CHAPTER 2 - Financial Systems & Procedures

1. CHAPTER 2 - Financial Systems & Procedures

2. Introduction • The importance: to ensure an efficient and successful nation. • Accounting systems designed to facilitate audit and permit effective administrative control of public funds and operations. • Purpose of funds received must be clearly stated and authorities responsible for the custody and use of fund must be identified

3. Introduction • Basis of government financial management & control - as follows: • Financial Provisions of the Federal Constitution • Financial Procedure Act 1957 • Audit Act 1957 • Treasury Instructions & Circulars

4. Introduction • Government Accounting Standards (PPK) To date 10 PPK have been issued • International Public Sector Accounting Standards (IPSAS)

5. Negara pertama yang telah mengamalkan Piawaian Perakaunan Sektor Awam. • “Malaysia wins the prize for being the first country to apply Cash Basis IPSAS. The Malaysian Government first did this for the financial statements for the year ending 31 December 2004. It gained a clear audit report for these accounts.” • Dipetik dari ACCA International Public Sector Bulletin, Issue No. 8, Januari 2007

6. FINANCIAL PROVISIONS of the Constitution Specified in Articles 96 - 112 • establishes a general framework for the control of public expenditures by the legislators. • contain broad requirements of a good financial management system in government; • govern the methods by which public funds are to be administered and accounted for;

7. the division of various revenues of Federal and State Governments. • define the borrowing powers of Federal & States • require the maintenance of specified consolidated funds by government

8. specify basic principles of government finance; • require the preparation of budget annually; • require the preparation of annual statements of assets & liabilities.

9. Financial Provision under Federal Constitution 1957 Can be classified into: • Revenue • Expenditure • Control & mgmt of fund • Borrowings • Budget • Financial stetements • Auditor generel • National finance council • Special provisions for Sabah & Sarawak

10. REVENUE • no money can be raised by taxation or rates, nor can it be spent, except under the authority of the law (Article 96); • all revenues & moneys raised or received by the Federal shall be paid to the Federal Consolidated Fund & all revenues & moneys received by the state shall be paid to the State Consolidated Fund (Article 97);

11. REVENUE • All proceeds of revenues are due to Federal government except those assigned to the States under Article 110 and those collected by the Local Authorities and the religious department. • States shall received all proceeds from taxes, fees and other revenues raised in the states

12. REVENUES OF STATE GOVERNMENT • Art 110(3)- each state shall receive 10% or such greater amount of export duty on tin produced in the state • Art 103(1) – A proportion of export duty on minerals (other than tin) produced in the state

13. REVENUES OF STATE GOVERNMENT • grants payable by the Federal government • revenues assigned specifically to the States as provided in Part III Schedule 10 of the Federal Constitution as follows: • Revenue from toddy shops; • revenue from lands, mines & forest; • revenue from certain licenses; • entertainment duty;

14. Grants • Statutory grants • Non-statutory assistance

15. Revenue and Expenditure • There shall be a Supply Act passed every financial year authorising expenditures from the respective consolidated funds of the Federal & States (Article 100); • Money can only be spent under the authority of a federal Supply Act or a State Supply Enactment in accordance with annual estimates approved by Parliament or the respective state Legislative Assembly (Article 104).

16. ARTICLES OF FINANCIAL PROVISIONS in detail • Article 96 - no tax shall be levied by or for the purpose of the Federation except by or under the authority of the federal law;

17. Article 97 • Art 97 (1)– all revenues and moneys raised or received by the Federation must be paid into the Federal Consolidated funds; • Art 97 (2)–revenue or money raised or received by the Federation must be paid into the Federal Consolidated funds; • Art 97(3) any Islamic religious revenues raised shall be paid into a separate fund

18. Article 98 • Article 98 - Expenditure Charged on the consolidated Fund- grants and special expenditure of the Federal including: • grants, remuneration of the royalties (civil list), pensions, debt charges, moneys to pay for court judgements.

19. Article 99 - Annual Financial Statements • requires Federal Government to prepare & submit to the Parliament statements of estimated receipts & estimated expenditure of the following year before the commencement of that year; • requires Federal Goverenment to submit, so far as is practicable, the statements of assets and liabilities of the Federal of last financial year.

