Financial Systems and Procedures

Basic Accounting Practices in Malaysia

Financial Systems and Procedures: Federal Constitution Financial Procedures Act 1957 Audit Act Treasury Instructions Treasury Circulars Regulatory Body

Auditing Accounting Budgeting

Parliament Treasury Accountant General Auditor General

Governing Laws and Rules

Federal Constitution; Financial Procedures Act of 1957; Statutory Bodies Act (Accounting and Reporting) of 1980; Local Government Act of 1976; Audit Act of 1957; Treasury Bills and Circulars; Other Laws such as Consolidated Funds Act, Supply Act, Additional Supply Act, Development Fund Act, Borrowing Act, Foreign Borrowing Act and Trust Act.

Key Legislature Influencing PSA

Federal Constitution - Framework from which the Financial Procedure Act 1957 has the power to enact. Audit Act - Makes provisions for the audit of government accounts. Treasury Circulars - New rules introduced from time to time. Treasury Orders - Rules that are approved and documented.

Characteristics of Accounting System

Designed to facilitate audit; Permit effective administrative control of public funds and operation. Designed to comply with the Federal Constitution, statutory and other legal requirements. The purposes for which funds received and expended must be clearly stated. Executive authorities responsible for the custody and use of the public fund must be identified.

PUBLIC SECTOR ACCOUNTING CYCLE

Starts with the tabling of the annual budget followed by activities such as recording of transactions, reporting of results, auditing and ending with performance evaluation.

Federal Constitution

Financial Provisions of the Federal Constitution

The financial provisions are specified in Article 96 to Article 112 of the Federal Constitution. Seventeen articles are available and serve as the basis for managing the financial aspects of the government.

Objectives of Financial Provisions

Establish general framework to control expenditures Serve as a broad requirements for financial management systems Govern methods to administer and account for the public funds Provide for division of revenues Define the borrowing powers

Objectives of Financial Provisions

Serves as a requirement to maintain specified Consolidated Funds Specify basic principles of government finance Serve a s a requirement to prepare budget annually Serve as a requirement to prepare annual statements of assets and liabilities

Financial Provisions

Revenues Expenditures Control and management of fund Borrowings Budgets and financial statements Auditor General National Finance Council Special provisions for Sabah and Sarawak

i- Revenues

Categories: Federal; and State governments revenue. Article 96 of the Federal Constitution All proceeds of revenues are due to the Federal Government except those that are: (i) assigned to the States under Article 110 of the Federal Constitution (ii) collected by the Local Authorities and the religious departments.

i- Revenues

States shall receive all proceeds from the taxes, fees and other sources of revenue levied or raised within the State - Article 110 (1). Each state shall receive ten percent or such greater amount of the export duty on tin produced in the state - Article 110(3). A proportion of the export duty on minerals (other than tin) produced in the state shall be allocated to the state. Entertainment duties, fees from courts and treasure trove are assigned to the States--Part III of Tenth Schedule.

Grant
State receives annual financial assistance form the Government, in the form of grant. Categories: Grants payable under Article 109 of Federal Constitution Grants payable as a result of approval by National Finance Council Grants payable under various act of Parliament

Grant
Major types: A- Capitation grant B- State Road Grant C- State Reserve Fund D- Revenue Growth Grant

A- Capitation Grant
Payable by virtue of Article 109(1)(a) of the Federal Constitution. Purpose: to assist the States in their operating expenditure. This grant is based on the population of a particular State.

A- Capitation Grant
Section 1 Part 1 of the Tenth Schedule specifies the rates at which this grant should be calculated: (a) For the first 50,000 persons at the rate of RM 60.00 per person; (b) For the next 500,000 persons at the rate of RM 8.50 per person; (c) For the next 500,000 persons at the rate of RM 9.00 per person; (d) For the remainder at the rate of RM 9.50 per person.

B- State Road Grant

Based on Article 109(1)(b) of the Federal Constitution. Purpose: to maintain the State roads. Section 2, Part II of the Tenth Schedule of the Federal Constitution provides the guideline to calculate the amount of the grant:

B- State Road Grant

Average cost to a State of maintaining a mile of State road, at the minimum standard determined for State roads in those States by the Federal Government after the consultation with the National Finance Council x Mileage of State roads in the State as qualifies for grant

C- State Reserve Fund

Upon application from the State. Purpose: to assist States Government that had deficits in their current accounts as well as to help implement the development throughout Malaysia.

