983; 1987) has called for studies of accounting in the context in which it operates, emphasizing the significance of the wider economic and social setting of accounting. In the institutional literature, Scott (1998) argues that accounting systems are one of the most important conventions connecting institutionally defined belief systems with technical activities.

Accountability and accounting control systems Institutions demand accountability. Accountability assumes the existence of accounting and a control system to measure actual performance and compare it to external (legitimating) and internal (purposive) standards of expected performance.

Accounting is also implicitly involved in relations of power within the institution-organization environment. Simons (1990) remarks on "the power of management control systems in ... interactively influencing strategy” while Otley (1995) presents a perspective on accounting control systems as concerned with "the exercise of power, authority and domination, whereby one group can impose its will upon others" (p.2). This paper argues that accounting can be a mechanism that assists management in reconciling power relations between institutional and technical demands.

The existence of control systems with fragmented performance expectations, supported by potentially conflicting institutional and organizational rewards and sanctions, makes more understandable the conflict between processes for legitimation and processes to achieve organizational purposes. This conflict emphasizes the difficulties in constructing a loose coupling between both environments. This is exemplified in six cases taken from the accounting literature which explicitly adopt an institutional perspective. Each case is briefly reviewed in order to identify the shortcomings in the institutional perspective.

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The Power of Accounting: A field study of local financial management in a police force

Rowan (1982) investigated administrative expansion in the Californian public school system between 1930 and 1970. First, Rowan found that educational innovations have high technical uncertainty leading to resistance to curriculum reform. Second, Rowan suggested that diffusion would be wider and retained longer in domains with "balanced" institutional systems. The concept of balance (of an ideological consensus) in institutional environments relates to the existence of a network of "social control agencies" which work together harmoniously.

Tolbert & Zucker (1983) investigated the institutionalization of civil service procedures in 167 U.S. cities between 1880 and 1935. Their research found that change was adopted more rapidly when the state mandated change and the process was directed from a single source, but otherwise change was adopted gradually, diffusing largely as a result of social influence among cities with legitimacy being the impetus.

Tolbert (1985) integrated institutionalization with a resource dependence perspective, reflecting the efforts necessary to ensure a steady flow of resources. In her study of administrative differentiation in higher education institutions funded either by public or private sources, Tolbert found that the institutional environment of organizations is differentiated with different expectations and different resource dependency relations. Those differences for public and private colleges and universities become institutionalized.

Covaleski & Dirsmith (1988) studied the University of Wisconsin's budgetary relationship with the State. One campus led the effort to reject the old budgeting framework and the University no longer took the institutionalized process for granted in its attempts to replace the traditional funding formula with a new structure of resource allocation. However, this was overshadowed by the tension the University experienced in trying to transform its budget relationship with the State. Covaleski & Dirsmith found that the process of institutionalization was "infused with power and self-interest within the organization and in extraorganizational relations" (p.585).

Covaleski et al. (1993) studied the use of case mix accounting systems in U.S. hospitals to provide information on the cost of delivery of diagnostic related groups of services. In this case, power was found to be an important dynamic as the physicians' admission, treatment, length of stay and discharge decisions moved from physicians to hospital administrators. This

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The Power of Accounting: A field study of local financial management in a police force

shift in power led to resistance and the decoupling of the external image system from the internal operating system.

Dirsmith, Heian, & Covaleski (1997) studied the Big Six public accounting firms and the redistribution of power between partner/owners and professional administrators in a fragmented external environment calling simultaneously for rationality and professional autonomy. Administrators introduced Management by Objectives (MBO) which helped to deinstitutionalize and delegitimate the professional autonomy of the practitioner. The use of MBO met with resistance and it became redirected into the social process of mentoring. Mentoring constrained MBO by resisting its overt application to controlling participants' actions, one result being an internally fragmented environment.

These cases, which apply institutional theory, albeit primarily at an institutional level of analysis, help to inform our understanding of the distinction between institutional and technical environments. Each case reflects, in the institutional environment, a concern with legitimation in a resource-dependent relationship, and the fragmented nature of institutions. In the technical environment, the dominant concerns are the internal processes leading to service delivery. These cases lead us to an examination of the shortcomings of institutional theory.

Shortcomings of institutional theory As the six cases demonstrate, institutions are a complex amalgam of overlapping and often ambiguous politico-legal requirements, economic constraints and socio-cultural obligations. Implicit in this complexity and ambiguity are the shifting relations of power that provides the context for organizational action.

