Lecture Outline • Main objectives of Financial Procedure Act 1957 (FPA 1957) • Definition & duties of Controlling and Accounting Officers • Financial Authority & Consolidated Funds of Federal & States • Government & Public Trust Funds: Purposes & Operation • Estimates & Virements • Yearly Statements of Accounts
Objectives of FPA 1957 • Provides guidance for the control & management of public finance for the whole nation; • Provides financial & accounting procedure; • Provides guidelines on the collection, custody & payment of public monies; • Provides procedures for purchase, custody & disposal of public properties;
Objectives of FPA 1957 • provides authority for the investment of money standing in the consolidated funds; • defines and explain in detail the three accounts of the consolidated funds; • to enforce provisions of the Federal Constitution relating to finance.
FPA 1957 • Main sections: • Definition of terms • Consolidated Fund • Financial Procedure for payments, virements, estimates and write-offs • Custody and investment of public funds • Yearly statement of accounts • Financial regulations provided by Yang DiPertuan Agong
Definition of Terms (Section 3) • Financial Authority • Federal Government - refers to the Treasury (MOF) • State Government – refers to State financial authority i.e. principal officer in charge of financial affairs of a state. • Financial Year • Twelve months period ending on 31 Dec every year
Definition of Terms • Public Moneys • means all revenue, loan, trust and other moneys and all bonds, debentures, and other securities whatsoever raised or received by or on account of the Federation or by or on account of a state but does not include Zakat, Fitrah & BaitulMal or similar Muslim revenues. • Public Stores • Chattels or property of or in the possession or under the control of the Federation or of a State
Definition of Terms • Banks • Banks licensed under the Banking and Financial Institutions Act 1989 (BAFIA) or registered under the Cooperative Societies Ordinance.
Accounting Officer • Public Officer who: • is charged with the duty of collecting, receiving or accounting for, or • who in fact collect, receives or account for any public moneys, or • who is charged with the duty of disbursing, or • who does in fact disburse, any public moneys, or • who is charged with the receipt, custody or disposal of, the accounting for, public stores,or • who in fact receives, holds or disposes of public stores.
Accounting Officer • Accounting Officer: • cannot open any official account with any bank without the authority of the Federal Treasury or the State Financial authority for the state, and • shall not overdraw an account & no bank should give an overdraft unless authorised by Treasury.
Duties of Accounting Officers • Section 4: • to keep such books, • to render such accounts as required by the Treasury in matters of financial and accounting procedure.
Controlling Officers • Section 15A : • Minister of Finance or the Chief Minister may appoint a Controlling Officer in respect of each purpose of expenditure; • A Controlling Officer is the chief accounting officer for each purpose of expenditure; • He is to control the authorised estimates for that particular purpose;
Controlling Officers • Also for all public moneys collected, received, held or disbursed, and all public stores received, held and disposed. • He should secure proper exercise or performance of his duties; • He is also required to report to the appropriate Service Commission and financial authority every event of possible surcharge arises or occurs under his control;
Management & Control of Consolidated Funds • Section 6: • The Federal & State shall keep separate Consolidated Funds and are managed differently; • Federal Consolidated Fund is managed by the Federal Minister of Finance; • State Consolidated Fund is managed by the State financial authority.
Consolidated Fund Accounts • Section 7: • 3 main accounts to be maintained by the Federal Government within the Consolidated Funds: • Consolidated Revenue Account • to keep all moneys except loans & trusts. • Consolidated Loan Account • to keep all moneys received by way of loan; • Consolidated Trust Account • to keep all moneys received subject to a trust & to be applied in accordance with the terms of the trust.