C- State Reserve Fund

Article 109(6) of the Federal Constitution: The sum is determined by the Federal Government after consultation with the National Finance Council; and Based on the economic development, infrastructure and well being of the State.

D- Revenue Growth Grant

Given to the state whenever there is a growth or increase by more than 10 percent in the revenue of the Federation in any financial year as compared to the preceding financial year.

D- Revenue Growth Grant

A provision of RM 150 million, divided into 2 parts. Part 1: RM 50 million of which RM 25 million is divided equally between the thirteen States, and the other RN 25 million is to be based on the population of the State.

D- Revenue Growth Grant

Rates: the first 500,000 persons get two shares per person, the next 500,000 persons get one share per person, and The remainder gets half a share per person. Part 2: RM 100 million of which will be determined by the Federation.

ii- Expenditure

Article 98 of the Federal Constitution Expenditures include any grant, remuneration or other moneys charged by other Article or Federal Law shall be charged to the Consolidated Funds. Article 102 of the Federal Constitution- unusual urgency for expenditure; pass Supply Bills Article 103 of the Federal Constitution- contingencies fund may be created to meet an urgent need for expenditure.

iii- Control and Management of Fund

Article 97 of the Federal Constitution: all revenues and moneys raised or received by the Federation shall be paid into Federal Consolidated Fund and the same applies to the State Consolidated Fund but excluding zakat, fitrah, baitulmal or similar Islamic religious revenues Article 104 of the Federal Constitution: No money should be withdrawn from the Consolidated Fund except in the manner provided by the Federal Law.

iv- Borrowings

Article 97 of the Federal Constitution: Federal shall not borrow except under the authority of Federal Law. State government are restricted to borrow only from the Federal Government. If the borrowings are for periods of less than 5 years, state governments are permitted to borrow from bank or financial institutions approved by Federal Government. Article 112B of the Federal Constitution: State governments of Sabah & Sarawak borrow under the authority of the State within the state if the borrowing has approval of Bank Negara Malaysia. can Law the

v- Budget and Financial Statements

Article 99 of the Federal Constitution: Federal must submit to the Parliament, (i) statements of the estimated receipts and expenditure of the Federation of the following year; (ii) statement of assets and liabilities at the end of the last completed financial year. Article 100 of the Federal Constitution: Expenditure should be included in a supply bill for them to be withdrawn from the Consolidated Fund.

v- Budget and Financial Statements

Article 101 of the Federal Constitution: Supplementary budget is prepared if the amount appropriated by Supply Act is insufficient.

Reporting Requirements

Federal Government has to submit statement of the estimated receipts and expenditure of the Federation of the following year before commencement of that year-- Article 99. Federal Government has to submit to the Parliament, statement of assets and liabilities of the Federation at the end of the completed financial year--Article 99.

vi- Auditor General

Audits and reports on the accounts of the federal, state and public authorities. Undertakes other duties in relation to the accounts of the federal, state and public authorities as specified by Yang Dipertuan Agong. In case of federal authorities, audit report prepared and submitted to the Yang Dipertuan Agong to be laid before the House of Representatives (Dewan Rakyat) in the Parliament. For State and other public authorities, the report should be submitted to the State Ruler or Yang diPertua Negeri, then laid before the Legislative Assembly.

vii- National Finance Council

Established by Article 108. Presently comprises Prime Minister, such other ministers and one representative from each state appointed by the ruler. Meet to discuss financial issues. Meet when deemed necessary by PM or at the request of 3 or more representatives or at least once a year.

vii- National Finance Council

Consulted by Federal Government in respect of : - Making of grants to state - Assignment of any proceeds of any federal tax - Making of development plans - Matters related to item 7(s) Article 108 of the Federal Constitution.

viii- Special Provisions for the States of Sabah and Sarawak

Article 112 A of the Federal Constitution: Auditor General shall submit his report on the accounts of the States of Sabah and Sarawak to the Yang di Pertuan Agong and the Yang di Pertua Negeri Article 112 B of the Federal Constitution: States of Sabah and Sarawak may borrow under the authority of State Law.

