Financial Management Concepts and issues.ppt
- 1. Financial Management: Concepts & Issues Md. Naoshad Hossain, Divisional Controller of Accounts Khulna Division.
- 2. Why PFM? Country Tax burden % GDP Govt exp. % GDP Bangladesh 8.8 15.9 Bhutan 9.0 34.6 India 18.6 27.2 Maldives 21.0 63.1 Malaysia 15.3 26.3 Pakistan 10.2 19.3 Srilanka 13.3 22.6 Japan 28.3 37.1
- 3. Financial Management Financial Management: Concepts & Issues Most of the Govt. Servants think that Financial Management is related with spending public money. Online Business Dictionary defines FM as `the planning, directing, monitoring, organizing, and controlling of the monetary resources of an organization’. In simple terms we can say it is an "activity" when certain people are allocated right to manage other peoples money!
- 4. Concepts Approach: – Commercial: Inputs-Business Activities-Outputs (Goods & services) – Public Sector: Inputs-Govt. Activity-Outputs/ Service Delivery (Not measurable) Legal Framework: – Source of authority: The Constitution of the Republic – Requirements of the Constitution; Consolidated Fund (Article 84.1) Public Accounts (Article 84.2) Expenditure by parliamentary approval or by Presidential rule (Article 85) Finance Accounts and Appropriation Accounts Audit by C&AG and parliamentary oversight by PAC
- 5. Concepts Consolidated Fund: – All Tax and Non Tax Rev. Receipts; – Grants; – Domestic and External Borrowings; – Repayments; and – Food Accounts Receipts Public Accounts: – All other government receipts that creates obligation – State Provident Fund – National Savings Schemes – Renewals – Reserve and Depreciation Funds – Deposit Accounts Contd…
- 6. Financial Management Framework Finance Division ERD of the MOF Bangladesh Bank (Sonali Bank) Office of CGA (CDPU) Office of C&AG Parliament (PAC) Bangladesh Bank Finance Division, MoF Controller General of Accounts (CDPU) CGDF, ADG(Finance), DCA,DAO,UAO Parliament C&AG Appropriation & Finance Accounts
- 7. What is Public Financial Management (PFM)? Public financial management is defined as including all the following “upstream” (preparation and programming) and “downstream” (execution, accounting, control, reporting, monitoring and evaluation) activities related to accumulation and distribution of public financial resources: Forecasting revenues and expenditures. Formulating and preparing the budget. Linking the budget to policymaking. Managing cash and monitoring expenditures. Performing internal control and audits. Accounting and reporting. Assessing performance and conducting external audits.
- 8. Forecasting revenues and expenditures (Planning) Resources: Revenue: – NBR Taxes: Tax on income and profit, VAT, Import duties, Export duties, Custom duties, Supplementary taxes, other tax & levies. – Non-NBR Taxes: narcotics tax, transport tax, land tax, sales of non-judicial stamps etc. – Non Tax Revenue: Profit & dividend, interest, Fees, penalty, service fee, rent & lease, Toll & levy, non- commercial sales, income from railway, postal and capital investment. Grants, Loans and income from Food assistance.
- 9. Forecasting revenues and expenditures (Planning) Planning for Revenue budget: – Printing of departmental estimates – printing and distribution of Budget Forms (Estimating Officer's forms) – sending consolidated estimates to the ministry of finance – MoF examines the estimates, receives schedule of new expenditures and information on actual expenditures of agencies and organisations in last six months Planning for Development Budget: – Development budget is a result of a continuous process of identifying new projects, review of project concept papers (PCPs), and vetting of the projects in ministries and in the Executive Committee of the National Economic Council (ECNEC). – ERD prepares aid memorandum and based on domestic resource projections by NBR, ERD revises the aid memorandum. Upon approval of Cabinet resource position for budget is then estimated and the Programming Committee finalises eligible projects for inclusion the ADP.
- 11. Budgeting Budget in Bangladesh: Legal Framework – Constitution of Bangladesh, 1972 (Ch.II, Legislative and Financial Procedure, Article 80-92, 87-Annual Financial statement) – Rules of Procedure of Parliament of the People’s Republic of Bangladesh 1973 (Rule-111-127) – General Financial Rules, 1951, updated 1998 (Budget, Grants and Appropriations) – Preparation of the Budget (Secretariat Instruction, 1976 updated 2008) – The Public Moneys & Budget Management Act, 2009 Institutional Framework: Ministry of Finance mainly responsible to prepare and place the budget before the parliament. 3 divisions involved: 1. Finance Division 2. Economic Relations Division 3. Internal Resources Division (National Board of Revenue) Other Ministries/Agencies: – Planning Commission – Line Ministry/Division/ Agencies
- 12. Budgeting Budget: – A budget is a financial plan and a list of all planned expenses and revenues. – A government budget is a legal document that is often passed by the legislature, and approved by the chief executive-or president. – The two basic elements :Revenues and Expenses. – Revenues are derived primarily from taxes and non-tax revenue. – Government expenses include spending on current goods and services, which economists call government consumption ; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits, Social Safety nets Budgeting Concepts Revenue = Tax + Non-tax Expenditure = Revenue +Development Expenditure – receipts = Deficit Deficit Financing requires Borrowing -From External Sources: Loans, Grants, project Aid -From Domestic Sources: Loans From Banks, Loans From Non Banking sources
- 13. Budgeting Core Budget Documents Placed before the parliament – Budget Speech of the Finance Minister – Budget in Brief – Annual Financial Statement – Supplementary Budget (Additional demand for grants for the ongoing year) – Combined Demand for Grants – Consolidated Fund Receipt – Medium Term Budget Framework – Detailed Budget – Annual Development Program(ADP) – Gender Budget – Bangladesh Economic Review
- 14. Expenditure & Cash Management Parliamentary Approval of Expenditure Budget: – Annual activities of the Government – Non-development Budget Estimates (Revenue) – Development Budget Estimates (ADP) – Demand for Grants and Appropriations Approval is accorded through vote in the House on: – Finance Bill; – Demand for Grants Bill; – Supplementary Appropriation Bill; – Account Bill (when necessary); and – Appropriation Bill Medium Term Budgetary Framework: – A blueprint for revenue receipts and both Non-Development and Development expenditure; – Consists of estimated budget for ensuing financial year and the projections for further two years; – Integration of policy, planning and budgeting within a medium term resource constraint.
