CHAPTER 6
FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT
SU DINH THANH
LEARNING OBJECTIVES
GOVERNMENT BUDGET REVIEW GOVERNMENT BUDGET REVIEW
f B d t i fi
d fi ll i
(cid:131) Budget is finance of government t (cid:131) There are two main functions for the government b d t i budget in an overall sense: economic, and financial i l (Musgrave and Musgrave, 1989).
Economic functions of the budget Economic functions of the budget
(cid:131) These are usually described as policies for: ll d li i f
ib d Th (cid:131) allocation (the relative size of the public and
t t i
private sectors); ) (cid:131) distribution and; (cid:131) stabilization. t bili ti
Financial functions of the budget Financial functions of the budget
ti i l f f th b d t l
ti it h l th f t
(cid:131) The financial functions of the budget are analogous Th fi to accounting. Balance sheets need to be drawn up for the whole of government activity. f (cid:131) The financial functions of the budget are:
l ti f t t l d t
(cid:131) to act t the th as t t
(cid:131) an evaluation of total government and public bli authority expenditures within the budget sector; instrument of legislature’s f i ’ i l t t l accountability and control over the government in its handling of financial matters. i i l f fi it h dli tt
THE THREE MODELS OF PFM THE THREE MODELS OF PFM
l l Th
(cid:131) The classical model d l i (cid:131) The ‘new public management’ (NPM) model (cid:131) The Barnard–Simon governance model d l Th B d Si
The classical model
(cid:132) There are two cardinal/main rules in the classical PFM
ld b l
t h
model: (cid:132) (1) a government should balance its budget. it b d t (1) (cid:132) (2) a government unit should not overspend its appropriations.
These rules are codified in laws and regulations. These rules are codified in laws and regulations.
(cid:132) In conformity with this provision,
g
, pp
p p
g
there are statutes and , regulations on budget preparation, approval and execution, and eventual cash disbursement by the Treasury. Financial management makes budgetary resources available to officials to carry out authorized purposes.
h i d
(cid:132) Can you give some weakness of this model? To refer to
p
102 - 103. 102 103
The classical model
(cid:132) Such as: Financial management
is an invisible bureaucratic function uninvolved in policy decision making and largely unaffected by budgeting approaches. (cid:132) As PPBS, ZBB and mission budgeting.
The ‘new public management’ model
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g
(cid:132) NPM model conveys the implications of private h
Ci i
d
d l li f i i i
Outputs and outcomes should be Outputs and outcomes should be
(cid:132) measured, compared with benchmarks and verified
by value-for-money audits. by value-for-money audits
(cid:132) Universal rules of the marketplace: economy and
efficiency. efficiency.
(cid:132) Double-entry recording should replace the single-
entry system. y y
NPM sector practices: (cid:132) Citizens are considered as customers. id (cid:132) Performance and results – not inputs – are stressed.
The ‘new public management’ model
p
g
(cid:132) NPFM has the potential
to energize an ossified
bureaucracy, but there are several problems with it.
it does not address
g
equity rather
the core issue in (cid:132) First, government. If government exists to take care of the g consequences of market failure, doing those things is not for which business lacks incentives or equipped to handle. But than efficiency, economy or even effectiveness is the ultimate criterion in public or political decision making in a democracy.
The ‘new public management’ model
p
g
(cid:132) Second, corporate model has several scandals. It is
not perfectible in practices .
(cid:132) Third, It elevates administrative discretion at p
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the expense of legislature power. It promotes the ethos the against the business-minded managers of It does not politically savvy policy analysts. appreciate the primacy and resiliency of budget rules in government.
The ‘new public management’ model
p
g
(cid:132) => What
is needed is a governance model
government, society civil of
that recognizes the respective roles, competences and advantage and businesses.
The Barnard–Simon governance model
g
(cid:132) Chester Barnard and Herbert Simon are pioneers to
trace to an organization theory.
(cid:132) Barnard (1968, originally 1938) and Simon (1945) viewed an organization – government or business – g as being in equilibrium when its managers succeed in balancing the contributions from its stakeholders (table 1)
g
The Barnard–Simon governance model
g
Table 1
The Barnard–Simon governance model
g
(cid:132) Barnard
Simon on
individual focused and the solution of many organizations. However, complex societal problems requires the co-operation of a network of public and private institutions
business and
(cid:132) Working through network provides government with more tools. Besides direct provision of goods and services, government could enter into contracts with, nonprofit give or loan organizations. guarantees or insurance coverage (Table 2).
grants It to could provide loans,
The Barnard–Simon governance model
g
Table 2
COMPARATIVE APPRAISAL OF THE MODELS
(cid:132) The role of financial management
is influenced heavily by its environment. Specifically, the nature of the entity being managed and the higher level manager tend to affect what financial managers do
Comparative appraisal
(cid:132) Its different roles in altered contexts have serious i l the content of public financial
d h i diff
l I implications for management. management
(cid:132) Financial managers
for rewarded
is managed they think of what is managed they think of what differently, and monitor different aspects of financial performance.
their are contributions to conformity (classical model) short contributions to conformity (classical model), short- term efficiency and economy (NPM model), and longterm effectiveness and equity (governance longterm effectiveness and equity (governance model). (cid:132) Consequently, (cid:132) Consequently,
Comparative appraisal
Comparative appraisal
(cid:132) Public financial management – in the broad sense –
is aided by budgeting, accounting and auditing.
(cid:132) The input and control orientation in the classical model gives way to the mission-driven output y budgets favoured by the NPM model. The macro perspective of the governance model (cid:132) The macro perspective of the governance model requires a more encompassing budget to see how resources are allocated to various service providers resources are allocated to various service providers (global).
g p