Consolidated Revenue Account • Maintained by virtue of Section 7(a) FPA 1957 • Sources : • All revenues and moneys received by the Federal/State government except loans and trusts • Revenues and moneys include tax revenue, non-tax revenue and non-revenue and receipts from Federal Territories • Uses: • Operating expenditure – all supply charges in the annual budget and transfer to other fund such as Development Fund. • Charged expenditure – specify in Article 98
Charged expenditure • Civil List • Royal Allowances Lord President, • Chief Justice and Judges • Auditor General • Speaker of The House of Representatives • President of The Senate • Election Commission • Judicial and Legal Service Commission • Public Services Commission • Education Commission • Police Force Commission • Treasury • Charges on Account of Public Debt • Pensions,Retirement Allowances and Gratuities
Consolidated Trust Account • Maintained by virtue of Section 7(c) FPA 1957 • Sources • All receipts of government and public trust funds • All receipts for specific purposes • Receipts include deposits, trusts and recoveries of loans/advances • Uses – to maintain 6 major trust funds: • Development Fund • Housing Loan Fund • Government Trust Funds • Public trust Funds • Deposits • Accounts Payable
Consolidated Trust Account • Development Fund • Set up under Development Fund Act 1965 • To account for loans for the purpose of development, contributions from Consol. Revenue Account and repayment loan given out from this fund • Housing Loan Fund • Established under the Housing Loan Fund Act 1971 • To provide housing loan facilities to government employees • To account for contribution fro Consol. Revenue AC and Development Fund, proceeds from loans transferred from Loan AC, repayment of housing loan and interest earned
Consolidated Trust Account • Deposits • To account deposits/ monies received by government for a specific purpose under certain law/ contractual agreement • Refundable when the specific purpose has been achieved • Accounts Payable • Represents the amounts owing to supplier of goods and services by the government as at 31 December for which payment were made in January
Consolidated Loan Account • Established under Section 7 FPA 1957 • To account for all receipts from loans and disbursements for outstanding loans and transfer to other loan funds • Source: • Receipts form local and external borrowings
Custody & Investment of Moneys • Section 8 • moneys in the Consolidated Fund should be kept in banks • those moneys are deemed public moneys • those moneys can be invested as deposit in banks; • or in any investment authorised by Trustee Ordinance or Trustee Investment Act for trust funds;
Custody & Investment of Moneys • Section 8 (cont) • for states, they can invest in securities of the Federal Government; • interests received from those investments are accounted in the Consolidated Revenue Account; • except interest on investment of trust funds shall go back to that trust accounts;
Trust Accounts • Section 9 (Public Trust Fund) • Trust accounts are open for proper accounting of moneys in the Consolidated Trust Account; • moneys to be credited to the respective trust accounts: • all moneys appropriated for any trust account; • all moneys received from sale of items purchased using trust money; • all moneys paid by any person for the purpose of trust; • repayment of loan made from trust; • A trust account may be closed after all its terms & purposes have been met.
Government Trust Funds • Section 10 • moneys in the Consolidated Fund may be appropriated for the purpose of trust into each of the funds specified in Second Schedule of the Act for Federal; or the Third Schedule for the States; • the list in Schedule 2 & 3 may be amended, deleted or added by the Federal Legislature or the State Legislative Assembly.
Contingencies Fund • Section 11 : • created by Article 103 of the Federal Constitution; • Sources- Federal Consolidated Fund • Moneys in this fund shall be applied by the Minister to meet urgent & unforeseen need of expenditure for which no other provision exists; • Money not used shall be credited back to FCF (Consol. Trust Fund) • amount used must be replaced by a Supply Act.
State Reserve Fund • Section 12 : • created by Article 109(6) of the Federal Constitution; • Source – Federal Consol. Fund • shall be applied as approved by the Minister after consultation with the National Finance Council; • mainly for making grant to states for purposes of development, or • to supplement state’s revenue or to cover deficits in state’s account.
Payment of Moneys • Section 13 • no money shall be withdrawn from the Consolidated Funds except in the manner as provided by this section; • by warrant approved by Minister to meet for Charged Expenditure; • by warrant to meet expenditure appropriated by a Supply Act, or • as authorised by Article 102 of the Federal Constitution;
Payment of Moneys • Section 13 (cont) • moneys in Trust accounts only for the purpose of trusts. • Minister has power to limit or suspend any expenditure authorised; • Warrant issued for any year shall lapse at the close of one calendar month following the financial year.
Guarantees • Section 14 • no financial guarantee shall be binding on the government unless it is entered into with written authority of Treasury/Federal Government & in accordance with Federal/State law.
