Public sector accounting

BKAL 3023 PUBLIC SECTOR ACCOUNTING TOPIC 1: INTRODUCTION TO PUBLIC SECTOR ACCOUNTING (PSA)

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LECTURE OUTLINES   

Introduction Component of Public Sector Organization Public Sector Accounting  

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Definition Purposes

Objectives and characteristics of PSA Accountability and stewardship in public sector Differences between public sector accounting and accounting in private sector Users of public sector accounting information

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INTRODUCTION 

Public Sector  A political organization set up with power to direct, regulate and control men’s activities to enable them to live together harmoniously and constructively and to solve their common problems.  Normally refers to the government sector

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Component of PS in Malaysia 

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Federal Government: - Ministries, Departments & Public enterprises State Government: - Departments & public enterprises Local Government: - Departments Federal Statutory Bodies

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Component of PS in Malaysia.. cont  

GOVERNMENT AGENCIES statistic: AGENCY

NO. OF DEPTS

 Federal Public Service

%

126

18%



State Public Service

256

36%



Federal Statutory Body

88

12%

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State Statutory Body

93

13%

146

20%

 Local Government

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FEATURES / CHARACTERISTICS OF PUBLIC SECTOR •

No individual shares of ownership

•

Operate within a framework of public authorization and control

•

Plurality of objectives

•

Contributors of resources receive no direct interest

•

Varying accounting principles and practices

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Public Sector Accounting (PSA) 

a system of identifying, classifying, recording, summarizing, analyzing & reporting of financial data & information of organization in accordance with accepted principles, concepts, conventions, standards & regulations.

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Public Sector Accounting (PSA).. Cont    

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PSA will emphasis on: Maintenance of books and all records properly. Compliance with the related laws, rules and regulations. Provides a comprehensive and accurate reports

Thus, accounting in public sector look at both the money and public property to

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Purposes of PSA 

To fulfill the legal requirement -



eg. Art. 97 – 104 FC, FPA, AA, etc.

To achieve public accountability -

Financial (fiscal), management & programme

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OBJECTIVES OF PSA • To provide information necessary for efficient, effective and economical management

of an operation and of the resources entrusted to it • To provide information to enable managers to report on the discharge of their responsibilities and to permit all public officials to report on

the public on the result of government operations and the use of public funds (accountability) 10

Main Activities of PSA in Malaysia Estimated revenue

Annual budget

Estimated expenditure

Actual revenue

Accountin g record (dept & Agency) Actual expenditure

Preparation of financial report

Annual financial report

Audit by Auditor General

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Characteristics of Public Sector Accounting Budgetary Accounting

The budget serves as a master blueprint for planning, control, and evaluation of governmental, proprietary, and fiduciary fund financial positions. Method The approved amount will be credited to an appropriation account and after actual expenditures, the account will be debited. The balance in the accounts will show the approved amount which not yet spend

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Characteristics of Public Sector Accounting .. cont Fund Accounting Fund Accounting- is an accounting system in which an entity’s resources are divided among two or more accounting entities known as funds (Granof, 1998) . Fund- a fiscal and accounting entity with self-balancing set of account for resources, and claim against them, that are segregated in accord with legal or contractual restrictions or to carry out specific activities. Fund accounting equation: Asset = Liabilities + Fund balance 13

Characteristics of Public Sector Accounting .. Cont Vot accounting - All the expenditure and allocation need to be recorded in the vot book before payment has been made. Coding system - All the government entities need to practised the standardised coding system provides by the Treasury 14

Characteristics of Public Sector Accounting .. Cont Accounting basis Government entities practiced 3 types of accounting basis depend on the nature of that entity:  Commitment  Accrual  Cash

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Accounting Commitment): Example

of

Activities

Date Expenditure

Basis

Commitment

(Cash,

Accrual,

and

Accrual

Cash

10 Jan 2011

15 Jan 2011

28 Jan 2011

Record in vote book: Purchase of goods Issue local order

Record as expenditure upon good receives

Record as expenditure upon cash paid

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Accountability and Stewardship Accountability - The liability to give account for something to somebody - responsibility to fulfill obligation (Chamber’s 20th century Dictionary) - The acceptance of responsibility for action and decision (Alwyn Lim, 1986) - Accountability is the obligation to give answers and explanation concerning one’s actions and performance, to those with a right to require such answers and explanations 17

Accountability and Stewardship .. cont Accountability - means answerability -Public servant responsible for their action and performance

Stewardship - Willingness to be accountable for the wellbeing of the larger organisation by operating in the service, rather than in control, of those around us (Amstrong, 1997).

