Lars Östman towards a general theory of financial control

Functions and financial control for organisations 

 

In the past, public-sector control and private-sector control were mostly regarded as two 

different fields. Furthermore, simplified notions about various mechanisms often served as 

ideological and rhetorical weapons when overall structure and control systems were 

constructed. In the mid-20

th

 century, the expansion of the public sector in Sweden was 

supported by unrealistic ideas about “people´s” influence on resource allocation in society. 

In a similar way, market liberal ideas at the end of the century included operational, social 

and temporal contexts for resources and their use only to a very limited extent. 

For me, the starting point is functions rather than control methods. In that case, much is to 

be said for a more holistic approach analytically. Economic systems should satisfy the 

functions of large groups of people. These functions are based on common resources to a 

decisive extent and have many interconnections. Activities within the private and public 

sectors are interdependent, especially in the long term, and they aim at human goals that are 

interdependent too. There are pay-driven approaches and function-driven approaches to the 

basic problem. To what extent, and in what way, can these approaches be combined? How 

should pay-driven units be managed? What should be the role of authorities and control 

subjects in relation to pay-driven units? How should tax-financed function-driven units be 

governed?  

The private sector is not financially independent of the public sources. Authorities, based 

on political will and decisions, may occasionally give financial support to threatened 

corporations of significance for the financial system or some important industrial sector. It is 

uncertain when and to whom such support will be given. Nevertheless, financial 

independence and uncertainty are at lower levels than would be the case without this 

possible support; this may have implications for rate-of-return requirements in both vertical 

and horizontal processes.  

                                                            

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 In his book Accounting, Accountants and Accountability, MacIntosh uses the term “hyperreality”. Even if my 

approach is different, I make observations that are similar.  

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49 

 

Generally speaking, financial control systems for organisations are constructions for 

handling economic scarcity: how functions and visions are related to resources. They are 

instruments for dimensioning, for activity orientation and for efficiency. In the public sector, 

typically, organisations are devoted to certain functions. Funds are allocated for the benefit 

of some area of significance and directives are given.   Various control techniques are used 

to approach function within the public sphere, including pseudo-commercial models and 

assignments to privately-owned organisations. It remains to be seen what actually happens at 

the operational level and what the horizontal effects are.  

Political bodies and the public sector determine the frames of control systems for the 

private sector. In these systems, funds are allocated to organisations by users and buyers for 

the benefit of the use of products. Allocations are also made by financial institutions for the 

benefit of financial return. Investment opportunities differ in terms of operational and 

financial risks. In the private sector, typically, pay-driven organisations develop new 

businesses and products and hopefully they will satisfy functions in the future – it is not 

always clear exactly what these functions will be and whether products will give a financial 

return or not. The forces of units in truly decentralised structures have been one cornerstone 

of economic systems.   

Financial control issues can be discussed in terms of a few basic issues. The horizontal 

issue: what do states and flows in the horizontal line look like?    Some forces are opposed to 

each other in this line. The first is efforts forwards to satisfy a user – and ultimately an end 

consumer. The second is the interests related to organisations. The third is considerations 

backwards. The vertical issue:  what do states and flows in the vertical line look like?  Two 

forces in particular are at work in the vertical controlling process. The first is that current 

functions and renewal are achieved by continuous, permanent organisations. The second is 

the perpetual search by financial principals for new alternatives for future functions and for 

vitality in existing organisations. The reinforcement issue: Vertical processes and horizontal 

processes reinforce each other. How is this done and what are the effects?