Chap 2,3,4

1
TOPIC 2
GOVERNMENT
STRUCTURES AND
LEGAL FRAMEWORK
INTRODUCTION
2
 The financial aspect of a government has become a

benchmark of an efficient and successful nation
 Accounting system must be designed to permit effective
administrative control of public funds and to facilitate
audit.
 The systems and procedures can be divided into two;
financial and non-financial procedures
Public Sector Legal Framework
3
 Federal Constitution – provides framework

 Financial Procedure Act 1957- power to enact
 Audit Act 1957- provisions for the audit of government
accounts at federal, state and local authority
 Treasury Instruction – rules that approved and
documented
 Treasury Circular – new rules introduced from time to time
 Government Accounting Standards (PPK) – basis for the
preparation of government FS
 IPSASs- developed by IFAC which will improve the quality
and comparibility of financial info.
 MPSASs
Financial Provisions of Federal
Constitution
4
 Article 96 -112 of FC provides financial

provisions to all the governments level in
Malaysia.
 17 articles – act as the basis for managing the
financial aspects of the government
 In operation since colonial administration and
proven to be flexible and able to cope with
changes of governments and time.
)
Objectives of Financial Provisions
5
 Establish the general  Provide guidelines on the

framework for the control maintenance of specified
of public expenditures by Consolidated Funds by
the legislators. the Federal and State
 Provide a good financial Government.
management systems in
government.  Provide guidelines on the
preparation of budget
 Govern the methods of
which public fund are to and annual statements of
be administered and assets and liabilities.
accounted for.
 Define the borrowing
powers of Federal and
State Government
Revenue
6
 Federal & State Government’s revenue.

 Article 96 (FC) – no tax or rate shall be levied by or for the
purposes of the Federation except authorized by the
Federal Law
 All proceeds of revenues are due to the Federal
Government except those that are assigned to the state
(Art110 FC) and those are collected by Local Authorities &
religious departments.
 Article 110(1) (FC) –State shall receive all proceeds from the
taxes, fees and other sources of revenue levied or raised
within the state.
 Article 110 (3) (3A) (FC) – Other revenues
 Part 3 of the 10th Schedule – entertainment duties, fees
from courts & treasure trove.
Revenue
7
 State Government has limited sources of

revenues, but receive annual financial assistance
from Federal government in term of grant.
 Grants can be classified into two categories;

1. Statutory grants
2. Non-statutory grant
Statutory Grant
 Capitation Grant -Art109(1)(a)
 State Road Grant – Art 109(1) (b)
 State Reserve Fund – Art 109 (6)
 Export duty on tin – Art110(3)
 Export duty on iron ore and other minerals
 Special Grants and Assignments of revenue to states of Sabah & Sarawak
– Art112C(1)
 Revenue Growth
 Compensation and Annual Assignment to Selangor and Federal Territories
 Maintenance Assistance to the Local Authorities
 Assistance according to Economic Development, Infrastructure and Societies
Well being Level and NFC
Non- Statutory Grant
 Contributions in Aid of Rates Assistance –Art156
 Payment for Services Rendered – Art80 (5)
 Advance to State Governments
 Loans to State Governments- Art111(2)
Statutory Grants
Categories
Categories of Statutory Example
Grants
Payable under Article 109 Capitation Grant
of the FC State Road Grant
State Reserve Fund
Approved by the NFC Grant for infrastructure
Payable under various act Revenue Growth Grant
of the parliament Iron Ore Export Duty
Grant
Capitation Grant
11
 Payable under Art 109 (1) (a) of FC.

 Purpose – to assist States in their operating
expenditure.
 Based on the population of particular State.
 Sec 1 Part 1 of the 10th Schedule – specifies on
the rate .
 Art 109 (2) of FC – the rate can be changed – not
lesser than 90% of the previous year
Sec 1 Part 1of the 10th Schedule
12
 The first 100,000 persons = RM72/ person

 Next 500,000 persons = RM10.20/ person
 Next 500,000 persons = RM10.80/ person
 Reminder at the rate of RM11.40/person
 It is based on the annual population projections as per the last

population census
State Road Grant
13
 Purposes – maintaining the State roads in the

State,
 Art 109 (1) (b) of FC
 Sec 2, Part II of the 10th Schedule of FC – provide
calculation for the amount
 Sec 5, Part II of the 10th Schedule of FC – State
road means any public road other than Federal
road that the public has access & Maintenance of
State road
Sec 2, Part II of the 10th Schedule
14
Average cost in
maintaining a X Mileage of state
mile of state road roads
State Reserve Fund
15
 Given upon application from the State.

 Purposes- to assist States Government that had
deficits in their current account as well as to help
implement the development throughout Malaysia.
 Provides grant based on economic development,
infrastructure and well being of the respective
States.
 Amount contributed determined by the Federal
Government after consultation with NFC
 Art 109 (6) of FC – allocation of State Reserve
Fund
Revenue Growth Grant
16
 Revenue Growth Grant (Amendment) Act 2007.

 Given by Federal to State Government whenever
there is a growth or increase by more than 10% in
the revenue of the Federation in any financial year
as compared to the preceding financial year.
 Rationale – total growth in the revenue of Federal
Government is the result of the States’
contributions.
Revenue Growth Grant-
17
calculation
Amount in RM Amount in RM Apportionment Method
(Million) (Million)
1. Not exceeding 50 25 Divide equallly between 13 states –

25 based on the population of the state
2 Not exceeding 100 Based on the % of GNP

3. Not exceeding 100 Reviewed and varied by the Minister
Total 250
)
Expenditure
18
 Art 98 of FC – expenditures including any grant,

remuneration or other money charged by other
Article or Federal Law shall be charged to the
Consolidated Funds (CF).
 E.g. Pensions, compensation for loss of office and
gratuities, debt charges, money on judgment,
decision or award against the Federation.
 These expenditure can be spent from CF without
approval from the Parliament.
Expenditure
19
 Art 100 of FC – Supply Bill needs to be passed in order

to authorize expenditure for the whole or part of the
year.
 Art 102 of FC – covers on any unusual urgency.
 Art 103 of FC – allow Parliament to create
Contingencies Fund for an urgent and unforeseen
need for expenditure.
 Art101 of FC- Supplementary estimate needs to be
presented to the Parliament and the amount will be
included in the Supply Bill.
 Art 109 of FC – other expenditure to the Federal
Government are grants
Control & Management of Fund
20
 Use Consolidated Funds to administer and

regulate constitutions financial provision.
 Art 97 of FC – revenues/ monies raised or
received by both Federal & State shall be paid
into Federal & State CF –exclude religious
revenues.
 Art 104 of FC – no money should be withdrawn
from CF except provided by Federal Law.
 Reasons for withdrawal : Charge expenditure (Art
98 of FC), authorised by Supply Act (Art 100 of
FC) & authorised to be issued under Article 102 of
FC)
Borrowings
21
 Strictly regulated as this will increase public

debts and have major implication on the ability
of the government to meet its objectives.
 Art 111 (1) of FC – Federal can borrow only
under the authority of Federal law.
 Art 111 (2) of FC States can only borrow from
Federal & bank or financial institution for less
than 5 years.
Borrowings
22
 Art 112B of FC (S&S) - States can borrow under

state’s law authority. Only applicable if approved
by BNM
 Art 111 (3) of FC – States are restricted from giving
guarantee except authorised by State Law &
Federal Govt.
 Laws on Domestic Borrowings: Loans (Internal
Bank) Ordinance 1958, Treasury Bills (Local) Act
1964.
 Laws on External Borrowings: External Loan Act
1963 & Development Fund Act 1966
Budget & Financial Statements
23
 Budgets – tool for controlling & managing public money.

 FS – an avenue for the government to prove its
performance.
 Art 99(1)of FC – Federal Government must submit
Statement of Estimated Receipt and Expenditures,
Statement of Assets & Liabilities.
 Art 99(4) of FC- Requires Statement of Assets and
Liabilities shows, how the assets are invested or held and
the general purposes of outstanding liabilities
 Art 100 of FC – Expenditures (not charged exp) need to be
included in Supply Bill – once approved known as Supply
Act.
 Art 101 of FC – Supplementary Budget (addition to Supply
Act) to be included to Supply Bill to be submit to
Parliament.
Auditor General
24
 FS are to be audited by the Auditor General

Department.
 Audit is an official inspection of the government’s
accounts to ensure that the public money are
properly accounted for.
 Help to promote and enhance accountability
among the public officers.
 FS – known as Public Account once audited,
approved by Parliament & gazetted
Auditor General (AG)
25
 Art 105 (1) of FC - Appointment of AG made by YDP

Agong upon the advice of PM & consultation with
the Conference of Ruler.
 Art 105 of FC – reappointment of AG. (AG is
protected by the Constitutions.
 Art 98 of FC – remuneration charged to CF.
 Terms & condition of services determined by
Federal Law.
 Art 106 of FC – AG has the powers & duties to audit
& report on the accounts of Federal & States & other
duties as specified by YDP Agong.
 Art 107 of FC – Submission of the Audit Report
(Federal & State)
National Finance Council (NFC)
26
 Art 108 of FC – established NFC to provide a venue in

which representatives from Federal & States meet &
discuss various issue concerning the financial aspect of
both parties.
 Main duty to coordinate important matters of Federal and
State finance.
 Representative – PM, Minister & representative from states
appointed by the Ruler (CM or Menteri Besar).
 When? As & when necessary by the PM, request by 3 or
more representative or at least once a year.
 Matter discuss: making grant, tax/fee, loan, development
plan & matter related to item 7F & &G of the federal list.
Special Provision for Sabah & Sarawak
27
 Art 112A of FC – submission of report on

account by Auditor General to YDP Agong &
YDP Negeri.
 Art 112B of FC – any borrowing should get
approval from Central Bank.
 Art 112C of FC – Special grants & assignment of
revenue.
 Art 112D of FC – limitation in the relevant
section in the 10th Schedule
Financial Procedures Act 1957
28
 Describe in detail the financial provisions that

has been laid down in FC especially in terms of
accountability and enforces the said provisions.
 Six main section:
i. Definitions of terms
ii. Consolidated Fund
iii. Financial procedures for payment, virement,
estimates and write-offs
iv. Custody and investment of public fund
v. Yearly statement of accounts
vi. Financial regulation provided by YDP Agong.
Objectives of
Financial Procedure Act 1957
29
 To provide guidance for the  To provide the authority

control and management of for the investment of
public finance money standing in the
 To provide financial & Consolidated Funds.
accounting procedure.
 To define & explain in
 To provide guidelines on the detail the three accounts
collection, custody & of the Consolidate Funds.
payment of public monies.
 To enforce the provisions
 To provide the procedures
of the Federal
for purchase, custody &
disposal of public Constitution relating to
properties. finance.
Definition of Term
30
(Section 3 of FPA1957)
 Financial Authority
Federal Consolidated Fund – the Treasury
State CF – State financial authority (principal officer)
 Financial Year
A period of 12 months ending on 31 Dec in any year.
 Public Moneys
All revenue, loan, trust & other moneys, & all bonds,
debentures & other securities.
 Public Stores
Chattels the property of or in the possessions or under the
control of the Federation or of a State.
Definition of Term
31
(Section 3 of FPA1957)
 Accounting Officers
 Every public officer who is charged:
i. With the duty of collecting, receiving , accounting, disbursing
of public money
ii. With the receipt, custody or disposal of public stores
 Section 4- Duties of Accounting officer

Keep such books and render(present) such accounts
prescribed by this act or by instructions issued by the Treasury
Consolidated Fund
32
 Sec 3 of FPA – Consolidated Fund means the federal

consolidated fund and the consolidated fund of the
states as mention in Art 97(1) & (2) of FC
 Consolidated Revenue account (Sec7 (a) of FPA) – all
money or revenue received except for loans & trusts.
 Consolidated Loan Account(Sec 7 (b) of FPA) –
domestic & external borrowing for Housing Loan
Fund, Development Fund & to cover up previous loan.
 Consolidated Trust Account (Sec7 (c ) of FPA) –
Classified either as Government Trust Fund
(Development Fund, Housing Loans Fund,
Retirement Trust Fund & Miscellaneous Government
Trust Fund), as Public Trust Fund (Specific Trust &
General Trust) or Deposit Account.
 Table 4.4 page 54
Financial Procedures for Payment
33
 Sec 13 of FPA – any money withdrawn from the

funds must be by way of warrant.
 A warrant is a letter of authorisation either from
Minister for the Federal or ‘MB’ or CM for States.
 Consolidated Trust Account – no money shall be
withdrawn unless for trust purposes as authorised
by a law.
 Warrant issued for any year shall lapsed and cease
at the close of one calendar month following the
financial year.
Financial Procedures for Estimates
34
 Estimates are to be prepared in order to show

clearly the divisions & sub-divisions of
expenditure proposed, the amount expected to
be received or spent for the year and purpose of
such expenditure. (Section 15 FPA, 1957)
 For personal emolument – should show the

approved number of public offices for each
purpose of expenditure.
)
Financial Procedures for Virements
35
 Section 15 (4) of FPA 1957.

 Transfer of allocation between subheads within the
same head. (e.g. diff department in the same ministry)
 Approval from Treasury of State Financial Authority
for alteration of the proportions assigned.
 Supplementary budget be prepared after all possible
virement have been made.
 No virement is allowed from personal emoluments.
 Section 15A- Controlling Officer appointment.
Financial Procedures for Write-Off
36
 Section 17 FPA ,1957 – Minister or CM has the

power to authorise a write off of any losses or
deficiencies.
 This power extends to irrecoverable amounts of
revenues, debts and over-payments.
Custody & Investment of Public Fund
37
 Section 8 of FPA,1957 – all money paid to the CF

should be kept in banks according to the Treasury
requirements.
 Section 8 (3) (a) of FPA,1957 – moneys of the
Federation may be invested in various way.
 Section 8 (3) (b) of FPA,1957 – explained on the
investment of States’ public money.
 All interest received from investment goes to the
Consolidated Revenue Account except for the
interest on investments of trust fund.
Yearly Statement of Account
38
 Section 16 of FPA,1957 – annual statement of

government consist of: Cons Revenue Account;
Cons Trust Account ; Cons Loan Account;
Statement of account of funds created by FC or
by Sec 10 of FPA 1957 and not aacounted in Cons
Trust account; Statement of Asset & Liabilities
of the Federal & States & other statement.
 Have to be presented to the Legislature after
examined & audited by the Auditor General.
Treasury Instruction &
39
Treasury Circular
 TIs provides guidelines such as on the issuance of receipts,
custody of unused receipts, recording of collections, lodgement
of collections and etc.
 TI revised in 1997 effective July 2008
 Aims
- to improve financial management competency of government
agencies by giving more flexibility to the Coor assigned officer
in making decision.
- to streamline and enhance procedures in TIs suitable with
current situation and taking into account the TC
Treasury Instruction &
40
Treasury Circular
 There are 3 chapter of Tis
Chapter A: Financial Procedures
Chapter B: Accounting Procedures
Chapter C: Audit, loss and write off procedures
 TC- a circluar is issued from time to time to provide
information or amendments, approved estimates and detail
guidelines on certain procedures
 Table 4.6 pg 59 – provide examples of TCs
Treasury Circular
41
 There are 3 chapter of Tis

