Financial Management Concepts and issues.ppt

financial management presentation

1. Financial Management:
Concepts & Issues
Md. Naoshad Hossain,
Divisional Controller of Accounts
Khulna Division.

2. Why PFM?
Country Tax burden
% GDP
Govt exp.
% GDP
Bangladesh8.8 15.9
Bhutan 9.0 34.6
India 18.6 27.2
Maldives 21.0 63.1
Malaysia 15.3 26.3
Pakistan 10.2 19.3
Srilanka 13.3 22.6
Japan 28.3 37.1

3. Financial Management
Financial Management: Concepts & Issues
Most of the Govt. Servants think
that Financial Management is
related with spending public
money.
Online Business Dictionary
defines FM as `the planning,
directing, monitoring, organizing,
and controlling of the monetary
resources of an organization’.
In simple terms we can say it is
an "activity" when certain people
are allocated right to manage
other peoples money!

4. Concepts
Approach:
–Commercial: Inputs-Business Activities-Outputs (Goods &
services)
–Public Sector: Inputs-Govt. Activity-Outputs/ Service Delivery (Not
measurable)
Legal Framework:
–Source of authority:The Constitution of the Republic
–Requirements of the Constitution;
Consolidated Fund (Article 84.1)
Public Accounts (Article 84.2)
Expenditure by parliamentary approval or by Presidential rule
(Article 85)
Finance Accounts and Appropriation Accounts
Audit by C&AG and parliamentary oversight by PAC

5. Concepts
Consolidated Fund:
–All Tax and Non Tax Rev. Receipts;
–Grants;
–Domestic and External Borrowings;
–Repayments; and
–Food Accounts Receipts
Public Accounts:
–All other government receipts that creates obligation
–State Provident Fund
–National Savings Schemes
–Renewals
–Reserve and Depreciation Funds
–Deposit Accounts
Contd…

6. Financial Management Framework
Finance Division
ERD of the MOF
Bangladesh Bank (Sonali Bank)
Office of CGA (CDPU)
Office of C&AG
Parliament (PAC)
Bangladesh Bank
Finance Division, MoF
Controller General of Accounts
(CDPU)
CGDF, ADG(Finance), DCA,DAO,UAO
Parliament
C&AG
Appropriation & Finance
Accounts

7. What is Public Financial Management (PFM)?
Public financial management is defined as including all the
following “upstream” (preparation and programming) and
“downstream” (execution, accounting, control, reporting,
monitoring and evaluation) activities related to accumulation
and distribution of public financial resources:
Forecasting revenues and expenditures.
Formulating and preparing the budget.
Linking the budget to policymaking.
Managing cash and monitoring expenditures.
Performing internal control and audits.
Accounting and reporting.
Assessing performance and conducting external audits.

8. Forecasting revenues and
expenditures (Planning)
Resources:
Revenue:
–NBR Taxes: Tax on income and profit, VAT, Import duties,
Export duties, Custom duties, Supplementary taxes, other
tax & levies.
–Non-NBR Taxes: narcotics tax, transport tax, land tax,
sales of non-judicial stamps etc.
–Non Tax Revenue: Profit & dividend, interest, Fees,
penalty, service fee, rent & lease, Toll & levy, non-
commercial sales, income from railway, postal and capital
investment.
Grants, Loans and income from Food assistance.

9. Forecasting revenues and
expenditures (Planning)
Planning for Revenue budget:
–Printing of departmental estimates
–printing and distribution of Budget Forms (Estimating Officer's
forms)
–sending consolidated estimates to the ministry of finance
–MoF examines the estimates, receives schedule of new
expenditures and information on actual expenditures of agencies
and organisations in last six months
Planning for Development Budget:
–Development budget is a result of a continuous process of
identifying new projects, review of project concept papers (PCPs),
and vetting of the projects in ministries and in the Executive
Committee of the National Economic Council (ECNEC).
–ERD prepares aid memorandum and based on domestic resource
projections by NBR, ERD revises the aid memorandum. Upon
approval of Cabinet resource position for budget is then estimated
and the Programming Committee finalises eligible projects for
inclusion the ADP.

