Accounting practices and development in public sector

1. Accounting practices and development in public sector Accrual Accounting Micro Accounting System (MAS) Standard Accounting System of Government Agencies (SAGA) Other development

2. ACCRUAL ACCOUNTING -What is Accrual Accounting? -Application -Advantages -Disadvantages -Challenges in Implementing -The Future of Accrual Accounting in Malaysia

3. What is Accrual Accounting? • Revenues are recognised in the period, which they earned • Expenses are recognised in the period in which they are incurred in earning the revenue

4. Cash, accrual and modified accrual bases of accounting

5. Application of accrual accounting in public sector • The continuous and increasing deficits of the government annual budgets couple with the mounting of public debts in the past decade, have posed a heavy burden to the public sector finance (Juhari,1992). • Thus, the public sector has been urged to find ways and means to commercialise their services. • Malaysia still studying and analysing the feasibility for migration to accrual accounting.

6. Advantages of accrual accounting • Provide the true financial position of the public sector agencies. • Has been accepted as a standard to measure performance in ways similar to those in the private sector. • The presentation of both an operating statement and a statement of financial statement of financial position will allow the calculation of performance indicators. • Will allow for a distinction to be made between capital and operating expenditure • Provides a more comprehensive accountability framework than the cash based system.

7. Disadvantages of accrual accounting • More subjectivity into the accounts and this could distort accounting information produces. • The relevance of accrual concept is rather limited during the period of rising prices • The cost of switching to an accrual accounting system will be high as it incurs more administrative and accounting costs. • Can lead to certain kind of manipulations, particularly at the end of a fiscal year.

8. Challenges in implementing accrual accounting • Accrual concept is not suitable to support the main objectives of accounting in the public sector that are accounting for stewardship and accounting for performance. • Iterative changes in the implementation process involve additional works and require development of new skills by departmental finance officer. • The conversion to accrual accounting will require public sector organisations to identify their fixed assets.

9. The future of accrual accounting in Malaysia • The adoption and use of accrual accounting in Malaysia is seen as the corporation and privatisation of major government projects have proven to be successful.

10. Micro Accounting System (MAS) Introduction Objectives Implementation strategies Challenges in implementing MAS

11. Introduction of MAS • Issued on 31 July 1992 under the Public Administration Improvement Circular No.3/92. • Circulars Issued Prior to MAS implementation • Programme Performance and Budgeting System (PPBS) • Client’s Charter • Total Quality Management (TQM)

12. Objectives of MAS • Main objective: to help in strategic planning and optimum utilisation of government resources. • Specifically, it aims at: • Facilitating the collection, processing and preparation of the cost information • Preparing information on cost efficiency and in more flexible manner • Producing reliable cost information for decision making

13. MAS implementation strategies • Implementation Machinery – MAS steering committee that is responsible to plan, supervise and guide the implementation team, and monitor and coordinate MAS implementation. • Training –to train the trainers who form part of the Implementation Team of each ministry or department. • Implementation Approach – start of by identifying direct cost and it depend on the nature of the output produced by each agency. • Follow up • Computerised implementation – introduced in August 1999 to reduce the process of cost collection, calculation and analysis.

14. Challenges in implementing MAS Sudirman, 1995 1. MAS is a new concept or subject • MAS is deducted based on accrual basis of accounting whereas the present government accounting is based on cash basis or modified cash basis. • MAS is departmental based system, which need to be operated mostly by non-accounting staff • MAS involves creating and upgrading the information system for the consumption of resources and output statistics.

15. Challenges in implementing MAS 2. Public sector environment Unique features- • no clear bottom line of the public sector motives unlike in the private sector where profit is a very important motive for them • Most of the government services are monopolistic in nature, thus contributed to lack of competition among the service providers in the market. • There are minimal direct positive consequences or rewards for the department or the public servant who perform their jobs cost-effectively

16. Standard Accounting System for Government agencies (SAGA) Introduction Objectives Operational capabilities of SAGA Operating Accounting System (OAS) Accounting Information System (AIS)

17. Introduction of SAGA • Idea introduce was announced by the Cabinet in September 1994 • This package is specifically design for the Statutory Bodies. • The Public Administration Improvement Circular No.1/96 was issued in 1 February 1996 by the government to encourage the use of computerised accounting systems in the preparation of financial reports.

18. Objectives of SAGA • Main purpose- To ensure that the accounts of the statutory Bodies are being update daily and submitted in time for auditing purposes. • Outline in the issued Circular, which are: • To provide for the maintenance of a complete and up-to-date set of accounts. • To allow for the daily closing of accounts • To improve the Financial Management System • To provide for the timely submission of Pre-Audit Financial Reports

19. Operational capabilities of SAGA • Two major components of SAGA

20. Operational Accounting System (OAS) • Eleven Modules of OAS • General Ledger • Accounts Payable • Accounts Receivable • Assets Management • Investments • Inventory • Order Entry • Purchase Orders • Loans • Payroll • Bank Reconciliation

21. Accounting Information System (AIS) • Provides information to the management for monitoring, evaluating and taking the necessary steps to improve the Financial Performance of an organisations. • Two options in AIS; namely: • Financial Management • Annual Financial Statement Preparation

22. Other developments in government accounting systems Branch Accounting System (BAS) Payroll System (PAY) Central Integrated System (CIS) Investment and Loan System (ILS) Subsidiary Ledger Accounting System (SLAS) Financial Management Accounting System (FMAS) Communication Network System (AGNET)