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Ilao, John Michel Z.

Research-Based Enrichment Paper No. 1

I. CHALLENGES AND RESOLUTIONS

Nowadays, people, entity and government spend thousands and millions of money in
infrastructure, projects, health benefits and salary and alike. If such activity continues and in
absences of managing finances properly, resources will be diminished and demands will not be
met. Meanwhile, financial management is a significant part of public sector management; it
supports the design and demonstration of an organization’s financial performance—from financial
cost to results or consequences.1 The material emphasizes the issues and improvements in the field
of financial management.

First, the issues raised are (a) problem in managing spending; (b) lack of prioritization on
services of the government which needs more finances; (c) accountability structures are not
coordinated; and (d) central agencies limited emphasis on value management within or throughout
the government. The issues are interrelated with each other, since management is a contiguous
process which needs to grasp surrounding factors within its realm. Based on the readings, the issues
focused on the unmanaged spending of the central government. The Central Government lacked
on practices and activities which may help them manage their finances according to the needs and
demands of each institution under them. Government had a confused view on prioritization of
departments, divisions or other subdivision of government and how to allocate appropriate
resources for them. It is a must to know what branch of government needs more or less finances
to carry out its duties and obligations. One of the many duties of the Government is to balance the
resources and demands of its people.

Government need not only manage its spending to save resources for themselves, but it
helps boost the economy of the country. Hence, management of spending relates to saving the
resources.

1
2002. Reviewing Financial Management in Central Government, pg 9.
Ilao, John Michel Z.

In discussing the issues, the readings provide solutions for the improvement of managing
finances. The solutions as emphasized are as follows (a) cost reduction; (b) strategic planning; (c)
skill and capability development; (d) budget management; (e) financial control; and (f) governance
and accountability.

Cost reduction suggests that there be controlling spending, redesigning public services so
that they operate permanently at lower cost. Moreover, strategic planning refers to the effective
planning in resolving the challenges of financial management. Since the government lacks skills
and capability in managing finances, it is an outright need that there be a finance team that has an
outstanding skills and will be able to exercise the practices in financial management. Budget
management refers to the means of managing the sources of funding and expenditures, and
allocating those resources in line with organizational priorities and their cost effectiveness. The
main prerequisites for managing budgets include understanding: sources of funding, and lining
these up with outputs and outcomes; long-term strategy and priorities, and how cost-effective
activities are in achieving desired outcomes. Furthermore, budget management happens when
funding and expenditures are in line with strategic priorities and based on a clear understanding of
performance expectations. Financial control refers to the rules and processes, and procedures that
address risks and assure that financial resources are being recorded and used in the right way, for
the right purpose, and at the right time. The main prerequisites for financial control include
understanding: risk management and controls of the organization, and their potential costs and
benefits; and how capital and operational risks relate to the organization’s risk framework.
Financial controls are more than just compliance exercise. Lastly, governance and accountability
refers to the roles, responsibilities, delegations and decision-making structures through which
strong financial management can be introduced, practiced and overseen. Without governance and
accountability managing financial performance is more difficult and prone to risk.

There are factors affecting financial management, as to supply and demand. Factors
affecting supply are as follows, processes, systems, date, capability and leadership. On the other
hand, factors affecting demands are internal governance, external governance and central
government financial frameworks.
Ilao, John Michel Z.

Challenges and resolutions were presented, however, the need for financial management
still calls for brief and thorough understanding. According to the reading, good financial
management is responsible for not only protecting, developing, using resources, pushing and
maintaining economic growth and increasing income, but also managing effectively and efficiently
all national resources. Calling for financial management does not mean that government needs to
master nor perfect the abovementioned practices in order to attain economic growth or boost
national economy, it only posed that there be a presence of financial management in order have
financial control and save the country‘s resources. The effectiveness of financial management
means that central government act upon the issues and challenges that we faced in relation to
financial performance. Establishing a strong foundation for financial management secures fiscal
sustainability, resource mobilization and proper allocation.

II. ANALYSIS AND DISCUSSION

Public financial management calls the attention of the Government around the world, as they
struggle in attaining the fiscal sustainability and managing financial risk. There are several
circumstances presented in the reading material that posed the need of financial management. It
presents scenarios across the borders regarding the increasing struggle for improving financial
performance and control in finances. The responsibility of the government regarding financial
management is vested by the Public Finance Act of 1989 which states that the chief executive of
a government is responsible for the financial management and financial performance of the
department.

The Philippines like other developing and developed countries struggles in the field of financial
management. In our context, it can be seen that there are rampant projects and infrastructure by
the local and central government that overlaps. For example, health center projects, there are times
that central government would grant the making of a health center in a certain locality, despite
knowing that such locality has the fund in making such health center. One of the solutions
presented by the reading is proper allocation of resource and budget management. If it apparent
that local government has the duty and capacity to establish such project, the central government
Ilao, John Michel Z.

must allocate the fund for that project elsewhere in order to save resources and instead benefit
other projects.

We know that State or Government are resistant of change, however, in order to attain the
fiscal sustainability and economic growth government must be open to incorporate in its system
the proposed financial management to reduce cost and expenditures. There are several countries
that attempted to design frameworks that would address financial performance of its country. Some
of the countries are New Zealand, United Kingdom, Singapore and Australia; these countries try
to address such issues. Many government face significant challenges understanding the cost and
financial performances.

In a government under a developing country, such must be aware of the services which will
need more or less funds in carrying out its purpose. Every year, the government submits its budget
report itemizing the department and its project that they aim to perform the whole fiscal year. In
order to manage the finances well, the government before the budget year must deliberate with the
departments the projects and budget that will be allocated to each department. It is a means of
saving and funding properly which avoids overlapping projects and expenses.

Other solution that needs to be emphasized is the finance team that has the skills and capability
of executing the practices incorporated in financial management. The finance profession needs
boost and coordination in order to make compliance with the needs of financial performance.

III. CONCLUSION AND RECOMMENDATION