FINANCIAL MANAGEMENT IN

PUBLIC SECTOR ORGANIZATIONS

Chapter 5
 CONTENT
1. Public Financial Management

2. Popular frameworks in financial management

3. Public financial management in Vietnam

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 1. PUBLIC FINANCIAL MANAGEMENT

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 1. PUBLIC FINANCIAL MANAGEMENT
- Budget formulation. The budget is prepared with due regard to government
fiscal policies, strategic plans, and adequate macroeconomic and fiscal
projections
- Budget execution. The budget is executed within a system of effective
standards, processes, and internal controls, ensuring that resources are
obtained and used as intended
- Accounting and reporting. Accurate and reliable records are maintained, and
information is produced and disseminated at appropriate times to meet
decision making, management, and reporting needs
- External security and audit. Public finances are independently reviewed, and
there is external follow-up on whether the executive has implemented the
recommendations for improvement

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 1. PUBLIC FINANCIAL MANAGEMENT

Few guidelines for assessing PFM quality

Appropriateness of emulating private

sector practices

Boundary of PFM

Contradictory between nature of finance

and public management
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 2. POPULAR FRAMEWORKS IN PFM

The government
should balance its
budget

Classical
PFM model
A government should
not overspend its
appropriations

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 2. POPULAR FRAMEWORK IN PFM
Classical
PFM model

Revenue Spending
Be often More
slighted important

Starts after
receiving
appropriation
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 2. POPULAR FRAMEWORK IN PFM

Annual Contractual
appropriations commitment
are divided are approved
Investment management
Classical
PFM model
Debt management

Payment are Receive goods

made and services

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 2. POPULAR FRAMEWORK IN PFM
Classical PFM model

Flaws of PFM
- No solution for intentional budget deficit
Designed deficit for macroeconomic purposes or political
reason
- No solution for operational inefficiency
Finance – related laws do not usually deal with
performance issues

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 2. POPULAR FRAMEWORK IN PFM
New Public Financial Management (NPFM)
Performance and
results

Budget – maximizing Cost – conscious and revenue hungry

bureaucracy entrepreneurs

Accounting –
based tools
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 2. POPULAR FRAMEWORK IN PFM
New Public Financial Management (NPFM)
- Accounting principles are set by professional groups independent of
government
- Double – entry recording
- Accrual accounting is an alternative of cash budget
- Full cost of the government will be used to set prices for public and
internal services
- Outputs and outcomes will be measured and compared with
benchmarks, verified by value – for – money audit

Cost centers -> revenue/profit centers

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 2. POPULAR FRAMEWORK IN PFM
New Public Financial Management (NPFM)

FLAWS
- Does not address the core issues of the government
- Distorted comparisons between public and private operation
- NPFM may be as unsustainable as previous radical form

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 2. POPULAR FRAMEWORK IN PFM
The Barnard-Simon governance model

- Balancing the contributions from, and the inducements given to,

government stakeholders

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 3. PUBLIC FINANCIAL MANAGEMENT IN VIETNAM

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