Lecture 6

FINANCIAL ADMINISTRATION
• Its oxygen for the government
• Financial administration has three steps,
fiscal policy, accountability, and
management.
 ORGANIZATION OF FINANCIAL
ADMINISTRATION
• The chief Executive gives the fiscal policy
and grants the demand for the financial
administration.
• The legislature discusses the demand of
the CE and tries to fulfil those demands if
found permissible
• The ministry of finance collects the
revenues and disburse according to the
demand
 Budgeting
• The full fledged budgeting started in the
time of Robert Walpole.
• Public accounts committee executes the
budget.
• Budgeting is actually the plan of the
government for a fixed period of time [F.W
Taylor]
 Types of budgets
• Annual or long term budgeting.
• Single or plural budgeting
• Surplus, deficit and balanced budgets
• Cash and revenue budget
• Department or performance budgets
• Department or performance budgeting
 Principles of Budgeting
• Budget should be balanced one
• Budget should be on the cash basis
• Budget should be on the basis of the gross
income and not on the basis of net income
• Estimates should be exact
• Budget should be on the annual basis
• Rule of lapse otherwise will not depend on
the legislature
• The budget should be controlled by the
treasury
• Ought to be on departmental basis
• Budget should be single to present the
clear picture
• The important principles can be
summarized as Publicity, clarity,
comprehensiveness, unity, periodicity,
accuracy and integrity [ACCUIPP]
 Budgets
• Performance Budgeting
• Planning and Programming Budgeting
• Zero based Budgeting
NEW CONCEPTS OF BUDGETING
PERFORMANCE BUDGETING
• First adopted in united states
• Hoover commission recommended and
president Trueman adopted it
• It is presenting the budget in the form of
functions, programmes, activities and projects
• The performance budgeting is prepared in
following categories
Agriculture, health and education.
 BENEFITS
• Clears the purpose and objective
• Shows who is responsible of have authority
• Review of this budget is quite easy
• Management of the programme is easy
• Efficient management of the finance
• Gives a clear cut picture of the spending
and revenue
• Shows what was done in the previous year
 PLANNING-PROGRAMMING
Budgeting system:
• Enacted by rand cooperation of santa
monica, recommended by defence
secretary Robert Mc Namara and adopted
by Lyndon Jhonson.
• Planning is done to achieve certain goals
and are translated into best suited
programmes to achieve those goals
 How to execute it ?
• Certain objectives are decided by the top
leadership and also the programmes to get
those objectives
• Five to ten programmes are designed to
achieve the goals and best suited is adopted.
• A multi year programme and financial plan is
designed to achieve certain objectives
• Cost-benefit analysis is also done to bring
those objectives
• Budget in to money estimates makes the
process of accountability quite easy
 ZERO BASED BUDGETING
• Started privately by Peter A Phyrr s
manager staff control
• Jimmy cater after through studing
recommended for application in all fedral
departments but Ronald Reagon
abolished it
• Zero based budgeting means starting
entirely from zero
• Every organization has to prepare its case
from ground zero and complete justification
of each project decided and this is decided
through cost benefit analysis.
• Fresh analysis is done on the objectives
decided or purpose
Essentials of Zero based budgeting
• The decision making unit takes the decision
regarding the implemention and allocation of
funds
• The decision unit take decisions for the
allocation of funds at three level
– Minimum level to retain it alive
– Current level the funds are sufficient to carry all
the previous activities as they were
– Higher than current level that requires funding to
bring in moderation or upgradation
 Benefits
• Keeps bad debt at low
• Provide information at all level
• Also shows the purpose of spending
money
• Develops clear relationship between
amount spent and the services accrued
• Brings more rationality and analytical
approach
 Demerits
• Implementation is quite difficult
• Alot of paper work is done
 Budget
• A document that completely shows the
activities done by an executive and his
colleagues in a complete manner
• Its a mechanism by which we leave
obsolete activities and replace them with
the improved versions
 Principle of Budgeting
• Executive Programme: Under the complete
supervision of the chief executive.
• Executive Responsibility: must see that
prudence is involved while executing it .
• Reporting: execution and enaction must be
based on the previous reports.
• Adequate tools must be at hand to
earmark and execute the budget in a
systematic form.
• Multiple procedures should include multiple
techniques and protocols to achieve the
aims and objectives
• Executive discretion should be given to
take every sort of business
• Flexibility in Timing must have the space to
accommodate the necessary changes
when required
• Two-way Budgeting Organization strong
coordination between the budgeting
agency and the budgeting departments of
the different departments like education,
health and agriculture of the subordinate
offices should be there
 Budgetary control
• Budgetary Control Prevent All Sort Of
Wastage
• Observance of financial code
• The controlling officers are provided
money by the finance ministry who are
also the administrative head of their
institution and they provide those funds to
the disbursing officers.
• No funds can be allocated unless sanction
by a competent authority
• The civil servants have to make sure that
the spending is up to the limits set by the
finance department
• Appropriation is done by the controlling
officers while the reappropriation is done
by the ministry of finance as per the limits
set by the legislature
• The controlling officer also keep of check on
the amount spent also the disbursement
officers submits monthly reports those are
compared and the report is sent to the
finance department and the auditor
general.
• The finance ministry also keep a direct
control over the spending except the
defence ministry and rectifies the head of
the relevant department.
• The internal audits make the accountability
more strong followed by the pre-audit and
post audit mechanisms that can control
misappropriation and embezzlement
• Audit highlights all sort of misappropriation
done in any scenario
• Also a tool of external control and
accountability that mechanism is brought
practically by pre and post audits
• Audit is also a check of the legislature over
the other departments and also held
executive responsible in case of any
negligence. it is executed by the office of
the auditor general which exist in every
country'
• Audit keeps a check over the errors and
frauds, receipts and vouchers,
misappropriation, expenditures are as per
the legislature or the finance ministry
• Its keep an eye over the public expenditure and
also a guardian of it
• Legislature keep a check also by the committees,
these committees does three things like amount
spent as per legislature desire, not extravagant
and high morality is also practised
• Public accounts committee is assisted by the
auditor general who is a constitutional person
and through him the legislature maintains the
control
 Preparation of Budget
• Preparation of estimates of expenditure
and revenue
• approval of the legislature of the
appropriation bill
• Enforcement of the finance bill, collection of
funds and application of the expenditure
• legislative control by the audit agencies or
by auditor general assisting the Public
accounts committee
• Preparation of Budget:
• 1) preparation of estimates
The finance ministry ask for the demand in
sep-oct , eight months prior to the fiscal
year, and the agencies forming demand
send it in November to the controlling
ministries. It prepare the actual of three
years
• the controlling ministry after through review
of the estimates of agencies, attached
department, and subordinates into single
document and also add their own
estimates to the Finance advisor in
December
• The finance advisor examines the
estimates of the usual expenditures and
send it to review to the auditor general
and finance division by January
• The finance advisor after review of the
new expenditures for the year send these
estimates to the auditor general and the
finance division by February
• Both the agencies consolidate the
accepted budgets independently and
compare their respective aggregates as a
cross check for accuracy. After it the
budget is ready for printing.