Chapter A: Financial Procedures
Chapter B: Accounting Procedures
Chapter C: Audit, loss and write off procedures
Government Accounting
Standards (PPK)
 Set up by Accountant General in 2002
 Objective is to prescribe the standards and the basis
for preparation of government financial statements
in accordance with the requirements of the Federal
Constitution and the Financial Procedure Act 1957
 Must be complied by Federal and State Government
PPK Particulars
1 Government Accounting Policies
2 Presentation of Financial Statements
3 Consolidated Revenue Account
4 Consolidated Trust Account
5 Consolidated Loan Account
6 Investment
7 Cash
8 Statement of Memorandum Account
9 Foreign Exchange
10 Government Grant
Table 4.7 Government AccountingStandard (page59)
International Public Sector
Acoounting Standards (IPSASs)
 Developed by IFAC through its Public Sector
Committee
 Set out recognition, measurement, presentation and
disclosure requirements dealing with transactions and
events in general purpose financial statements of
public entities
 Table 4.8- Example of IPSASs (page 61)
Malaysian Public Sector
Acoounting Standards (MPSASs)
 Is based on IPSAS
 Applies to all public sector entities other than GBEs
 GBEs applt MFRSs and PERS issued by MASB
2 Administrative Systems and
Instruments
Learning Outcomes
 Understand the Malaysian government

structure
 Explain the government machinery
 Explain how public policies are developed and
implemented
 Understand the Malaysian legal framework
related to public revenue and procurement
Public Sector Accounting Governance and Accountability in the Malaysian Context All Rights Reserved
© Oxford Fajar Sdn. Bhd. (008974-T), 2019 2–3
Federal and State Level
Organizations
 The Federal level organisations are made up of

ministries, commissions, councils,
departments/units, federal statutory bodies and
public enterprises/government owned subsidiaries.
 The state-level organisations are made up of
district/land offices, local authorities/municipal
councils, state statutory bodies and state owned
subsidiaries.
 There are also federal departments at the state
level.
Statutory Bodies and Non-
statutory Bodies
 Statutory bodies are formed under Legislative

Enactment. Examples are FELDA, Sports
Council (MSN) and Malaysian Institute of
Accountants.
 Non-statutory bodies are formed and governed
by the Companies Act 2016. Examples are
Amanah Raya Berhad.
Local Government
Malaysian Government
Machinery
 Malaysian Administration Modernisation

Planning Unit
 Public Service Department
 Economic Planning Unit
 Implementation Coordination Unit
Malaysian Administration
Modernisation Planning Unit
The Malaysian public administration is led by Malaysian

Administration Modernisation and Planning Unit (MAMPU).
Its roles are to:
 Introduce and promote new government machinery and
evaluate their performance
 Plan and lead information and communication
technologies development in public service delivery
 Become a public sector consultant in improving
organization performance
Malaysian Administration
(cont.)
 Facilitate modernization and transformation of the
government machinery for improved public service
delivery
 Conduct research in public sector planning and
administration
 Promote the improvements in public service delivery.
Public Service Department
 The PSD is responsible for hiring, development,

promotion and remuneration of all government
employees.
 It is the supporting function behind the staffing
requirements of the entire public administration
including hiring, training, payroll and retirement
services.
Economic Planning Unit
 Formulates policies and strategies for both long-term

and medium-term plans in socioeconomic development
 Appraise, evaluate and recommend development
programmes and projects
 Undertakes economic research and offers advice to the
government on economic issues
 Undertakes planning for regional and corridor
development and acts as the Secretariat to the National
Economic Council (NEC).
Implementation Coordination
Unit
 Performs periodic collection and analysis of financial
and physical data concerning development projects are
being implemented in the country
 Identify the problems encountered in implementation
and the reasons for any gaps between planned and
actual performance
 Provides advice, consultation and technical support for
the planning, implementation, monitoring and project
management to all government agencies.
 Prepare reports on outcome evaluation of development
programmes.
Malaysian Financial
Machinery
 Ministry of Finance
 Bank Negara Malaysia
 Khazanah Nasional
 Royal Malaysian Customs and Excise
Department
 Inland Revenue Board Malaysia
Ministry of Finance
 Treasury for the Government of Malaysia

 Oversees the collection of government
revenues and expenditures
 Oversees and regulates other financial
structures such as the banking and insurance
sector, the investment sector and government
asset holdings.
Bank Negara Malaysia
 Responsible for monetary supply and regulation

 Monetary supply is controlled through the
management of money printing, bank reserve
requirements, interest rates and sale and
purchase of government securities
 Monitors foreign currency reserve
 Monitors the Banking and Insurance sector
 BNM is headed by a Governor whose signature
is on every Malaysian ringgit note.
Khazanah Nasional
 Holds and manages the commercial assets of

the government, and undertakes strategic
investments
 Invests in both domestic and foreign companies
 Follows a corporate structure with a Board of
Directors and a management team
 Audited by an independent external auditor as
well as the Auditor General’s Office.
Royal Malaysian Customs and
Excise Department
 The main revenue collector for the government,
predominantly of indirect taxes
 Provides trade facilitation through enforcement of and
compliance with applicable law (trade agreements)
 Manages all policies and procedures matters related to
industries, import, export and border control
 Protects the national borders and revenue by combating
all forms of smuggling and fraud
 Headed by a Director General of Customs who is
appointed by the Prime Minister. The Director General
reports to the Minister of Finance.
Inland Revenue Board
Malaysia
 Responsible for the overall administration of

direct taxes – income taxes, stamp duties etc.
 Assists the government in the distribution of
Bantuan Sara Hidup Rakyat
 Headed by a Chief Executive Officer and reports
to a board headed by the Secretary General of
Treasury.
Public Policy Formulation and
Implementation
 The Cabinet is the executive body of the government in

power.
 Meet on a weekly basis and deliberate on matters of
national interests and formulate policies within the
framework of existing legislation.
 The Cabinet members are given ministerial portfolios
 Each ministry will then be the ones who must create
and carry out the implementation plans for the policies.
Policy Instruments
 Mandates provide rules governing the actions of

individuals and agencies.
 Inducements or incentives, where the government can
transfer money or reduce the cost to individuals or
agencies in return for the production of goods and
services.
 Capacity building, where money is allocated for
purposes of investment in material, intellectual, or
human resources.
Policy Instruments (cont.)
 System change entails the transfer of authority among

individuals/ agencies to implement the government’s
policies.
 Hortatory policy is where a government sends a signal
that particular goals and actions are considered a high
priority
Public Policy process
Laws and Regulations Governing
Government Revenues
 Income Tax Act 1967

 Petroleum (Income Tax) Act 1967 (Revised 1995)
 Real Property Gains Tax Act 1976
 Stamp Duty Act 1949
 Customs Act 1967 and Excise Act 1976
 Goods and Services Tax Act 2014 (repealed 2018)
 Service Tax Act 1975 and later 2018
 Sales Tax Act 1972 and later 2018
Laws and Regulations Governing
Government Procurement and
Expenditure
 Financial Procedure Act 1957

 Treasury Instructions
 Treasury Circular Letters
 Government Contracts Act 1949
 Federal Central Contract Circulars
Laws and Regulations
Governing Borrowings
 Loan (Local) Act 1957 and Loan (Local) Act 1959

 Treasury Bills (Local) Act 1946
 External Loans Act 1963
 Government Funding Act 1983
 Loans (International Bank) Act 1958
 Extended Credit Act 1966
 Development Funds Act 1966
 Loans (Asia Development Bank) Act 1968
Laws and Regulations
Governing Borrowings (cont.)
 Loans (Islamic Development Bank) Act 1977

 Loans (International Fund for Agricultural
Development) Act 1992.
Malaysia Incorporated
 The Malaysian government adopted a privatization policy

towards the end of the 1980s
 Major public services such as telecommunication, energy
and transportation were incorporated and shares sold to
the private sector, with the government still retaining
substantial shares through Khazanah Nasional and a
‘golden share’
 These companies have financial systems separate from
the government administrative system.
Modes of Procurement
Within the public sector, the types of purchases

are categorized into:
1 Direct
2 Quotation
3 Tender.
Direct Purchase
 Direct purchase allows procurement of supplies and

services up to the value of RM50,000 directly through
the issue of a Government Order to any known supplier
of goods or services consistently supplying goods at
acceptable quality and reasonable price.
 The requirement of registration is exempted.
 Procurement of works up to the value of RM20,000 may
be done through the issue of a Works Indent to a
contractor who is registered with the Contractors
Services Centre (PKK) and Construction Industry
Development Board (CIDB) Malaysia.
Quotation
 Advertises the tender in the local newspapers

calling for quotation
 Purchaser receives a written proposal from a
vendor specifying the goods and services
supplied as well as the payment and delivery
terms and conditions
 Purchaser to compare offers and determine the
best deal depending on their purchase criteria
 Vendor required to register.
Tender
Specifications
 Tenders are meant for large and
complex projects Tender documents
 Procurement of works, supplies and

Advertisement
services above the value of
RM500,000 must be done through Sale of tender
documents
tender processes
Closing and
 Contractors must be registered opening of tender
 Joint ventures are allowed. Evaluation of

selection committee
Selection of
successful bidder
Learning Outcomes
 Understand the Malaysian government

structure
 Explain the government machinery
 Explain how public policies are developed and
implemented
 Understand the Malaysian legal framework
related to public revenue and procurement.
Summary
Levels of • Federal
Government • State
• Malaysian Administration
Administrative Machinery
Administrative • Public Service Department

Machinery • Economic Planning Unit
• Implementation Coordination Unit
Government
• Policy
Policy instruments
• Policy process
• Ministry of Finance
Financial • Bank Negara Malaysia
Machinery • Khazanah Nasional
• Revenue collection agencies
• Revenue Collection
Laws and
• Procurement and Expenditure
Regulations • Borrowing
TOPIC 3
BUDGETARY CONTROL
OUTLINE
• Budgetary Control Process

• Features of budgetary control system
• Types of Budgetary Control
• Responsibility Accounting
BUDGETARY CONTROL PROCESS
• Budgetary control is the establishment of a budgeting system

to formulate financial action plans for the operations of an
organisation and the system to direct such finances to
achieved the desired actions specified in the budget
• It is a control technique whereby actual results are
compared with budgets.
• MOF is responsible for the national budgetary control to
ensure that the expenditure of the country as a whole are
always within the available resources of the country
\ 3
• Responsibility of the budgetary control lies with the

respective head or CO of such organisations.
• The CO are expected to ensure that their expenditure
are within the planned budgets of the organisations.
• Any positive or negative variances are determined.
• Report are to be prepared to the appropriate authority
of any situations that might cause a change in the
expected outcomes of the budget
\ 4
• Budgetary control acts as a deterrent against

misappropriation of funds. Rules establish procedures, but
they also establish the boundaries of behaviour.
• Control assumes that expenditure must agree with
appropriation. Appropriation expresses the intent of the
authorising agent or the legislature.
• Control maintains information about expenditure to
preserve an audit trail.
• The first requirement of a good system of budgetary control
is to set up accounts for collecting data on inputs and
outputs at the lowest distinct level of activity.
\ 5
FEATURES BUDGETARY
CONTROL SYSTEM
1. The organisations are broken down into various
responsibility centres where each centre is to carry out
identified activities. A detailed plan is formulated into a
comprehensive budget
2. The objectives, output and outcomes of the organization
are used as the bases of measuring performance
3. A performance indicator is developed to monitor and
evaluate the performance and progress of each responsibility
centre of the organisation
4. A continuous performance evaluation is carried out to
determine the performance of the organization (output or
outcomes) in comparison with the budget
\
TYPES OF BUDGETARY CONTROL
• Fund Control
This type of control refers to the procedures set up to ensure that the
fund is properly kept and used in the right way.
• Revenue Control
This type of control refers to the procedures set up to ensure the
collection of revenues of the governments are from properly identified
sources, there are proper monitoring of such collections and the revenues
collected are accounted for properly in the correct funds and proper books
of accounts.
• Expenditure Control
This is the control procedure within the spending organisation to ensure
that all spending is done exactly for the purposes that has been agreed. This
is also known as Vote Control and is exercised by the accounting officer of
the organisation.
TYPES OF BUDGETARY
CONTROL
• Cost Control
This is the control procedure to ensure the total cost incurred for any
activity of an organisation is within the right valuation.
• Cash Control
This type of control ensures that spending plans for a period are made by a
department based on approved vouchers. Cash forecast need to be done to
avoid any overspending request that would lead to deficit.
• Payment/Disbursement Control
This procedure is to ensure that payment for any activities through
preparation of payment vouchers is properly authorised.
• Salary/Payroll Control
This control is to ensure that right amounts are paid to the right people in
the organisation and at the right time to avoid fraud and payment to non-
existing workers.
ADVANTAGES OF BUDGETING
AND BUDGETARY CONTROL
1. Requires and forces management to think about the future, to look ahead, to
set out detailed plans for achieving the targets for each department, and to
anticipate and give the organisation purpose and direction.
2. Promotes coordination and communication.
3. Clearly defines areas of responsibility where managers of budget centres are to
be made responsible for the achievement of budget targets for the operations
under their personal control.
4. Provides a basis for performance appraisal where actual performance is
measured and assessed. Control is provided by comparisons of actual results
against budget plan. Deviations from budget can then be investigated. The
reasons for the deviations can be divided into controllable and non-
controllable factors.
5. Enables remedial action to be taken as variances emerge.
6. Motivates employees by participating in the preparation of budgets.
7. Improves the allocation of scarce resources.
8. Economises management time by using the management by exception
principle.
THE CONCEPT OF
DECENTRALIZATION
• The concept of decentralization is the key concept related to the devolution of
higher authority to the lower management
• Decentralization is also indicated by freedom, differentiation and responsiveness

