Ensuring strong management of public finances is vital for governments to be able to deliver public services effectively and efficiently, establishing trust towards citizens by way of accountability and transparency, and ultimately enhancing economic sovereignty and citizens’ lives through proper public financial management (PFM).
To achieve these goals, a number of key elements should be incorporated into a government’s PFM processes and systems in order for it to be more inclusive, understandable and successful.
Here are eight of these elements, according to the Public Sector Financial Management Committee from the Confederation of Asian and Pacific Accountants:
Central Bank of Malaysia’s headquarters in Kuala Lumpur
The Climate for Reform: An effective PFM begins with the acknowledgement and recognition across the public sector that change is needed, and that fundamental reforms can only take effect when there is utmost commitment from relevant stakeholders.
Governance – The Legal and Institutional Framework: Such framework should be well-defined, in that it is capable of facilitating the implementation of effective and efficient public-service arrangements.
Governance – The Values System: To fully commit and work effectively in the public interest, a value system that prioritises openness, honesty and responsibility in planning, executing and reporting services is essential.
Capacity and Capability: No PFM processes cannot be successful without being supported by the required resources, namely the necessary systems and the most capable personnel who can carry out these processes.
Fiscal and Policy Framework: This framework should be well-outlined and comprehensive to guide the development of a credible budget that can demonstrate the impact of how the government intends to financially carry out its policies and use its resources.
Performance Management: This involves managing, monitoring and reporting on the budget to ensure that it achieves the expected outcomes. Three performance principles must take in account to determine whether the budget is implemented well: value for money, effective and efficient service delivery, and financial compliance.
Reporting: When reporting on budgetary performance, it should be appropriate and clear in comparing between planned and actual outcomes. This enables the government to be accountable for their financial actions.
Scrutiny and Assurance: To boost confidence in its reliability and accuracy, information that is included in reports concerning public finances needs to be subjected to effective scrutiny and assurance at various levels and forms of review, especially from external and independent audit.
