PART 2

BUDGETARY CONTROL
IN
PUBLIC SECTOR
ORGANISATIONS
1
Lecture Outline
Budgetary control objectives and activites
Features of good budgetary controls
Responsibility accounting
Budgetary control and e-government
Differences between Departments and SB
Behavioral consideration in budgeting

2
Budgetary Control

to ensure that all expenditure

are in line with the budgeted
Objectives: amounts, and
the level of activity envisaged in
the budget are achieved

Continous monitoring,
Actual results are compared
Activities: against budgets
reporting, analyzing and
feedback.
3
 Budgetary Control

Features of good budgetary controls:

Collection of data
The structure of Information on budget
(inputs and outputs) is Budgetary control to
responsibility centres position must be
initiated at the lowest support organizational
corresponds with the relevant and timely as
level of activity (i.e. learning and feedback
programme or activity well as sufficient
cost for improved
structure of the (include causes of
centres/responsibility performance
organization variances)
centres)

4
Budgetary Control by Responsibility Accounting
Cost centres:
The most common responsibility centers in
Public Services
Costs are allocated to the cost centre
to determine unit cost of products or services
The head of the centre is the budget holder
The head is accountable for performance of the
budget
Non financial performance indicators should
also be developed, assigned and accountable for

5
Budgetary Control by Responsibility
Accounting Cost Centres

Allocationof resources should also be based

on planned level of activity output and
outcomes as the basis of budget:
length of road maintained
Number of applications completed
Contracting out services to private sectors
Procurement process should be adhered to.

6
 Responsibility Accounting contd
Profit and investment centres
Control mechanisms similar to private sector entities
are applicable
Greater financial, managerial and operational
autonomy
Financial indicators such as ROI, EBITDA to be
applied.
I.e Subsidiaries of MOF Incorporated, GLCs,
Subsidiaries of Statutory Bodies

7
Creation of a responsibility centres within
government organisations

Rationale:
Increase size of activities, and
improving financial management and service delivery.
Functions/Roles:
Ability to collect revenues and/ or pay their
expenditures within their authorised limits.
Have own bank accounts in the case of RC in Statutory
Bodies
Need to prepare Internal Financial Report Expenditure
Report
A responsibility centre > flexibility to manage activities
freedom to manage principle 8
Budgetary Control - Reporting,
analysis and feedback

the
management
to monitor
Reporting and Budgets may
the
analysis of need to
performance
budget reviewed or
deviations of the
adjusted
respective
management
levels

9
Responsibility of Budget monitoring
within organisations

Who should be responsible:

By top management adv/ dis?

Mainly by heads of responsibility centres?
Mainly by Line managers?
Combination between Top management and Line
Managers adv / dis ?

10
Budgetary control under OBB

Greater control for outcome based

performance against 3 Es
More emphasis on evaluation (formative and
summative) on appropriateness of
programmes and acitivities.
Reporting of results Quarterly Ministrys
Performance Report who monitor?
Performance report programme and
activities formative and summative
assessment. 11
Budgetary control and E-government
Government Financial and Management
Accounting System (GFMAS) Information
system used in accounting offices (AOs)
and Head office of Accountant Generals
Department (AGD).
Accounting functions include financial
planning, budgetary control, cash
payments and receipts.
Connecting all ministries to the AGD by on-
line and real time compute network.
12
IT and Gov Fin Mgt: GFMAS

13
eSPKB at Responsibility Centres
(RCs)
Electronic Budget Planning and Control
System used at RCs
It links with e-Perolehan, HRMIS,
Project Monitoring and eKhidmat.
Modules include Allocation Warrants,
Purchase Order, Payment Vouchers,
Journal Vouchers, Receipt Statement,
and Payroll changes.
To accelerate payment process with
audit trail via EFT. 14
 Accountant General Department of Malaysia
Jabatan Akauntan Negara Malaysia

GOVERNMENTS BANK ACCOUNTS

MONEY MARKET
OPERATION

CENTRAL MAIN
ACCOUNT

HEAD DIRECT PAYMENT :

OFFICE
CENTRAL CENTRAL DOMESTIC : LOAN
LOAN
CENTRAL PAYMENT COLLECTION
INVESTMENT
BANK OF ACCOUNT ACCOUNT
MALAYSIA GRANT

TRANSFER DEFICIT
TRANSFER SURPLUS

ACCOUNTING
OFFICE (36) COLLECTION PAYMENT
COMMERCIAL DAILY DAILY
EFT ACCOUNT
BANK ACCOUNT TRANSFER ACCOUNT TRANSFER

INTERNET
BANKING
DIRECT AGENT/ACQUIRING ELECTRONIC
CHEQUE
COLLECTION BANK ONLINE FUND TRANSFER
E-PAYMENT
15
RESPONSIBILITY
CENTRE/ VENDORS COLLECTION PAYMENT
 Accountant General Department of Malaysia
Jabatan Akauntan Negara Malaysia

GOVERNMENTS BANK ACCOUNTS [Collection from Central Agencies]

MONEY MARKET
OPERATION

CENTRAL MAIN
HEAD
OFFICE
ACCOUNT
CENTRAL
BANK OF CENTRAL CENTRAL
MALAYSIA
PAYMENT COLLECTION
ACCOUNT ACCOUNT

COLLECTION
TRANSFER TRANSFER TRANSFER
CENTRAL (Dividend)
AGENCIES Revenue (Tax Collection)

INLAND REVENUE
BOARD COLLECTION
CUSTOM DEPT. ACCOUNT
GLC : PETRONAS
INLAND REVENUE
PETROLIAM NATIONAL
BOARD OF
BERHAD
MALAYSIA
ROYAL MALAYSIAN 16
CUSTOM DEPT
 Differences between Depts and SBs
in funding procedures
Departments Statutory Bodies
Received budget Received budget
allocation in the form of allocation in the form of
warrants grants
Budget allocated via Budget allocated directly
Parent Ministry from the Treasury
Controlling officers are Controlling officer is the
Chief Secretary of Parent CEO of SBs
Ministries
Able to offset revenue
Cannot offset collected against
expenditure against expenditure
revenue collected
17
Behavioural Considerations in budgeting

Goal Congruency

Decline in goal congruence may lead to

departmentalism within public sector
organizations
Departments compete with each other
for resources as much as possible,
with little regard being paid to the
optimal allocation of resources at
organisation level.
18
Behavioural Considerations in budget contd

Budget slack vs
padding vs Annuality principle
performance of less flexible
managers
This may lead to This may lead to
inefficiencies unnecessary spending
expenses incurred
simply because it is in
the budget
No carry forward
unspent balance

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The end

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