10. Project Approval process

11. Budgeting
Budget in Bangladesh: Legal Framework
–Constitution ofBangladesh, 1972 (Ch.II, Legislative and Financial Procedure,
Article 80-92, 87-Annual Financial statement)
–Rules of Procedure of Parliament of the People’s Republic of Bangladesh 1973
(Rule-111-127)
–General Financial Rules, 1951, updated 1998 (Budget, Grants and Appropriations)
–Preparation of the Budget (Secretariat Instruction, 1976 updated 2008)
–The Public Moneys & Budget Management Act, 2009
Institutional Framework: Ministry of Finance mainly responsible to prepare
and place the budget before the parliament. 3 divisions involved:
1. Finance Division
2. Economic Relations Division
3. Internal Resources Division (National Boardof Revenue)
Other Ministries/Agencies:
–Planning Commission
–Line Ministry/Division/ Agencies

12. Budgeting
Budget:
–A budget is a financial plan and a list of all planned expenses and revenues.
–A government budget is a legal document that is often passed by the legislature,
and approved by the chief executive-or president.
–The two basic elements :Revenues and Expenses.
–Revenues are derived primarily from taxes and non-taxrevenue.
–Government expenses include spending on current goods and services, which
economists call government consumption ; government investment expenditures
such as infrastructure investment or research expenditure; and transfer payments
like unemployment or retirement benefits, Social Safety nets
Budgeting Concepts
Revenue = Tax+ Non-tax
Expenditure = Revenue +Development
Expenditure –receipts= Deficit
Deficit Financing requiresBorrowing
-From External Sources: Loans, Grants, project Aid
-From Domestic Sources: Loans From Banks, Loans From Non
Banking sources

13. Budgeting
Core Budget Documents Placed before the parliament
–Budget Speech of the Finance Minister
–Budget in Brief
–Annual Financial Statement
–Supplementary Budget (Additional demand for grants for the
ongoing year)
–Combined Demand for Grants
–Consolidated Fund Receipt
–Medium Term Budget Framework
–Detailed Budget
–Annual Development Program(ADP)
–Gender Budget
–Bangladesh Economic Review

14. Expenditure & Cash Management
Parliamentary Approval of Expenditure
Budget:
–Annual activities of the Government
–Non-development Budget Estimates (Revenue)
–Development Budget Estimates (ADP)
–Demand for Grants and Appropriations
Approval is accorded through vote in the House on:
–Finance Bill;
–Demand for Grants Bill;
–Supplementary Appropriation Bill;
–Account Bill (when necessary); and
–Appropriation Bill
Medium Term Budgetary Framework:
–A blueprint for revenue receipts and both Non-Development and
Development expenditure;
–Consists of estimated budget for ensuing financial year and the
projections for further two years;
–Integration of policy, planning and budgeting within a medium term
resource constraint.

16. Internal Control & Audit

17. Why Internal Control?
ICs filter through the whole process to:
– Help align objectives of the business
– Safeguard assets
– Prevent and detect fraud and error
– Encourage good management
– Allow action to be taken against undesirable performance
– Reduce exposure to risks
– Ensuring proper financial reporting
Each IC procedure is designed to fulfill at least one of these 8 criteria:
– Completeness
– Accuracy
– Validity
– Existence
– Handling errors
– Segregation of duties
– Presentation and disclosure5/20/2024 17

18. Control Procedures
Control Procedures: are the policies and procedures that have been put
in place to ensure that owners and managers can take the correct action
to ensure the business achieves its objectives.
–Procedures explain the how, why, what, where and when for any set of
actions.
Basic Controls:
– Physical Access
– Job Descriptions
– Accounting reconciliations and analyses
Additional Controls:
– Supervision
– Fraud awareness
– Approval, review, double-checking and re-doing
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19. Internal Audit