There are two shortcomings of institutional theory that emerge from the six cases reviewed above. First, the inability at an institutional level to sufficiently recognize the disparities within the institutional environment, the relative power of different institutional actors, and the conflict which results from relations of power. Second, the inability, at an organizational level of analysis, to provide a theory as to how these competing interests can be accommodated or reconciled by management.

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The Power of Accounting: A field study of local financial management in a police force

At the institutional level, DiMaggio & Powell (1983) argue that institutional theory explains the homogeneity of organizational forms and processes, rather than variety between organizations. This is substantially the result of organizational field - the “totality of relevant actors” (p. 148) who constitute a recognized area of institutional life: key suppliers, resource consumers, regulatory agencies, and other organizations producing similar products or services. However, organizational field is an insufficient concept to explain relations of power particularly when, despite case examples such as those cited above, much of the institutional literature retains the assumption of a balanced environment. This paper argues that organizational field does not allocate sufficient importance to these relations of power.

At the organizational level, the concept of loose coupling is also helpful, but insufficient because the Orton & Weick (1990) model fails to explain how loose coupling takes place. Loose coupling is a ’black box’ in which, somehow, managers accommodate conflicting demands. The concept of loose coupling needs to be unpacked. We need to understand the organizational structures and practices that link institutional and technical environments in order to understand how elements of those environments are coupled and the reflexive impact that each has on the other.

This paper proposes that institutional theory should recognize and accept relations of power and the competing demands of institutional actors and purposive activity, in an environment that is not balanced. This paper also proposes a role for organizational management in reconciling institutional and technical demands through accounting as a mechanism for loose coupling that represents a consensus between these competing demands and provides a context for action.

The field study in this paper describes and explains changing relations of power and the circumstances in which accounting can reflect the demands of both legitimating and technical work activity. Before describing the field study however, we need to consider the research method.

2. Method

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The Power of Accounting: A field study of local financial management in a police force

The field study is an interpretive one, recognizing that interpretations of actors take place within a particular historic, political and economic context. Based on the call by Chua (1988) for clarity of methodology, this research has been located in what she has termed 'ethnomethodological ethnography', an ethnography that is based not in conversational analysis but in contextually grounded social interaction. This ethnographic approach requires a field study method that is explanatory, i.e. one by which theory can be used to explain observations (Scapens, 1990), answering how ? and why ? questions as part of an examination of contemporary events when the relevant behaviours cannot be manipulated (Yin, 1994). The research focuses particularly on an explanation of the circumstances in which devolved budgets were introduced into a police force.

Scapens (1990) proposes a "holistic orientation ... to study accounting as part of a unified social system" (p.268). The objective of holistic research, according to Scapens, is to develop a rich theoretical framework capable of explaining the quality of observed social systems and practices. The field study of West Mercia adopts an holistic approach which can also be identified as 'contextually technical accounting' (Broadbent & Guthrie, 1992).

In a field study, data collection can take place through documentary research and interview, but participant observation is the primary tool of the ethnographer. The advantage of contemporary historical observation is that it captures a record of events as they occur, from the researcher’s perspective, together with others’ reactions to those events gained through interview, and the organizational portrayal of those events as found in documentary research. The powerful link between documentary research, interview and observation is the degree of correspondence (or lack thereof) between what people say - espoused theory, and what they actually do - theory in action (Argyris & Schon, 1978). Analysis takes place through the development of chronologies, the identification of patterns and the building of explanations and alternative explanations. Analysis integrates these different possible constructions in order to produce holistic explanations.

The field study took place primarily between 1995 and 1998, although it was updated during the first half of 1999. During the course of the field study, the role of the researcher changed. In the first stage, applying the typology of Junker (1960), the researcher adopted a role as

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The Power of Accounting: A field study of local financial management in a police force

complete observer, being an academic studying the organization for another purpose, without any form of participation. In the second stage, the researcher became an observer as participant, being formally accepted by the organization and gaining unlimited access in order to conduct the research. In the third stage, the researcher became an employee of the organization and adopted the role of participant as observer. At no stage was the researcher a complete participant and avoided ‘going native’ (Hammersley & Atkinson, 1995) as a result both of the function carried out in the organization and the closed nature of the police culture.

In all, 52 formal interviews were conducted over a three-year period, each lasting between one and two hours. These interviews were semi-structured using open questions in the form of topics, rather than finely composed questions, although interviews were focused by the research protocol (Yin, 1994).