(Caldwell, 2003). It includes demand for less control and uniformity that
subsequently reduce the size and cost associated with maintaining a large central
bureaucracy.
• The concept of decentralization began in the late 1960s and 1970s in many western
countries such as England, United States and Australia. This reform took placed in
the government sectors which moved from the conventional style of bureaucracy.
• Decentralization was identified as a tool for more effective decision making while
delegating autonomy and responsibility to the lower management level specifically
for those who are accountable
10
THE CONCEPT OF
DECENTRALIZATION IN MALAYSIA
• The financial management of the public sector in Malaysia was largely

influenced by developed countries such as England and Australia.
• It is bounded by regulations namely Federal Constitution (96-112), Financial
Act 1957, Audit Act 1957, Local Government Act 1976, Treasury Directives,
Treasury circulations and accepted accounting principles such as GAAP and
IAS.
• The financial management of the public sector is significantly affected by the
country’s annual budget which sets up the flow of income and expenses
forecast for the next year. Under the public sector paradigm shift from the
Progressive Public Administration to New Public Management, Malaysia has
been practicing the Modified Budgeting System (MBS) since 1990.
• MBS was believed to bring evolution to the country’s budgeting system with
a distinct shift toward output orientation and greater delegation of authority.
It has strengthened the concept of ‘Let Managers Manage’ previously
introduced in the PPBS which makes the lower level management more
accountable and responsible.
11
RESPONSIBILITY CENTRE
• Government departments are recognized as Pusat Tanggungjawab (PTj)

or Autonomy Centres (Responsibility Centres) and have their own
accountability and responsibility in managing financial resources based on
their stated programs and objectives.
• Among the characteristics of decentralized financial management being
practiced under PTj were responsibility based on the given authority and
improved decision making through better budgeting process and
decrease of bureaucracy.
• Individuals under this system have their own role to contribute to a
better financial performance within the cooperation and guidance given
by the higher authority.
• The measurement was based on the achievement of the outcome rather
than the input being delivered. Thus, the financial performance depended
on the PTj initiative which could subsequently create entrepreneurship
among its members. In
• Malaysia, the financial decentralization reform has widely spread to
include a small institution such as public schools.
12
• A responsibility centre can be defined as any functional unit in an

organisation headed by a manager who is responsible for the activities of
that unit. These enable managers to monitor organisational functions.
• There are four types of responsibility centres

a. Revenue centres - an organisational unit in which outputs are
measured in monetary terms but are not directly compared to input
costs.
b. Expense centres - an organisational unit where inputs are
measured in monetary terms but outputs are not.
c. Profit centres - an organisational unit where performance is
measured by the difference between revenues (outputs) and
expenditure (inputs).
d. Investment centres - an organisational unit where outputs are
compared with the assets employed in producing them.
13
• In Malaysia, to assist responsibility centres in their budgetary control

and management of expenditure and subsequently enhancing
efficiencies in financial documents preparation, a system known as e-
SPKB was introduced. e-SPKB is an abbreviation for Electronic
Budgetary Planning and Control System and it is an accounting
systems used to control the budget.
Topic 3
BUDGETING IN PUBLIC
SECTOR
1
Outline of the topic
Define budget
Importance of budget
Legal Requirement of preparing the budget
Functions of budget
Components of budget
Budget formulation process
2
Introduction
• Management accounting system provides information to
managers, assisting them in planning, organising, controlling
and co-ordinating activities within their authority
• Budgeting is the process of putting together the financial
demands of government institutions to be met through
various financial sources
• A budget is an authorised financial plan of the anticipated
revenues and expenditures of the government’s organisation
• Budget is a short term financial planning tools
3
Definition of Budget
“ Budget is a detailed plan that shows the financial consequences of an
organization operating activities for a specified future time period.
It acts as a financial model that summaries future operations and is
usually viewed as a core component of an organization’s planning
and control”
Langfield-Smith, Thorne and Hilton (2012)
“Detailed plan, expressed in quantitative terms that specify how

resources will be acquires and used during a specified period of
time.The procedures used to develop a budget constitute a
budgeting system”
Hilton (2009)
4
Role &Importance of Budget
1. As an instrument for planning and management of financial
resources to ensure objectives are achieved as planned
2. Use to determine taxation levels or the amounts to be charged

for services.
3. Providing the basis for controlling income and expenditure and

authorize future expenditure.
4. Influence the economic position of the country and private sector

activities.
5. In Malaysia, budget used to address the environment of the

difficult global economic outlook and challenges and also domestic
5
issues, by focusing on a few strategies.
Strategies highlighted in Budget
2022
What are this year’s features?
6
Art 99 (1)
FC
Art 99 (2)
TI 29-51
& (3)
Framework
for Budget
Sec 15 Art 100

FPA 1957 FC
Art 101
FC
7
Regulatory framework for preparation of budget
• Art 99 (1) FC
“In respect of every financial year, the YDPA shall cause to
be laid before the House of Representative a statements
of the estimated receipt & expenditure of the
Federation for a that year and shall laid before the
commencement of that year unless parliament decided
not to.”
• Art 99 (2) & (3)
“.. The estimates of expenditure shall show the total sums
required to meet the expenditure charged on the CF , and
the sums required to meet expenditure for other
purposes proposed to be met from the CF”
8
Regulatory framework for preparation of budget
Art 100 FC
• Expenditure to be met from the CF (except charged exp) to
be included in a bill known as Supply Bill. Supply Bill
aprroved by parliament known as Supply Act
Art 101 FC
• ‘Supplementary estimates’
Sec 15 FPA 1957
• Budget prepared must show division & subdivision of
expenditure proposed, amount expected to be received &
spent on the year & purpose of the expenditure
TI 29-51
• Budget preparation for Federal & States is the
responsibility of Secretary General reporting to Treasury or
State Financial Officer respectively.
9
Functions of Budget
• Expansion
Fiscal Policy
• Contraction
Instrument
• Neutral
• Planning
• Co-ordination
Management • Communication
Instrument • Control
• Evaluation
• Motivation
10
Functions of Budget – Fiscal Policy Instrument
Government spending policies that influence
macroeconomic conditions of the country
Involves taxation measures to provide revenue for
the government to spend on the development
programmes of the country.
Budget serves as an allocation, distribution and
stabilisation functions.
 Allocation fin. Resources – to various activities i.e.

economic, social, administration.
 Distribution- free education, books & subsidies for
lower level income groups.
 Stabilisation – strengthen economic growth, diversify
the sources of growth, reduce unemployment & zero-
inflation.
11
Functions of Budget – Fiscal Policy Instrument
 3 possible position of fiscal policy
i. Expansion- increase in govt expenditure / a decrease in
taxes that causes the government’s budget deficit to
increase or its budget surplus to decrease
ii. Contraction- a decrease in government and or increase

in taxes that causes the government ‘s budget deficit to
decrease or its budget surplus to increase
iii. Neutral- a balanced budget where government

spending equal to tax revenue
12
Functions of Budget – Management Instrument
• Budget plays a greater role in the planning, control
and evaluation of governmental operations
• Six component /purposes of Budget process cycle
i. Planning
ii. Co-ordination
iii. Communication
iv. Control
v. Evaluation
vi. Motivation
13
Planning
• To develop objectives and preparing various budgets to
achieve those objectives.
• Long term plan (systematic and formal)– strategic or
corporate planning
• Short term plan (accept present environment)–
budgeting
• Set forth the objectives of the organization and the
proposed way of accomplishing them.
• Achieved by expressing in monetary terms the inputs
needed to achieve the planned activities of the budget
period.
14
Planning (contd)
• Planning on type, quantity, quality of services to be

provided are not normally evaluated and adjusted
through the open market mechanisms and often most
critical to the public interest
• Planning and decision making is a joint process – citizen
(individual or groups), legislative and executive bodies.
15
Coordination
• Serves as a useful tool through which the actions
of the different parts of an organization can be
brought and reconciled into a common plan.
• Compels managers to examine the relationship
between their department’s operation and those
of other departments to identify and resolve
conflicts
16
Communication
• Must be definite line of communication in an
organization -to be kept informed of plans,
constraints and policies to which the organistion
is expected to conform
• E.g. Top management communicate its
expectations to lower level management, so that
all parties understand the expectations and can
co-ordinate their activities to attain them
17
Control
• To ensure objectives set at planning stage will
be achieved and all divisions of the
organization are cooperating to achieve that
goal.
• Control Devices – Legislative control over
Executive & Executive control over
Government Agencies or departments.
• Budget prepared should shows clearly the
input and resources allocated to each
governmental organization's divisions to
permit them to undertake the tasks for which
they are responsible. 18
Control
• Exercised by comparing Budgeted results
with Actual results to ensure exp level not
• Accounting system exceeded budget level
must provide information that enables the
agencies or departments to keep their
expenditures within limitation imposed.
• Good system of budgetary control is to set
up accounts for the collecting data on
inputs and output at the lowest distinct
level of activity.
19
Evaluation
• Provides definite objectives for evaluating
performance at each level of responsibility.
• A financial report (compare the budgeted & actual
revenue & expenditure) – basis for evaluating
compliance to accounting standards.
• Any variances between budget and actual represent
a divergence from what was planned to happen.
• Reasons for variances need to be analysed & to be
corrected to ensure planned performance is
achieved.
• All levels of management should have a relevant,
accurate and timely report of actual and budgeted
position. 20
Motivation
• Device for influencing managerial

behaviour and motivating managers to
perform in line with organizational
objectives.
• A budget provides a standard that under
certain circumstances, a manager may be
motivated to strive to achieve.
21
Components of Budget
• Federal Revenues
National • State Revenues
Revenue • Local Government Revenues
• Operating Expenditure
National • Development Expenditure
Expenditure
22
Federal Revenues
Government Accounting Standard No.3 (PPK)
1. Tax revenue
-Duties & Tax imposed by law (direct & indirect tax
revenue)
2. Non-tax revenue
-Receipts from registration payments, licences &
permits, receipt from sales of good, rent, etc.
3. Other receipts
-Repayments from expenditure, inter departmental
credits, etc.
4. Revenue from Federal Territories
-Tax & non-tax revenue collected on behalf of the
government. E.g. receipts from licences & permits,
premium & quit rent, sales of assets.
23
State Revenues
Part III, 10th Schedule of FC
• Revenue from toddy shops
• Revenue from lands, mines and forests
• Revenue from licenses other than those connected with
mechanically propelled vehicles, electrical installations &
registration of businesses
• Entertainment duty
• Fees in courts other than federal courts
• Fees and receipts in respect of specific services rendered by
department of the State Governments.
• Receipts in respect of water supplies, including water rates
• Rents on State property
• Fines and Forfeiture in courts other than federal courts
• Zakat, Fitrah and Baitumal and similar Islamic religious
revenue
• Treasure trove 24
State Revenues (contd)
• Articles 112C(1) FC – provides that the Federation shall

make to the states of Sabah & Sarawak in respect of
financial year
• Part IV of the 10th Schedule- Special Grant for Sabah &
Sarawak
• Part V of the 10th Schedule – additional sources of revenue
25
Local Government Revenues
Section 39, Part V, Local Government Act 1976;
i. All taxes, rates, rent, licence fees, dues &
other sums or charges payable to the local
authority
ii. All charges or profits arising from any trade,
service or undertaking carried on by the local
authority
iii. All interest in any monies invested by the
local authority and all income arising from or
out of the property of the local authority
iv. All Other revenue accruing to the local
authority from the Federal or State
Government, statutory body, other local
authority or other sources.
26
National Expenditure
1. Operating or Management Ependiture
i. Art 98 FC – Charged Expenditure
ii. Art 100 FC – Supply Expenditure
2. Development expenditure
i. Incurred for development purposes, amount
usually large.
ii. To finance, govt will borrow from internal or
external fin. Institutions.
iii. Allocated to Domestic Social Services such as
education and health,economic services such as
transport and public utilities, internal security
and defence
27
Budget Management Division (BMD)
• Prepared by Budget Review Officer of Budget Management

Division (BMD)
• BMD objectives;
i. Allocate financial resources for the implementation of
such plans & programmes.
ii. To ensure that allocation is utilised in the most effective
and efficient manner
iii. Examine and analyse agencies plan and programmes
conform to the National Budget Policy
28
Budget Management Division (BMD)
• BMD functions;
i. To determine that allocation of federal resources
is in line with the national objective and policy.
ii. To make sure that all Ministries / Depts /
Agencies spend allocation effectively and
efficiently according to the approved budget.
iii. To manage grants allocated to the State and
local authorities base on FC and decision of the
Cabinet and NFC
29
Public Service Department (PSD)
 Control personnel in the public service mainly
concerned with the operating budget
 Main objectives- to be high –performance public
service personnel agencies in developing personnel
workforce that provide quality services through
policy formulation and HR management
 The function include planning, management and
development
30
Economic Planning Unit (EPU)
• Responsible for the preparation of development
plans for the nation.
• The objectives & Function
• Function on budget related activities: Concern on
the 5-years development plan
31
Budget Preparation Process
• Prior 2002, budget is prepared & approved on annual
basis.
• Beginning 2002, budget preparation & examination
process will be carried out once for every 2 years.
• Changes purely administrative – do not effect FC & FPA
1957.
• National budget will continue to be submitted to
parliament for consideration & approval annually.
• Treasury have to prepare allocation annually for
submission to parliament, the detail examination and
reviews of ministries’ proposal will be done once every 2
years.
32
Rationale for the changes in
budget examination & reviews
• Help to increase quality & efficiency of budget allocations –
allow consideration of both ‘short term fiscal policies’ and
‘medium-term objectives & policies’ such as the ‘5 years
Development Plan’ & ‘Outline Perspective Plan’
• Facilitates assessment on fiscal position of the govt which
lead to improvement in govt’s cash flow planning &
management.
• Allow govt’s borrowing programmes to be determined
accurately in advance to minimize under / over borrowing.
• Resources – manpower, time, money at the Treasury
Ministries, Govt’ agencies can be redirected to other
beneficial programmes & activities – such as to ensure
faster project implementation. 33
Agencies prepare and JANUARY
submit new year estimates Call circular for new year
estimates
MARCH
Receive submissions and BRO
makes individual study
APRIL
Preliminary Hearing
MAY-JULY
Budget Hearing
AUGUST-SEPTEMBER
Approval of new year estimates by the
Ministry of Finance and Cabinet
SEPTEMBER SEPTEMBER-DECEMBER
Budget document printed and Parliament debates and
submitted to Parliament approves new year budget
Budget execution by Agencies

END OF DECEMBER
Minister of Finance issues
Warrant for expenditure
34
TYPES OF BUDGETING TECHNIQUES
TOPIC 3
2
Budgeting techniques applicable in Malaysia
TBS PPBS MBS OBB
<1969 1969-1989 1990-2012 2013-present

3
Traditional Budgeting System (TBS)
Total Allocation =
Last years spending level +
Current year budget+
Increase in cost of material &
labour due to inflation +
Costs for new project or programme
4
Programme & Performance Budgeting System (PPBS)
Identifying
Objectives
Programme
Planning &
Structuring
Developing
Performance
Indicator
Performance
Evaluation
5
Modified Budgeting System (MBS)

e.g. supply & svs, emoluments, Measures directly by referring to the
assets, grants, expenditures changes that can be traced directly to
the output of act/ program
Input Output Impact
3 perspectives
Efficiency Effectiveness
Measured in term of qlty, gty, i.e. product/services

timeliness & cost produced
6
Outcome Based Budgeting-

Introduction
• Outcome Based Budgeting (OBB) is a continuous
process under Outcome Based Approach (OBA)
with the objectives to achieve the results
determined under National Result Framework
(NRF).
• OBA is the planning framework used by the
Economic Planning Unit of the Prime Minister’s
Department to plan the outcome at national
level.
7
OBB- Introduction
• The key enhancements of OBB from MBS are

program approach, focusing on outcomes,
addressing issues of horizontal and vertical
integration at all levels of implementation,
improved monitoring and evaluation framework,
and better reporting formats.
8
Objectives of OBB
• Provide structural mechanism to translate policy
and concept of National Transformation
Programme (NTP) to outcome and results.
• Empowering Controlling Officer to manage
resources under their control.
• Increase accountability at all levels through
strengthening of governance framework.
• Ensure government will achieve the concept of
value for money for budget expenditure
management.
9
8 Principles of Designing OBB

1. Planning and constructing of budget is
based on Programme Based Approach
2. Roles and responsibility of MOF, EPU and
PSD in examining ministry’s budget
3. Ministry’s programmes aligned to the NRF
4. Medium-term perspectives in planning
and budgeting
5. Strengthen performance management
6. Empowering Controlling Officer.
7. Incentives for results achievements
8. Continuous development of ability
10
Implementation Structure of OBB

Main committees:
•National OBB Steering Committee (NOSC)
•Central Performance Management Committee (CPMC)
•Programme Rationalisation Committee (PRC)
•Ministry OBB Implementation Committee (MOIC)
Subcommittees:
•Programme Performance Management Committee (PPMC)
•Activity Performance Management Committee (APMC)
11
Strategic Process of Implementing OBB

