CURRENT STATUS OF PUBLIC SECTOR ACCOUNTING IN MALAYSIA AND THE WAY FORWARD

By: Datuk Wan Selamah binti Wan Sulaiman Accountant General of Malaysia

OVERVIEW
Introduction Where Are We Now The Way Forward Conclusion

INTRODUCTION
Components of Public Sector Federal Government State Government Federal Statutory Bodies State Statutory Bodies Local Government, Town, District Councils & City Halls Islamic Council of Malaysia

Governing Laws & Regulations

Accountant Generals Authority

Registrar for the Unclaimed Monies Chief Accountant Head of Service Accountant General is the chief accountant of the Federal Government and Chief Division of the Federal Treasury with the authority in all accounting matters and procedures relating to Federal and State Government accounts. Treasury Instruction
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Accountant General is the Head of Service for Accountants, Assistant Accountants and Book keepers (Accounting Technician)

Accountant General was appointed by the Minister of Finance as the Registrar of the Unclaimed Monies under the Unclaimed Money Act 1965 effective from 1 Jun 1975.

Where Are We Now?

Current Basis of Accounting Current Accounting Standards Financial Statement Performance
Timeliness Quality

Current Accounting System

Current Basis of Accounting

Components
Federal State Local Government

Accounting Basis
Modified Cash Basis Modified Cash Basis Modified Accrual Accounting

Statutory Bodies Islamic Council of Malaysia

Accrual Accounting Modified Accrual Accounting

Current Basis of Accounting

Modified Cash Accounting
Transaction and other events are recognized on a cash basis during the year. Any unpaid accounts and receivables are taken into account for a month after the year end Economic events are recognized when they occur regardless of when cash transaction occur, meaning economic events are recognized by matching revenues to expenses at the time in which the transaction occurs rather than when payment is made (or received). Transactions and other events are recognized on accrual basis, but certain classes of assets or liabilities are not recognized. A typical example is the expensing of all non-financial assets at the time of purchase.
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Accrual Accounting

Modified Accrual Accounting

Limitation of Modified Cash Basis

Simpler but the concept is unfamiliar Ease of manipulation Less comprehensive cash information only Provides only basic information commitment information are not available Higher implementation cost because of customization and limited availability No information provided for non financial asset management Limited credibility and accountability (especially by Rating Agency) Limited basis for determining fiscal strategy Limited product/service pricing Limited disincentives for fraud and corruption

Current Accounting Standards

Components
Federal State Local Government

Accounting Standards
International Public Sector Accounting Standard (IPSAS) Cash Basis Government Accounting Standard (PPK) International Financial Reporting Standard (IFRS) (Requirement for Securities Commision and Bank Negara*) Private Entity Reporting Standard (PERS) Malaysian Accounting Standards Board (MASB)

Statutory Bodies Islamic Councils

Pekeliling Kemajuan Perkhidmatan Awam (PKPA) Bil. 1/2011

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Financial Statement Performance

Components
Federal

Submission Date
For the past 10 years, the Financial Statement of the Federal Government was submitted to the Auditor General latest by 15 March The Financial Statements for the 11 States (excluding Sabah & Sarawak) were submitted not later than 31 March every year since 2006 Submission of Financial Statement to the Auditor General can and need to be improved Data from 10 statutory bodies showed that Financial Statements for the year 2008 and 2009 were submitted before 31 May

State

Local Government*

Statutory Bodies

Submission Of Federal Government Financial Statement To Auditor General

Financial Year
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Date Of Submission
12 Mac 2002 3 Mac 2003 8 Mac 2004 9 Mac 2005 8 Mac 2006 9 Mac 2007 3 Mac 2008 6 Mac 2009 8 Mac 2010 4 Mac 2011

Submission Of State Financial Statement To Auditor General

STATE Perlis Kedah P.Pinang Perak Selangor N.Sembilan Melaka Johor Pahang Kelantan Terengganu 2006 17.04.2007 10.04.2007 9.02.2007 18.04.2007 16.05.2007 13.04.2007 30.04.2007 03.08.2007 16.04.2007 30.04.2007 15.02.2007 2007 08.04.2008 31.03.2008 02.01.2008 28.03.2008 10.06.2008 29.02.2008 21.04.2008 15.03.2008 30.04.2008 22.04.2008 10.02.2008 2008 26.03.2009 05.04.2009 09.01.2009 18.03.2009 08.04.2009 27.02.2009 03.04.2009 13.03.2009 08.04.2009 22.04.2009 10.02.2009 2009 18.02.2010 25.02.2010 19.01.2010 12.02.2010 02.03.2010 24.02.2010 09.04.2010 23.02.2010 25.02.2010 23.02.2010 10.02.2010 2010 01.02.2011 20.03.2011 18.01.2011 08.02.2011 14.02.2011 21.02.2011 24.03.2011 25.02.2011 23.03.2011 27.02.2011 10.02.2011