Sampling of respondents was neither statistical nor random, but took place with different people, over time, and in different contexts (Hammersley & Atkinson, 1995). Sampling took place over different roles and ranks, with a mix of Headquarters, operational police officers and support staff. Sampling also took place over time, as the three-year study covered the planning of change through to the post-implementation review of many of the new initiatives. This timeframe reflected changing interpretations by informants over the three-year period. Sampling took place in different contexts and across different locations, both in interview and in the wide range of meetings, while field notes provided the more spontaneous contributions.

Over 200 documents were referred to, primarily to provide the institutional context but also to obtain the official organizational perspective. These documents were a combination of public and internal records of policies, procedures, meetings, decisions, and official correspondence. Documents originated both within the organization as well as from external regulatory agencies.

During the third stage of research, participant-observation became the dominant method of research. During the study there were 29 recorded observations of meetings which provided an important insight into what people were actually doing within the organization. By virtue of the

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The Power of Accounting: A field study of local financial management in a police force

level and type of meetings attended, a broader range of people at a similar level in the organization became additional respondents. Attendance at meetings provided access to the discussions that took place, rather than being limited to the decisions that were reported in the official minutes. During the participant as observer stage, the researcher was able to record what actually happened (from the researcher’s own perspective) in terms of organizational processes and practices. This was triangulated with the perceptions of informants and respondents, and with the official organizational perspective gained from documentary evidence.

In either interview or through participant-observation, the views of all chief officers, all senior police managers at divisional level (Superintendents and uniformed Chief Inspectors), civilian support managers at a divisional level and staff at Headquarters (police officers in support departments and support staff in financial roles) were obtained. These people were in posts where they could provide information about the changes taking place, whether they were supportive of those changes or not.

The field study provides both construct and internal validity and reliability (Yin, 1994). Construct validity was achieved through objectivity in data collection. This was maintained through multiple sources of evidence, a chain of evidence that can be retraced, and by key informants reviewing the narratives of evidence. Internal validity has been achieved through the chronological reporting of data, through data analysis in the development of patterns, explanations and alternative explanations. Reliability has been ensured by the establishment of a case study protocol at the inception of research, and by a separate case study database that contains the collected evidence.

The next section of this paper reviews the context of institutional change and the field study of West Mercia Constabulary.

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The Power of Accounting: A field study of local financial management in a police force

3. Results The context of local financial management in the police service Policing in England and Wales is carried out through 43 police forces, each headed by a Chief Constable, who is legally independent on operational matters. The Chief Constable is however answerable locally on matters of efficiency and effectiveness to a Police Authority, and nationally to the Home Secretary, who has responsibility for the efficiency of the police service as a whole (Police Act, 1964).

The New Public Management (NPM) (Hood, 1995) began to affect the police service after the introduction of the Financial Management Initiative (FMI) in 1982. The FMI introduced the concept of local financial management (LFM) in order to improve cost effectiveness, through the alignment of operational and financial management at the local level.

Home Office Circular 114 of 1983 (Home Office, 1983) was the official response (Carter, Klein, & Day, 1992) to the FMI for the police service. This circular introduced to police forces the requirement to set objectives and priorities and to allocate resources and deploy manpower in a way that would most effectively and efficiently secure those objectives and priorities.

The Audit Commission (1991) further encouraged the process of objective setting, performance measurement and financial management. The Commission encouraged the delegation of financial management responsibility to local police commanders, and emphasized the scope to improve cost effectiveness by aligning operational and financial management at the local level. However, little of substance changed the management of, or the accountability for policing during the following ten years.

In 1993, the Police Reform White Paper (Home Office, 1993) argued that Chief Constables should be empowered to deliver a service that responded better to local needs, while having greater freedom to manage their resources, but be held more accountable for the performance of their forces. Following Parliament's receipt of the White Paper in 1993, the Police Act of 1964 was amended by the Police and Magistrates' Courts Act (PMCA) in 1994. The PMCA

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The Power of Accounting: A field study of local financial management in a police force

came into effect on 1st April, 1995 (although it has subsequently been amalgamated into the Police Act of 1996).

While the PMCA made changes to the structure of governance for policing, it also introduced cash-limited budgets, and the requirement for each police force to prepare a local policing plan, supported by performance targets that would prioritize activity for the following year. The most important aspect of the PMCA for the purpose of this paper, is the legislative backing given to the Financial Management Code of Practice (Cmd673, 1994) which was issued in the same year. The Code recommended that each police authority delegate financial management to the chief constable, so that as far as possible the financial management of each force took place within that force. The Code further encouraged forces to devolve financial management to local police commanders, provided that reliable information systems existed to support those managers.