12
• Under OBB, each program can be executed

by multiple ministries while each ministry will be
responsible for a component of program.
• Agreement on which ministry is responsible for

the program component, the activities
needed for that component, and resources
needed for these activities are achieved
through Program Agreement
13
Top-Down Approach for Budget Planning and Bottom-Up
Approach for Budget Preparation
LEVEL BUDGET ILLUSTRATION
National VISION 2020: DEVELOPED NATION 14

STATUS
National RM200
100% Literacy Eradication of 80% Reduction
Programmes million
Rate Poverty in crime
RM30 million RM120 million RM50 million
Ministry 20% Increase Elimination of 10% increase

Outcomes in farm hard core in agro tourism
RM120
income poverty
million
RM30 million RM80 million 10 million
Ministry of Ministry of Rural Ministry of
Agriculture Development Tourism
Ministry Consolidation Training of Upgrading

RM30
Programmes of farm Farmers infrastructure
million
facilities
Activities RM10 Training

million Trainers Farm inputs
materials
RM1 million RM4 million
RM5 million
Operating Expenditure
Development Expenditure
Source: Ministry of Finance (www.treasury.gov.my)
15
Performance Monitoring and

Evaluation Framework
Input Process
Output
Resources Operation
Direct
used by or work Outcome Impact
product &
program process The final
services
me/activit where Effect & outcomes
produced
ies to input is result from as the
from
generate uitilised to programme results of
activities
output & produce output program
under
achieve specific
program
outcome output
16
Monitoring & Evaluation
• Emphasis on the • Method of

following issues; evaluation;
1. Appropriateness 1. Formative
2. Effectiveness 2. Summative
3. Efficiency
4. Economy
17
Reporting of Results
• Quarterly and Annual Ministry’s Performance Report

• Quarterly and Annual Projected Cash Flow
• MOIC Report [Ministry OBB implementation
committee]
• Quarterly and Annual Monitoring of OBB Programme
or Activities Report
• Formative Assessment of OBB Programme or Activities
Report
• Summative Assessment of OBB Programme or
Activities Report
18
Responsibility of Central Agencies under OBB

Economic Planning Unit (EPU)
Prepare policy and strategy framework
Ministry of Finance (MOF)
Coordinate, evaluate and approved Ministry’s budget proposal to be
presented in Parliament
Public Service Department (PSD)
Look at the improvement of human resource management aspect
Implementation Coordination Unit (ICU)
Coordinate, monitor and evaluate performance of projects development
Malaysian Administrative Modernisation and Management Planning Unit
(MAMPU)
Act as driving force and consultancy expert
National Audit Department (NAD)
Perform audit on identified Ministry’s Programmes or Activities from time to time
Accountant General Department (AGD)
Continue to develop, manage, control and improve the government
accounting system
19
Strategic Template (Performance

Agreement ) of OBB
Purposes Strategic Template
• To show clearly alignment • Ministry Executive
and relation between Summary
MRF & NRF
• Programme Performance
• To identify other Management Framework
programmes that
coincides • Activity Performance
Management Framework
• To give holistic view on
integrated budget
preparation
20
Benefits of OBB
• Set clear priorities at national, ministry and activity level
• Integration the De and OE will provide a holistic view of nationa
priorities
• Remove duplication and better manage
• Provides a framework for eliminating overlapping programmes
• Provides a basis for better integration of M& E systems
• Better focus on results especially on outcomes
• Allow online budget preparation and submission
• Provide availability of audit trail
• Enables to facilitate any ad hoc requests
• Allow analytical on budget utilisation and results
21
Challenges of OBB
• The level of acceptance and understanding still low
• Requires commitment from the top level management
of ministries and agencies
• Quality of information in the results framework need to
be improved
• The government need to review the existing structure of
programmes and activities to adapt to OBB
• The structure of OBB requires more work and more
commitment from the officer. Thus workload may be
more
TYPES OF BUDGETING
TECHNIQUES
TOPIC 3
Topic 4- Evolution of Budgeting System (ZA/SEPT/14)

 Reforms to promote public accountability and
improved government performance improved
includes:
i. budgeting systems reforms
ii. Improved financial compliance and quality
management
iii. Increase productivity and efficiency in
government operation
 Budgeting reforms are intended to transform
public budgeting systems from focus on input
to focus on output or outcomes for the purpose
of improving operational efficiency and
promoting accountability
2
Budgeting techniques applicable in Malaysia;
1. Traditional Budgeting System (TBS) – prior
1969
2. Programme & Performance Budgeting
System (PPBS) -1969-1989
3. Modified Budgeting System (MBS) -1990-
2012
4. Outcome Based Budgeting - 2013-present
3
 Used prior to 1969
 Also known as incremental budgeting or line item
budgeting
 Based entirely on line item expenditure or objects
of expenditure.
Total Allocation =
Last years spending level +
Current year budget+
Increase in cost of material &
labour due to inflation +
Costs for new project or programme
4
Code ABC Department Amount (RM) Total (RM)
11000 Salary and Wages 120,000

12000 Fixed allowance 60,000
13000 Overtime allowance 48,000
14000 Other financial benefits 36,000
15000 Statutory Contribution to Employees 20,000
10000 Emolument* 284,000
22000 Stationery & Office Supplies 12,000

26000 Transport of goods 8,500
20000 Services and Supplies* 20,500
32000 Renovation of Buildings 20,000

35000 Purchase of Computers 30,000
30000 Asset* 50,000
41000 Pension & Gratuities 7,000

46000 Scholarship 5,000
40000 Grant and Charged Expenditure* 12,000
51000 Return and Write- offs 1,000

52000 Other payments 1,500
50000 Other Expenditure* 2,500
Total Allocation 369,000
5
Assumptions used to calculate total
allocation;
 All activities making up last years
spending were essential to achieve the
ongoing objectives
 All activities must be continued during
the coming years & more urgent than
newly created programmes
 All increases are due to material and
labour inflation
6
Allocation Based on TBS
NP
Inc, inf
past
1961 1962 1963
Focuses on extrapolating past spending levels into the next year &
incrementing the level for inflation & new programmes or projects.
7
3 facet of budget allocation process;
1. The govt. agencies will submit their proposal to the

Treasury in terms of the type of expenditure to be
made.
2. Treasury will compile & modify the agency budget
proposals & submit an overall proposal for the
organization to the parliament in the same object
of expenditure
3. The Parliament will make line-item appropriation
after revising the proposals, along with object of
expenditure input line.
8
 Simple budgeting technique can be easily
understand by the users which will facilitate
users in preparing budget.
 Information presented can easily be
incorporated into the accounting system.
 Budgeted & actual revenues & expenditure
ensures detailed comparisons to be made
9
 Data provided is useful primarily for the short term planning
only.
 TBS tend to complies with legal requirement rather than
providing useful information for management decision
making.
 In the budget preparation process, government agencies
tend to focus on object of expenditure rather than on overall
goals & programmes of the organization
 Since budget is prepared in terms of objects of expenditure,
little information is known on the programmes & activities
carried out.
 The performance of the budget is measured only from the
financial aspect that is on actual expenditure incurred
(based on actual exp incurred not on the outcomes of
programmes & activities undertaken.
10
 Used by majority of developing countries
in the world.
 The adoption was fostered by United
Nation (UN) – 1967 UN workshop in
Denmark
 Introduced in Malaysia in 1969 under
Treasury Circular 5/1968.
 Helps management make better
decisions on the allocation of resources
and achieve government objectives.
11
 Increasing complexity of modern life
 Increase on demands for government services
 Shortage of funds to meet the demand & the
need to determine priorities
 Design programmes & control budgets.
 Programme budgeting refer to a planning-
oriented approach & communication -oriented
 Component of Programme – functions,
objectives, activities & responsibility centers
 Component of Performance – appropriateness,
adequacy, effectiveness & efficiency of the
programmes
12
 Identifying Objectives
 Programme Planning & Structuring
 Developing Performance Indicator
 Performance Evaluation
13
 To set out clearly the purpose for an
organization existence
 Provide framework for a better &
meaningful planning
 Also allow consideration on various
alternatives to achieve objectives
 Allow management to avoid duplication of
functions between department.
 Efficient management shall identify and
formulate objectives in a clear, precise and
concise manner
14
 Ministry of Education- to educate Malaysian
through a national education system to make
them knowledgeable, responsible and capable of
enjoying a comfortable standard of living
 Ministry of Health – to raise the health status of
Malaysians by providing promotive, preventive,
curative and rehabilitative health services.
15
 Programme is a set of activites that have a
common objectives
 Programme planning involves selection of best
alternatives in terms of programmes for the
purpose of achieving identified objectives.
 Programme structuring refers to hierarchical
listing of programmes, activities & sub activities
to achieve objectives.
 Ministry of Education- Higher Education, Primary
Education, Secondary education
 Medical Care services – general patient care
services, laboratory services, psychiatry services
and medical admin services.
 Example : table 7.2 og 124
16
 The purpose: To evaluate physical & financial
performance of the programmes
 Involves the identification of suitable units of
measurement to measure output of each activity
& programme in qualitative or quantitative terms.
 Allow comparisons to be made between actual
output with targeted output & to find causes for
variance between the two,
17
 Example : Table 7.3 Annual target setting
Long-term Annual Targets Final

Objectives Out
Y1 Y2 Y3 Y4 Y5 put
Intake of 5,000 8,000 12, 15, 10, 50,000
50,000 000 000 000
students over
5 years
period
18
 Used to access the relevance ,results and impact
of programmes for each agency using
performance indicator which has been
developed.
 Involves process of making comparison between
actual output with targeted output for the same
period & to identify cause for variance.
 Results from comparison will provide information
whether programmes have been planned
realistically and properly managed.
 The most important element for the purpose of
modifying & revising plans.
19
Comparison between the Planned and Actual
Output
100
80
60 Plan
40 Actual
20
0
Over Proper Conserve
20
Through performance evaluation the agency can
identify whether;
1. Objective are realistic and reasonable
2. Programmes have been selected properly and it’s
the best alternative to achieve objectives.
3. Programmes have been properly planned and
provided adequately with resources.
4. Programmes were effective to achieve
objectives.
21
 Make the manager to think and plan in terms of
programme objectives and the most efficient and
economical way of achieving them. This will provide
information on effectiveness of management of
every ministry and department and will facilitate
and improve coordination between economic
planning and financial planning.
 The systematic and continuing methods of
evaluating performance will furnish government
and officials with information for future planning
and making decision.
 Programme planning and structuring will facilitate
the setting of budget priorities between competing
programmes.
22
 Goals, objectives of government agencies not clear as
compared to private.
 Difficult to develop indicator under PPBS which result in
efficient performance evaluation.
 The budget preparation, examination and implementation
still focus on line-items or object of expenditure
 Performance indicator is considered not important in the
management of resources
 Approach of budget preparation is bottom-up
 Delegation of power or authority to make decision is limited
23
 Modification of PPBS - 1988 TC No. 11
 Implemented in 1990 through issuance of
TC No.8
 Is a management system that focuses on
the relationship between input, output &
impact
24
e.g. supply & svs, emoluments, Measures directly by referring to the
assets, grants, expenditures changes that can be traced directly to
the output of act/ program
Input Output Impact
3
perspectives
Efficiency Effectiveness
Measured in term of qlty, gty, i.e. product/services

timeliness & cost produced
25
Ministry of Transport – objectives
“to deliver qty services towards customers”
Input Output Impact
Program: services dept

+ activities Qlty svs – no. of complaint Target vs. actual
Speed svs – time taken
Through output & impact the performance of the program or agency

can be measured to determine the efficiency & effectiveness
of the program whether the objective can be achieved
26
 Positive or negative changes on
targeted activities.
 Achievement level of actual objective
(efficiency of the activity)
 Changes to overcome the problem
(compare the situation before and after)
Advantage- enables us to understand
thoroughly the logic of such activities.
27
 Phase 1 – 3 ministries (1990)
 Phase 2 – 7 ministries/ dept (1992)
 Phase 3 – 7 ministries /dept (1993)
 Phase 4 -17 ministries / dept (1994)
 Phase 5 -17 ministries / dept (1995)
28
 Improve allocation of resources to
government program
 Improve effectiveness & efficiency of
government program
 Strengthen mechanisms for the
accountability of Controlling officers and
programme managers
29
 Expenditure Target
 Programme Agreement & Exception
Report
 A Cycle of Programme Evaluation
 A More Generalized Approach to
Expenditure Control
30
Identfying
Objectives Expenditure Target
Programme Programme
Planning & Agreement &
Structuring Exception Report
Developing A Cycle of
Performance Programme
Indicator Evaluation
Performance A More Generalized

Evaluation Approach to
Expenditure Control
31
 Treasury’s estimate of base level of resources
required by government agencies to conduct
existing programmes in the same manner as
previous year
 Allow usage of previous year ET as base for next
year’s ET
 Amount is fixed by Treasury at the beginning of
Budgetary process
 The amount cannot exceeded when agencies
proposed its expenditure.
 Treasury can reviewed the ET if there are changes
in the government policy before the total
allocation for each agency is finalised
32
 Preparation of estimates For Operating
Expenditure
 Preparation for Estimates for
33
Formula: ET
ET(2010) = Existing Policy (2009) + (New Policy 2009 – Allocation
for Assets) – New policies 2008 not implemented
+ 2% increment for emolument-2% Efficiency Dividend
ET(2011) = Existing Policy (2010) + (New Policy 2010 – Allocation

for Assets) – New policies 2009 not implemented
+ 2% increment for emolument-2% Efficiency Dividend
Pg 129
34
 Proposal for new policies, one-0ff, Efficiency Dividend and
Programmne Agreement are submitted for two years.
 For New Policy Controlling Officer should take into account a
few factors:
i) Proposal for new policies have been approved by Cabinet
or Central Agency
ii) The threshold value is deducted from the proposed
expenditure for the new policy or one-off
iii) Efficiency dividend has to be submitted in line with the cost
savings principle due to reduction in scope or abolishment of
Existing policy or changes in the process
35
 According to TC no.2, Year 2009 since 2010 is the
last year for the 9th Malaysia Plan, the CO has to
ensure that all project is successfully implemented
and completed.
 Government agencies are required to make
preliminary plan for project to be implemented in
the 10th Malaysia Plan
 Criteria for financed by way of loan
i) Commercial like project and ‘future oriented
project’
ii) Agency is able to secure the loan
 CO has to submit loan application to the Treasury
(Loan Management and Financial Policy Division)
36
 Existing Policies – programmes already approved
by law or constitution; by Cabinet, Ministry or
Treasury or other equivalent parties.
 New policies – new programmes / activities (e.g.
development of new units, development of new
posts, training of new activities and rental
increment for office space)
 One-off is unavoidable & non annual expenses
(e.g. office renovation, moving to new office,
painting of building & general election)
 Threshold – amount fixed by Treasury to determine
the allocation of New Policies & One-off
Expenditure
37
 Efficiency Dividend – deducted for
expected efficiency improvements
associated with the learning effect and
with the implementation of improved
methods of programme delivery.
Efficienccy Dividend = 2% (Existing Policy2009 + New Policy 2009

