Financial Administration

Course code- PAD200

T1- Financial Administration
Definition
Government without its finance is nothing, because anything and everything the govt does
requires money. All govt activities are carried out with money that is collected through taxes
from its citizens and profits from private sectors. Financial administration includes all the
activities which generate, regulates, distributes monetary resources needed for the sustenance
and growth of a state or community.
Financial administration is the part of govt that deals with the collection, preservation,
distribution of public funds along with the coordination of public revenue and expenditure. it has
the general control of financial affairs of the public households.
According to Hoover Commission,
“Financial administration is the machinery and methods for which the funds for the public
service are raised, spent and accounted for at the core of modern government”.
According to World Bank:
"Financial administration refers to the management and control of financial resources in a
manner that promotes transparency, accountability, and efficiency. It involves the planning,
budgeting, accounting, and reporting of financial transactions, as well as the implementation of
sound financial policies and procedures."
According Howard R. Bowen:
"Financial administration is the process of acquiring, managing, and allocating financial
resources in an organization. It involves making decisions regarding the allocation of funds, the
acquisition of assets, and the management of liabilities to achieve the organization's goals and
objectives.
These definitions simply imply that all final tasks from controlling the budget to writing financial
reports and providing money for projects falls under financial administration.
Nature of financial administration
There are two views regarding financial administration

1. modern view

2.traditional view
Traditional View:
The traditional view of financial administration focuses on the operational aspects of financial
management within an organization. It emphasizes the efficient utilization of financial resources,
cost control, and financial stability. Key features of the traditional view include budgeting,
financial planning, accounting, and financial control. This perspective primarily deals with the
day-to-day financial operations and ensuring compliance with financial regulations and policies.

Modern View:
The modern view of financial administration takes a broader and strategic approach to financial
management. It recognizes the interdependence between financial decisions and organizational
goals and objectives. This perspective emphasizes the role of financial administration in strategic
planning, investment decisions, risk management, and value creation. The modern view goes
beyond the traditional functions to include financial analysis, capital structure optimization,
financial forecasting, and financial decision-making aligned with long-term organizational
strategies.
Scope of financial administration
1. Financial planning
2. Budgeting
3. Resources mobilization
4. Investment decisions
5. Expenditure control
6. Accounting, reporting, auditing
7. Taxation
8. Fiscal policy
9. Monetary policy
10. Govt financial system
11. Public revenue, expenditure and debt
Financial Planning: Financial planning involves the development of strategies and plans to
achieve the organization's financial goals. It includes forecasting future financial needs,
estimating revenue sources, assessing funding requirements, and formulating financial strategies
to ensure the organization's financial stability and growth.

Budgeting: Budgeting is the process of allocating financial resources to different activities,

departments, or projects within an organization. It involves setting financial targets, estimating
income and expenses, and developing a comprehensive budget that guides financial decision-
making and resource allocation.
Resources Mobilization: Resources mobilization refers to the acquisition of funds and financial
resources needed by an organization. It involves identifying and utilizing various sources of
funding, such as equity, debt, grants, donations, and other forms of financing, to meet the
financial requirements of the organization.

Investment Decisions: Investment decisions involve determining the allocation of funds to

different investment opportunities or projects. Financial administration plays a crucial role in
evaluating potential investments, conducting cost-benefit analysis, assessing risk-return trade-
offs, and making informed investment decisions that maximize the organization's value and
achieve its financial objectives.

Expenditure Control: Expenditure control focuses on monitoring and managing the

organization's spending to ensure it remains within budgeted limits. It involves implementing
controls, policies, and procedures to track expenditures, manage cash flows, prevent
overspending, and optimize the use of financial resources.

Accounting, Reporting, Auditing: Financial administration involves maintaining accurate and

reliable financial records through proper accounting practices. It includes recording financial
transactions, preparing financial statements, and complying with accounting standards and
regulations. Reporting provides stakeholders with timely and relevant financial information,
while auditing ensures the accuracy and integrity of financial records through independent
examinations.

Taxation: Financial administration encompasses managing and complying with tax regulations
and obligations. It involves understanding tax laws, calculating tax liabilities, filing tax returns,
and optimizing tax strategies to minimize the organization's tax burden while remaining
compliant with applicable tax laws.

Fiscal Policy: Financial administration plays a role in formulating and implementing fiscal
policies at the government level. It involves designing taxation policies, budgetary allocations,
and government expenditure frameworks to promote economic stability, growth, and equitable
distribution of resources.

Monetary Policy: Financial administration interacts with monetary policy set by central banks or
monetary authorities. It involves managing and responding to changes in interest rates, money
supply, and credit availability, which can impact an organization's financial planning, investment
decisions, and borrowing costs.
Government Financial System: Financial administration encompasses the design,
implementation, and management of financial systems within government entities. It involves
establishing policies, procedures, and controls for budgeting, accounting, reporting, and resource
management in public sector organizations.

Public Revenue, Expenditure, and Debt: Financial administration deals with the management of
public revenue, including taxation, fees, and other sources of income for governments. It also
includes managing government expenditures and debt to ensure fiscal discipline, sustainability,
and effective utilization of resources.

These scopes of financial administration highlight the diverse areas it encompasses, ranging from
strategic financial planning to operational aspects of budgeting, accounting, and compliance.
Financial administration is crucial for both public and private organizations to effectively
manage their financial resources, achieve their objectives, and maintain financial stability.
Component
 Public revenue
 Public expenditure
 Public debt

Functions of financial administration

1. Planning
2. Exploring financial resources
3. Budget making
4. Fiscal policy
5. Tax administration structure
6. Monetary policy
7. Import-export and foreign trade
8. Implementation of financial policy
9. Resource mobilization
10. Investment and saving
11. Economic stabilization
12. Employment opportunity
13. Controlling
14. Debt management
15. Local govt finance
16. Aid management
Limitations of financial administration
1. Specific time period
2. Ignore nonfinancial matter
3. Corruption
4. Nepotism
5. Lack of accountability and transparency
6. Lack of communication
7. Lack of actual information
8. Lack of proper coordination
9. Tax evasion
10. Insufficient budget

Importance of financial administration

1. Taxation
2. Economic planning
3. Equity
4. Saving and investments
5. Subsidies and grants
6. Capital formation
7. Employment opportunity
8. Protection of infant industries
9. Resources generation
10. Fiscal policy
11. Adjustment of public expenditure to national income
12. Administration of govt machinery
13. Public debt
14. Socio economic evaluation
15. Operating systems
16. Decision making
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