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TOPIC OUTLINES
Introduction Definition of terminologies Legal Requirement The objectives, Roles and Functions of budget Types of Budget Components of Operational budget Structure of Code of accounts for budget item Budget Format Budget process Budget techniques/methods Conclusion References Tutorial questions
Introduction
Budget is the first activity in the government financial management. Is the only way for the government to withdrawal the money from CF. In practice, normally the government will table the proposed budget in September or October every year.
Refer to the main items in the budget, which is Expected Revenues and Expected Expenditures
Budgeting - a plan showing how resources will be acquired and used over a specified time interval Budgetary Control Establishment of budgets relating to the responsibilities of executives to the requirement of a policy. Budgeting technique Refer to the technique or system in formulating the budget figures
Legal Requirement
Budgeting need to be prepared by the government every year as required by the following rules. Article 99 & 100, 101 of FC Sec 15 FPA, 1957 Treasury Instruction (TI) no 2951(The procedure for preparation of budget) Treasury Circulars, no. 2, 2009
Objectives of budget
a.To fulfill legal requirement
- Articles 99 & 100 FC - Sec 15 FPA 1957 - TI no. 29-51 b. Tools for management planning, Control & Evaluation -As an economic instrument - As an accounting tool
b.
Management instrument
- Managing financial resources budget ensures objectives are achieved as planned - Control help management to control cost and use of resources - Performance measurement compare actual with budget so that appropriate action can be taken to correct the situation
Budget Components
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Code of Accounts for Budget Items.. Cont Level of Revenues and Expenditures
The code that consist of four zero after the numbers will known as General object. The code that consist of three zero after the numbers will known as Specific object. The code that consist of two zero after the numbers will known as Group-Detailed object. The code that consist of one zero in between the numbers will known as Detailed object.
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11000 Salary and wages (Specific object) Revenue 11100 Salary for Public service (Groupdetailed object)
11101 Common Salary for public service (Detailed object) Code Object Name
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Types of Budget
Refers to the proposed net effect of the budget. There are three possibility, deficit, surplus or balance. Deficit Budget
Government aims to spend more than its revenue earning. Example. Estimated Revenue RM232.8 b Estimated Expenditure RM357.9 b Deficit (RM125.1 b) The deficit is expected to be covered by bonds/borrowing The deficit budget is a source of govt. debts Suitable for countries experiencing recession/depression (high unemployment and low output) Govt spend more on operating and development expenditure
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Example
Estimated Revenue RM357.9 b Estimated Expenditure RM232.8 b Surplus RM125.1 b
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Example:
Estimated Revenue RM357.9 b Estimated Expenditure RM357.9 b Surplus RM0
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Budget Format
Operational Budget
Have a specific format provides by the FTC Currently, need to prepared for two years, Current year and following year (FTC, 2/2009) The budget need to be prepared in summary and detailed format Summary format disclose item at general object (Detailed, Refer to illustration)
Development budget
No specific format No need to table in legislative bodies
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xx xx xx
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xx xx xx xx xxx
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BUDGET STATISTIC FOR FEDERAL GOVERNMENT Ye TR TE OE DE D/S ar (M) (M) (M) (M)
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Budgeting process
Implementation Agency
Ministries Department Statutory Bodies
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Nov-Dec
Budgeted debated and approved by parliament, given consent by YDPA & issuance of allocation warrant Oct Budget documents printed and presented in Parliament
Sept MoF atten annual meeting of World Bank and IMF July- Aug Dialogue session between MoF and significant business and community group
May- July Preliminary budget hearing and actual budget hearing March-April Budget examination process March Submission of budget byagencies Jan Circular sent by Secretary Gneral MoF to agencies
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Budget techniques/methods
Specific only for Operational Budget Refer to the way how to formulate and determine the amount to allocate for the purpose of expenditure There are four technique available; - Line-item Budgeting System (LIBS) - Programmed and Performance Budgeting System (PPBS) - Modified Budgeting System (MBS) - Zero based Budgeting System (ZBB)
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Budgeting techniques/methods
Development of budgeting Technique in Malaysia Prior to 1969 Traditional/line items Budget System (LIBS) was used Due to numerous weaknesses of the LIBS, a new technique, Program Performance Budgeting System (PPBS) was introduced in 1969 following the issues of Treasury Circular no. 5-1968 After 20 yrs of using PPBS, a study was conducted to overcome certain weaknesses of PPBS In 1990, govt. introduced a new system, a modification of the PPBS, known as MBS
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PPBS
Needs for PPBS Increasing complexity of modern life Demands from public for govt. services has increased Shortage of funds to meet the demands Need to determine priorities, design programs and control budgets