– Allocation of Assets- New Policy 2008 not implemented)
38
 Allow immediate recognition of govt’s fiscal
policy position by government agencies
 Eliminate poker game attributes
 Increase financial discipline in ministries as they
have to decide priorities & trade off on
available programme & activities within budget
constraints
 Greater integration of decision making on
policy & finance matters
 Greater opportunity-Ministries can be
comfortable to use top-down approach in
preparing budget & to use budget as
management tool.
39
 PA – contract between manager & subordinate
managers to certain authority has been
delegated.
 PA at Federal Level – Accountability obtain by
Treasury from controlling officers to disclose
programme output & impact.
 PA at Agency Level – Accountability obtain by top
management from lower level management who
are required to submit periodic & progress report
on exception basis.
40
 ER- used to identify performance indicators
that do not agree with agreed target.
 ER – must also include explanation on the
extent & reasons for inconsistent
performance & remedial actions
Upper Level Of Mgt
Authority Delegated Accountability through
through Programme Exception Report
Agreement
Lower Level Of Mgt
41
 Improve accountability at all level of
management.
 Emerging programme can be identify
earlier
 Highlights areas on strength & weaknesses
 Evaluation is made to allow preventable
measures to be taken
Figure 7.6 pg 133 format

42
 A systematic examination/ analysis of
programme effectiveness, efficiency,
relevancy and economy
 Four aspect
1. Appropriateness- measures to what extent is the objective
of the activity fulfilling the client’s needs
2. Effectiveness- measured to what extent have the objective
of the activity been achieved
3. Economy-measures to what extent can the cost of the inputs
4. Efficiency-measures to what extent are the resources of the
activity utilized optimally to produce the required outputs
43
 Performance Evaluation- tool for management
and decision making and provide the basis for
annual adjustments to ET.
 ‘Value for Money’- overall social economic
benefits of an activity are evaluated in relation
to the cost.
 Under PPBS- all programmes evaluated once a
year
 Under MBS – only selected programmes will be
evaluated in any one year to ensure in depth
evaluations – and later to be evaluated after 5
years unless urgent evaluation required.
 Results will act as the basis for annual
adjustment of ET
44
 Pre-evaluation stage – enable decision makers
to ensure an appropriate focus and approach
is adopted
 Evaluation Study- involve searching files and
papers, conducting interviews, preparing
questionnaires, surveys, compiling and
analysing data and interpretation of findings
 Evaluation Report- results of the evaluation are
communicated to decision makers and other
interested parties.
45
 Based on 2 main elements:
1. Devolution of Authority – provision of greater
flexibility or authority to managers particularly line
management level in deciding on how to deploy
given amount of resources
2. Accountability to Match Authority – stricter control
on allocated resources whereby supplementary
allocations rarely provided. Breaches of
aggregate control are dealt with swiftly &
effectively.
46
‘Let Managers Manage’
 The CO devolve as much authority as possible to
the lower level managers to control and manage
resources.
 The nature & extent to which managers are to be
held accountable must match the authority
delegated to them.
** Figure 7.7 pg135: Budgetary process of MBS
47
Central Budget Level
 Improve identification of priority budget expenditure in
budget submission
 Shifting the focus of budget expenditure from’cutting
expenditure to identifying the best mix of resources.
 Reduce paperwork in the preparation of budget
submission ands and the conduct of budget
examination
 Allow more time to discuss new policy proposals and its
modification
 To provide BMD with better information on programme
performance and enable it to more effectively hold
departments accountable for programme
performance 48
Departmental Headquarters Level
 Increase the department’s opportunity to use strategic
planning as the basis for budget preparation
 Enable more top-down approach to budgeting
 Enable controlling officer to play a more active role in
budgeting and to use it as a management device
 Improve communication of top management priorities to
lower level managers and staff
 Allow finance divisions in HQ to become more involved in
matters of programme policy and programme evaluation
and less in matters of line item control
49
Line- management Level
 To improve motivation among line managers through
increasing awareness and understanding of top
management priorities through programme agreement
 Greater flexibility in the deployment of resources within the
aggregate constraints
 To enable budget preparation at the line management level
to take place at the same time as the preparation of work
plans
 Enable the financial plans regarding input, output and
impact to be used as management tools
 To enable better integration of decision-making of financial
and programme policy
50
 Lack of trained staff
 Lack of top and lower level
management commitment
 Argument for devolution
) 51
Introduction
 The planning for outcome begins with the National Plan where
the Economic Planning Unit developed the National Result
Framework (NRF) under the 10th Malaysia Plan.
 NRF is based on five National Strategic Thrusts covering 24 Key
Result Area (KRA), 24 National Outcomes and 30 National
Programmes.
 Outcome Based Budgeting (OBB) is a continuous process
under Outcome Based Approach (OBA) with the objectives to
achieve the results determined under NRF.
 OBA is the planning framework used by the Economic
Planning Unit of the Prime Minister’s Department to plan the
outcome at national level.
Introduction
 The Ministry of Finance issued Treasury Circular No. 2 Year 2012
to introduce and give guidelines regarding the policy and
implementation of OBB.
 Five selected ministries used OBB as test-bedded in year 2012
and will be rolled out across all ministries starting from the year
2013 onwards.
 Many of the fundamental philosophies of MBS are used in
OBB.
 It uses the strengths of MBS, with added value from other
international best practices adapted to Malaysian use.
 The key enhancements of OBB from MBS are program
approach, focusing on outcomes, addressing issues of
horizontal and vertical integration at all levels of
implementation, improved monitoring and evaluation
framework, and better reporting formats.
Introduction
 OBB is a strategic management tool designed to improve
resource management and public sector accountability.
 It is a tool to allocate resources effectively and efficiently in
order to achieve specific target.
 It explains why the money is being spent by using statements
of missions, goals and objectives.
 It differs from traditional approaches because it focuses on
what the money buys and the outcome of the purchase.
 This is in line with government’s emphasis on outcomes rather
than output and will enable policymakers to determine what
activities are cost-effective in accomplishing their final
outcome.
Objectives of OBB
 Provide structural mechanism to translate policy
and concept of National Transformation
Programme (NTP) to outcome and results.
 Empowering Controlling Officer to manage
resources under their control.
 Increase accountability at all levels through
strengthening of governance framework.
 Ensure government will achieve the concept of
value for money for budget expenditure
management.
8 Principles of Designing OBB
 Planning and constructing of budget is based on

Programme Based Approach
 Roles and responsibility of Ministry of Finance,
Economic Planning Unit and Public Service
Department in examining ministry’s budget
 Ministry’s programmes aligned to the National
Results Framework (NRF)
 Medium-term perspectives in planning and
budgeting
 Strengthen performance management
 Empowering Controlling Officer.
 Incentives for results achievements
 Continuous development of ability
Implementation Structure of OBB
Main committees:
National OBB Steering Committee (NOSC)
Central Performance Management Committee (CPMC)
Programme Rationalisation Committee (PRC)
Ministry OBB Implementation Committee (MOIC)
Subcommittees:
Programme Performance Management Committee (PPMC)
Activity Performance Management Committee (APMC)
Strategic Process of Implementing
OBB
 Under OBB, each program can be executed by

multiple ministries while each ministry will be
responsible for a component of program.
 Agreement on which ministry is responsible for the

program component, the activities needed for that
component, and resources needed for these
activities are achieved through Program
Agreement
Top-Down Approach for Budget Planning and Bottom-
Up Approach for Budget Preparation
Allocation of Budget for
Programmes and Activities under OBB
LEVEL BUDGET ILLUSTRATION
National VISION 2020: DEVELOPED NATION

STATUS
National RM200
100% Literacy Eradication of 80% Reduction
Programmes million
Rate Poverty in crime
Ministry 20% Increase Elimination of 10% increase

Outcomes in farm hard core in agro tourism
RM120
income poverty
million
RM30 million RM80 million 10 million
Ministry of Ministry of Rural Ministry of
Agriculture Development Tourism
Ministry Consolidation Training of Upgrading

RM30
Programmes of farm Farmers infrastructure
million
facilities
Activities RM10 Training

million Trainers Farm inputs
materials
RM1 million RM4 million
RM5 million
Operating Expenditure
Source: Ministry of Finance (www.treasury.gov.my)
Input Process
Output
Resources Operation
Direct
used by or work Outcome Impact
product &
program process The final
services
me/activit where Effect & outcomes
produced
ies to input is result from as the
from
generate uitilised to programme results of
activities
output & produce output program
under
achieve specific
program
outcome output
62
 Emphasis on the  Method of
following issues; evaluation;
1. Appropriateness 1. Formative
2. Effectiveness 2. Summative
3. Efficiency
4. Economy
63
 Quarterly and Annual Ministry’s Performance
Report
 Quarterly and Annual Projected Cash Flow
 MOIC Report
 Quarterly and Annual Monitoring of OBB
Programme or Activities Report
 Formative Assessment of OBB Programme or
Activities Report
 Summative Assessment of OBB Programme or
Activities Report
) 64
Responsibility of Central Agencies under OBB
Economic Planning Unit
Prepare policy and strategy framework
Ministry of Finance
Coordinate, evaluate and approved Ministry’s budget proposal to be
presented in Parliament
Public Service Department

Look at the improvement of human resource management aspect
Implementation Coordination Unit

Coordinate, monitor and evaluate performance of projects development
Malaysian Administrative Modernisation and Management Planning Unit

Act as driving force and consultancy expert
National Audit Department

Perform audit on identified Ministry’s Programmes or Activities from time to time
Accountant General Department

Continue to develop, manage, control and improve the government
accounting system
Purposes Strategic Template
 To show clearly  Ministry Executive
alignment and relation Summary
between MRF & NRF  Programme
 To identify other Performance
programmes that Management
coincides Framework
 To give holistic view on  Activity Performance
integrated budget Management
preparation Framework
66
 Set clear priorities at national, ministry and activity level
 Integration the De and OE will provide a holistic view of
nationa priorities
 Remove duplication and better manage
 Provides a framework for eliminating overlapping
programmes
 Provides a basis for better integration of M& E systems
 Better focus on results especially on outcomes
 Allow online budget preparation and submission
 Provide availability of audit trail
 Enables to facilitate any ad hoc requests
 Allow analytical on budget utilisation and results
67
 The level of acceptance and understanding still
low
 Requires commitment from the top level
management of ministries and agencies
 Quality of information in the results framework need
to be improved
 The government need to review the existing
structure of programmes and activities to adapt to
OBB
 The structure of OBB requires more work and more
commitment from the officer. Thus workload may
be more
68
4 Budgetary Approaches
Learning Outcomes
 Discuss the form of traditional budgeting, its

strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.
Introduction
 Budgeting approach is the technic or the

method by which allocation estimates are
determined.
1. Traditional Budgeting
2. Programme and Performance Budgeting
3. Modified Budgeting
4. Outcome-based budgeting
Traditional Budgeting
 The traditional budget is also known as the line-

item budget or standard-object budget
 The presentation of the traditional budget is
based on line-item, or on the nature of income
and expenditure
 Example, income from fees, sales, and grants;
expenditure on employment, consumables, and
travelling, among others
Traditional Budgeting (cont.)
 Financial control is focused solely on minimising

expenditures and controlling inputs (costs)
 Main aim ensuring the limited funds were

allocated effectively, which is to minimise
excessive and unauthorised expenditures
 Allocation of resources according to the

expenditure objects without taking consideration
of objectives, policies, and priorities
 Unutilised allocation has to be surrendered to

the Treasury at the end of the year and can
lead to lesser allocation in the following year.
Budgeted administrative expenditure for the year XXX
RM million
Emoluments 23.64
Services and supplies 73.42
Assets 8.11
Fixed charges 0.98
Other expenses 1.37
Total administrative expenditure 107.52
 Incremental approach
Current year’s estimates
Actual spending for Determination of

the year increments
Current year’s estimates

+ increments
Discussions and
approval Next year’s estimates
 Rationale
– Simple and easily incorporated in the accounting
system.
– Does not require extensive analysis on the
activities carried out, especially when most public
sector activities are either mandatory or very
required
– Reduces arguments during budget presentation
and approval
– Reflects rational economic policy.
 Shortcomings
– No consideration of whether a particular activity is
still compulsory in meeting the objectives
– Focuses on inputs (spending) instead of outputs
(achievement of objectives)
– There is no link between the allocation and the
objectives of the public sector
– Less information cost-effectiveness.
 Shortcomings
– Encourages departmentalism, budget padding
and unnecessary spending
– Fails to indicate the planned level of activity for
the services offered
– Limited to short-term planning
Programme and Performance
Budgeting
 The approach was mooted by the United

Nations in 1967
 The aim was to transform public budgeting

system from the control of inputs to a focus on
outputs or outcome in the interest of improving
operational efficiency and promoting result-
oriented accountability
Budgeting (cont.)
 The concept is to link between resource

allocation with programmes that are able to
facilitate the public sector in achieving its
objectives.
Budgeting (cont.)
 Main components
– Programme budgeting
• Determination of objectives and programmes to
achieve the objectives
• Budget allocation is based on the programmes
– Performance budgeting
• Development of performance indicators as a way
for measuring performance and costs
Budgeting (cont.)
 The implementation
– Identifying overall objectives
– Planning and structuring of programmes
– Analysing and selecting programmes
– Evaluating performance
Budgeting (cont.)
Objective Programme Activities

 Dengue awareness
campaign
Eradication of dengue cases  Community ‘gotong-
royong’
 Regulation enforcement
Improve  Installation of children’s
local playground
Expansion of recreational
community’s  Maintenance of camping
parks
wellbeing sites
 Security control
 Janitorial services
Landscaping and
 Landscape maintenance
beautification
 Landscape architecture
Budgeting (cont.)
 Implications
– Improvement of record keeping, classification and
coding scheme for revenue and expenditure, and
the introduction of vote book,
– Implementation of better financial management
system whereby cost controls were delegated to
the agencies
– Budget dialogues became more meaningful
Budgeting (cont.)
– Encouraged good management practices among

managers
– Provides for proper performance evaluation that

links between utilisation of resources and
achievement of objectives
Budgeting (cont.)
 Shortcomings
– The local environment was not considered
leading to poor development of programmes
– The focus on line item and annual perspective
was retained
– Performance indicators were poorly developed
especially for measuring intangible benefits and
programmes with shared objectives
Budgeting (cont.)
– The complexity of public sector was ignored in

the development of the programme structures
– Conflicting objectives of the public sector
Modified Budgeting
 The main concept is ‘let managers manage’ and

‘accountability to match authority’
– greater authority and autonomy in financial

management given to controlling officers
– Controlling offices were to set their own targets

and prioritise their programmes.
Modified Budgeting (cont.)
 Focussed the ‘value for money’ in the spending

of public money:
– Economy: input (charges and expenditures)
– Effectiveness: output (products and services),
– Effectiveness: impact (effectiveness of input and
output as measured in terms of quantity, quality,
timeliness and costs).
 Elements:
– Expenditure target
– Programme agreement and exception report
– A cycle of programme evaluation
– A more generalise approach to expenditure
control.
The maximum spending estimate allowed

Expenditure target
Determined by the Treasury
Elements for determination: last year allocation, existing

policies, new policies, one-offs, threshold, and efficiency
dividend
Upper level manager
• A contract • Report on
• Delegation of performance
Programme
Agreement
authority deviations
• Accountability
Exception
• Agree on the input,
reporting
output and impact reporting
of programme • Contains:
• Indicate the • The variance
acceptable • Causes
performance • Remedial
variance actions
Lower level manager
Programme selection
 Programme evaluation
– determines whether a programme
Evaluation planning
delivers the expected impact
– A form of monitoring
– provides feedback on the
Data collection
achievement of objectives,
efficiency, constraints, an Data analysis
usefulness
– one year in a cycle of five years Report preparation
and submission
 A more generalised approach to expenditure

control
– A comprehensive approach towards expenditure
control instead
– Lower level managers are accountable for the
activities that are under their control
– Stricter control over aggregate resources where
additional allocations are rarely provided or even
considered.
 Implications
– Provides flexibility for managers to make
decisions within their authority and focus on
strategic planning
– Encourages accountability via clear delegation of
authority and feedback
– Clearly identify the customers
– Better programme rationalization and analysis

