Ch04 (1).ppt

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Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–3
 Discuss the form of traditional budgeting, its
strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.
Learning Outcomes

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Introduction
 Budgeting approach is the technic or the
method by which allocation estimates are
determined.
1. Traditional Budgeting
2. Programme and Performance Budgeting
3. Modified Budgeting
4. Outcome-based budgeting

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Traditional Budgeting
 The traditional budget is also known as the line-
item budget or standard-object budget
 The presentation of the traditional budget is
based on line-item, or on the nature of income
and expenditure
 Example, income from fees, sales, and grants;
expenditure on employment, consumables, and
travelling, among others

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Traditional Budgeting (cont.)
 Financial control is focused solely on minimising
expenditures and controlling inputs (costs)
 Main aim ensuring the limited funds were
allocated effectively, which is to minimise
excessive and unauthorised expenditures

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 Allocation of resources according to the
expenditure objects without taking consideration
of objectives, policies, and priorities
 Unutilised allocation has to be surrendered to
the Treasury at the end of the year and can
lead to lesser allocation in the following year.

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Budgeted administrative expenditure for the year XXX
RM million
Emoluments 23.64
Services and supplies 73.42
Assets 8.11
Fixed charges 0.98
Other expenses 1.37
Total administrative expenditure 107.52

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 Incremental approach
Current year’s estimates
Actual spending for
the year
Discussions and
approval Next year’s estimates
Determination of
increments
Current year’s estimates
+ increments

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 Rationale
– Simple and easily incorporated in the accounting
system.
– Does not require extensive analysis on the
activities carried out, especially when most public
sector activities are either mandatory or very
required
– Reduces arguments during budget presentation
and approval
– Reflects rational economic policy.

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 Shortcomings
– No consideration of whether a particular activity is
still compulsory in meeting the objectives
– Focuses on inputs (spending) instead of outputs
(achievement of objectives)
– There is no link between the allocation and the
objectives of the public sector
– Less information cost-effectiveness.

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 Shortcomings
– Encourages departmentalism, budget padding
and unnecessary spending
– Fails to indicate the planned level of activity for
the services offered
– Limited to short-term planning

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Programme and Performance
Budgeting
 The approach was mooted by the United
Nations in 1967
 The aim was to transform public budgeting
system from the control of inputs to a focus on
outputs or outcome in the interest of improving
operational efficiency and promoting result-
oriented accountability

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Budgeting (cont.)
 The concept is to link between resource
allocation with programmes that are able to
facilitate the public sector in achieving its
objectives.

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Budgeting (cont.)
 Main components
– Programme budgeting
• Determination of objectives and programmes to
achieve the objectives
• Budget allocation is based on the programmes
– Performance budgeting
• Development of performance indicators as a way
for measuring performance and costs

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Budgeting (cont.)
 The implementation
– Identifying overall objectives
– Planning and structuring of programmes
– Analysing and selecting programmes
– Evaluating performance

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Budgeting (cont.)
Objective Programme Activities
Improve
local
community’s
wellbeing
Eradication of dengue cases
 Dengue awareness
campaign
 Community ‘gotong-
royong’
 Regulation enforcement
Expansion of recreational
parks
 Installation of children’s
playground
 Maintenance of camping
sites
 Security control
Landscaping and
beautification
 Janitorial services
 Landscape maintenance
 Landscape architecture

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Budgeting (cont.)
 Implications
– Improvement of record keeping, classification and
coding scheme for revenue and expenditure, and
the introduction of vote book,
– Implementation of better financial management
system whereby cost controls were delegated to
the agencies
– Budget dialogues became more meaningful

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Budgeting (cont.)
– Encouraged good management practices among
managers
– Provides for proper performance evaluation that
links between utilisation of resources and
achievement of objectives

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Budgeting (cont.)
 Shortcomings
– The local environment was not considered
leading to poor development of programmes
– The focus on line item and annual perspective
was retained
– Performance indicators were poorly developed
especially for measuring intangible benefits and
programmes with shared objectives

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Budgeting (cont.)
– The complexity of public sector was ignored in
the development of the programme structures
– Conflicting objectives of the public sector

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Modified Budgeting
 The main concept is ‘let managers manage’ and
‘accountability to match authority’
– greater authority and autonomy in financial
management given to controlling officers
– Controlling offices were to set their own targets
and prioritise their programmes.

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Modified Budgeting (cont.)
 Focussed the ‘value for money’ in the spending
of public money:
– Economy: input (charges and expenditures)
– Effectiveness: output (products and services),
– Effectiveness: impact (effectiveness of input and
output as measured in terms of quantity, quality,
timeliness and costs).

