Issues in public administration MPA 509 “Financial Public Administration” 1

Agenda Preview of Last Lecture What is Finance and Financial Administration? Importance of Public Finance Budget The Budget as an Instrument of Public Policy and Manage The Legal Basis of Budgets What is an Appropriation ? 2

Finance Finance occupies a very important place in budgetary process. It is the oil of the engine of administration. No act of government can be performed without money. Government requires money for everything, it does. 3

Public Finance The government can achieve more if there can be large amount of money. Finance is a life-blood of the government. No government can function without finance just as no motor car can run without petrol. 4

Public finance is, thus, an integral part of administration. Financial administration is concerned with the regulation and distribution of monetary resources. It is an important aspect of public administration and is concerned with all aspects of financial management of the government. 5

In fact, public finance and public administration are inseparable. Every administrative act has its financial implications. The availability of financial resources determines or affects the administrative activity as a whole. 6

The management of finance is, therefore, one of the first and inescapable responsibility of administrators. Financial administration means the management of the finances of a state or of a public authority endowed with taxing and spending powers. 7

Administration and finance are as substance and shadow inseparable. Finance is the fuel of administration. It fuels the administrative engine. All undertakings depend on finance, it is generalized capital. 8

Sound financial management is vital to the success of any enterprise. This is all the more so for any government. Government should spend the money efficiently and eco­nomically. Efficiency and economy are the two watchwords of public finance. 9

Sound finance is at the core of modern government. Financial administration seeks to raise, spend and account for the funds needed for public expenditure. Financial operations comprise planning, determining, ex­ecuting and controlling taxation, borrowing, and public spending. 10

Thus, financial administration is one of the most important facets of public administration and as such it is concerned with all the aspects of financial management of the state. It deals with the principles and practice relating to the proper and efficient administration of the finances of the state. 11

Budget The very word budget was wholly unknown till The word budget originally meant a bag or pocket attached to a person. The term budget is derived from an old English word "Bougettee". It means a leather bag or a pocket or wallet carrying the official papers. 12

The Chancellor of Exchequer in England used to carry his papers in a leather bag to the House of Commons. He would open it to place the papers containing the financial plan before the parliament or the House. 13

Thus, Financial Administration Budget is British in origin and it has been adopted by other countries from there. Thus, Bougettee in due course of time was called as Budget. 14

It contains the whole income and expenditure of the government. Budget in modern times means a financial, scheme or statement or document which contained the estimate of revenue and expenditure for a year. 15

16 The Budget as an Instrument of Public Policy and Management Planning Instrument:: Sets goals, priorities, and strategies and coordinates the government/agency resources into an expenditure plan identifying what program or activities will take place and at what levels. Political Instrument: Involves competing interests attempting to influence a government or agency to form policy favorable to them.

Social Instrument: Provides a vehicle to grant and deny privileges and disburse burdens and benefits to individuals and businesses. Economic Instrument: Offers powerful potential for affecting the growth and productive capacity of the community and its citizens. Legal Instrument: Grants authoritatively the rights, responsibilities, power, and guidelines that regulate the budget format, timing and process. 17

In simple words, Budget means 'annual financial statement' containing the income and expenditure of a year. Budget is a tool of administration. It is the key-stone of financial administration. It is a tool of management. ­ 18

Budget now-a­ days is something more than an estimate of revenue and expenditure. It also includes material finances. Budget constitutes the vital part of governmental machinery. 19

20 The Legal Basis of Budgets The law or collection of laws authorizing expenditures, and/or the incurrence of obligations to make expenditures, to be financed from taxes or levies, as well as the specification of the sources of revenue from which expenditures are to be financed The laws authorizing the expenditures or the incurrence of financial obligations are called appropriations laws

21 What is an Appropriation ? An appropriation is a Parliamentary authorization for the allocation of resources to a Minister for a specified purpose. In the Estimates, Ministers specify how much they need to purchase a particular outputs. The Government requests an appropriation for each class of outputs, capital investment, and other expenses. Appropriations are also made for benefits or other unrequited expenses, borrowing

Appropriations are valid only for the authorized period at the end of which they lapse. The budget therefore is subject to lapse. Through it, the legislature controls the purse, it controls the executive. 22

It is said that government is finance. Finance and administration are inseparable. Budget is the core or heart of management. It is a scheme of what amount shall be spent on what matters 23

It is also a tool of legislative control. Legislature is a fund raising and fund granting authority. Budget has so many social and economic implications. It reflects the social and the economic policies of the government. Budget involves government's major decisions. 24

Such decisions show who pays how much and who gets how much. Budget is an instrument for implementing social and economic programmes of the government. It is the very core of democratic government. It is a powerful instrument of social policy. 25

It is a major instrument for implementing our plans and policies. It is an instrument for short-term and long- term planning. The relationship between planning and budgeting is very close. Budget reflects policy and control. It is the heart of financial management. It is a powerful tool of co-ordination. 26

The budget is a statement of expected revenue and proposed expenditure. It is a frame work of reference for financial administration. In fact, it is the instrument of financial administration. It sets forth the manner in which revenue is to be collected and the expenditure incurred. 27

Principles of Budgeting Publicity Comprehensiveness Clarity Integrity Periodicity 28

The Budgetary Procedure Three important Stages – The preparation of the budget or the act of the planning. – The enactment of the budget or the act of approval. – The execution of the budget or the act of enforcement. 29

Preparation of the Budget Preparation of Preliminary Estimates by the Local Officers Scrutiny of the Estimates by the Heads of the Departments Scrutiny by the Finance Ministry Approval by the Cabinet 30

Execution of the Budget Assessment and Collection Custody of Funds Disbursement of Funds Accounting 31

32 Principles of Sound Financial Administration Accuracy Comprehensiveness Consistency Honesty Judgment Legitimacy Timeliness Transparency

Quote of the Day It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford 33