Financial Procedure Act 1957

Financial Procedure Act 1957

Objectives: Provide guidance for the control and management of public finance for the whole nation; To provide financial and accounting procedure; To provide guidelines on the collection, custody and payment of public monies;

Financial Procedure Act 1957

To provide the procedures for purchase, custody and disposal of public properties; To provide the authority for the investment of money standing in the Consolidated Funds; To define and explain in detail the three accounts of the Consolidated Funds; and To enforce the provisions of the Federal Constitution relating to finance.

Contents of FPA 1957 Consolidated Fund

The Federal Consolidated Fund and the Consolidated Fund of the States relate to three types of funds - Consolidated Revenue Account, Consolidated Loan Account and Consolidated Trust Account - Sec 7(a) to 7(c) of the Act. Consolidated revenue account Sources: all types of money or revenue received except for loans and trusts.

Contents of FPA 1957 Consolidated Fund

Consolidated loan account Sources: (i) domestic borrowings: local banks and financial institutions; (ii) external borrowings: foreign banks, financial institutions, International Monetary Fund and World Bank.. Consolidated Trust Account Sources: deposits, trusts and recoveries of advances or loans.

Fund Accounting Practices in Malaysia

Tax revenues Non-tax revenue Non-revenue receipts

Consolidated Revenue Account

Operating expenditure: Charged expenditure Supply expenditure (Article 100)

Revenue from FT All types of money or revenue received except for loans and trusts

Composition of Operating Expenditure

Emoluments, goods and services; Transfers such as contributions to Development Fund and Housing Loan Fund; Allocations to State Governments, Statutory Bodies and Government-owned Companies by way of grants, loans and investment.

Fund Accounting Practices in Malaysia

Consolidated Trust Account

Deposits, Public Trust Funds, Government Trust Funds, Pension Trust Fund, Housing Loan Fund, Development Fund and Accounts Payable. Payable

Fund Accounting Practices in Malaysia

Loans raised under the authority of Federal or State Law.

Consolidated Loan Account

Transfers into Development Fund. Transfers into Housing Loan Fund. Transfer into other funds authorized by Parliament.

Contents of FPA 1957 Financial Procedures for Payment, Estimates, Virements and Write-off

Payment Section 13 of the Financial Procedure Act 1957: Money withdrawn from the funds must be by way of warrant. Warrant: is a letter of authorisation either from the Minister for the Federal or Menteri Besar or Chief Minister for the States.

Contents of FPA 1957 Financial Procedures for Payment, Estimates, Virements and Write-off

Estimate Section 15 of the Financial Procedure Act 1957: Estimates should be prepared in order to show clearly the divisions and sub-divisions of expenditure proposed, the amount expected to be received or spent for the year and purpose of such expenditure.

Contents of FPA 1957 Financial Procedures for Payment, Estimates, Virements and Write-off

Virements Section 15(4) of the Financial Procedure Act 1957: Virement: is a transfer of allocation between sub-heads within the same head--need approval from the Treasury or State Financial authority (Section 15(4)). No virement is allowed from personal emoluments. Minister or Chief Minister has the power to authorize the write off of any losses or deficiencies such as irrecoverable amounts of revenue, debts and over-payment (section 17).

Contents of FPA 1957 Financial Procedures for Payment, Estimates, Virements and Write-off

eg: Virements between departments: Ministry A Department X

Amount Allocated Spent Excess

Department Y

RM 250,000 RM 300,000 300,000 250,000 50,000

Contents of FPA 1957 Financial Procedures for Payment, Estimates, Virements and Write-off

Write-offs Section 17 of the Financial Procedure Act 1957: Minister or Chief Minister has the power to authorise a write off of any losses or deficiencies such as irrecoverable amounts of revenue, debts and over-payment (section 17).

Contents of FPA 1957 Custody and Investment of Public Fund

Federal Section 8(3)(a) of the Financial Procedure Act 1957: The money may be invested: On deposit in any bank; In any investments authorised by the Trustee Ordinance 1949 or the Trustee Investment Act 1965; In any joint fund maintained by the Crown Agents for such investment; As otherwise authorised by federal law or by resolution of the Dewan Rakyat.

Contents of FPA 1957 Custody and Investment of Public Fund

State Section 8(3)(b) of the Financial Procedure Act 1957: The money may be invested: On deposit in any bank; In securities issued or to be issued by the Federal; With the written authority of the Treasury, in any of the investments authorised by the Trustee Ordinance 1949 or the Trustee Investment Act 1965;

Contents of FPA 1957 Custody and Investment of Public Fund

In any joint fund maintained by the Crown Agents for such investment; As otherwise authorised by federal law or by resolution of the Dewan Rakyat.