Refunds etc., charged on Consolidated Funds • Section 14A • payment of any refund, rebate or drawback from the Consolidated Fund shall be charged on the Consolidated Fund.
Estimates & Virement • Section 15 • Estimates: • are required to show clearly divisions and sub-divisions of every purpose of expenditure; • should show as nearly as possible the amount expected to be received or spent during the year. • of expenditure in respect of any financial year shall show purposes & subdivision of such expenditure;
Estimates & Virement • Section 15 (Cont) • Estimates: • of personal emolument should show approved number of public offices for each purpose of expenditure; • No addition to public offices (position) or alteration of rate of personal emolument under any purpose of expenditure may be made without prior approval of Treasury/Chief Minister;
Estimates & Virement • Section 15 (Cont) • Virement: • or transfer of allocation between subheads within the same head is allowable but with prior approval from Treasury/State Financial Authority. • supplementary budget should be prepared after all possible virements have been made; • Restriction - no virement from personal emoluments.
Yearly statement of accounts • Section 16 • Section 9 of the Audit Act 1957 requires the financial authority of Federal & State at the end of each financial year to prepare: • Statement of Consolidated Revenue Account showing purposes & subdivisions of the: • amount expected to be received & spent for the year; • amount actually received & spent during the year.
Yearly statement of accounts • Section 16 (cont) • Statement of Consolidated Loan Account showing receipts & expenditure of loan moneys; • Receipts & expenditure of Consolidated Trust Account; • Statement of accounts of funds created by Federal Constitution not included in Consolidated Trust Account;
Yearly statement of accounts • Section 16 (cont) • Statements of assets & liabilities of the Federal & States showing: • the manner the assets are invested or held, the purpose of the outstanding liabilities; • Those statements, after they have been examined & audited by the Auditor General, should be presented to the legislature.
Write off • Section 17 • the Minister/Chief Minister shall have the power to write off losses or deficiencies of public moneys; • also to abandon irrecoverable revenues, debts & overpayments.
Surcharge • Section 18 • the appropriate Service Commissions may impose surcharge on any Federal?state employee for the following: • has failed to collect moneys owing to government; • is responsible for any improper payment of public moneys; • is responsible for any deficiencies in public moneys or other properties; • an accounting officer who has failed to keep proper accounts & records of an agency or subdivision of the agency; • is responsible to delay payments.
Surcharge • the Commission may surcharge the said person a sum not exceeding the amount not collected, such payment, deficiency, or loss of the value of the property destroyed, as the case may be. • with regard to not maintaining proper accounts or records, or failure to make payment or delay in payment, the Commission may fix the sum to be surcharged.
Notification of Surcharge • Chairman of Service Commission should notify through the head of department of the person surcharged.
Withdrawal of Surcharge • If satisfactory explanation is received, the Chairman of the Service Commission can withdraw the surcharge and the relevant head of department is informed.
Recovery of Surcharge • amount surcharged can be recovered: • from the salaries of the person surcharged, • from his pension; • in equal monthly installments not exceeding 1/4 of the total monthly salary or pension.
Financial Procedures for Payment, Estimates, Virements and Write-Off • Warrant • Section 3 FPA 1957 • A letter authorising Ministers at the federal level or Mentri Besar or Chief Minister to withdraw money from the Consolidated Funds • Estimates • Section 15 FPA 1957 • estimates on the revenues to be received and expenditure to be spent for the year and the purpose of such expenditure is to be prepared every year.
Financial Regulations by The YDA • The YDA, after consulting with the National Finance Council may provide the following regulations: • Collection, receipts, custody, issue, expenditure, accounting, care and management of the public money; • Record, examination, inspection and departmental check of all receipts and the keeping of necessary books and accounts; • Forms all books and documents required under this Act;
Financial Regulations by The YDA • Purchase, safe custody, issue, sale or other disposal or writing-off, accounting, stock-taking of stores and property of Federal and States; • Preparation of estimates of revenue and expenditure of Federal and States • Authorization of rates and payments of public funds for specific purposes if not provided by law; • Making advances to public officers