Submission Of Financial Statement To Auditor General

(Sample of 10 Statutory Bodies)
No
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Federal / State Statutory Bodies

Universiti Tun Hussien Onn Malaysia Agensi Kelayakan Malaysia Perbadanan harta Intelek Universiti Darul Iman Malaysia Lembaga Perindustrian Nanas Malaysia Lembaga Pelabuhan Kuantan Universiti Putra Malaysia Serdang Universiti Malaysia Terengganu Lembaga Kemajuan Perindustrian Malaysia Institut Penyelidikan Keselamatan Jalanraya Malaysia

ABB.
UTHM MQA MYIPO UDM LPNM PLPKTN UPMS UMT MIDA MIROS

2008
21.4.2009 17.4.2009 30.4.2009 22.2.2009 15.5.2009 3.3.2009 30.1.2009 23.3.2009 30.4.2009 13.3.2009

2009
29.4.2010 14.4.2010 30.4.2010 4.3.2010 9.3.2010 9.3.2010 22.2.2010 25.2.2010 30.4.2010 18.3.2010

Revised Federal Government Financial Statement Effective 2010

Description Statement by Secretary General to the Treasury and Accountant General of Malaysia Financial Statement Old Format Not available Revised Format Available

Balance Sheet Statement of Cash Receipts and Payments Statement of Memorandum Account Notes to the Account

Statement of Financial Position Statement of Financial Performance Statement of Cash Receipts and Payments Statement of Memorandum Account Notes to the Account

Revised Federal Government Financial Statement Effective 2010

Description Old Format Revised Format

Statement of Cash Receipts and Payments Financial Performance Statement of Memorandum Title Presentation

Not applicable

Comply with new requirement in IPSAS para 1.10 Available Taken out Federal Government Financial Statement Precise and understandable

Not available Memorandum of Asset Public Account Information overload and redundant

Research By IPN And ARI On Local Authority

Issues

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Research Conclusion
Harmonization of financial reporting format
Enhance accountability and transparency

Harmonization

Single set of financial reporting

Better corporate governance

PKPA Bil. 1 /2007 vs. PKPA Bil. 1 /2011

Description Definition of SAGA PKPA Bil. 1 /2007 PKPA Bil. 1 /2011 Standard Accounting Accounting package package approved by available in the market which can be customised Government according to GAAP. Not mentioned System architecture must be approved by Accountant Generals Department (AGD) Disclosed Agency and Ministry level Bodies Federal Statutory Bodies, State Statutory Bodies, Local Authority and Islamic Council
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Scope of work

Structure of Corporate Governance

Not disclosed

Post Implementation Review Not mentioned (PIR) Implementation of SAGA Federal only Statutory

Current Accounting Systems

Components
Federal State Local Government Statutory Bodies Islamic Councils Standard Accounting System for Government Agencies (SAGA)

Accounting System
Government Financial and Management Accounting System (GFMAS) State Government's Standard Computerised Accounting System (SPEKS)

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Current System and Process Overview Federal

GFMAS Government Financial and Management Accounting System used in AOs and HO for financial planning, budget control and Government accounting combining accounting functions including payments, receipts, remuneration control, unclaimed monies, government loans, loans and advance payments, investments and preparation of the Public Accounts. eSPKB Electronic Budget Planning and Control System used in RCs for budget and expenditure control and monitoring. eTerimaan ElectronicTerimaan to facilitate and standardize Governments collection and accounting process in the RCs and accounts reconciliation between RCs and AOs. eSPKB/eTerimaan and GFMAS integrate with one another.

The Way Forward for Public Sector Accounting

STRATEGY REFORM INITIATIVESs (SRI) LAB (Accrual Accounting)

ACTIVITY BASED COSTING (ABC)

Public Sector Accounting

OUTCOME BASED BUDGETING (OBB)

DATA DICTIONARY FOR PUBLIC SECTOR (DDSA)

Outcome Based Budgeting (OBB)

Malaysia has embarked on the implementation of Outcome Based Budgeting (OBB). Accrual accounting complements OBB as an effective fiscal management tool. Accrual accounting sets the platform for implementation of Activity Based Costing.

Degree of Results Focus

Ministrys programs under MBS

Alignment of programs with National Thrust and KRAs

Activity Based Costing of resources

Results Frame work

OBB results

Migration towards Accrual Accounting Level of transformation

Progress

Activity Based Costing Migration from Modified Cash to Accrual Accounting OBB Implementation
2011 2012 2013 2014 2015 2016 2017

Time

SRI Lab - Accrual Accounting

Migration to accrual accounting has been stipulated as a policy measure in the NEM Report. The adoption will put the Malaysian public sector finance practice to be in line with the developed countries. Aspiration of the Malaysian Government of attaining developed nation status with the drive for People first, Performance now.

