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CHAPTER 5: VARIOUS BUDGETARY MODEL - Coggle Diagram
CHAPTER 5: VARIOUS BUDGETARY MODEL
GOOD BUDGETING
Provides information and focuses on outcomes
Provides the right climate for good decisions, excellence and controls all activities, and is intelligent and timely for organisations (Finney 1993).
GOOD BUDGETING CHARACTERISTICS
Managers' involvement
Clear definition of long-term goals
Rational allocation of resources
Continuous improvement
Supported by accounting information system
DEVELOPMENT OF BUDGET SYSTEM
The Traditional Budgeting System (TBS) or the Line Item Budgeting System (LIBS) was the first budgeting system used in Malaysia
As the role of government expands and the size of public expenditure increases tremendously, the effectiveness of TBS/LIBS as a tool for policy formulations and execution became weaker
Characteristics
Focused on items/objects of expenditure
Concerned with financial input than the output of its activities
Not concerned with the attainments of policy objectives and their relationship to costs
The presentation of the budget is on organizational basis (ministry or department) rather than looking at expenditures of a particular program.
Advantages
This is a simple budgeting system and can be easily understood by the users. Hence, facilitate the users in preparation of the budget.
Information presented from this budgeting system can easily be incorporated into the accounting system. This is because, transactions are categorized based on object of expenditure that is similar to the government accounting system.
Budgeted and actual revenues and expenditure ensures detailed comparisons to be made
Drawback of TBS
Data provided is useful primarily for short-term planning only.
Information presented in the budget expenditure does not state clearly the purpose of the current and future utilization of resources.
PROGRAM & PERFORMANCE BASED BUDGETING SYSTEM (PPBS)
Programs and Performance Based Budgeting System (PPBS) was used by majority of the developing nations
This system helps management make better decisions on the allocation of resources to achieve government objectives through the selection of the best feasible alternatives
Fundamentals of PPBS
Identifying objectives
Programs planning & structuring
Developing performance indicator
Performance evaluation
Characteristics
It focuses on overall agency objectives.
Emphasizes programs/activities to meet the objectives.
Emphasizes objectives of spending
The main thrust is to evaluate performance and to ensure various agency/departments attain the objectives. (Evaluation of success)
Advantages
Provides better information on management effectiveness
Systematic & continuous performance evaluation furnish information for future planning & decision making
Programs planning & structuring facilitate prioritization
Drawback of PPBS
Goals & objectives of individual agencies are not clear
Difficult to develop performance indicator
MODIFIED BUDGETING SYSTEM (MBS)
Also known as Malaysian Budgeting System introduced in 1990s.
Based on fundamental management principles of Letting managers manage
Aim to improve resources allocation by bringing more efficient management of government programs through improved accountability
Objectives
To improve programs performance in the utilization of funds (improve policy)
To improve on the distribution and allotment of funds according to priorities set
To upgrade on accountability especially amongst lower officers
Characteristics
Expenditure Target
Programs Agreement & Exceptions Reports
Cycle of Program Evaluations
More generalized approach to expenditure control
EXPENDITURE TARGETS (E.T)
Limit or ceiling imposed on an agency in the implementation of expenditure. The ceiling will be decided upon by both the Treasury and agency
For example: if the expenditure limit is RM30million for an agency for a particular financial year, the agency should not exceed the limit without due cause.
Consist of:
Existing Policy - Refers to programs that have already been approved by Law, the Cabinet, the Ministry, the Treasury or any other authority and are still being implemented in the current year and would continue to be implemented in the following year.
Expenditure Target / Limit is set annually for the existing policy on the assumption that the scope of the programs would not change or increase or decrease from the previous level.
New Policy – refers to programmes planned to be implemented in the next budget period. They are also extension or enlargement of existing policy. (Add up to existing policy, introduction of new courses, establishment of new departments or units)
One-Off – refers to the unavoidable expenditure, non-annual or non-recurrent expenditure. It is considered as one-time purchase