The Power of Accounting

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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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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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.
3
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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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 governments 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'tre 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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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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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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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
8
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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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 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 researchers 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
11
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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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 researchers 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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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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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
15
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
16
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 Sub-
divisional 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).
17
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 pear-
shaped, 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.
18
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
19
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
20
"If we want something, we get it because we don't have to go cap in hand to the
centre."
"If you are short of resources, you become sharper at what you do."
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."

"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."
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."
21
"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
22
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, demand-
driven 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 under-
spending 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
23
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.
24
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
25
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.
26
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 organizations 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.
27
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.
28
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.
29
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.
30
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The Power of Accounting: A field study of local financial management in a police force

THE POWER OF ACCOUNTING:

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

The Director, Aston Business School Research Institute, Aston University,

The conceptualization of power at three levels by Fincham (1992) - institutional,

Accountability and accounting control systems

Accounting is also implicitly involved in relations of power within the institution-organization

The existence of control systems with fragmented performance expectations, supported by

Tolbert (1985) integrated institutionalization with a resource dependence perspective,

Shortcomings of institutional theory

The Audit Commission (1994) recommended the maximum delegation of financial

will result in improved efficiency or effectiveness. However, there is an absence of any

Devolving budgets: the field study of West Mercia Constabulary

In 1995, West Mercia introduced a comprehensive strategic planning process, a further

"With financial reserves, I can underwrite targeted operations."

There were, however a minority of opposing views.

"Devolution causes parochialism, with divisions no longer willing to loan resources as

explained methodologically or be explained by the shift in power that accompanied devolved

Contribution to institutional theory

Cmd673. (1994). Financial Management Code of Practice : HMSO.

Fincham, R. (1992). Perspectives on Power: Processual, Institutional and 'Internal' Forms of

Foucault, M. (1975). Discipline and Punish: Penguin.

Hopwood, A. G. (1983). On Trying to Study Accounting in the Contexts in Which it Operates.

Hopwood, A. G. (1987). The Archaeology of Accounting Systems. Accounting, Organizations and

Junker, B. (1960). Field Work. Chicago: University of Chicago Press.

Laughlin, R. C. (1991). Environmental Disturbances and Organizational Transitions and Transformations:

Scott, W. R. (1995). Institutions and Organizations. Thousand Oaks: SAGE Publications.

Tolbert, P. S. (1985). Institutional Environments and Resource Dependence: Sources of Administrative

Weick, K. E. (1976). Educational Organizations as Loosely Coupled Systems. Administrative Science

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