The Code recommended that each Police Authority meet its responsibility under the PMCA by agreeing the budget; approving the chief constable's allocation of resources (although how this should be done was not defined); monitoring financial outcomes; and agreeing long term spending commitments (which were again, undefined). The Code recommended that within the framework of an agreed budget and rules of virement, approval of the Police Authority should only be sought when significant changes in policy were to be made or where significant sums were involved.

The Audit Commission (1994) recommended the maximum delegation of financial responsibility from Police Authorities to forces, and within forces to local commanders "subject to the adequacy of systems and expertise to carry out these tasks" (p. 23). It set a "good practice benchmark" of 30% of each force's budget to be delegated to geographic divisions within each force, excluding pay and pensions.

In the Financial Management Code of Practice, and in the published reports of the Audit Commission (1991, 1994) and Her Majesty's Inspector of Constabulary (HMIC, 1998), there is an implicit assumption that aligning financial and operational authority and responsibility

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The Power of Accounting: A field study of local financial management in a police force

will result in improved efficiency or effectiveness. However, there is an absence of any evidence or argument as to why this should be so.

The regulatory framework for this study was therefore the introduction of the PMCA in 1995, and the inspecting activities undertaken by HMIC and the Audit Commission who actively encouraged forces to devolve budgets as ‘best practice’. Despite its limited success nationally (Her Majesty's Inspector of Constabulary, 1998), by 1998 West Mercia was at the forefront of devolved budgets in the police service nationally (Her Majesty's Inspectorate of Constabulary, 1997). To some extent at least, West Mercia needed to comply with this framework, although the Financial Management Code of Practice did not specify either the speed or extent of devolution. However, West Mercia also needed to satisfy national and local demand for more effective police action against crime and improved responsiveness to public requests for assistance, despite a cash-limited budget that was unlikely to increase in real terms. Consequently, police managers were faced with the dual need to legitimate the organization and to satisfy the public demand for police services. It was in this context that the field study took place.

Devolving budgets: the field study of West Mercia Constabulary West Mercia Constabulary covers the counties of Herefordshire, Worcestershire and Shropshire, a predominantly rural area with a population of 1.1 million. The force had 2070 police officers and 1027 civilian support staff, and a budget of £106 million in 1997/98. The force is divided into six geographic divisions, each headed by a Superintendent (divisional commander). Most operational policing takes place at a

divisional level, with specialist

support being provided from Headquarters-based departments.

The introduction of local financial management (LFM) was slow before the introduction of the PMCA. Prior to 1986, the County Council exercised financial control for West Mercia. In 1986, a Financial Manager's post was introduced for the Constabulary and budget preparation was undertaken at Headquarters, although control remained with the County. In July 1988, the Finance & General Purposes Committee of the Police Authority approved a scheme of LFM that was adopted in the 1989/90 financial year. Budgets to be devolved were those which had "a degree of control and choice, i.e. pro-active as opposed to reactive budgets" although it was

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The Power of Accounting: A field study of local financial management in a police force

not proposed to devolve employee costs other than overtime. The scheme proposed more flexibility for virement, and under-spending of up to 10% could be carried forward to the following financial year.

The amount devolved was not substantial. In 1991/92, £3 million out of a Force budget of £87 million was devolved. Each year, the number of budget heads was gradually increased and virement rules gradually relaxed. In 1991, a Finance & Administration Manager post was added and the force's financial regulations became less prescriptive. During that year Subdivisional Resource Manager posts were created for each of the (then) nine sub-divisions. Each was a member of the local management team, with a role to provide "advice and expertise" on budgets. In 1994, following recommendations by the Audit Commission (1991), a Director of Finance was appointed, with equivalent status to an Assistant Chief Constable.

By 1995/96, when the implications of PMCA were known, £13 million of a total Force budget of £98 million had been devolved. Of this, £4 million was with virement and £9 million without virement. At this time, it was planned to transfer individual budgets from the non-virement to the virement category wherever possible, and West Mercia had indicated the intention of devolving salaries, once the necessary management systems were in place.

From 1995, West Mercia pursued the spirit of PMCA and adopted the recommendations of the Financial Management Code of Practice, with the support of the Police Authority. A new financial system was introduced, more financial posts were established as a direct consequence of the transfer of financial functions from the County, and the restructured (now six) divisions each introduced the upgraded posts of Support Services Manager, with responsibility for finance, personnel, property and administrative matters.