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 Elements:
– Expenditure target
– Programme agreement and exception report
– A cycle of programme evaluation
– A more generalise approach to expenditure
control.

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The maximum spending estimate allowed
Determined by the Treasury
Elements for determination: last year allocation, existing
policies, new policies, one-offs, threshold, and efficiency
dividend
Expenditure
target

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Upper level manager
Programme
Agreement
Exception
reporting
• A contract
• Delegation of
authority
• Agree on the input,
output and impact
of programme
• Indicate the
acceptable
performance
variance
Lower level manager
• Report on
performance
deviations
• Accountability
reporting
• Contains:
• The variance
• Causes
• Remedial
actions

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 Programme evaluation
– determines whether a programme
delivers the expected impact
– A form of monitoring
– provides feedback on the
achievement of objectives,
efficiency, constraints, an
usefulness
– one year in a cycle of five years
Programme selection
Data analysis
Report preparation
and submission
Data collection
Evaluation planning

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 A more generalised approach to expenditure
control
– A comprehensive approach towards expenditure
control instead
– Lower level managers are accountable for the
activities that are under their control
– Stricter control over aggregate resources where
additional allocations are rarely provided or even
considered.

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 Implications
– Provides flexibility for managers to make
decisions within their authority and focus on
strategic planning
– Encourages accountability via clear delegation of
authority and feedback
– Clearly identify the customers

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– Better programme rationalization and analysis
– Better programme indicators
– Emphasize the value of money concept
– Promotes management by exception.

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 Shortcomings
– Sole focus on the output in terms of quantity
rather than quality
– Budgeting become mere compliance
– Lack of structured monitoring framework
– Programme evaluation was carried out on an ad-
hoc basis

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Outcome-based Budgeting
 Outcome-based budgeting was implemented
with the aim to:
– Efficiently manage national resources via
delegation of authority
– Links programmes to the Malaysia Plan
– Focus on impacts towards national economy
– Increase accountability via strong governance
framework.

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(cont.)
 Characteristics:
– Programme-based approach
– Budget examination involving the Treasury, EPU
and PSD
– Programmes are linked to Malaysia Plan
– Adoption of medium-term perspective
– Delegation of authority
– Incentives linked results
– Systematic training

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(cont.)
 Implementation
– Outcome-based
planning;
– Budget
preparation;
– Monitoring,
evaluation and
reporting of
results.
National Plan
National-level
programmes
Ministry-level
programmes
Ministry-level
activities
Activities’
budgets
Programmes’
budget
Ministries’
budget
National
Programmes’
budget
National
budget
Bottom-up
budget
preparation
Top-Down
Budget
Planning

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(cont.)
 Outcome-based planning
– A top-down approach
– All programmes and activities are integrated and
hierarchical in nature and could be traced to the
national strategies.
– Stakeholder needs, target performance, and
output are determined for each outcome
Strategy Outcome Programmes Activity

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(cont.)
 Budget preparation
– Bottom-up
approach
– All applications for
programmes are
consolidated at the
ministry level
Activities’ budgets
Programmes’ budget
Ministries’ budget
National Programmes’ budget
National budget

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(cont.)
 Monitoring, evaluation and reporting of results
– Monitoring:
• Achievement or results, financial aspects, and the
physical project implementation
• Quarterly and annual basis

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(cont.)
– Evaluation
• Complete programme evaluation within a five-year
period
• Identifies programmes that need to be reduced or
expanded
• Determines allocations that are to be retained,
reduced, increased or abolished

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Outcome-based budgeting
• Tests effectiveness in achieving outcomes,
achievement of optimal results and existence of
wastage
• Determines the appropriateness and relevance of
programme objectives.

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(cont.)
 Implications
– Strengthens the linkages between national
objectives and strategies, between short-term
plan and long-term plan
– Restructuring of programmes and activities
– Focus on programme performance and results
during budget examination
– Better budget examination and coordination
– Enhances performance

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Summary
Traditional budgeting 1950s-1969
Westminster model
Line-item
Incremental
approach
Programme and Performance budgeting 1969-1990
Mooted by United
Nation
Programme
structuring
Linked budget
allocation with
programmes
Modified Budgeting 1990-2013
Lets managers
manage
Expenditure target
Programme
agreement and
exception report
Programme
evaluation
Generalized
expenditure control
Outcome-based
budgeting 2014 -
Links budget with
national plan
System support
Emphasis on quality

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 Discuss the form of traditional budgeting, its
strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.
Learning Outcomes

Ch04 (1).ppt

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