14/6/2017

ADS652
PUBLIC FINANCE
CHAPTER 9:
TRANSPARENCY, ACCOUNTABILITY
AND INTEGRITY IN PUBLIC FINANCE

LESSON OUTLINES

i. Public Sector Governance

ii. PF Control Mechanisms Framework
iii. PF Legal Framework
iv. Accountability

Public Sector Governance

 Increasing scope and amount of PF.

 Governance means mechanism to control

and direct an organisation in helping them
to achieve their goals.

 Many of govt’s programmes enter into

jurisdictional boundaries and seem to be
seamless, hence proper governance is
necessary.

1
 14/6/2017

Public Sector Governance

 To ensure PF operates within legal and policy

framework to achieve nation’s goals.

 5 principles of good governance = legitimacy

& voice (participation & consensus oriented),
direction (strategic vision), performance
(responsiveness & E&E), accountability
(accountability & transparency), fairness (rule
of law & equity) (UNDP, 1997).

Public Finance Control

Mechanisms Framework
 Regal control (YDPA) – neutrality; endorse budget.
 Legal and Constitutional control:
❖ All legal frameworks involved – FC, FPA 1957, TI, BNM rulings,
etc.
 Individual control:
❖ Controlling Officer – spending and collection of revenues in every
ministry / agency / department, etc.
❖ Accountant General – production of accounts.
❖ Auditor General – audit of accounts.
 Institutional control:
❖ Public Account Committee – review of AG’s report; neutral (since it
combines govt & opposition side).
❖ Legislative – autonomy and authorisation of expenditure; HoR
(debates on the proposal), HoS (check & balance).
❖ Treasury – budget (planning and control functions).

Public Finance Legal Framework

 Refers to all laws, procedures, rules &

regulations established by the govt for
governing the public finance in M’sia.
 The public finance laws – passed by the
Parliament – statement & guidelines for
accountability.
 To ensure prudent financial mgt, to avoid
extravagance expenditure & to
guarantee of legal expenditure.

2
 14/6/2017

Public Finance Legal Framework

i. Federal Constitution as the highest law of

federalism.
ii. Treasury Instruction.
iii. FPA 1957 – management of public fund.
iv. Audit Act 1957 – inspection of public fund
management.
v. Others --- E.g. BNM Administered
Legislations.

Federal Constitution
Part 7 – guidelines in public financial administration.

 Revenue from customs and excise.

 Grants
 Power to raise revenue by borrowing.
 Taxing power

Federal government is the most powerful financial

authorities and state reduced to subordinate
position.

Federal Constitution
 Article 96 – no levy and tax may imposed
unless authorised by the government.
 Article 97 – Revenues collected must be
channeled to Consolidated Accounts either
FCF/SCF.
 Article 98 – Types of expenditures that must
be charged to CF such as emoluments and
grants to SRF.
 Article 99 – Need to submit budget to the HR.
 Article 100 – Supply Bill.
 Article 109 – Grants to State.
 Article 111 – Restrictions on Borrowings.

3
 14/6/2017

Financial Procedure Act 1957

 Act legislated regarding public sector financial

management and explain in detail the FC
provisions.
 Sec. 7 – Explain the maintenance of
consolidated accounts.
 Sec. 8 – Money from Consolidated accounts
be kept in banks and invested.
 Sec. 11 – Payment to Contingency Fund be
made from Consolidated Accounts.
 Sec. 12 – State Reserve Fund.

Financial Procedure Act 1957

 Sec. 16 – Preparation of financial

accounts:

i. Statement of revenue and expenditure.

ii. Consolidated Borrowing Accounts.
iii. Statement of Consolidated Trust Fund.
iv. Statement of assets and liability.

Financial Procedure Act 1957

 Other Parts / Sections:

1. Part II – Duties of Accounting Officers.
2. Part III – Control & Mgt of Public
Finances.
3. Sect. 15 – Estimates & Virement.
4. Sect. 15A – Controlling Officers.
5. Sect. 17 – Write-Off.
6. Sect.18 – Surcharge.

4
 14/6/2017

Treasury Instruction

 Provide detailed guidance and

procedures that must be followed in PF.
 Follows FPA 1957 --- can give orders /
instructions as long as not against FC
and SC.
 Includes the procedures and guidelines
on how to spend money and record
accounts…

Audit Act 1987

 Support the concept of accountability.

 To detect irregularities in ensuring cost-
efficient and integrity in public sector.
 The office and functions of AG have
been outlined by this Act.
 Corruption is one of problem in public
finance.

Accountability means….

 To be honest and accurate manner

actions.
 Act in competent and effective manner.
 Use public funds entrusted to them for
authorised public purpose.
 Audit supports this concept.

5
 14/6/2017

Accountability

 Giving reasons and explanations on

anything done by a person. The liability
to give account for something to
somebody of money dealing.
 Public sector accept delegated duties
and responsibility for actions and
decisions.
 Horizontal and vertical accountability.

Importance of Accountability

 Relationship based on the obligation to

demonstrate and take responsibility for
performance in like of agreed
expectation.
 Govt accountability as the duty of public
officials to report their actions to the
citizens and the right of citizen to take
action against those whose conduct
citizen consider unsatisfactory.

Importance of Accountability
 To ensure public officer carry out the duty
(financial duty) in accordance with the
established / prescribed laws.
 To make sure that the govt money / fund
will be used prudently without waste &
avoiding fraudulent case.
 As a controlling effort as govt fund is
limited.

6
 14/6/2017

Types of Accountability
 Financial – responsibility of govt personnel to
comply with all laws, R&Rs in performing their
functions.
 Programme – responsibility of govt personnel to
ensure objectives of the individual prog & activity
of govt organisations are achieved.
 Management – responsibility of the mgt of govt
organisations in ensuring E&E, as well as
econonomic utilisation of govt resources under
their control.

Components of Accountability
(Accountability Framework)
• Preparation and execution of budget.
Budgeting
• Involves programme & management accountability.

• Preparation of financial statement.

• Management of public accounts.
Accounting • Inline with the objective of financial accountability.

• Audit on public accounts.

Auditing
• To prove 3 types of accountability existed.

Problems to Achieve Accountability

 No real directives / guidelines on the new

system introduced.
 Insufficient post created.
 Failure of internal control system.
 Resistance to change.
 Failure to recognise relationship between
business processes & records.
 Lack of top management support.

7
 14/6/2017

To Conclude

 Benchmarking/KPI is a must.
 Corruption must be eliminated, as it
damages state’s vision due to poor
governance.

Tutorial Question

Elaborate on legal provisions created to

ensure transparency and accountability in
public sector finance.