CIA3010

Public Sector Accounting

Public Sector Management Accounting and

Control
Outline
■ Characteristics of management control processes in
profit and non-profit organizations
■ Roles of management accounting in planning and
control
■ Traditional public management (TPM), New Public
Management (NPM) and Public Value (PV)
■ Management control tools
■ Budgetary control
■ Issues
Management Controls
 sets of practices recognized as essential features of
effective organization management
 Policies and procedures to ensure that government
programmes:
 achieve their intended results;
 Resources are use consistently with the stated
aims and objectives of the programmes;
 Protected from waste, fraud and mismanagement;
 Reliable and timely information is obtained,
maintained, reported and used for decision making
Management Controls
Management controls can be viewed as having two aspects:
1. the management information systems required by management
to steer the work of the organisation, to monitor the progress
and quality of operations, and to evaluate the results and
performance of the organisation;
2. the policies, systems, procedures, authority delegations, etc.,
that are built into the organisation’s processes to provide
reasonable assurance that management’s objectives are being
achieved.
 Management Accounting and Control

Management
Accounting
and Control

Management
Budgeting
Accounting

Legal
Planning and Budgetary Budgeting Agencies
Requirement Components
Control Control Process Involved
s
Characteristics of management control
processes in profit and non-profit
organizations
■ Absence of profit measure
■ Differences in tax and legal arrangements
■ Most often, non-profit organizations are service organizations
■ There are constraints in goals and strategies
■ Source of financial support
■ Dominance of professionals
■ Differences in governance
■ Political influence
■ Tradition of inadequate management controls
(Budding et al., 2015, pp. 82-83)
 Roles of management accounting in planning and control

■ Planning – as a result of scarce resources

– Formulate objectives
– Manner to achieve those objectives
■ Implementation
■ Setting of priorities
■ Control
– A system to ensure the planned activities to achieve objectives are
implemented
■ Management accounting
– Participate in planning process
■ Strategic and operational levels
■ Establish policies and formulate plans and budgets
– Initiate and provide guidance for management decisions
■ Generate, analyze, present and interpret relevant information
– Monitor and control performance
■ Reports of performance
■ Budget vs. actual
 Stages of Planning and Control in
Public Sector Organizations
Revision/ modification of
fundamental aims &
Strategic Planning
objectives 1 Planning of fundamental aims
and objectives

External 2 Operational Planning

Internal

Operational
plans revised

5 Reporting, analysis
and feedback 3 Budgeting

Budget revision

Action

4 Controlling and measuring

Source: Jones and Pendlebury

Stages of Planning and Control in Public Sector Organizations • Strategy formulation
• Long term perspective, broad
Aims and • Factors – statutory requirement, government, intervention, politics and domestic processes
Objectives

• Objective – to break up fundamental aims and objectives into series of targets and activities
• Short term and long term
Operational • Set out operational framework – fiscal policy (tax rates and charges)
Planning

• Essential link between planning and control

• Planning – provides inputs needed to achieve planned objectives
• Control – shows clearly allocated input and resources to departments
Budgeting • Compare actual vs. budgeted - $ and planned activities

• Measure – expenses incurred, and outputs achieved

Controlling • Control – detecting departures from budgeted; take actions to correct deviations
and
Measuring

