Topic 1 Introduction to Public Sector

INTRODUCTION TO PUBLIC SECTOR

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OBJECTIVE OF CHAPTER 1 – INTRODUCTION TO PUBLIC SECTOR

1. Define public sector.

2. Identify & explain the features of public sector.

3. Identify & explain components of public sector.

4. Describe public sector accounting.

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• All organizations which are not privately owned & operated, but which are created, managed & financed by the Government on behalf of the public. (IFAC, 2012)

• “…as any entities owned by the central, state or local government & any entity established under any Act of Parliament, which requires the presentation of the annual financial statements to the Parliament”. (MICPA as per Public sector Guideline No.1 1990).

• “ ….as a device for regulating human services so that men & women can live together in reasonable harmony”. (Derbyshire 1987).


DEFINE PUBLIC SECTOR (PS)

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• Public sector exhibit a variety of social, economic, political & legal characteristics.

• Different power & responsibility.

• Different patterns of accountability & objectives.

• Financed in different way & have different organizational structure.


IDENTIFY & EXPLAIN THE FEATURES OF PUBLIC SECTOR

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FEATURES PUBLIC SECTOR

PRIVATE SECTOR

Stakeholder Institutional Individual

Framework Public authorization & control (Parliament)

International standard

Plurality of objectives

Base of perceived need

Market related demand

Benefit of contributors

No direct benefit receive

Direct benefit receive

Accounting principles

Fund accounting Entity accounting

Control Political Financial

Resources Taxation & collection

Loan & shareholder capital

Performance indicators

Ability to provide the services & good to public

Profit generate


IDENTIFY & EXPLAIN THE FEATURES OF PUBLIC SECTOR

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1. Federal Government

2. State Government

3. Local Government

4. Public Enterprises


IDENTIFY & EXPLAIN COMPONENTS OF PUBLIC SECTOR

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1. Federal Government– The highest tier of government.– Comprises of ministries,

departments, units & public enterprises.

– Has authority over external affair, defense, internal security, administration of justice, federal citizenship, finance, trade, shipping, communication, transportation, education & others as stated in the 9th Schedule (list 1) of Federal Constitution.



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MINISTRY DEPARTMENT STATUTORY BODIES

Ministry of Science, Technology & Innovation

• National Space Agency;

• Atomic Energy Licensing Board;

• Malaysian Centre for Remote Sensing (MACRES).

Malaysian Technology Development Corporation (MTDC).

Ministry of Education

• School Department;

• Private Education Department;

• Technical Education Department.

Dewan Bahasa & Pustaka (DBP).

Ministry of Transport

• Road Transport Department;

• Marine Department of Peninsular Malaysia.

Keretapi Tanah Melay Berhad (KTMB).


IDENTIFY & EXPLAIN COMPONENTS OF PUBLIC SECTOR –

Federal Government (Example)

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2. State Government– The second tier of government.– Limited autonomy power & operates

at State level.– Comprises of ministries (for Sabah &

Sarawak only), departments & public enterprises.

– The executive authority is the ruler or Yang Di Pertuan Negeri;

– assisted by State Executive Council (headed by the Chief Minister or the Menteri Besar).

– The administrative machinery headed by the State Secretary.

– Example of state departments: State Religious Department, State Development Office & Public Work Division.

– Example of statutory bodies: State Sport Council (MSN), State Economic Development Corporation (SEDC).



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3. Local Government– The third tier of government.– Governed by the Local Government

Act 1976.– Limited autonomy power.– Any city Council, Municipal Council

or District Council (Section 2, Local Government Act 1976).

– Consist of Mayor or President & 8-24 other Councilors to be appointed by the State Authority.



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State City Council

Municipal Council

District Council

Johor City Council of Johor Bahru

• Municipal council of Johor Bahru Tengah

• Municipal Council of Kulai

• Labis District Council

• Kota Tinggi Council

Kedah - • Municipal Council of Alor Setar

• Municipal Council of Kulim

• Baling District Council

• Pendang District Council



Local Government

(Example)

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4. Public Enterprises– Comprises of Statutory Bodies &

Government Link Companies (GLCs).

– statutory bodies are organizations set up under Statutory Bodies Act 1980 & under the responsibility of ministry.

– Objective of implementing specific duties & responsibilities in line with the national objective.

– Examples of statutory bodies: USM, UUM, MARDI etc.



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4. Public Enterprises (cont.d)– GLCs are companies incorporated

under the Companies Act 1965.– Has a primary commercial objective

& in which the Government has a direct controlling stake (appoint BOD members, make major decisions etc).

– Examples of GLCs:



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ROLES OF PUBLIC SECTOR

• To enable a conducive & vibrant economic environment.

• To facilitate growth & competitiveness of the industry & private sector.

• To support the country manpower needs;

• To enhance the quality of life of Malaysian’s citizens.

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PUBLIC SECTOR FINANCIAL MANAGEMENT ACTIVITIES

• A system by which financial management resources are planned, directed & controlled to enable & influence the efficient & effective delivery of public service goals. (CIPFA, 2012)

• Stated in the Constitution (under Part VII: Financial Provisions).

• Includes:

a) Budgeting activities

b) Financial accounting activities

c) Reporting

d) Auditing

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DESCRIBE PUBLIC SECTOR ACCOUNTING

• An accounting method practiced by non-profit entities in public sector.

