The Evolution of Financial Transparency

February 23, 2015 10:02 am PST | Open Data

Where It’s Going, and What’s Next

The term “financial transparency” might be relatively new, but as Ari Hoffnung, the former Deputy Comptroller for New York City, comments, the concept dates back thousands of years. In America, it starts with the founding fathers, who “had discussions about financial reporting to the thirteen states,” says Hoffnung.

A Cornerstone of Democracy

It’s safe to say an abiding concern for where exactly their tax dollars are going and how they’re being spent is fundamental to the American character. After all, an issue of taxation was the cataclysm for the American Revolution.

But of course, tracking how tax money is spent is an issue of concern to every taxpayer, regardless of nationality. For taxpayers, it’s always going to be important “to know that the people who have the power to spend that money are doing so in an appropriate fashion,” says Hoffnung.

Transparency around the government’s spending and allocation of taxpayer money is vital to an open, honest, and trusting relationship between the public and government. Just a few of the benefits of financial transparency are:

  • Highlight initiatives: Financial transparency makes it easy for government to showcase what’s working well.
  • A force against corruption: When the money spent is visible, it’s more difficult to spend it illicitly.
  • Brings structure and data to rhetoric: It’s easy to blast excessive spending or lack of investment in certain programs, but having the budget available for anyone to see forces governmental workers and politicians to frame discussion around the numbers and available budget.
  • Holds politicians’ feet to the fire: There’s no better way to limit unnecessary spending than to have it visible to the public. And, of course, the knowledge that all spending will be visible can curtail unnecessary spending.

From Paper to PDFs to Interactive

How transparent is governmental spending? And what was financial transparency like in the past? It’s not necessarily the case that government wasn’t transparent about spending in the past – it’s more to the point that accessing information required a lot from the public.

Financial transparency started with paper: for years and years, after budgets were presented and passed, the details would be stored in city hall, the library, or other repositories of public information. Financial details were available – just not always easy to view. Only very motivated citizens (or, more likely, journalists or others directly affected by the budget) were likely to take a field trip to where the records are stored.

The advent of the Internet made financial transparency dramatically easier: PDFs of financial information marched online. But while it was a huge leap forward for financial transparency, allowing anyone to access and download budget-related documents, combing through the PDFs, and finding relevant details, was still a challenge. For people without a background in finance, following the money trail, or even finding the relevant document, was a challenge.

In the past few years, financial transparency made a huge leap forward, freeing up information from PDFs, and using interactive, clickable graphs and charts to display spending.  In terms of financial transparency, details on who is receiving money, what checks are being cut, and when spending occurs is now visible for many, many states and cities.

What’s Next for Financial Transparency?

“We’re light years ahead of where we were five or ten years ago,” Hoffnung says, but of course, a lot of exciting opportunities are ahead. Here are four of the big trends that lay ahead for financial transparency.

1. Expanding All Over

Very surely, and not so slowly, financial transparency is making its way across the nation, and around the world. All other trends aside, the first step is clear. As Hoffnung puts it, “let’s get the information out there first, and then we’ll talk about next stages.” The biggest trend ahead is for all budgets – from those of sprawling cities to tiny towns – is to ditch the paper, and get the information online in an easily searchable and accessible format.

 2. Getting Better at Telling a Story

The missing piece for financial transparency might very well be context. Go on NYC’s Checkbook NYC site, and it’s intriguing to see how the money is being spent. And for a journalists, public policy makers, and experts, the information is hugely informative and can help them make decisions. But for an ordinary citizen, it can be hard to know what to make of the spending. Checks are cut with lots of zeros – astounding amounts of money going in all directions. What’s missing is the context: why is that money being spent?

The other side to this is sharing the information where the public is: it’s easier to go to a site to find out spending than to trek down to city hall, but it still requires the public to take the first step. Why not share information on social media? Using Twitter, Instagram, Facebook, Tumblr, Snapchat (and whatever the next big social site is) to share facts and graphs could go a long way toward providing context and engaging public interest.

 3. Not Just for the Big Guys

Financial transparency is not just happening on the state level, and it’s not just for major cities such as New York or Los Angeles. What used to be a hugely expensive task – getting financial information online in clear, user-friendly, easily searchable format – is now doable for governmental institutions of all sizes, from a sprawling metropolis to a small town.

 4. A More Participatory Democracy

Want the public more engaged with the government? Sharing the projects, spending, failures, and successes of the institution are a vital first step. Or as Hoffnung bluntly phrases it, “people would be more engaged with government if they knew what the hell it was doing.”

Financial transparency allows the government to clearly present information on its spending. A possible trend for the financial transparency movement might be fostering interaction, so that anyone can question, comment, or make suggestions.

It’s exciting to ponder what’s ahead for financial transparency. For Hoffnung, it’s incredible how far financial transparency has come since 2010, when Checkbook NYC went live. It took years to get the site in place, and millions of dollars. Now, with tools from Socrata, this type of information can be shared at a fraction of the cost, and implemented in weeks or months, rather than years. 

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