• Notify department on any deviation

• Performance monitoring
Reporting, • Analysis of divergence, controllable and non-controllable
Analysis & • Reports – review, adjust, revise
Feedback
 Traditional Public New Public Management Public Value
Tra Management
diti
Public interest Defined by Aggregation of individual Individual and public preferences
ona politicians/experts preferences, demonstrated by (resulting from public
l customer choice deliberation)
pub
lic Performance Managing inputs Managing inputs and outputs Multiple objectives:
objective • Service outputs, Satisfaction,
ma Outcomes, Maintaining,
nag Trust/legitimacy
em
ent Dominant model Upwards through Upwards through performance • Citizens are overseers of
of accountability departments to contracts; sometimes outwards government
(TP politicians and through to customers through market • Citizens as users
M), them to Parliament mechanisms • Taxpayers as funders
Ne
w Preferred system Hierarchical department Private sector or tightly defined Menu of alternatives selected
Pub for delivery of self-regulating arms-length public agency pragmatically (public sector
profession agencies, joint ventures etc)
lic
Ma Approach to Public sector has Skeptical of public sector ethos No one sector has a monopoly on
public service monopoly on service (leads to inefficiency and ethos, and no one ethos always
nag ethos ethos, and all public empire building) – favors appropriate; as a valuable
em bodies have it customer service resource it needs to be carefully
ent managed
(NP Role of public Limited to voting in Limited, apart from use of Crucial: multi-faceted (customers,
M) participation elections and pressure customer satisfaction surveys citizens, key stakeholders)
on elected
and representatives
Pub Goal of Respond to political Meet agreed performance Respond to citizen/user
lic managers direction targets preferences, renew mandate and
Val trust through guaranteeing quality
services
ue
Management Planning and Control

■ Investment appraisal
– Techniques used to calculate and compare the total capital
and revenue costs
– Define objective
■ Society as a whole made better-off i.e. net social benefit
– Identify investment possibilities
– Evaluate costs and benefits
■ Cost/benefits vs. cost/effectiveness analysis
– Choose projects
Financial Planning
■ To ensure earliest consideration of:
– Financial consequences of fulfilling the fundamental aims
and objectives
– Meeting forecasted demand for services
■ Capital budgeting
■ Revenue budgeting
Micro Accounting System
■ Costing of government services
■ Introduced through Development Administrative Circular No. 3 of 1992
■ “(MAS) is another step towards strengthening management accounting
at the department level. Its implementation would further improve the
strategic planning process and engender the optimal utilisation of
resources. In general, the implementation of (MAS) would further
enhance accountability in the public service.”
■ Refer to http://www.mampu.gov.my/circular
■ Similar to activity based costing
■ Assist management in the planning, implementation, control and
evaluation process
■ Main objectives – to enhance the efficiency in financial management
– Facilitate collection, processing and preparation of cost
information
– Produce reliable cost information
– Contribute to the optimisation of the use of resources
 Budgetary Control
■ Ensuring actual expenditure is in line with budgeted amounts and that the
objectives and level of activities envisaged in the budget are achieved.
■ Management accounting – introduce and maintain a sound system of
budgetary control
– Cost allocation
– Devise adequate costing systems
– Determine the charges for services
– Prepare reports that are relevant and timely
■ Budget
Capital Budgeting
– Detailing the planned receipts from any sales of assets and planned payments for
acquisition of capital assets requires the preparation of capital works schedule.
– Funding revenue a/c, borrowing, private finance initiative projects.
Revenue Budgeting
– Covers the first year of the medium-term planning
– Determines the achievement of the fundamental objective in the financial year.
– Determines the tax levy and charges for services.
– Provides standard for performance evaluation
Issues
■ Behavioral considerations
– Ensure that behavior of an organization is consistent with
meeting the ultimate objectives
– Incongruence  departmentalism
■ Department compete with each other for resources as much
as possible, with little regard being paid to the optimal
allocation needed to achieve overall objectives
– Budget slack vs. padding vs. performance of managers
■ Lead to inefficiency and extravagant spending
– Straight-jacket i.e. less flexible (annually principle)
■ Lead to unnecessary spending – expenses incurred simply to
meet budget
Discussion Questions
1. ‘Unlike financial accounting and external reporting,
management accounting in the public sector is not
distinctively different from the private sector.’
Discuss.
2. Explain the difference between a cost centre, a profit
centre and an investment centre. Discuss why public
sector entities have traditionally been cost centre
rather than one of the other two forms.
3. Refer to the article on management accountant in the
Malaysian public sector. Discuss the following:
i. Tasks performed by a management accountant
ii. Required skills of a management accountant