The PMCA (and the Financial Management Code of Practice) allowed considerable flexibility in the speed and extent to which devolved budgets were introduced. West Mercia chose to devolve earlier and faster than other forces. While there is no evidence as to why this happened as quickly as it did, the timing of the decision was linked with, and gained impetus from a major organizational change programme (for a discussion of which, see Collier, 1999).

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The Power of Accounting: A field study of local financial management in a police force

In 1995, West Mercia introduced a comprehensive strategic planning process, a further requirement of the PMCA. Local policing plans were introduced simultaneously with the implementation of local financial management. This emphasis on strategy and targets led to an increased acceptance by police managers that they were accountable for their performance as measured by a set of non-financial performance indicators. Despite concerns over this form of performance measurement, and over what targets to set, most agreed that focus itself was a good thing. For example:

"PIs and targets do drive us … we focus on the things that work particularly well and badly compared to target. Each Chief Inspector answers to those. If it goes pearshaped, we are expected to know why. The Superintendent gives the priorities for the month. We are conscious all the time of the policing plan." - Divisional Chief Inspector

Devolving budgets were seen to be an important link between strategy and achieving performance targets. In recognition of this, a Financial Strategy Group was established in December 1995 to consider the method of devolving budgets to divisions. This group, with representation from divisional commanders, support services managers, and the Headquarters Finance Department, established the protocol for devolution and thereby, the allocation of resources. By emphasizing the rules, the group avoided consideration of inter-divisional argument concerning the quantum of resource allocations to any one of them, as one divisions' gain would be anothers' loss. The group did however, continue to push for the devolution of resources from those budgets retained by Headquarters departments.

A Finance Strategy was published in 1995, which identified the problem of scarce resources and the need to "generate growth by eliminating waste". The elements contained within the Finance Strategy are sufficiently important to be repeated here: a. "A fundamental principle ... that all revenue spending will be devolved to the appropriate cost centre unless there is a sound reason not to do so". This particularly applied to police and civilian pay costs, planned to be devolved in 1996, initially as non-virement, subject to a formal budgeted posts protocol.

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b. "A delegative culture ... which involves Headquarters adopting a strategic role and Divisions acting as key resource managers". c. Unlimited virement of devolved budgets. d. Income generated retained by Divisions. e. Cross charging not adopted unless agreed by all parties in advance. f. Overspending not allowed. g. Capital expenditure to be approved by Director of Finance. h. The Force to build up reserves to a 3% target over 3 years. i. Automatic carry forward of underspending, up to 20% of the virement budget.

As a result of this strategy, managers who made operational decisions became responsible for the financial consequences of those decisions. Originally, expectations were not high: "There is scepticism among my colleagues about whether the fancy words of devolved financial management will materialize. The fear is that the process will devolve the administration and the responsibility but not the control." - Superintendent, Divisional Commander

Financial management was devolved to divisions in a gradual process that took two years to accomplish. The extent of budget devolution reached almost 60% in 1997/98, when £58 million of the force budget of £106 million had been devolved to divisions, all with virement and carry forward of underspending. A further £4 million was devolved to Headquarters departments with similar rules. Devolution included salary budgets, with a limited right to alter budgeted posts (i.e. the number of police officers and support staff in each division) in order to meet local needs, subject only to a set of rules governing approval of changes to those posts. This allowed: "Divisional Commanders the maximum freedom of management whilst allowing Headquarters to maintain the minimum necessary management control of both the financial and personnel functions". - Minutes of Chief Officers' Policy Group

The budgets retained by Headquarters were for the service departments (specialist CID support, motorway policing, personnel and training, finance, communications and information

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The Power of Accounting: A field study of local financial management in a police force

technology, etc.). However, a project fund was created to pump-prime new operational initiatives that were aimed at helping to meet performance targets.

Three years after it had begun, the initial concern with devolved budgets had eroded, particularly among senior police managers. Divisional commanders no longer saw the devolved budget as an administrative inconvenience, but as enabling them, within the constraints of a limited budget, to allocate their resources in accordance with local priorities, in order to achieve the objectives contained in their policing plans. In the words of three different divisional commanders: "The divisional commander's lot is better, more enhanced. Previously, people didn't allow me to earn my salary. There was no ownership, responsibility or control. " - Divisional Commander

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The Power of Accounting: A field study of local financial management in a police force

"If we want something, we get it because we don't have to go cap in hand to the centre." - Divisional Commander

"If you are short of resources, you become sharper at what you do." - Divisional Commander