20. Accounting & Reporting
Purpose of govt. accounting
Mandate of govt. accounting
–CAG has constitutional power to prescribe forma and manner of
govt. accounting
–The CAG (Additional Functions) Act, 1974 and its amendment in
1983 form the basis and responsibilities of keeping the accounts of
republic.
–Annual Finance Accounts & Appropriation Accounts
Features of Govt. accounting:
–Cash basis
–Principal Accounting Officer
–13-digit code (Legal, Institutional, Operational, Economic)
–iBAS platform
Fund Management
–Consolidated fund
–Public Accounts

21. Accounting & Reporting
Treasury System: Govt. treasury has 3 functions:
–To maintain cash bank account of the govt. (Bangladesh Bank)
–To dispose of the claims against govt. and maintain accounts (CGA)
–To manage and ensure safe custody of various kinds of stamps and other
valuables (Deputy Commissioner)
Cash Management: MoF is responsible for managing, monitoring govt.
cash position, monetary flow, investment and inflationary trend etc.
Several ways of raising public debts:
–Ways of means advances
–Sale of securities under different savings scheme
–Sale of Treasury Bills
Different system of Payments & Receipts in govt. accounts:
–Payment through Accounts Offices
–Departments having cheque drawing authority
–Departments having cash drawing authority
–Customs Treasury
–Bangladesh Mission abroad
–Exchange A/C & Settlement Account

22. Financial Oversight
Parliament is the custodian of public fund according
the constitution; Budget discussed and approved in
the Parliament; Cannot be placed before a
committee;Parliament performs oversight functions
on the execution and implementation through
–Public Accounts Committee
–Public Undertakings Committee
–Estimates committee
–Committee on ministry of finance
–Standing Committees on different Ministries

23. Performance Measurement & External
Audit
Government Auditconnotes an examination of the books of accounts
and other relevant documents relating to the ‘Receipts’ & ‘Expenditure’
of the following entities:
–The Government (all govt. offices & court of law);
–The Statutory Public Authorities (whose activities are authorized by Act, Ordinance,
Order having the force of law in Bangladesh);
–Local authorities: e.g. Education Board, Pourashava, City Corporation etc.;
–The Public Enterprises (companies or firms in which the Govt. has at least 50% share
or interest).
Immediate objective of Audit:
Te ensure-
–Correctness of accounts;
–Compliance with rules, regulations and orders;
–Budgetary control; and
–Money has been spent for the purpose for which it was allocated.
Long term objective of Audit:
To ensure-
–Financial discipline;
–Accountability;
–Sound financial management; and
–Good governance.

24. What is good governance in PFM?
UNDP defines Good Governance in general as follows:
–Participation
–Rule of Law
–Transparency
–Responsiveness
–Consensus Orientation
–Equity
–Effectiveness & Efficiency
–Accountability
–Strategic Vision
Briefly write what do you understand under each item, rank all
items in the order of importance for you

25. What is good governance in PFM?
Accountability: Capacity and institutional possibility to call public
officials to task for their actions
Transparency: Unhindered and low-cost access to relevant
information
Predictability: Difficult to define in aggregate term, but, for example in
terms of budget expenditure this implies relative predictability of
current year's budget allocated for specific sector.
Participation: Ability to express, be heard, and affect diverse issues
related to government actions for PFM. Can we physically guarantee
participation of everybody in everything? And should the participation
concept be used in order to avoid need for making tough decisions?

26. Reforms in PFM
Key lessons that we have learned from PFM reforms in Bangladesh
since 1990:
–All areas of PFM are inter linked, so when introducing reforms in one area
(accounts, debt management, cash management), we need to keep in
mind what effects it might have on other areas as well.
–directly adopting a PFM best practice often lead to operational failure.
Main success of PFM reforms:
–Identifying gaps with international best practices,
–old systems that do not support present reality (public debt act 1944 does
not support present debt instrument needs)
–recognizing the systems that work and that do not work of the old regime
Main failures of PFM reforms:
–Adopting international best practices without understanding the ground
reality
–Initiating reforms without full preparedness
–discarding everything old without assessing their necessity
–trying to fit one solution for different areas
–trying to centralize all PFM reform in MoF