Outcome of Accrual Accounting

Key Result Area (KRA) of Accrual Accounting

Enabling More Efficient and Effective Fiscal Management

Information on consumption of resources that supports sustainability of fiscal policies

An essential component of the results framework of accountability of programs under Outcome Based Budgeting

Why Accrual Accounting?

How Can Accrual Accounting Benefit the Public Sector in Malaysia? Costing data of output enables more effective evaluation of alternatives to achieve the outcomes Cost Savings Information on assets facilitate unlocking of values Revenue Generation Assets listing provide a database for infrastructure management leading to better maintenance of assets Better Service Delivery
Accountability
Accounting for consumption of resources Improve performance and financial management of each agency Facilitate revenue management by each agency Promotes intergenerational equity of public policies Completeness of accountability of resources

Sustainability

Better Measure of Policies Effect

More effective measure in complimenting results framework of OBB Better accountability of executive government

More Efficient and Effective Fiscal Management

Organizational Efficiency and Effectiveness

Compliment results framework of OBB Costing of outputs and measured against outcomes

Promote Greater Integrity

Curbs teeming and lading of expenditure Promotes transparency Minimizes year-end shopping Compatibility with developed economies

Trends in Developing Countries

Selected ADB Developing Member Countries: Direction of Government Accounting

DMC Fiji Islands Indonesia Marshall Islands Philippines Sri Lanka Azerbaijan China, Peoples Republic of Mongolia Uzbekistan

Current Basis Modified cash Modified cash Modified cash Modified accrual Modified cash Accrual Modified accrual Modified accrual Accrual

General Direction Accrual Accrual Accrual Accrual Accrual Accrual Accrual Accrual Accrual

Malaysia is not yet in the radar screen of accrual accounting

Migration Path
Accrual Accounting Modified Accrual Modified Cash

As-is Status Assets are not capitalized Liabilities are recorded outside the accounting system System is distributed and disparate IPSAS cash basis of accounting Costing information is not integrated

Phased Out Approach Record Accounts Payable (AP) Record Accounts Receivable (AR) By 2014

To-be in 2015 Assets and liabilities are accounted for Centralized system with single database Fully integrated with OBB and other relevant systems Full IPSAS compliant on accrual accounting Costing data on outputs, programs and activities

Accrual accounting together with Activity Based Costing will transform existing data to information and eventually to knowledge where better informed based actions can be taken

Data

Information

Knowledge

Action

Activity Based Costing

Activity-Based Costing (ABC) is a method of allocating costs to products and services Used as a tool for planning and control Allows managers to attribute costs to activities and products Costs can be identified and passed on to users only when the product or service uses the activity Identify high overhead costs per unit and finding ways to reduce the costs To facilitate OBB implementation and evaluation Integration of ABC and Accrual Accounting will produce a useful information for decision making

Public Sector Data Dictionary (DDSA)

What is DDSA?
Data Dictionary is defined as description of data DDSA set the standard for data description to be used by public sector agencies AGD involve in 4 out of 11 Working Groups
Accounting and Finance - Chairman Data Generic - member Human Resource - member Project Monitoring - member

Objectives of DDSA
Ease of implementation and integration of application systems within and between agencies Facilitate the exchange of data between government agencies Assisting agencies in the development of application systems Allow users to communicate with each other using the same definitions and data format Facilitate communication between the public and private sectors through the use of standard data definitions

Evolution (Federal)
Before Current Future

Modified Cash Basis Branch Accounting System IPSAS Cash

Modified Cash Basis

Accrual basis

GFMAS

1 GFMAS

IPSAS Cash (Revised)

IPSAS Accrual

Evolution (State)
Before Modified Cash Basis Current Modified Cash Basis Future Accrual Basis

Manual

SPEKS

SPEKS (Accrual)

IPSAS Cash

IPSAS Cash

IPSAS Accrual

Evolution (Local Government, Statutory Bodies)

Before Modified Accrual Basis Manual , SAGA, Other systems IFRS, PERS, PKPA 1/2007, MASB Current Accrual Basis Future Accrual Basis

SAGA IFRS, PERS, PKPA 1/2011, MASB

SAGA

IPSAS Accrual

CONCLUSION
Implementation of Accrual Accounting together with OBB and ABC is hoped to bring Malaysia at par with other developed countries

OBB

Accrual Accounting

ABC

At par with Developed Countries

Full support , commitment and cooperation from every one of you is very much needed to make this transformation a success

Thank You For Your Attention

Together we make this happen

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