While Headquarters drove LFM, there was little resistance by divisional commanders, who actively encouraged the process of devolving authority, to match their responsibility for local service delivery. Divisional commanders saw the whole process of devolving as providing more flexibility to meet the demands of operational policing - their technical work activity. "Having the salary budget is the biggie. It has provided real flexibility. We have had problems recruiting PCs so the savings have been ploughed back into equipment to help the officers to do their jobs, especially I.T. We couldn't have done this previously." - Divisional Support Services Manager

"With financial reserves, I can underwrite targeted operations." - Divisional Chief Inspector

"We have been given the opportunity to make real choices and we have the flexibility to run the division the way we want to meet public expectations." - Divisional Chief Inspector

There were, however a minority of opposing views. "We didn't use to have to think about money. We've forgotten what business we're in. Before, if you had a job to do, you just did it ... responsibility for money is a distraction." - Divisional Chief Inspector

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The Power of Accounting: A field study of local financial management in a police force

"Devolution causes parochialism, with divisions no longer willing to loan resources as they want the money to compensate and for backfilling." - Superintendent, Headquarters Department

The minority viewpoints had little impact, because of the increased power gained by divisional commanders. As financial authority transferred from Headquarters to operational divisions, the divisions used their new authority to implement operational initiatives that helped to achieve non-financial performance targets (for a description of one example, see Collier, 1998). This shift of power was evident in arguments by divisional commanders to trade-in constable posts to fund civilians or equipment needed to meet the targets in their local policing plans, at the same time that the Chief Constable was concerned about political criticism of the falling number of police officers.

This shift in power to divisional commanders was linked with their increased accountability to the Chief Constable, and his increased accountability locally and nationally under the PMCA. However, the increased accountability was accepted because the new power enabled these accountabilities – both the new financial accountability and the existing operational accountability – to be satisfied by police managers at the local level. In the next section, this paper explains the shift in power and how the need for legitimating and technical work activity was coupled.

4. Discussion Findings Despite initial mistrust and a minority of continuing dissent, devolved budgets focused police managers’ attention on those initiatives managers could deliver within the constraints imposed by a cash-limited budget. The cash-limited budget demanded a prioritization of all the tasks that police officers were expected to carry out.

LFM forced this prioritization, but it also enabled divisions to implement their preferred style of policing, by reallocating resources to selected activities and delivering strategy in the way they wanted to, in order to meet the different needs of their local communities. These needs

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The Power of Accounting: A field study of local financial management in a police force

were defined in their local policing plans, focused by the non-financial performance indicators for which police managers were also accountable.

Supported by strategic planning processes and with capital funding from the project fund, divisions implemented new operational initiatives that involved a shift from a reactive, demanddriven style of policing to a more proactive, intelligence-led and problem-solving style (for a detailed discussion, see Collier, 1999). These changes were valued by the police ethos, as they enabled a focus on those services valued by police officers – law enforcement and crime fighting.

The PMCA was an important motivator for change in West Mercia. However, the changes in the force were not pre-planned. They were emergent over several years as new accountabilities enabled new operational initiatives to be implemented. There was a clear commitment to change in West Mercia, to go beyond what was necessary to comply with externally imposed requirements. In this context, police managers, rather than delegate financial decision making to civilian support staff, accepted the responsibility for devolved budgets as much as for operational performance.

The commitment by Headquarters to virement, income retention and carry forward of underspending was crucial to the success of the implementation of LFM in West Mercia. However, devolved budgets resulted in a marked shift in power from Headquarters to divisions, who gained control over the resources for which they had been responsible. This financial power enabled divisions to prioritize the operational initiatives they wished to undertake, and allocate resources accordingly, decisions that influenced their ability to achieve local strategy and PI targets.

Importantly, while West Mercia adopted the language of management and accountability, it retained the dominant operational values of crime fighting and law enforcement. In West Mercia between 1995 and 1999, there was an increased acceptance by police officers in middle management ranks of their role in external accountability: for strategic planning, budgetary control and operational performance as measured by performance indicators. It was the same middle management police officers who used their power to implement the new operational

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The Power of Accounting: A field study of local financial management in a police force

policing initiatives that satisfied the police ethos. Consequently, this paper argues that devolved budgets enabled, rather than constrained activity, by retaining the dominance of operational policing values within a framework of external accountability and the imposition of LFM.

The West Mercia study shows the central role of accounting and accountability in linking the need to gain legitimacy with the demands of technical work activity. Institutional demands for LFM were satisfied while police managers were able to make improvements in the day to day operation of policing. This study shows how accounting – in the form of devolved financial management - facilitated loose coupling, by providing a consensus between, and a context for action that accommodated both institutional and technical demands.