• The main aim/ purpose is to fulfill the legal requirement & establish a system for good public governance in managing public money (public accountability).

• Accountability- responsibility, answerability & liability to give explanation & evidence of their task.

• Accountability in the public sector- obligation for Gov. employees & leaders to answer & take action for responsibility that has been given or entrusted by public.

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• It can be a tool checking & making sure that the public interest is maximized & not being undermined .

• In Malaysian Public Sector comprises of 3 major components/ characteristics:

a) Maintenance of books & records

b) Compliance with rules & regulations

c) Preparation of reports & statements

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a) MAINTENANCE OF BOOKS & RECORDS

• Various books & records used by public sector to account financial activities.

• VOTE BOOK/ ACCOUNTING:– Defines as a financial record that must

be kept by the government agencies for recording expenditure, liabilities & changes in the budget (Provision in the Treasury Instructions No. 95).

– Purpose – used to control & to ensure the expenditure & liabilities are not more than the approved budget & also as medium of information to produce reports related to expenditure, liabilities & budget balance.

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a) MAINTENANCE OF BOOKS & RECORDS

• BUDGETARY ACCOUNTING– PSO keep & present their operating

accounts in the same format & alongside their budget.

– Purpose: to emphasize the budget’s role in the cycle of planning-control-accountability.

– To enable verification of the observance by Government of the budgetary authorizations granted by Parliament.

• FUND ACCOUNTING– PS accounting system organized &

operated on a fund basis.

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b) COMPLIANCE WITH RULES & REGULATIONS

• To ensure a true & fair view of the prepared public accounts.

• All public sector in Malaysia are required to comply with rules & regulations set by: The Federal Constitution, The Financial Procedure Act

1957 The Audit Act 1957 Treasury Instructions & Treasury circulars

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c) PREPARATION OF REPORTS & STATEMENTS

• Most Public Sectors’ reports & statements must be presented in Parliament for approval

• Article 99 of the Federal Constitution requires the submission of Statements Of Assets & Liabilities to Parliament for approval, at the end of a complete financial year

• Section 16 of the Financial Procedure Act 1957 requires all government agencies to prepare Annual Statements to be presented to the Legislative Assembly (Parliament)

• Annual Statements comprise of Consolidated Revenue Accounts Consolidated Loan Account Consolidated Trust Account Statement of Assets & Liabilities

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THE BASIC ACCOUNTING PRACTICES IN MALAYSIAN PUBLIC SECTOR

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MANAGEMENT MECHANISMS OF THE MALAYSIAN GOVERNMENT

• Main purpose is to provide an efficient & effective mechanisms to ensure the public resources can be used & managed properly & objectives achieved.

• 3 broad levels:

a) Policy-maker (pre-implementation)

b) Implementation

c) Post-implementation

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a) Management Mechanism at Policy Level– Refers to the management

mechanism at the Parliament (legislature) where all the policies regarding financial mgmt. are set up through budget (annual appropriations).

– No expenditure may be incurred without Parliamentary approval.

– Once approved, becomes law (supply act).

– “vote on account”– “vote on credit”



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b) Management Mechanism at Implementation Level

– Refers to the management mechanism at the ministries, departments & agencies.

– Accounting officer:• Public officer dealing with public

money or stores (Sec. 3 Financial Procedure Act 1957).

• Must comply with financial & accounting procedures by Federal Treasury & held accountable for actions.



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– Controlling officer:• Accounting officer in charge of

expenditure.

• Appointed by the Minister of Finance.

• Usually the head of dept.

• Estimates how much is required to carry out departmental polices effectively & identify necessary funding.



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c) Management Mechanism at Post-Implementation Level

– Refers to the management mechanism at the Auditor General Office (AGO) & other watchdog agencies such as Malaysian Anti-Corruption Commission (MACC), Malaysian Institute of Integrity (MII) etc.

– AGO has NO direct responsibility for monitoring the performance of the budget, physical progress of projects or existing management information syst.


MANAGEMENT MECHANISMS OF THE MALAYSIAN GOVERMENT

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INTRODUCTION TO PUBLIC SECTOR –ONLY reports on deficiencies in

budget implementation, improper payments & authorization, inadequate or poor record keeping & weak systems & controls.–Monitoring of information & achievement of plan objectives: responsibility of controlling officers & central agencies.

MANAGEMENT MECHANISMS OF THE MALAYSIAN GOVERMENT

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ITEMS PUBLIC PRIVATE

Purpose & objective

• Compliance & accountability to the public.

Financial performance & accountable to the shareholders.

Accounting year end

• 1st January – 31st December

According to the year of incorporation

Accounting basis

• Cash/ accrual/ modified cash-basis

Accrual/ cash

Budget preparation

• Mandatory Voluntary

Coding system

• Standardize & specific for all agencies.

Varies, subject to entity.

Financial statements

• Statement of financial position

• Statement of financial performance

• Statement of cash receipts & payments

• Statement of memorandum acc.

• Notes to the acc.

• Statement of financial position

• Statement of financial performance

• Statement of cash flow

• Statement of changes in equity

• Notes to the acc.


DIFFERENCE BETWEEN PUBLIC & PRIVATE SECTOR ACOUNTING

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Topic 1 Introduction to Public Sector

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Transcript of Topic 1 Introduction to Public Sector