Contents of FPA 1957 Yearly Statement of Accounts

Section 16 of the Financial Procedure Act 1957: Consolidated Revenue Account Consolidated Loan Account Consolidated Trust Account Statement of accounts of funds created by the Federal Constitution or by Section 10 of the Financial Procedure Act 1957 and not accounted in the Consolidated Trust Account Statements of assets and liabilities of the Federal and States

Contents of FPA 1957 Financial Regulations Provided by Yang DiPertuan Agong

Section 36 of the Financial Procedure Act 1957: Collection, receipt, custody, issue, expenditure, due accounting for care and management of public moneys and the guidance of all persons concerned therein. More effectual record, examination, inspection and departmental check of all receipts and expenditures and the keeping of necessary books and accounts. Forms for all books and documents required under this Act. Purchase, safe custody, issue, sale or other disposal or writing-off accounting and stocktaking of stores and property of Federal and States.

Contents of FPA 1957 Financial Regulations Provided by Yang DiPertuan Agong

Preparation of estimates of revenue and expenditure of Federal and States. Authorisation of rates of payments of public funds for specific purposes if not provided by law. Making of advances to public officers and other persons and the rates and limits of such advances and the rates of interest.

Treasury Circulars and Treasury Instructions

Treasury Circulars and Treasury Instructions

Details rules and regulations for the guidance and compliance of all public bodies and officers. Also, detailed guidelines related to financial procedures and accounting for public moneys. At agency and state level, additional instructions may be produced to clarify matters pertaining to the Treasury Instructions. Financial aspects that become the focus of Treasury Instructions: financial procedures, accounting procedures and auditing procedures.

Treasury Circulars and Treasury Instructions

Control of receipts, payments and custody of public money Responsibility of expenditure control lies with the Controlling Officer. Financial Procedures Act 1957, Section 15A: the officers also accountable towards the accounting of all moneys collected, received and paid, and all public properties received, withheld and disposed.

Treasury Circulars and Treasury Instructions

Controlling officers are responsible to examine and consolidate budgets of the agencies under their control. Sec 3 and 4, Financial Procedures Act 1957: Accounting officers are in-charged with the duty of collecting, receiving, payment and accounting for public moneys, as well as receipts, custody, disposal and accounting for public properties. Failure to perform the duties will cause the officers to be surcharged. Surcharge is a form of penalty, recovered from the salary or pension of the person surcharged (Sec 21, Financial Procedures Act 1957

Treasury Circulars and Treasury Instructions

Accounting for revenues and expenditures Responsibility lies with the Accountant General. Treasury Instruction 3: Accountant General is 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 Government of the Federation and the States.

Treasury Circulars and Treasury Instructions

At State level, Accountant Generals offices have been formed in order to manage all matters relating to systems, procedures and accounting principles of the State. Treasury Instruction 138, at Federal and State level, Accountant General has the responsibility to: a) Ensure that a proper system of accounts is established and appropriate precautions of fraud is taken. b) Issue necessary instructions for the guidance of Controlling Officers in matters related to (a)

Treasury Circulars and Treasury Instructions

c) Supervisee over the receipts of the Federal revenue and to take steps to secure its punctual collections d) Accept only properly authorised expenditure as charges in his accounts e) Report to the Secretary General of the Treasury any material irregularity connected with the public accounts that may have been brought in his notice.

Treasury Circulars and Treasury Instructions

The maintenance of revenue and expenses accounts is explained by Treasury Instruction 141. The accounts are to be maintained according to the annually approved allocations. Treasury Instruction 142 requires proper documentation of all entries in the account.

Treasury Circulars and Treasury Instructions

Procedures of public properties The Treasury, at both the Federal and State level, is accountable to control, monitor and coordinate any acquisition, custody, allocation, usage, transfer and disposal of public properties within or outside the country (Treasury Instruction 166). Any losses due to these responsibilities are the accountability of the officers in-charged (Treasury Instruction 166B)

Audit Act 1957

Audit Act 1957

Provides for the audit of the accounts of the Federal and State Governments, and of certain other public authorities and bodies.