– Better programme indicators
– Emphasize the value of money concept
– Promotes management by exception.
 Shortcomings
– Sole focus on the output in terms of quantity
rather than quality
– Budgeting become mere compliance
– Lack of structured monitoring framework
– Programme evaluation was carried out on an ad-
hoc basis
Outcome-based Budgeting
 Outcome-based budgeting was implemented

with the aim to:
– Efficiently manage national resources via
delegation of authority
– Links programmes to the Malaysia Plan
– Focus on impacts towards national economy
– Increase accountability via strong governance
framework.
(cont.)
 Characteristics:
– Programme-based approach
– Budget examination involving the Treasury, EPU
and PSD
– Programmes are linked to Malaysia Plan
– Adoption of medium-term perspective
– Delegation of authority
– Incentives linked results
– Systematic training
(cont.)
 Main components:
– The Performance Monitoring and Evaluation

(M&E) System
– The Management Information System (MIS)
– MyResults
(cont.)
National
 Implementation National Plan
budget
– Outcome-based
Bottom-up budget preparation

Top-Down Budget Planning
National
planning; National-level
programmes
Programmes’
budget
– Budget
Ministries’
preparation; budget
– Monitoring, Ministry-level
programmes
Programmes’
evaluation and budget
reporting of
Ministry-level Activities’
results. activities budgets
(cont.)
 Outcome-based planning
– A top-down approach
– All programmes and activities are integrated and
hierarchical in nature and could be traced to the
national strategies.
– Stakeholder needs, target performance, and
output are determined for each outcome
Strategy Outcome Programmes Activity
(cont.)
 Budget preparation National budget
– Bottom-up
approach National Programmes’ budget
– All applications for Ministries’ budget

programmes are
consolidated at the
Programmes’ budget
ministry level
Activities’ budgets
(cont.)
 Monitoring, evaluation and reporting of results
– Monitoring:
• Achievement or results, financial aspects, and the

physical project implementation
• Quarterly and annual basis
(cont.)
– Evaluation
• Complete programme evaluation within a five-year
period
• Identifies programmes that need to be reduced or
expanded
• Determines allocations that are to be retained,
reduced, increased or abolished
Outcome-based budgeting
• Tests effectiveness in achieving outcomes,

achievement of optimal results and existence of
wastage
• Determines the appropriateness and relevance of
programme objectives.
(cont.)
 Implications
– Strengthens the linkages between national
objectives and strategies, between short-term
plan and long-term plan
– Restructuring of programmes and activities
– Focus on programme performance and results
during budget examination
– Better budget examination and coordination
– Enhances performance
(cont.)
– Balanced allocations between operational

expenditure and development expenditure
– Better reporting of budgeting and performance
data.
Summary
Traditional budgeting 1950s-1969

Programme and Performance budgeting 1969-1990
Westminster model
Modified Budgeting 1990-2013
Mooted by United
Line-item Nation Outcome-based
Lets managers budgeting 2014 -
Incremental manage
Programme Links budget with
approach structuring Expenditure target
national plan
Programme
agreement and
Linked budget exception report System support
allocation with
programmes Programme
evaluation Emphasis on quality
Generalized
expenditure control
Learning Outcomes
 Discuss the form of traditional budgeting, its

strengths and shortcomings.
 Deliberates the processes behind programme
and performance budgeting, its implications and
shortfalls.
 Critically analyse the main elements of modified
budgeting, and its implications.
 Appraise the implementation of outcome-based
budgeting and the associated challenges.
GOVERNMENT
ACCOUNTING
MACHINERY
CHAPTER 3
PAGE 35-41
2 CONTENTS
• GOVERNMENT ACCOUNTING MACHINERY
- Government accounting agency

- Government accounting personnel
- Government accounting systems &
procedures
GOVERNMENT ACCOUNTING
MACHINERY
3
GAM
Agency Personnel System & Procedure
MOF Accountant General Fed. Constitution

Treasury FPA 1957
Controlling Officer Govt Acctg Std
Accountant
Audit Act 1957
General dept Accounting Officer Treasury Instructions
Treasury Circular
Self Accounting Dept
AG Circular
State Govt Circular
Resp. Centres
4 GOVERNMENT ACCOUNTING
AGENCIES
• All government accounting agency report to MOF
• Sec 6 of FPA1957
5 MINISTRY OF FINANCE
• Highest body in Federal Government

• Administer and govern the public money and public stores
• Headed by MOF, 2ND Finance Minister, 2 deputy Minister &
Sec General of Treasury
• The duty and responsibilities vested in Federal Treasury
AGENCIES - TREASURY
• A Central agency of government
• Operates under MOF, accountable to MOF (Sec 6
FPA1957)
• Vision of Treasury – to be premier agency responsible for
national financial and economic management and to be an
exemplary world class agency both domestically and
internationally
9 TREASURY -OBJECTIVES
 Ensure sustained and continuous economic growth

 Strengthen national competitiveness and economic
resilience
 Ensure effective and prudent financial management
 Purse a more equitable sharing of national wealth
 Improve quality of life and well-being of society
Role & responsibility – to inform, to plan & to implement

fiscal & budgetary policies
10 TREASURY- FUNCTION
• To formulate and implement fiscal and monetary policies

• To formulate financial management and accounting
processes, procedures and standards
• To manage the acquisition and disbursement of Federal
Government Loan
• To monitor Minister of Finance Incorporated
Companies
• To monitor the financial management of Ministries,
Government Departments and Statutory Bodies
• To formulate and administer policies related to the
Government Procurement
• To formulate policies and administer Government
Housing Loans
11 ACCOUNTANT GENERAL
DEPARTMENT
• Known as JANM formed before independence.
• Responsibility- to maintain & prepare the account for

Federal Government
• Vision – an organization of global repute in public sector

accounting and financial services
12 ACCOUNTANT GENERAL
DEPARTMENT- MISSION
• To design, develop and implement excellent government
accounting system
• To provide advisory services and approve accounting and
financial system in line with best practice
• To advise the decision makers in relation to accounting and
finance
• To enhance competency and career development of the HR
for the accounting services
• To enforced the Unclaimed Monies Act 1965
ACCOUNTANT GENERAL
13 DEPARTMENT- OBJECTIVES
 To enhance accountability and transparency in Federal government’s

accounting and financial management
 To enhance accounting and financial management system for all
government agencies
 To assist government in making effective decisions
 To develop and implement HR management system for the accounting
services
 To enhance the enforcement of the Unclaimed Monies Act 1965
PERSONNEL
• Officers who deal with public moneys & accounting systems
& procedures
• Responsible & legally bound to government’s statutory
requirement.
• i.e. Accountant General, Controlling Officer & Accounting
Officer
15 ACCOUNTANT GENERAL (AG)
• Chief Accountant and Head of JANM

• Authority in approving accounting matters and procedures
in respect of Federal and State accounts
• Definition of AG (TI3)
‘ The principal accountant in the government of the
Federation and the head of the Accounts Division of the
Federal Treasury with the authority in matters of
accounting procedure over the accounts of the
Governments of the Federation and of the States’
• AG has the authority on the accounting procedures of
inflows & outflows of public money & public stores
16 ACCOUNTANT GENERAL (AG)
• Also Head of Service for Accountant, Assistant

Accountant, Book keeper and Data Processing
Machine Operator and Registrar of Unclaimed
Moneys (MOF)
• AG is responsible to determine and maintain proper
accounting system to ensure all government property
is safe, all expenses are made correctly, all revenues
are collected on time and all receipts accounted for
correctly.
17 ACCOUNTANT GENERAL (AG)-
DUTIES T.1. 38
a) 1-To see a proper system of accounts is
established & 2-appropriate precautions instituted
against losses by fraud or negligence
b) i. to exercise supervision over the receipt of the
federal revenue and to take step to secure its
functional collection
ii. To accept only properly authorised expenditures
as charges in his accounts
iii. To report to the SG of the Treasury any material
irregularity connected with the public accounts
that may have been brought to his notice.
18 CONTROLLING OFFICER
• Sec 15A of FPA 1957 – roles & responsibility of CO

• Chief of the accounting officer, appointed by MOF or CM
or MB in respect of each purpose of expenditure provided
for any financial year.
• Responsible for an effective management of public money
allocated to the agency under his control
19 CONTROLLING OFFICER-
DUTIES (SEC15A OF FPA 1957)
• To control the authorised estimates for the particular
purpose
• To be in charged for the public moneys collected, received,
held or disbursed and all public stores received, held and
disposed
• To secure proper exercise of performance of their duties
• To report to the appropriate Svs Comm and fin. Authority
for every event of possible surcharge arises or occurs under
their control
• To be responsible to explain for the correctness of the
statement of public money under which he is controlling
Examine, consolidate and ensure budget of all agencies or dept

under his control
20 ACCOUNTING OFFICER
• Sec 3 FPA 1957 – define accounting officer
• Duties of Accounting Officer – Sec 4 FPA 1957, keep

accounting books & prepare such accounts as prescribed by
the act or as instructed by treasury
• Sec 5 FPA 1957 – need to obtain authorisation from

Federal Treasury or State Financial Authority before they
can open official account with any bank
21 SURCHARGE
• Fine imposed to any person who is or was in the employment of Federal

Government or State Government
Surcharge (Financial Procedure Act)
22
 Sec 18 – 5 groups of officers who will be surcharged

 Sec 19 – notification on surcharged
 Sec 20 – withdrawal of surcharged
 The amount surcharge to be imposed will not exceeded the amount not
collected.
 Svs Comm will fix amount to be surcharge for not maintaining proper
accounts and records, failure to make payment or delay in payment
 Sec 21 – deduction for amount to be surcharged
SYSTEMS & PROCEDURES
• Fed. Constitution
• FPA 1957
• Government Accounting Standard
• Audit Act 1957
• Treasury Instructions
• Treasury Circular
• Accountant General Circulars
• State Government Circulars
SYSTEMS & PROCEDURES
Why needed?
• Diverse government objectives
• Large annual expenditure at all level
• To ensure accountability of public money
• To take care of public interest
• To ensure the objectives of public sector are achieved
CHAPTER 4
CONSOLIDATED FUND
1
Introduction & Definition
• Fund Accounting represents a system of financial

record keeping that focuses on how an organisation
uses its finances.
• Useful to government agencies and local authorities
• Fund accounting separates all financial accounts
into individual funds
2
Definition of Fund Accounting
• Separate fiscal & accounting entities, include cash &

non-cash resources.
• Involves an accounting segregation
• Self-contained accounting entity with its own asset,
liability, revenue, expenditure & fund balance.
3
4
REVENUE A/C TRUST A/C LOAN A/C
Supply
expenditure
5
Objectives Of Fund Accounting
• To determine the financial position and its changes in the

organisation
• To know the results of operations of the organisation
• To check its compliance with legal restrictions.
6
Characteristics of Fund Accounting
• Independent Accounting Entity

• Has its own set of account with complete with
double entry & financial statements
• Self –balancing and autonomous
7
Regulatory Framework Consolidated Fund
• Art 97 (1) FC – all revenues & monies howsoever

raised or received by Federation shall be paid into
Federal Consolidates funds.
• Art 97 (2) FC – all revenues & monies howsoever
raised or received by State shall be paid into States
Consolidated Fund
• Art 97 (3) FC –Islamic related revenue
• Sec 7 (a) –(c) of FPA 1957 – three separate accounts to
be maintain in CF; Consolidated Revenues, Trust &
Loan Account
8
Consolidated Fund
• Section 16 of the FPA 1957 states that at the end

of financial year, the authorised financial authority
have to prepare:
a) A full and particular statement of Consolidated
Revenue Account
b) A full and particular statement of Consolidated
Loan Account and
c) A statement of receipts and expenditure of
Consolidated Trust Account
9
Consolidated Fund
• Government Accounting Standard (PPK) has set up by the

Accountant General in 2002
• Objective :- to prescribe the standard and the basis for
preparation of government financial statements in
accordance with the requirements of Federal Constitution
and FPA 1957
• Government Accounting Standard No.3,4&5 explain on the
three types of Consolidated Fund:
• PPK no 3 -Consolidated Revenue Account.
• PPK no. 4Consolidated Trust Account
• PPK no.5 Consolidated Loan Account.
10
Consolidated Revenue Account
• Sec 7 (a) FPA 1957 – all types of money or revenue received

except for loan & trusts are the sources to Consolidated Revenue
Account (except Islamic religious revenue).
• The money are used to maintain operating expenditure; namely
charged expenditure (Art 98 FC) & supply / operating expenditure
(Art 100 FC).
• PPK No.3 – May 2004 effective 2005 onwards
• Performance of Federal Government Revenue & Expenditure
11
Consolidated Revenue Account
• Four types of revenue:

• Tax revenue;
• Non-tax revenue;
• Other receipts; and
• Revenue from Federal Territories (Kuala Lumpur,
Labuan, Putrajaya).
• Used to pay for two types of operating expenditure:
• Charged expenditure (Article 98, FC)
• Supply expenditure (Articles 100 and 101, FC)
• Any excess will be contributed to the Consolidated Trust
Account.
12
Consolidated Trust Account
• Sec 7 (c) of FPA 1957- Consolidated trust account is set up

under which all receipts & payments of both government &
public trust funds & monies received by the government for
specific purposes are accounted for.
• PPK No 4- Dec 2004 effective for financial year 2006
• Three main classification of Consolidated Trust Account:
• Government Trust Fund (Section 10, FPA, 1957)
• Public Trust Fund (Section 9, FPA, 1957)
• Deposits
13
Government Trust Fund
• Section 10 of FPA 1957 – account for receipts of

government allocation and payments for specific
trust purposes. Some of these fund are revolving in
nature
• Primary Types; Development Fund, Housing Loan
Fund and Miscellaneous Government Trust Funds
14
Development Fund
• Development Fund Act 1966 (Art406) with the key aim for the
economic development of the nation
• Consist of loans for development, contributions from Consolidated
Revenue Account & repayment of loan given out from this fund.
• Transfer from the Consolidated Loan Accounts represent the main
source of finance to the Development Fund
15
Housing Loan Fund
• Government Housing Loan Fund Scheme -Housing Loan Fund

Act 1971(Act42)
• Provides housing loan facilities to members of Federal
Administration, members of Parliament, members of State
Administration and members of Legislative Assembly, Judges,
Government employees from Civil Service, Police Force and
Armed Force.
• Receipts comprises of appropriation from Consolidated
Revenue Account & Development Fund, proceeds from loans
raised through transfer from Loan Account, housing loan
repayment & interest earned.
16
Miscellaneous Government Trust Funds
• Sec10 FPA 1957 (Act 61)– specific trust purposes in

line with Federal Constitution.
• Source of the fund is from appropriations from the
government.
• 5 main categories- Clearance Account, Trading
Account, Loan Account, Contingency Fund and
Miscellanous Funds
• Until 2012, 176 accounts – including National Trust
Fund, Poor Student Fun, National Sport Fund
17
Pension Trust Fund
• Reported under different statement because of the sizeable

amount.
• Established on 1st June 1991 – Pension Trust Fund Act 1991 (Act
454)
• Managed by Pension Trust Fund Council
• Purpose – take over the government’s responsibility in its
obligation to pay the pension, gratuity & other retirement
benefits.
• Accountant General directly responsible for the day to day
administration and management of this fund.
18
Pension Trust Fund
• Objectives:
• Assist government to finance pension liabilities
• Ensure proper management of funds to generate
optimum return
• Ensure Statutory bodies and Local Authority make
contributions for maximum collection level.
19
Public Trust Funds
• Sec 9 of FPA 1957(Act61) – established this fund to

account for trust monies entrusted to the Federal
Government & Special Trust Fund incorporated
under relevant Act.
• Financial source –receipts from organization or
individual, placed in trust of the government for
specific purposes.
• Example; Public Finance Initiative Trust Accounts
20
Deposits
• Consists of General Deposits and Adjustment