20. Article 100 - Supply Bills • Expenditure to be met from the Consolidated fund excluding charged expenditure shall be included in a bill known as Supply Bill. • Once approved by Parliament it is known as Supply Act. • Supply Act contains all the approved expenditure budget of government.

21. Article 101 - Supplementary & Excess Expenditure • If the amount appropriated (approved) by the Supply Act is insufficient, a supplementary budget can be prepared & submitted to parliament. • The approval process is lengthy,

22. Article 102 - Unspecified Expenditure • expenditure of unusual urgency not included in the approved budget, needs to be approved by parliament.

23. Article 103 - Contingencies Fund • Created by Parliament & controlled by the Ministry of Finance; • purpose of the fund is to meet urgent & unforeseen need for expenditure for which no other provision exists. • Advances used for the expenditure need to be replaced by a supplementary budget.

24. Article 104 - Withdrawals from Consolidated Funds • to pay for charged expenditure (Article 98) • authorised by Supply Act, • authorised by Article 102.

25. Article 105 - Auditor General • Auditor-General is appointed by YDA on the advise of the Prime Minister & after consultation with the Conference of Rulers. • eligible for reappointment but shall not be eligible for any othr appointment in the service of the federation or the state; • may resign but cannot be removed except in the manner of a judge.

26. Article 105 - Auditor General • Remuneration of the AG is charged on the consolidated fund • Remunerations and other terms of office shall not be altered to his disadvantage after his appointment • Terms and conditions of his service determined by federal law

27. Article 106 - Powers & Duties of AG • to audit & report on the accounts of Federal & States; • perform such other duties as specified by YDA on accounts of Federal, States and other public authorities.

28. Article 107 - Reports of AG • to submit report to YDA to be laid in Parliament. • States accounts & other state authorities to be submitted to State ruler for presentation to State Legislative Assembly.

29. Article 108 - National Finance Council • consisting of Prime Minister or other minister as PM may designate & one representative from each state appointed by ruler; • Prime Minister can call for meeting as & when necessary, or at the request of 3 or more representatives, or at least once a year; • Meeting can be presided by the PM or his representative;

30. Matters for consultation at NFC’s meeting: • making of grants to states • assignment of any tax or fee to states • annual loan requirements of Federal & states • making of loans to states • making of development plans • other related matters which affects financial position of the State

31. Article 109 - Grants to States • (1)Federal shall make to each state a grant, (a)capitation grant; (b)State road grant-for maintenance of state roads; • (2)Parliament may vary rate of capitation grant, but if reduce, it should not be less than 90% of the previous year; • (3)may make grants for specific purpose to any of the states

32. Article 109 - Grants to States • (4)the amount mentioned shall be charged to the Consolidated Fund • (5) in accordance to Art 103, Contingency Fund, power to make such advances to a state • (6)Federal shall create State Reserve Fund & make grant for state development purposes.

33. Article 110 - Assignment of Taxes & Fees to the States • each state will receive portion of taxes collected within the states; • Parliament may subtitute for any source of revenue specified in sec 1,3,4,5,6,7,8,12 or 14 of part 3 of 10th schedule with another source of revenue

34. Article 110 - Assignment of Taxes & Fees to the States • each state will receive 10% of export duties of mineral produced by states;

35. Article 111 - Restriction on Borrowing • Federal shall not borrow except approved by law • States cannot borrow except from the Federal or if less than 5 years can borrow from bank or financial institution approved by Federal;

36. Article 112 - Restrictions on Alterations in Establishment of States • State and department cannot increase its establishment or alter rate of salaries, if it would increase liability of Federal in term of pension, gratuities etc. • Except if maximum salary of non-pensionable not exceeding RM400.00 or if pensionable maximum salary not more than RM100.00

37. Special provision for Sabah & Sarawak • Art 112A- The Auditor General shall submit his reports relating to the accounts of Sabah and Sarawak or …… to the YDA and YDP of the State • Art 112B- Federal shall not restrict them to borrow under the authority of State Law. However, approval from Central Bank must be obtained

38. Special provision for Sabah & Sarawak • Art 112C- Subject to Art 112D , Federal shall pay special grants & assignment of revenue to Sabah & Sarawak as given in Schedule 10 part 4 & 5. • Art 12D- review of special grants to Sabah & Sarawak can be carried out only the the Sates agree and it shall be modified by the order of the YDA

39. END • THANK YOU