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Accountability Components of Accountability • Budgeting - provides the precise standards by which to

judge the annual accounts • Accounting - ensuring all receipts and payment of public

moneys follow the required regulations & are accounted properly -Auditing - to prove the existence of the evidence of accountability. It provides independent judgement of the govt’s financial statements 19

Accountability .. CONT Types of Accountability Financial (fiscal) Accountability -Liability to ensure that all the transactions are accounted for and the accounts are reliable and transactions really took place above suspicion and in accordance to prevailing rules and regulations -comprised all aspects of compliance and management on the part of government bureaucrats in administering govt. operation. - compliance means that the govt. Servants have to follow the laws, rules and regulations when collecting revenues,

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Accountability .. cont Management Accountability - Liability to ensure there is an effective, efficient and economical utilization of public fund by org. in achieving govt. objectives.

- It is important because the fund resources come from public money and there is no individual ownership for the money and public property 21

Accountability .. Cont. Program Accountability  Liability to ensure that each program which has been planned and implemented achieve the objectives set earlier in terms of cost and output.  to determine whether the objectives stipulated for the govt. organization are being achieved 

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The Relationship between Accountability and Stewardship To deliver services & goods stewardship Government

Public

Accountability Financial Statement To collect & spend public money

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INSTITUTIONAL MECHANISMS TO STRENGTHENING PUBLIC ACCOUNTABILITY Malaysian Anti-Corruption Commission (MACC)  Public Complaints Bureau (PCB)  Parliamen (Dewan Rakyat and Dewan Negara)  Auditor General Office (AG) 

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Efforts towards achieving Accountability FINANCIAL MANAGEMENT

FINANCIAL ACCOUNTABILITY

MANAGEMENT ACCOUNTABILITY

PROGRAMME ACCOUNTABILITY

IMPLEMENTATION

1) Control system: Tender management storage management 2) Infrastructure of Financial Management: * Integrated accounting system Computerize financial system (include vote book and others financial instrument) 3) Financial management efficiency: •Macro accounting system •Modified budgeting system 4)New programs: * Financial management award Computerize budgeting system

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ACCOUNTABILITY MODEL

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Accountability model ..Cont.. 1)  -

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Parliament: Approves budget proposal No expenditure can be incurred without parliamentary approval No tax can be levied without necessary legal process Parliament is the place where accountability in govt. begins 27

Cont.. 2) Treasury:  Keeper of the public purse  Examine expenditure proposals before presenting to parliament  Has the right to limit and suspend budget 3) Agencies:  Controlling bodies of agencies are required to manage funds under their control in accordance with govt. policies, procedures and circulars

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Cont.. 4) Auditor general:  Plays the role as the external auditor to govt.  To prepare audit reports for submission to parliament  Responsible to conduct: - Financial audit (compliance) - Performance audit (output and goals)

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Cont.. 5) Public accounts committee (PAC):  Responsible to examine the public account and the auditor general report if the account does not meet the proper accountability of public fund by public officials.

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The differences between public and private sector accounting Public

Private

1) Objective

Public Accountability

Financial Performance

2) Accounting Year

1 Jan – 31 Dec

According to year incorporated

3) Accounting Basis

Cash/ Accrual/ Modified Cash-basis

Accrual

4) Budget Preparation

Mandatory

Voluntary

- Regulated in FC - Financial, Compliance, and performance

-BOD

5) Auditing - appointment - Scope

during AGM - Financial and Compliance 31

The Users of Public Sector Accounting Information 

External users:  Citizens/voters,

tax payers, assembly man, analyst and mass media.

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Internal users:  Government

(executives), legislation bodies and auditors. 32

THE END..

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