ACT 4161 PUBLIC SECTOR ACCOUNTING

1. ACT 4161PUBLIC SECTOR ACCOUNTING CHAPTER 3 Budgeting in Public Sector Organization Prepared by: Tengku Nurul Hijjah Bt Tengku Othman (140153)

2. Definition of Budget “A formal estimate of the resources that an organization plans to expend for a given purpose over a given period, and the proposed means of acquiring these resources. It informs the reader of what activities the organization plans to undertake and how the organization expects to finance these activities; and thus it act as a standard against which efficiency and effectiveness can be measured.” Razek & Hosch (1995) Budget is a detailed plan, expressed in qualitative terms that specify how resources will be acquired and used during a specified period of time. The procedures used to develop a budget constitute a budget system. Budgeting have 5 primary purposes: i) Planning ii) Facilitating communication and coordination iii) Allocating resources iv) Controlling profit and operations v) Evaluating performance and providing incentives Hilton (1999)

3. Importance of Budget • Determining taxation levels or the amounts to be charged for services. • Providing basis for controlling income and expenditure authorize • future expenditure. • Role to influences the economic position of the country and private • sector activities. • Role to address the environment of the difficult global economic • outlook and the challenges and also domestic issues, • by focusing on a few strategies such as follows: • - to strengthen the nation’s economic growth; • - to diversify the sources of growth; and • - to ensure equitable distribution of wealth.

4. Role of Budget Government Accounting Standard Board (GASB) • Importance of the budget process based on the following principles: • An annual budget should be adopted by every governmental unit. • The accounting system should provide the basis for appropriate budgetary control. • Budgetary comparisons should be included in the appropriate financial statements and schedules for governmental funds for which an annual budget has been adopted. Developing objectives & preparing various budgets to achieved those objective. Evaluation Evaluating performance at each level of responsibility Planning Budget Process Cycle Control Steps taken by management to ensure that objectives set down at planning stage are attained and that all parts of the organization are working together towards that goal.

5. Legal requirements for preparing budget “The Yang Di-Pertuan Agong shall, in respect of every financial year, cause to be laid before the House of Representatives a statement of the estimated receipts and expenditure of the Federation for that year, and unless Parliament in respect of any otherwise provides, that statement shall be so laid before the commencement of that year’ Article 99(1) Federal Constitution Article 100 Federal Constitution “Expenditure to be met from the Consolidated Fund (excluding charged expenditure) should be included in a bill known as Supply Bill. Section 5 Financial Procedure Act 1957 • “The estimates or budget prepared are required to show clearly the: • Division and sub-division of expenditure proposed • Amount expected to be received or spent for the year • Purpose of such expenditure • The draft estimates has to be examined by the Secretary General to the Treasury or the State Financial Officer. • The estimated revenue should include gross receipts of the Consolidated Fund, whilst the estimated expenditure should show accurately the total amount that will actually be spend in a year other than those accountable in the Consolidated Loan and Trust Account. Treasury Instruction No. 29-51

6. Functions of Budget 1. Involves taxation measures to provide revenue for the government to spend on development programmed of the country. 2. Allocations of financial resources to various activities. 3. Function in terms of giving free education, books and subsidies for lower level income groups. 4. Stabilization purpose:- - to strengthen economic growth - to diversify the sources of growth - to reduce unemployment - to achieve zero-inflation Fiscal policy Instrument 1. Planning & management of financial resources that ensures objectives are achieved as planned. 2. Proper budgetary documents help management to control cost and use of resources. 3. Budgeted and actual figure will compared for evaluating performance by providing information whether the activities are properly planned and managed. Management Instrument

7. Components of Budget 1. Federal Revenues i) Tax revenue: duties and tax imposed by law ii) Non-tax revenue: not in terms of taxes. iii) Non-revenue receipt: repayment from expenditure iv) Revenue from Federal Territories: tax & non-tax revenue collected on behalf of the government. 2. State Revenues Examples: - entertainment duty, - rents on state property, - interest on state balances. 3. Local Government Revenues Examples: - all taxes, rates, rent, license fees, charges payable to the local authority National Revenues 1. Operating Expenditure - Expenditure that consists of Charged Expenditure (Article 98) & Supply Expenditure (Article 100) represents all charges to the budgeted allocation as follows: i) Emoluments, goods &services ii) Transfers such as contribution to Development Fund & Housing Loan Fund iii) Allocation to State Governments, Statutory Bodies & Government- owned Companies by way of grants, loans & investment. 2. Development Expenditure - Borrowing on long term basis either from internal or external financial institution. National Expenditure

8. Budget Preparation Process Federal Level 1. Budget is prepared by the Budget Review Officers of the BMD. 2. Budget Management Division (BMD) charged to prepare the federal budget. 3. BMD is headed by a budget director & assisted by two deputy directors & six senior assistant directors. 4. The objectives of BMD are: i) to examine & analyze agencies plans & programs ii) to allocate financial resources for the implementation of such plans & programs in the most effective & efficient manner iii) to conform to national objectives through the preparation of annual budget for approval by Parliament. 1. Controlling officer are responsible - to examine budget of all government - to consolidate the budget - to ensure that budget allocations are spent efficiently & effectively. 2. Every government agencies are required to prepare budget proposal for submission to the Treasury. 3. The Budget Implementation Committee of the agency will then prepare the budget draft based on the input provided by their department. 4. The budget proposal submitted to Treasury & relevant Ministry. 5. BMD will examined & approved budget 6. The budget presented to the Parliament for approval 7. After approved, allocation warrant will be sent to the relevant Ministry 7 agency. Agency Level