Deposits
• General Deposits – monies received by the Federal
Government for a specific purpose under any laws
or contractual agreements & is refundable when
the specific purpose has been achieved.
• Adjustment deposits are temporary accounts used
before payments are made or adjustments are
made to specific accounts.
21
Consolidated Loan Account
• Sec 7 (b) FPA 1957- Consolidated Loan Account

established by the Federal & State government to keep
all moneys received by way of loan
• Art 111 of the FC
• PPK No.5
• Sources – domestic borrowing (local bank & financial
institution)& external borrowing (foreign banks, financial
institution, IMF & World Bank)
• All receipts & disbursements are accounted for the

purpose of repayment of outstanding loans & transfer
to other funds
22
Instruments for Internal Borrowing
• Law for domestic /internal loan

i. Act 188 Treasury Bills (Local) Act 1946
ii. Act 648 Loan (Local) Act 1957
iii. Act 637 Loan (Local) Act 1959
iv. Act 275 Government Funding Act 1983
v. Act A1242 Government Investment (Amendment) Act
2005
• The current ceiling for borrowing is nor more than 55% of
total GDP
• Aim is to finance the budget deficit and to meet the
domestic demand for debt securities
23
1) Malaysian Government Securities (MGS)
• Bond issued by the government on a long term basis to finance

Federal Government expenditure especially development
expenditure
• Registered stock which are made available to market by tender
and managed by Bank Negara
• Maturity period range from 5 to 20 years
• Primary issues and redemption of MGS on maturity are
managed by Bank Negara Malaysia under the Registrar of Public
Debt
• Major subscriber – EPF, Petronas, Bank Negara Malaysia,Pension
Trust Fund and BSN
24
2) Treasury Bills (TB)
• Short term loan instruments to finance redemption cost of

matured bills
• Major Subscriber – Commercial Banks & Discount Houses
• Maturity period not exceeding one year (Short term
nature)- 91-365 day
• Governed by Treasury Bills Act 1946 (Revised 1977).
25
3) Government Investment Issues (GIIs)

• Aims to meet the government papers based on Islamic principles as well
as to complement measures in controlling excess liquidity in the financial
system
• Medium-term loan instruments
• Maturity period 1-8 years
• Main subscriber- Bank Islam & Islamic Financial Institutions offering
interest-free banking services in fulfilling their liquidity and investment
requirement
• Governed by Act 275/83.
26
4)Sukuk
• Arabic name for financial certificates. Equivalent to bonds
• Sukuk securities are structure to comply with the Islamic law
and its investment principles, which prohibit the charging
payment of interest.
• Government Funding Act 1983 with the aim to enable the
issuance of instruments that could serve as liquidity
management tools for the Islamic banks through issuance of
Shariah-compliance Government Investment Certificates
• Murabahah-certificates of intedebtness arising from a
deffered mark up sale transaction of an asset
27
Instruments for External Borrowing
• External borrowing raised by Federal Government

from sources outside the country.
• Those loans which have original or extended
maturity of more than one year owed to non-
residents & which are repayable in foreign currency,
goods & services. (World Bank)
• Loan Act 1963 (Act403) Amount limits to RM35
billion.External
• Consists of Market Loans, Project Loans & Wakala
Global Sukuk
28
• Law for external/foreign loans

i. Act 411 Loans (International Bank) Act 1958
ii. Act 403 External Loan Act 1963
iii. Act 405 Extended Credit Act 1966 (Amendment)
iv. Act 406 Development Fund Act 1966 (Amendment)
v. Act410 Loans (Asian Development Bank) Act 1968
vi. Act 187 Loans (Islamic Development Bank) Act 1977
vii. Act 484 Loans (International Fund for Agricultural
viii. Treasury Instruction No.308
29
1) Market Loans
• Loans obtained from International Financial Institutions,negotiated at
common market rates raised for general purposes.
• Duration – 14-20 years
• Comprise of Syndicated Loan, Bond Issues & Floating Rate Notes
• Governed by External Loan Act 1963(Act 403).
30
Market Loan
• Syndicated Loan
• A form of loan from a group of registered foreign
banks.
• The group comprises of 20-30 banks and one of the
banks will be the agent to secure the loan
• The interest paid is on floating rate basis of LIBOR,
YEN OR SWISS FRANC and the maturity period is 10
years
• Maturity period is approx.10 years
31
Market Loan
• Bond Issues
• Bond issue on ‘IOU’ method
• The issued price is determined by the common
market condition and the demand for those bonds
• The maturity period is between 5 to 15 years
• Obtained from the government in Tokyo, Frankfurt,
Amsterdam and Zurich
• Floating Rate Notes
• The interest is calculated based on floating rate in US
dollar
• The maturity period is between 10 to 30 years
32
2) Project Loans
• Borrowing in term of money, services & technical studies, which
are secured for development projects.
• Range from medium to long term loan.
• Examples; Penang Bridge & East West Highway
• Obtained from Multilateral & Bilateral government sources.
• Multilateral – World Bank, Asia Development Bank & Integrated
Development Bank
• Bilateral – Malaysia & Japan
33
34
3) Wakala Global Sukuk

• One form of external borrowing for Malaysia government to
continue support its prudent debt management practice
• The Wakala Global Sukuk is Malaysia’s 3rd USD denominated
sovereign sukuk issuance.
• New benchmark for in Islamic capital market
34
35
TOPIC 4
CONSOLIDATED
FUND
1
DEFINITION: OBJECTIVES:
represents a system of • To determine the financial position and its
changes in the organisation
financial record keeping that • To know the results of operations of the
focuses on how an organisation
organisation uses its finances • To check its compliance with legal
restrictions.
CHARACTERISTICS:
• Independent Accounting CF
Entity REGULATORY
• Has its own set of FRAMEWORKS:
account with complete Art 97 (1) FC
with double entry & Art 97 (2) FC
financial statements Art 97 (3) FC
• Self –balancing and Sec 7 (a) –(c) of FPA
autonomous 1957
2
PRIVATE VS PUBLIC
3
REVENUE A/C TRUST A/C LOAN A/C
Supply
expenditure
4
CONSOLIDATED REVENUE
ACCOUNT
1. Sec 7 (a) FPA 1957 – all types of money or revenue received
except for loan & trusts are the sources to Consolidated
Revenue Account (except Islamic religious revenue).
2. Four types of revenue:
 Tax revenue;
 Non-tax revenue;
 Other receipts; and
 Revenue from Federal Territories
3. Used to pay for two types of operating expenditure:
 Charged expenditure (Article 98, FC)
 Supply expenditure (Articles 100 and 101, FC)
4. Any excess will be contributed to the Consolidated Trust
Account.
5
CONSOLIDATED TRUST ACCOUNT
 Sec 7 (c) of FPA 1957- Consolidated trust account is set up

under which all receipts & payments of both government &
public trust funds & monies received by the government
for specific purposes are accounted for.
 PPK No 4- Dec 2004 effective for financial year 2006
 Three main classification of Consolidated Trust Account:
 Government Trust Fund (Section 10, FPA, 1957)
 Public Trust Fund (Section 9, FPA, 1957)
 Deposits
6
GOVERNMENT TRUST FUND
 Section 10 of FPA 1957 – account for receipts of

government allocation and payments for specific
trust purposes. Some of these fund are revolving
in nature
 Primary Types; Development Fund, Housing Loan
Fund and Miscellaneous Government Trust Funds
7
DEVELOPMENT FUND
 Development Fund Act 1966 (Art406) with the key aim for the
economic development of the nation
 Consist of loans for development, contributions from
Consolidated Revenue Account & repayment of loan given out
from this fund.
 Transfer from the Consolidated Loan Accounts represent the
main source of finance to the Development Fund
8
HOUSING LOAN FUND
 Government Housing Loan Fund Scheme -Housing Loan Fund
Act 1971(Act42)
 Provides housing loan facilities to members of Federal
Administration, members of Parliament, members of State
Administration and members of Legislative Assembly, Judges,
Government employees from Civil Service, Police Force and
Armed Force.
 Receipts comprises of appropriation from Consolidated
Revenue Account & Development Fund, proceeds from loans
raised through transfer from Loan Account, housing loan
repayment & interest earned.
9
MISCELLANEOUS GOVERNMENT
TRUST FUNDS
 Sec10 FPA 1957 (Act 61)– specific trust purposes in
line with Federal Constitution.
 Source of the fund is from appropriations from the
government.
 5 main categories- Clearance Account, Trading
Account, Loan Account, Contingency Fund and
Miscellanous Funds
 Until 2012 176 accounts – including National Trust
Fund, Poor Student Fun, National Sport Fund
10
PENSION TRUST FUND
 Reported under different statement because of the sizeable

amount.
 Established on 1st June 1991 – Pension Trust Fund Act 1991 (Act
454)
 Managed by Pension Trust Fund Council
 Purpose – take over the government’s responsibility in its
obligation to pay the pension, gratuity & other retirement
benefits.
 Accountant General directly responsible for the day to day
administration and management of this fund.
11
PENSION TRUST FUND
 Objectives:
 Assist government to finance pension liabilities
 Ensure proper management of funds to generate
optimum return
 Ensure Statutory bodies and Local Authority make
contributions for maximum collection level.
12
PUBLIC TRUST FUNDS
 Sec 9 of FPA 1957(Act61) – established this fund to

account for trust monies entrusted to the Federal
Government & Special Trust Fund incorporated
under relevant Act.
 Financial source –receipts from organization or
individual, placed in trust of the government for
specific purposes.
 Example; Public Finance Initiative Trust Accounts
13
DEPOSITS
 Consists of General Deposits and Adjustment

Deposits
 General Deposits – monies received by the Federal
Government for a specific purpose under any laws
or contractual agreements & is refundable when
the specific purpose has been achieved.
 Adjustment deposits are temporary accounts used
before payments are made or adjustments are
made to specific accounts.
14
CONSOLIDATED LOAN ACCOUNT
 Sec 7 (b) FPA 1957- Consolidated Loan Account

established by the Federal & State government to
keep all moneys received by way of loan
 Art 111 of the FC
 PPK No.5
 Sources – domestic borrowing (local bank & financial
institution)& external borrowing (foreign banks,
financial institution, IMF & World Bank)
 All receipts & disbursements are accounted for the

purpose of repayment of outstanding loans & transfer
to other funds
15
INSTRUMENTS FOR INTERNAL
BORROWING
 Law for domestic /internal loan
i. Act 188 Treasury Bills (Local) Act 1946
ii. Act 648 Loan (Local) Act 1957
iii. Act 637 Loan (Local) Act 1959
iv. Act 275 Government Funding Act 1983
v. Act A1242 Government Investment (Amendment) Act 2005
 The current ceiling for borrowing is nor more than 55% of total
GDP
 Aim is to finance the budget deficit and to meet the domestic
demand for debt securities
16
BORROWING
1) Malaysian Government Securities (MGS)
 Bond issued by the government on a long term basis to finance

Federal Government expenditure especially development
expenditure
 Registered stock which are made available to market by tender and
managed by Bank Negara
 Maturity period range from 5 to 20 years
 Primary issues and redemption of MGS on maturity are managed by
Bank Negara Malaysia under the Registrar of Public Debt
 Major subscriber – EPF, Petronas, Bank Negara Malaysia,Pension
Trust Fund and BSN
17
INSTRUMENTS FOR INTERNAL BORROWING
2) Treasury Bills (TB)
 Short term loan instruments to finance redemption cost of

matured bills
 Major Subscriber – Commercial Banks & Discount Houses
 Maturity period not exceeding one year (Short term
nature)- 91-365 day
 Governed by Treasury Bills Act 1946 (Revised 1977).
18
BORROWING
3) Government Investment Issues (GIIs)
 Aims to meet the government papers based on Islamic principles as
well as to complement measures in controlling excess liquidity in the
financial system
 Medium-term loan instruments
 Maturity period 1-8 years
 Main subscriber- Bank Islam & Islamic Financial Institutions offering
interest-free banking services in fulfilling their liquidity and investment
requirement
 Governed by Act 275/83.
19
BORROWING
4)Sukuk
 Arabic name for financial certificates. Equivalent to bonds
 Sukuk securities are structure to comply with the Islamic
law and its investment principles, which prohibit the
charging payment of interest.
 Government Funding Act 1983 with the aim to enable the
issuance of instruments that could serve as liquidity
management tools for the Islamic banks through issuance
of Shariah-compliance Government Investment
Certificates
 Murabahah-certificates of intedebtness arising from a
deffered mark up sale transaction of an asset
20
INSTRUMENTS FOR EXTERNAL
BORROWING
 External borrowing raised by Federal Government

from sources outside the country.
 Those loans which have original or extended
maturity of more than one year owed to non-
residents & which are repayable in foreign
currency, goods & services. (World Bank)
 Amount limits to RM35 billion.External Loan Act
1963 (Act403)
 Consists of Market Loans, Project Loans & Wakala
Global Sukuk
21
BORROWING
 Law for external/foreign loans
i. Act 411 Loans (International Bank) Act 1958
ii. Act 403 External Loan Act 1963
iii. Act 405 Extended Credit Act 1966 (Amendment)
iv. Act 406 Development Fund Act 1966 (Amendment)
v. Act410 Loans (Asian Development Bank) Act 1968
vi. Act 187 Loans (Islamic Development Bank) Act 1977
vii. Act 484 Loans (International Fund for Agricultural
viii. Treasury Instruction No.308
22
BORROWING
1) Market Loans
 Loans obtained from International Financial
Institutions,negotiated at common market rates raised for
general purposes.
 Duration – 14-20 years
 Comprise of Syndicated Loan, Bond Issues & Floating Rate
Notes
 Governed by External Loan Act 1963(Act 403).
23
MARKET LOAN
 Syndicated Loan
 A form of loan from a group of registered foreign
banks.
 The group comprises of 20-30 banks and one of the
banks will be the agent to secure the loan
 The interest paid is on floating rate basis of LIBOR,
YEN OR SWISS FRANC and the maturity period is 10
years
 Maturity period is approx.10 years
24
MARKET LOAN
 Bond Issues
 Bond issue on ‘IOU’ method
 The issued price is determined by the common
market condition and the demand for those bonds
 The maturity period is between 5 to 15 years
 Obtained from the government in Tokyo, Frankfurt,
Amsterdam and Zurich
 Floating Rate Notes
 The interest is calculated based on floating rate in
US dollar
 The maturity period is between 10 to 30 years
25
BORROWING
2) Project Loans
 Borrowing in term of money, services & technical studies, which
are secured for development projects.
 Range from medium to long term loan.
 Examples; Penang Bridge & East West Highway
 Obtained from Multilateral & Bilateral government sources.
 Multilateral – World Bank, Asia Development Bank & Integrated
Development Bank
 Bilateral – Malaysia & Japan
26
27 BORROWING
3) Wakala Global Sukuk

