This document discusses different approaches to budgeting in the public sector, including traditional budgeting, programme and performance budgeting, modified budgeting, and outcome-based budgeting. Traditional budgeting focuses on line items and inputs, while programme and performance budgeting links resources to programmes and objectives. Modified budgeting gives managers more autonomy over financial management. Outcome-based budgeting focuses on the outcomes achieved rather than the inputs used. The document examines the strengths and weaknesses of each approach.

2. Budgetary Approaches
4

3. All Rights Reserved
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

4. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–4
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

5. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–5
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

6. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–6
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

7. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–7
Traditional Budgeting (cont.)
 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.

8. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–8
Traditional Budgeting (cont.)
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

9. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–9
Traditional Budgeting (cont.)
 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

10. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–10
Traditional Budgeting (cont.)
 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.

11. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–11
Traditional Budgeting (cont.)
 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.

12. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–12
Traditional Budgeting (cont.)
 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

13. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–13
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

14. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–14
Programme and Performance
Budgeting (cont.)
 The concept is to link between resource
allocation with programmes that are able to
facilitate the public sector in achieving its
objectives.

15. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–15
Programme and Performance
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

16. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–16
Programme and Performance
Budgeting (cont.)
 The implementation
– Identifying overall objectives
– Planning and structuring of programmes
– Analysing and selecting programmes
– Evaluating performance

17. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–17
Programme and Performance
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

18. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–18
Programme and Performance
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

19. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–19
Programme and Performance
Budgeting (cont.)
– Encouraged good management practices among
managers
– Provides for proper performance evaluation that
links between utilisation of resources and
achievement of objectives

20. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–20
Programme and Performance
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

21. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–21
Programme and Performance
Budgeting (cont.)
– The complexity of public sector was ignored in
the development of the programme structures
– Conflicting objectives of the public sector

22. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–22
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.

23. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–23
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).

24. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–24
Modified Budgeting (cont.)
 Elements:
– Expenditure target
– Programme agreement and exception report
– A cycle of programme evaluation
– A more generalise approach to expenditure
control.

25. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–25
Modified Budgeting (cont.)
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

26. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–26
Modified Budgeting (cont.)
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

27. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–27
Modified Budgeting (cont.)
 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

28. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–28
Modified Budgeting (cont.)
 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.

29. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–29
Modified Budgeting (cont.)
 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

30. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–30
Modified Budgeting (cont.)
– Better programme rationalization and analysis
– Better programme indicators
– Emphasize the value of money concept
– Promotes management by exception.

31. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–31
Modified Budgeting (cont.)
 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

32. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–32
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.

33. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–33
Outcome-based Budgeting
(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

34. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–34
Outcome-based Budgeting
(cont.)
 Main components:
– The Performance Monitoring and Evaluation
(M&E) System
– The Management Information System (MIS)
– MyResults

35. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–35
Outcome-based Budgeting
(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

36. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–36
Outcome-based Budgeting
(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

37. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–37
Outcome-based Budgeting
(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

38. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–38
Outcome-based Budgeting
(cont.)
 Monitoring, evaluation and reporting of results
– Monitoring:
• Achievement or results, financial aspects, and the
physical project implementation
• Quarterly and annual basis

39. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–39
Outcome-based Budgeting
(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

40. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–40
Outcome-based budgeting
• Tests effectiveness in achieving outcomes,
achievement of optimal results and existence of
wastage
• Determines the appropriateness and relevance of
programme objectives.

41. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–41
Outcome-based Budgeting
(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

42. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–42
Outcome-based Budgeting
(cont.)
– Balanced allocations between operational
expenditure and development expenditure
– Better reporting of budgeting and performance
data.

43. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–43
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

44. All Rights Reserved
Public Sector Accounting Governance and Accountability in the Malaysian Context
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 4–44
 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