The West Mercia study also shows how the organization went beyond the need to satisfy institutional regulators. It deliberately shifted power over resource allocations, albeit within the constraints of a cash-limited budget, from Headquarters to divisions. Divisional commanders, rather than significantly resist this administrative burden, wholeheartedly grasped the opportunity to exercise a greater degree of control over their finances than had previously been possible.

Thus, the loose coupling between legitimating and technical work activity took place through the mechanism of accounting. Accounting simultaneously satisfied external regulators (that budgets had been devolved to operational commanders) while providing a new power to divisional commanders to allocate that budget in ways that were consistent with street-level, operational priorities that supported the police ethos.

Before considering the implications of these findings for institutional theory, we need to compare these findings with previous research in the police literature, although research into police accountability is sparse. Reiner (1992) comments that there is relatively little empirical research on accountability and the control of policing, although there exists a mechanistic assumption that control of policy carries with it control of police on the ground. Reiner contrasts this with sociological studies of the police culture in which policing practice is largely impervious to policy changes.

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The Power of Accounting: A field study of local financial management in a police force

There are however some exceptions. Colville (1989) applied a dramaturgical approach to examine budget setting in the “Dart and Ambleshire” Police Authority, reflecting that the budget “represents the coming together and reconciliation of a number of organizational, political and professional power relationships” (p. 94).

Jones & Newburn (1997) undertook limited case studies into three forces in the early period after PMCA. They found that no force had devolved budgets significantly, and that little attention had been given to the relationship between corporate objectives and local policing.

The study by Chatterton, Humphrey, & Watson (1996) of devolved financial management in the Police Service relied on research covering two provincial and two metropolitan forces and included a national perspective based on focus-group sessions with 24 Superintendents at the national Police Staff College. This study took place before the introduction of PMCA, although the Audit Commission had published its recommendations for local financial management.

Chatterton et al. (1996) were sceptical about LFM because the Audit Commission had produced no evidence of any benefits from aligning financial and operational responsibility. Chatterton et al. questioned whether police commanders could have any serious control over their resources (p. 20), despite the views of their research subjects as they were contained in the published study. They concluded that “the introduction of cash-limited budgets would require cuts in service provision ... curtailing investigative activity ... In reality, divisional commanders are seldom in a position where they are free to spend much of their delegated budgets as they choose” (p. 76)

However, divisional views gathered during the Chatterton et al. study showed that local commanders generally welcomed financial delegation, which was seen as enabling, with commanders wanting more, rather than less delegation (p. 45-49).

While many of the views of the respondents in the West Mercia study are similar to those in the Chatterton et al. study, the research findings are dissimilar. The difference may be

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The Power of Accounting: A field study of local financial management in a police force

explained methodologically or be explained by the shift in power that accompanied devolved budgets in West Mercia.

The final section of this paper considers the contribution this field study makes to address the shortcomings identified earlier in this paper in relation to institutional theory, and how institutional theory can be developed.

Contribution to institutional theory The first shortcoming of institutional theory identified earlier in this paper was its failure to sufficiently address relations of power and the assumption, in much of the literature, of an institutional environment that is balanced. We argued that the concept of organizational field was a helpful, but insufficient concept to explain these relations of power. The second shortcoming identified from the institutional literature was the absence of any theory that explained how management might construct a loose coupling between competing institutional and technical demands.

The definitions of power given previously in this paper explicitly incorporate conflict and resistance. By contrast, Giddens (1976) argued that power does not of itself imply conflict. Because power is linked to the pursuit of interest, it is only when these interests do not coincide that power and conflict are related (p. 112). In adopting Giddens’ view, it follows that power does not necessarily imply conflict if the interests of different groups are shared. The field study shows how accounting in West Mercia, and the shift in power that accompanied it, helped to reconcile the interests of those pursuing accountability with those pursuing operational policing.

Scapens & Roberts (1993) use Giddens' structuration theory to distinguish "conceptions of 'power to do' and 'power over' [which] can be used to focus on the tensions between the use of accounting as both an enabling device and as a means of achieving hierarchical control" (p. 3). While the cases from the institutional literature cited earlier in this paper focus on power as domination, the West Mercia study shows the potential for power as an enabler.

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The Power of Accounting: A field study of local financial management in a police force

In the West Mercia study, conflict was minimised due to common, rather than conflicting interests. The devolved budget provided an enabling ‘power to do’, rather than a dominating ‘power over’. Moreso, devolved budgets resulted in a shift in ‘power over’ from Headquarters to divisions, as they took the resource allocation decisions (‘power to do’) that had previously been the province of Headquarters’ staff.