 One form of external borrowing for Malaysia government
to continue support its prudent debt management practice
 The Wakala Global Sukuk is Malaysia’s 3rd USD
denominated sovereign sukuk issuance.
 New benchmark for in Islamic capital market
27
Accounting Standards
5 and Systems in the
Public Sector
Learning Outcomes
 Understand the basics of funds and fund

accounting
 Understand the existing accounting systems used
in the Malaysian public sector
Introduction
 Public sector accounting (PSA) - an accounting

method that is applied by governmental entities (or
public sector organizations comprising federal and state
governments, as well as local authorities) to govern
their day-to-day activities.
 The purpose of PSA - establish a good public

governance structure which is regarded as a
mechanism to enable users, particularly those in charge
of the state affairs, to make informed decisions.
Introduction (cont.)
 The statements of financial position, income and

expenditure, and cash flow, as well as notes to the
accounts, statutory declarations and auditor
certificates are the examples of financial reporting
presented in the government’s public accounts.
Fund Accounting System
 Fund accounting represents a system of financial record

keeping that focuses on how an organization uses its
finances─the activity of analyzing, recording,
summarizing, reporting and interpreting the financial
transactions of governments. This is accomplished
through the use of various types of funds.
(cont.)
 Characteristics of fund accounting include:

1. It is an independent accounting entity.
2. Each fund has its own set of accounts with
complete double entry and financial statements.
3. Self-balancing and autonomous, i.e. total assets
of a particular fund must equal to total liabilities
and fund balance or capital.
(cont.)
Purpose of Fund Accounting
 To determine the financial position and its changes in the

organization
 To know the results of operations of the organization
 To check its compliance with legal restrictions.
(cont.)
Regulatory Requirements for Fund Accounting in the

Malaysian Public Sector
 Federal government accounting is based on the concept

of the Consolidated Fund, where all revenues and
moneys raised or received except zakat, fitrah and
baitulmal or similar Islamic religious revenue have to be
paid into and form one fund known as the Consolidated
Fund─required by Article 97 of the Federal Constitution
(cont.)
 Unless appropriated or otherwise authorized by

Parliament, no moneys except specified charged
expenditure shall be withdrawn from the Consolidated
Fund as required by Article 104 of the Federal
Constitution.
 Based on section 7 of the Financial Procedure Act

1957, The Consolidated Fund is divided into three
consolidated accounts.
(cont.)
Revenue
Trust Account Loan Account
Account
The Consolidated Account
(cont.)
Public Trust Funds and Government Trust Funds
 The Consolidated Trust Account consists of the

government trust funds, the public trust funds and
deposits.
 The government owns the assets and earnings of
government trust funds, and it can raise or lower future
trust fund collections and payments.
 Categories of Public trust funds
1. The general trust fund
2. Deposits.
(cont.)
The government trust

The public trust funds Deposits
funds
• For receipts from • Divided into two • Comprise general
government allocations as categories, the general deposits and adjustment
well as public donations trust fund and deposits. deposits
and payment for
specific purposes • For the financing of • General deposits -
in compliance with section government projects. moneys received for
10 of the Financial specific purposes under
Procedure Act 1957. any law or contractual
agreement and
are refundable once the
purpose is accomplished.
• Adjustment deposits -
temporary accounts that
are used before payments
or adjustments are made
to actual accounts
(Accountant General’s
Department, 2016).
(cont.)
Consolidated Fund
 All government revenues and moneys received have to

be accounted for into a fund, known as the
Consolidated Fund.
 Cash and investments are held in three categories of

accounts under the Consolidated Fund, which are:
(cont.)
 Consolidated Revenue Account

Federal government revenue comprises tax revenue,
non-tax revenue, nonrevenue receipts and revenue
from the Federal Territories.
1. Tax revenue - derived from direct taxes and indirect
taxes.
2. Non-tax revenue - includes fees and charges on
permits issued, services fees and rental of
government assets, interest and return on
investments, fines and penalties.
(cont.)
3. Non-revenue receipts - include refunds of

expenditure and receipts from government
agencies
4. Revenue from the Federal Territories - includes
tax revenue and nontax revenue collected on
behalf of the Federal Territories of Labuan, Kuala
Lumpur and Putrajaya
(cont.)
 Consolidated Trust Account

1. The main source of inflows as it is the allocation of
the revenue account through the budget.
2. It includes the Development Fund, the Housing
Loans Fund, government trust funds, public trust
funds, deposits and pensions trust funds.
(cont.)
 Consolidated Loan Account

1. Consists of both external and internal borrowings
and can be referred to as an account that includes
all loan receipts and disbursements for the purpose
of repayment of outstanding loans and transfers to
other funds.
2. The government raises funds, at a gross sum at a
nominal value, from the domestic market by issuing
Treasury Bills (TB), Malaysian Government
Securities (MGS) and in Government Investment
Issues (GII)
9 Unclaimed Moneys
Learning Outcomes
 Explain the concept of unclaimed moneys

 Explain the prevailing regulations of unclaimed moneys
in Malaysia under the Unclaimed Moneys Act 1965
 Understand the submission process of unclaimed
moneys in Malaysia
 Discuss the non-compliance issues with regard to the
Unclaimed Moneys Act 1965.
Introduction
 In broad terms, unclaimed moneys refer to an amount of

money to be paid legally to a proper recipient within a
certain period of time as specified in the Unclaimed
Moneys Act 1965.
 The Unclaimed Moneys Act 1965 is an Act relating to
the payment of unclaimed moneys into the Federal
Consolidated Fund.
Unclaimed Moneys Act 1965
(cont.)
 Under the Unclaimed Moneys Act 1965, the sums of

moneys, which have existed for a specified period of
time and have yet to be claimed by the rightful owners,
will be transferred to the Registrar of Unclaimed
Moneys.
 The Accountant General of Malaysia was appointed as
the Registrar of Unclaimed Moneys effective from 1
June 1975.
 The owner of the unclaimed moneys may recover the
moneys from the Registrar either in person or in writing.
(cont.)
 The Unclaimed Moneys Act 1965 also details the

entities that must comply with the Act as well as the
penalties incurred for non-compliance with the
provisions of the Act.
 ‘Owners’ in the context of the Unclaimed Moneys Act
1965 refer to the person or party entitled to any
unclaimed moneys, which include his or her executors,
administrators or assigns; whereas in the case of a
company that is governed by the Companies Act 2016,
this may include its liquidators, or its lawful attorneys or
agents in Malaysia.
(cont.)
Classification of Unclaimed Moneys

 Moneys which are legally payable to the owner but has
remained unpaid for a period of not less than one year
 Moneys appearing in an account that has not been
operated in whatever manner by the owner for a period
of not less than seven years
 Money appearing in a trade account that has remained
dormant for a period of not less than two years
(cont.)
 Case example
Let’s say, Ali just move in to the new house and he needs to pay
several deposit like meter or water deposit and electric deposit. Then
after 5 years, he move out from the house and rent other house.
So, in this case, Ali supposedly will get the deposit back after move out
from the house but maybe for the certain circumstances like TNB or
Department of Water Supply can’t contact or trace Ali, they will keep
the money first.
After one year, the institution will submit the report (Ali’s record and
amount of money) to the Accountant General’s Department and this is
referred to as UNCLAIMED MONEY.
(cont.)
Who Should Comply with the Provisions of the

 A company incorporated under the provisions of
Companies Act 1965 (or foreign companies as specified
under Division 2 of Part XI of the same Act) Boards
established to manage funds relating to retirement
benefits;
 All registered societies and cooperative societies;
 Corporations, public authorities and trade unions;
 Firms (i.e. unincorporated body of persons associated
together to carry out business).
(cont.)
Organizations or parties that

are required to comply
with the provisions of the
(cont.)
Role of the Registrar of Unclaimed Moneys
 The Registrar is responsible for carrying out the

obligations and functions vested under Part II of the
Unclaimed Moneys Act 1965 as follows:
(1) As trustee to the unclaimed moneys received
(2) To refund the unclaimed moneys to claimants who
provide proof that he has a legal right over the
money to be claimed
(cont.)
(3) To inspect the records of company or firm to ensure

compliance with the provisions of the Act
(4) To suggest the imposition of compound and penalty
on company or firm that has committed an offence
under the Act.
Submission of Unclaimed
Moneys
Submission Process and Relevant Sections
 According to Section 10 of the Unclaimed Moneys Act

1965, the firm/company is responsible for the following:
(1) maintain a record of all unclaimed moneys in a
register to be kept at its principal office or place of
business in Malaysia in the form to be determined by
the Registrar
(2) lodge the unclaimed moneys with the copy of the
register not later than 31 March of the following year
Moneys (cont.)
(3) submit unclaimed moneys register for the purposes

Gazette
(4) starting from 2016, submissions of Unclaimed
Moneys must be done through Online Banking.
Moneys (cont.)
(3) submit unclaimed moneys register for the purposes

Gazette
(4) starting from 2016, submissions of Unclaimed
Moneys must be done through Online Banking.
Moneys (cont.)
Refund of Unclaimed Moneys

 According to Section 13(1) of the Unclaimed Moneys
Act 1965, when Registrar satisfied that the claimant is
the owner of the money, the Registrar shall pay the
money from Consolidated Trust Account or
Consolidated Revenue Account.
 There is no time limit for the application of the
unclaimed moneys claim.
 The claimant can check an apply for refund directly from
the Registrar's office
Moneys (cont.)
 The Registrar of unclaimed moneys has never

appointed any firms or individuals to act as agents for
the refund
 Starting from 2018, the claimant can check through
online. Currently, the Accountant General Department
is still developing the website.
Moneys (cont.)
Submission process of
unclaimed moneys for
2018 (Source:
Accountant General’s
Department of
Malaysia)
Non-compliance with the
 A firm which fails to comply with sections 10(1) and (2)

is guilty of an offense and the firm and every officer of
the firm may be fined not exceeding RM20,000 and a
further fine not exceeding RM1,000 for each day during
which the offence continues ‒ s 10(4), Unclaimed
Moneys Act 1965
 Section 12 of the Act empowers the Registrar or any
person authorized by him to carry out inspection of the
records to ascertain whether a company or firm is
complying with the provisions of the Unclaimed Moneys
Act 1965
(cont.)
 The Registrar or any person authorized by him may also
seize any books, registers, records or documents in
order to furnish evidence of non-compliance of the
Unclaimed Moneys Act 1965 by the company or firm
 There are two important documents that need to be
produced to the company or firm by the authorized
officer to carry out the inspection:
(a) Authority warrant
(b) Secrecy declaration
(cont.)
 According to section 12(4) of the Act, a company or firm
and every officer of the company or firm may face a
penalty of a fine not exceeding RM5,000 or an
imprisonment for a term not exceeding three months or
both, if the company or firm or the officer:
(a) refuses to produce, avoid producing or prevent the
production of any such book (including minute
book), register, record or document when being
required by the Registrar or a person so
(cont.)
(b) refuses or fail to correct any error found in any such
book (including minute book), register, record or
document when being required by the Registrar or a
person so authorized
(c) obstructs or hinders the Registrar or person
authorized while exercising any of the powers
referred to in section 12(1).
 the Registrar may, with the consent in writing of the
public prosecutor, compound any offense committed by
a firm and every officer of the firm not exceeding 50% of
the amount of maximum fine for that offense by making
a written offer ‒ s 16(1), Unclaimed Moneys Act
(cont.)
 Section 16(2) of states that an offer under section 16(1)
may be made at any time after the offence has been
committed, and if the amount specified in the offer is not
paid within the time specified in the offer or within such
extended period as the Registrar may grant,
prosecution for the offence may be instituted at any
time.
(cont.)
Suggestions to improve the ways unclaimed moneys
operate
(1) Shift the ownership of unclaimed moneys from the

Accountant General to firms
(2) Amend the Unclaimed Moneys Act 1965 to make it
mandatory for companies or firms to declare their
amounts of unclaimed moneys
(cont.)
(3) Distribution of incentives from the Accountant

General’s Department to firms that comply with the
rules or best practices
(4) Amending the Unclaimed Moneys Act 1965 to be
more proactive
(5) Amending the Unclaimed Moneys Act 1965 to be
more proactive.
Learning Outcomes
 Explain the concept of unclaimed moneys

 Explain the prevailing regulations of unclaimed moneys
in Malaysia under the Unclaimed Moneys Act 1965
 Understand the submission process of unclaimed
moneys in Malaysia
 Discuss the non-compliance issues with regard to the
Unclaimed Moneys Act 1965.

Chap 2,3,4

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Chap 2,3,4

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1

 The financial aspect of a government has become a

 Federal Constitution – provides framework

 Article 96 -112 of FC provides financial

 Establish the general  Provide guidelines on the

 Federal & State Government’s revenue.

 State Government has limited sources of

 Grants can be classified into two categories;

 Payable under Art 109 (1) (a) of FC.

 The first 100,000 persons = RM72/ person

 It is based on the annual population projections as per the last

 Purposes – maintaining the State roads in the

 Given upon application from the State.

 Revenue Growth Grant (Amendment) Act 2007.

1. Not exceeding 50 25 Divide equallly between 13 states –

2 Not exceeding 100 Based on the % of GNP

 Art 98 of FC – expenditures including any grant,

 Art 100 of FC – Supply Bill needs to be passed in order

 Use Consolidated Funds to administer and

 Strictly regulated as this will increase public

 Art 112B of FC (S&S) - States can borrow under

 Budgets – tool for controlling & managing public money.

 FS are to be audited by the Auditor General

 Art 105 (1) of FC - Appointment of AG made by YDP

 Art 108 of FC – established NFC to provide a venue in

 Art 112A of FC – submission of report on

 Describe in detail the financial provisions that

 To provide guidance for the  To provide the authority

 Section 4- Duties of Accounting officer

 Sec 3 of FPA – Consolidated Fund means the federal

 Sec 13 of FPA – any money withdrawn from the

 Estimates are to be prepared in order to show

 For personal emolument – should show the

 Section 15 (4) of FPA 1957.

 Section 17 FPA ,1957 – Minister or CM has the

 Section 8 of FPA,1957 – all money paid to the CF

 Section 16 of FPA,1957 – annual statement of

 There are 3 chapter of Tis

 Understand the Malaysian government

 The Federal level organisations are made up of

 Statutory bodies are formed under Legislative

 Malaysian Administration Modernisation

The Malaysian public administration is led by Malaysian

 The PSD is responsible for hiring, development,

 Formulates policies and strategies for both long-term

 Treasury for the Government of Malaysia

 Responsible for monetary supply and regulation

 Holds and manages the commercial assets of

 Responsible for the overall administration of

 The Cabinet is the executive body of the government in

 Mandates provide rules governing the actions of

 System change entails the transfer of authority among

 Income Tax Act 1967

 Financial Procedure Act 1957

 Loan (Local) Act 1957 and Loan (Local) Act 1959

 Loans (Islamic Development Bank) Act 1977

 The Malaysian government adopted a privatization policy

Within the public sector, the types of purchases

 Direct purchase allows procurement of supplies and

 Advertises the tender in the local newspapers

 Procurement of works, supplies and

 Joint ventures are allowed. Evaluation of

 Understand the Malaysian government