- 16. Internal Control & Audit
- 17. Why Internal Control? ICs filter through the whole process to: – Help align objectives of the business – Safeguard assets – Prevent and detect fraud and error – Encourage good management – Allow action to be taken against undesirable performance – Reduce exposure to risks – Ensuring proper financial reporting Each IC procedure is designed to fulfill at least one of these 8 criteria: – Completeness – Accuracy – Validity – Existence – Handling errors – Segregation of duties – Presentation and disclosure 5/20/2024 17
- 18. Control Procedures Control Procedures: are the policies and procedures that have been put in place to ensure that owners and managers can take the correct action to ensure the business achieves its objectives. – Procedures explain the how, why, what, where and when for any set of actions. Basic Controls: – Physical Access – Job Descriptions – Accounting reconciliations and analyses Additional Controls: – Supervision – Fraud awareness – Approval, review, double-checking and re-doing 5/20/2024 18
- 19. Internal Audit
- 20. Accounting & Reporting Purpose of govt. accounting Mandate of govt. accounting – CAG has constitutional power to prescribe forma and manner of govt. accounting – The CAG (Additional Functions) Act, 1974 and its amendment in 1983 form the basis and responsibilities of keeping the accounts of republic. – Annual Finance Accounts & Appropriation Accounts Features of Govt. accounting: – Cash basis – Principal Accounting Officer – 13-digit code (Legal, Institutional, Operational, Economic) – iBAS platform Fund Management – Consolidated fund – Public Accounts
- 21. Accounting & Reporting Treasury System: Govt. treasury has 3 functions: – To maintain cash bank account of the govt. (Bangladesh Bank) – To dispose of the claims against govt. and maintain accounts (CGA) – To manage and ensure safe custody of various kinds of stamps and other valuables (Deputy Commissioner) Cash Management: MoF is responsible for managing, monitoring govt. cash position, monetary flow, investment and inflationary trend etc. Several ways of raising public debts: – Ways of means advances – Sale of securities under different savings scheme – Sale of Treasury Bills Different system of Payments & Receipts in govt. accounts: – Payment through Accounts Offices – Departments having cheque drawing authority – Departments having cash drawing authority – Customs Treasury – Bangladesh Mission abroad – Exchange A/C & Settlement Account
- 22. Financial Oversight Parliament is the custodian of public fund according the constitution; Budget discussed and approved in the Parliament; Cannot be placed before a committee; Parliament performs oversight functions on the execution and implementation through – Public Accounts Committee – Public Undertakings Committee – Estimates committee – Committee on ministry of finance – Standing Committees on different Ministries
- 23. Performance Measurement & External Audit Government Audit connotes an examination of the books of accounts and other relevant documents relating to the ‘Receipts’ & ‘Expenditure’ of the following entities: – The Government (all govt. offices & court of law); – The Statutory Public Authorities (whose activities are authorized by Act, Ordinance, Order having the force of law in Bangladesh); – Local authorities: e.g. Education Board, Pourashava, City Corporation etc.; – The Public Enterprises (companies or firms in which the Govt. has at least 50% share or interest). Immediate objective of Audit: Te ensure- – Correctness of accounts; – Compliance with rules, regulations and orders; – Budgetary control; and – Money has been spent for the purpose for which it was allocated. Long term objective of Audit: To ensure- – Financial discipline; – Accountability; – Sound financial management; and – Good governance.
- 24. What is good governance in PFM? UNDP defines Good Governance in general as follows: – Participation – Rule of Law – Transparency – Responsiveness – Consensus Orientation – Equity – Effectiveness & Efficiency – Accountability – Strategic Vision Briefly write what do you understand under each item, rank all items in the order of importance for you
- 25. What is good governance in PFM? Accountability: Capacity and institutional possibility to call public officials to task for their actions Transparency: Unhindered and low-cost access to relevant information Predictability: Difficult to define in aggregate term, but, for example in terms of budget expenditure this implies relative predictability of current year's budget allocated for specific sector. Participation: Ability to express, be heard, and affect diverse issues related to government actions for PFM. Can we physically guarantee participation of everybody in everything? And should the participation concept be used in order to avoid need for making tough decisions?
- 26. Reforms in PFM Key lessons that we have learned from PFM reforms in Bangladesh since 1990: – All areas of PFM are inter linked, so when introducing reforms in one area (accounts, debt management, cash management), we need to keep in mind what effects it might have on other areas as well. – directly adopting a PFM best practice often lead to operational failure. Main success of PFM reforms: – Identifying gaps with international best practices, – old systems that do not support present reality (public debt act 1944 does not support present debt instrument needs) – recognizing the systems that work and that do not work of the old regime Main failures of PFM reforms: – Adopting international best practices without understanding the ground reality – Initiating reforms without full preparedness – discarding everything old without assessing their necessity – trying to fit one solution for different areas – trying to centralize all PFM reform in MoF