For power to enable, there must exist some mechanism to support action. This paper has already introduced the concept of loose coupling. Greenwood & Hinings (1988) believe that loose coupling is a design archetype - an organization’s interpretive scheme and the structural arrangements that support it. Laughlin (1991) builds on this distinction and suggests the design archetype as the intervening variable between the interpretive scheme and sub-systems (tangible elements such as buildings, machines, people and finance). He suggests the need for a dynamic balance between the design archetype, interpretive scheme and sub-systems. Laughlin believes that inertia around a dominant perspective is the norm until such time as there is an environmental disturbance, what Powell & DiMaggio (1991) call “a brief period of crisis or critical intervention” (p. 197).

In this paper, we have seen accounting as the enabling mechanism – in response to the critical intervention of the PMCA - that provided a consensus and a context for action that loosely coupled institutional and technical demands. Accounting in West Mercia valued rather than marginalized the interpretive scheme (of law enforcement and crime fighting) held by police managers, constituting a

‘dynamic balance’ that was not reflected in the institutional

environment.

The fragmentation of that environment, in its simplest terms between regulatory demands for accountability in the context of both a cash-limited budget and LFM, together with expectations for more effective policing, i.e. lower crime, exhibits little balance. Neither is there any evidence of efficiency or effectiveness benefits from aligning financial and operational responsibility. Consequently, despite the fragmentation of the institutional environment, at an organizational level accounting provided a mechanism for balancing these competing demands.

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The Power of Accounting: A field study of local financial management in a police force

This field study has identified the potential for management to introduce an accounting that represents a consensus between, and a context for action encompassing, both the institutional and the technical. Such an accounting can satisfy both the demands of external regulators and the ethos of police managers. Accounting can thus provide a portrayal of organizational activity that is simultaneously seeking legitimation, while also enabling resource allocation decisions to be made which support technical activity.

This paper suggests that institutional theory be developed as follows. First, at an institutional level of analysis, institutional theory can be improved by adopting a model that recognizes ambiguous, complex and conflicting organizational fields, each composed of actors, whose power over legitimating processes or resources may cause conflict where interests do not coincide. Power may result in resistance and conflict, but power should not be seen only as a negative influence (Foucault, 1975, p. 194). Power can also be a positive force, particularly where shifts in power are a by-product of legitimating processes that enable interests to coincide. Institutional theory needs to be more open to these relations of power and their effect on the institution-organization interface.

Second, the concept of loose coupling has been unpacked by the provision of one example of how accounting can act as a mechanism for loose coupling between legitimating and technical activity. In this example, we see how accounting provides a consensus between apparently competing demands and a context for action in which managers recognize and accept the need to satisfy legitimating activity as well as technical processes. In this, we see accounting not as a neutral activity, but as a mechanism imbued with power, both dominating and enabling. Institutional theory needs to develop conceptions of loose coupling, not as a black box, but as a set of mechanisms which warrant description and interpretation.

Conclusion The West Mercia study shows how loose coupling can take place through an accounting that accommodates both institutional and technical demands. In this explanation, accounting acts as a discourse between the demands of external accountability and operational policing. Through this loose coupling, conflict is minimised due to common, rather than conflicting interests. This provides an example of power not as domination, but as enabling.

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The Power of Accounting: A field study of local financial management in a police force

Accounting in West Mercia provides a loose coupling that brings to the foreground the common interests that might be shared between those pursuing legitimation, and those pursuing technical work activity. This consensus was achieved through accounting's reflection of the requirements of external accountabilities, and the shift in power to operational managers that accompanied those new accountabilities. The shift in power over resource allocation decisions to budget-holding police managers enabled them to address operational initiatives that were valued by the police ethos.

Further, comparative research may identify whether the West Mercia study is unique or whether the study suggests a pattern (Powell, 1991) or track (Greenwood & Hinings, 1988) that may, through isomorphic processes, lead to similar findings in other police forces.

This paper should also encourage other organization-level studies using institutional theory, which might take a closer look at relations of power and how loose coupling is effected. Such research might also address the extent to which accounting change in organizations results in a form of power that is enabling.

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The Power of Accounting: A field study of local financial management in a police force

Acknowledgements An earlier version of this paper was presented to the Conference on Management Accounting Change at the University of Manchester in April 1999. The author acknowledges the valuable comments made by participants, in particular by Jan Mouritsen and Bob Scapens. Thanks are also due to Stephen Osborne at Aston for reviewing an earlier draft of this paper.

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