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PPBS
Main Components of PPBS: consist of program & performance Program includes: - Functions - Objectives - Activities - Responsibility centre Performance includes: - Appropriateness - Adequacy - Effectiveness - efficiency
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Identifying Objectives in PPBS (Cont) Identification of objectives forms the framework towards a better and meaningful planning Also encourage considering of other alternatives in achieving the objectives Enables management to avoid duplications of functions of the various organizations within the department. An efficient management is one which is able to identify and formulate objectives in a clear, precise and concise manner
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of of
Medical care service Dental service Manpower planning and training Pharmacies and supplies Research and administration etc
Example of activities (under Medical Care Service Program) - General patient care - Psychiatry service - Leprosy service - Medical administration and service
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Assess the relevance, results and impact of programs of the agencies An important element for purposes of revising or modifying plans and involves the asking and answering of general questions: - Are the objectives of the programs realistic and reasonable? - Has the programs been properly selected? - Is it the best alternative for achieving the objectives? - Is it adequate in scope to solve the problems identified? - Has the programs been properly planned in term of time and adequately provided with the necessary resources?
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- Has it been efficiently managed and executed? - Has the program been effective in relation to the objectives? Advantages of PPBS over LIBS: PPBS makes budget as an instrument of expressing govt. policies through each of its programs More useful document to taxpayers and MPs since major emphasis is on programs, activities, work to be completed and costs
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New policy
All the new program and activities which approved by the treasury including the extension, expansion and continuation of existing policies. Examples of NP : Establishment of new unit
New activities, etc.
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Benefits from Program Agreement and Exception Reports: Improved accountability at all levels of management through:
Emerging problems can be identified earlier Exceptions reports provides information to the boss of areas where problems may be developing Highlight areas of relative strengths and weaknesses to enable management make better decisions Allows senior managers to focus on priority and problem areas Reduces potential for information overload
- Compliance with rules and regulations - Efficiency and effectiveness of programs
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- increase awareness and understanding of top management priorities (through program agreement to which they are held accountable) - greater flexibility in the deployment of resources within aggregate constraints
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Conclusion
Budget is a plan showing how resources will be acquired and being used by the government over a specified time interval In public sector budget is a compulsory requirements, and the main objective is to fulfill legal requirement & as a
tools for management planning, Control & Evaluation. Budget component comprise of expected revenue and expected expenditure and need to be prepared accordingly based on code of accounts and standard format. Budget technique is a way to formulate the figure in determining the amount of expenditure that will allocate to each agencies/sector.
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References
Syed Soffian et al. 2011 Malaysian Law, Federal Constitution of Malaysia, Jabatan Cetak Kerajaan, Kuala Lumpur. Malaysian Law, Financial Procedures Act 1957 Jabatan Cetak Kerajaan, Kuala Lumpur. Treasury Circulars; no. 5/2004; 2/2009/; 2/2013 Malaysian economic reports
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Tutorial questions
1. Describe the purposes and nature of one-off expenditure. What are the requirements need to fulfill by the agencies before one-off expenditure being included the in the budget for that particular year.
2. Discuss the objectives, roles and functions of budget 3. Compare and contrast between operational and development budget 4. Q 2 & 12 Text Book pg. 118 &121.
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5. Data below are related to the Ministry of Health for year 2011 Budget Estimates Other information: 1.Efficiency dividend for the year 2010 and 2011 are 2.0%. 2.The ministry practiced Modified Budgeting System technique in determining the budget estimate. 3.The previous year budget will lapse at the end of the year. Total expenditure approved and spend for the year 2010 are RM103,498,700 including RM45,000 on new policy, while the total emolument for the year are RM53,600,400. 4.Emolument are increased by 1.5% for a year. Calculate the expenditure target for the year 2011 and 2012. (Show all calculations).
Programmed General object /activity code General administrati on General health services Health education Others 10000 20000 10000 50000 30000 10000 20000
Type of Status of Amount Expenditure programme/ (RM000) activity Emoluments Existing Services Existing 45,141,900 24,844,800
Emoluments Continuation 28,697,500 Others extension 280,000 Assets New 17,512,800 87,500 55,400
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The End
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