Definitions
Public Financial Administration deals with the principles and practices concerning the efficient (cekap) and prudent (hemat; bijak) management of the funds / finances of the government.
It may also be defined as the machinery and method by which funds for the implementation of public programmes and services are raised, spent and accounted for.
Importance
Public financial administration is important because:
(i) Finance is the life-blood (nadi) of every agency. Personnel and materials which are needed for
the effective functioning of any agency can be obtained only if money is provided. In other
words, it makes funds available for the activities and programmes of the government and
ensures the lawful and efficient use of these funds.
(ii) The efficiency of operating systems and maintenance systems depends on the effectiveness of
the financial system as every activity may have financial implications.
(iii) It helps in improving the socio-economic life of the people. It transforms financial resources
into public purposes and thus improves the welfare and well-being of the ordinary people.
(iv) It helps in achieving the national objectives of the government.
(v) It ensures that public funds are managed well so that wastage and abuses are avoided.
(vi) It helps in raising revenue from domestic as well as foreign sources to implement the
government's various development projects and provide public services.
(vi) Fiscal policy, an element of financial management, is used in reducing inequalities of income
and equitable distribution of wealth among different sections of the society, maintain price
stability, control inflation, generate employment, attract foreign direct investment, bring
about balanced regional development and reduce the deficit in balance of payments.
Components / Aspects/ Major Activities of Financial Administration
The components of public financial administration are : Budgeting, Purchasing and Supply, Treasury Management , Tax Administration , Accounting and Auditing.
Budgeting. It refers to the preparation of a budget. A budget is an annual statement of revenue (income) and expenditure of the government. It is considered the master financial plan of the government. two types of budget are prepared in the pubic sector- operating and development budget. The operating budget is for the annual recurring expenditures such as payment of salaries, purchase of materials and equipment and administrative expenses. Development budget concerns cost of acquisition of land, construction, infrastructure and equipment for new or on-going five-year development projects.
Purchasing and Supply. It involves the procurement (perolehan), storage, monitoring and distribution of goods and supplies for carrying out the various activities of the government agencies. The primary objective of the purchasing and supply function is to buy goods and services of the right quality, in the right quantity, at the right price, from the right source (supplier) and at the right time.
Treasury Management. It covers the following activities : cash management ( controlling spending by making payments for contractors and suppliers according to bills / invoices and contract terms); managing government bank accounts; pubic debt management and administration of technical assistance grants and foreign aid; and implementing the budget in a timely manner.
Tax Administration. Government spending is paid paid for through taxation. Tax administration includes assessment, timely collection, enforcement and management of the various taxes under the internal revenue laws or related statutes of the country.
Accounting. It forms the basis of financial administration. It is the systematic recording, summarising, reporting and analysis of of all financial transactions (receipt of income and expenditure) of a public agency in a particular year. A close relationship between budget and accounts is necessary for making comparison between goals or targets and actual achievements. In the public sector, the Accounting departments in the various ministries and the Accountant- General are responsible for the preparation of agency and national accounts.
Auditing. It is the objective examination or scrutiny (penelitian) of the financial accounts and statements of an agency by an independent (bebas) and competent (cekap) person. the purpose of an audit is to verify the legality, accuracy, fairness and truthfulness of the financial accounts and statements produced by a public agency. In Malaysia, under the Audit Act of 1957, the Auditor-General is responsible for carrying out audit activities in a professional and independent manner and produce Annual Audit Reports to Parliament and State Legislatures.
Agencies / Machinery of Financial Administration in Malaysia
Financial administration involves a continuous chain of operations / activities : Preparation of the budget (i.e. the estimates of the revenue and expenditure for a specific year); Enactment of the budget (securing legislative approval for the estimates); Execution of the budget (regulation of the expenditure and raising of revenue); Treasury management (safe custody of the revenue raised and due arrangements for the necessary payments to meet the liabilities of various agencies from the allocation approved by the Legislature ) ; Maintenance of proper accounts and the audit of these accounts ; and legislative control of the financial transactions (urus niaga) of all public agencies.
The following agencies play an important role in the various operations of financial administration as stated above.
The Executive. The Executive is responsible for the formulation of the financial policy of the government and the preparation of the budget for the ensuing (berikutnya) year. It is assisted in this task by the Central Agencies such as the Ministry of Finance and the Economic Planning Unit (EPU). The budget estimates originate from the operating agencies as they alone know their sources of revenue and fund requirements. The Executive approves and presents the budget proposals to the Legislature for approval in the form of a Supply Bill.
The Legislature. According to the Malaysian Constitution, only Parliament (Dewan Rakyat) can authorize the imposition and collection of taxes and the annual expenditure of the government agencies. The enactment of the budget goes through a few stages in the Legislature before it is approved in the form of a Supply Act. Public agencies cannot exceed the allocation approved for them by the Legislature.
The Ministry of Finance. It is responsible for scrutinizing the budget estimates submitted by the various public agencies and giving the final shape and consolidating the estimates and including them in the national budget for tabling in Parliament. It is also responsible for monitoring the execution of the budget allocations approved by the legislature and controlling the expenditure of government agencies. Public agencies are required to follow the financial regulations formulated by the Finance Ministry. Once the Legislature has approved the budget, the Minster of Finance issues the General Warrant to all government agencies allowing them to disburse the allocations for the purposes for which they were approved.
Controlling Officers. As soon as the Legislature enacts the budget and the General Warrant is issued, the Chief Executives of the public agencies known as the "Controlling Officers" allocate funds to the various programmes and activities of the agencies and control the expenditure. It is the duty of the Controlling Officers to ensure that the funds approved by the legislature are not exceeded (melebihi) and proper accounts are kept on all the financial transactions (urus niaga) of the government agencies.
Audit. A very important agency of public financial administration is the Audit Department. The Audit Department is headed by the Auditor- General. He is appointed by the Yang di-Pertuan Agong YDPA) and his function is to examine the accounts of all public authorities in the country and the appropriation (penguntukan) of the funds approved by Parliament to meet public expenditure. He is also required to submit an Annual Report on his audit findings to Parliament through the YDPA. An independent audit protects the State against misappropriation and wastage of public funds and checks and exposes fraud, unauthorised and excess expenditure and negligence in collecting revenue due to the government..
The Public Accounts Committee (PAC). It is a select committee of Parliament responsible for the examination of (a) the accounts of the Federation and public authorities and the appropriation (penguntukan) of the sums granted by Parliament to meet public expenditure and (b) the examination of the Auditor-General's Annual Reports (exposing (mendedahkan) the weaknesses in public financial administration) submitted to Parliament. The Committee has the power to send for persons, papers and official records, and to report from time to time.
©Peter Johnson 2014
