Reformation Budgeting System In Malaysia Accounting Essay

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There are several types of budgeting system and techniques being implemented by Malaysian Government since 1960s. Budgeting system is referred to the methods or the techniques of how a budget was prepared and presented. Different budgeting system will apply different approaches for planning, controlling and evaluation roles of budgeting. The budgeting systems that being performed are Line Budgeting System, Program and Performance Budgeting System (PPBS), Modified Budgeting System (MBS), and Outcome Based Budgeting (OBB).

Budgetary reform focused on greater accountability and financial discipline among the various government agencies entrusted to carry out the socioeconomic development plans for the country. In addition to greater public sector accountability and improved budgetary system performance, the government undertook a number of additional reforms including improved financial compliance, quality management, productivity, efficiency in governmental operations, and management of national development efforts.

Budget reform had been on the Malaysian government agenda for over two decades. Malaysia's budget reform efforts have been closely linked with the efforts at nation building and global competitiveness associated with Vision 2020 which is a program aimed at making Malaysia a fully developed country by the year 2020.

Reformation Budgeting System in Malaysia

Malaysia budgeting system reforms were initiated in the 1960s as part of an effort by the government to strategically develop the country. The past two decades have witnessed a growing interest in performance management and budgeting reforms, in response to louder public demands for government accountability in industrial countries. These reforms are intended to transform public budgeting systems from control of inputs to a focus on outputs or outcomes, in the interest of improving operational efficiency and promoting results-oriented accountability. These experiences have significant relevance for public sector reforms in developing countries.

Line item Budgeting System

Government Malaysia was started to use Line Item Budgeting System after independent. Malaysia adopted Line Item Budgeting System start from year 1960 until 1968. Line Item Budgeting System is a simply list that itemizes every item in a budget. Line Item Budgeting System is primarily a tool for controlling expenditures. The purpose of Line Item Budgeting System is to make the budget a tool for financial compliance. This method is relatively easy to use and understand.

Line Item Budgeting System is a traditional method that prepares a budget by using the previous year's budget as base. Line Item Budgeting System emphasizes inputs and provides information on how much is spent and how it is spent rather than what for it is spent. It does not link inputs with outputs, and hence say nothing about how efficiently resources are used. The major criticism of Line Item Budgeting System is it does not deal with key issues of government objectives, their links to the budget, the services to be delivered by the government. This budgeting system does not provide the information related to the functions and activities of a program and department.

Because this system is not capable enough to justify the current financial situation and to achieve budget objectives, Line Item Budgeting System has been replaced since 1969 with a new budgeting system, Program and Performance Budgeting System (PPBS).

Program and Performance Budgeting System (PPBS)

Program and Performance Budgeting System (PPBS) was first introduced and adopted in Malaysia in 1969. The evolution of Program and Performance Budgeting System in Malaysia from its beginning in 1969, through the in-depth implementation phase which began in 1972, to the present day. It outlines the system in the Ministry of Health, where PPBS has been extensively developed and comments on the systems established in other in-depth ministries, in several of which little appears to have been achieved. In 1981 all other agencies were asked to adopt PPB in their budget submissions.

Malaysia implemented the PPBS in 1969 through to 1990. The focus of the budgetary process was on line items although information on the performance of program was available. Budget process was used more as a tool for funds disbursement rather than a strategic management tool.

In 1990, a new budget system was introduced in order to overcome the weakness of PPBS. The system has been adopted after PPBS is Modified Budget System (MBS).

Modified Budget System (MBS)

The Malaysian government introduced a Modified Budget System (MBS) for the 1990 annual operating budget preparation with the issuance of Treasury Circular No.11 of 1988. The Modified Budgeting System also known as the Malaysia Budgeting System. The Modified Budgeting System is a system of management designed to establish logical linkages on the relationship between inputs, outputs and impacts. MBS was implemented with the explicit objectives of trying to improve resources allocation by bringing about more efficient management of government programs by way of improved accountability.

MBS was first introduced in three (3) pilot Ministries, these being the Ministry of Health, Ministry of Work and Ministry of Social Welfare (Malaysia Treasury 1988). The MBS was implemented in other government organizations in 1992. The MBS was developed to counteract weaknesses as in the Program and Performance Budgeting System (PPBS), which has been in place 1969 and also to introduce several reform mechanisms to enhance results based accountability. The main principals and objectives of the MBS for improving the financial management of government organizations are to improve and modernize the process of resource allocation on the basis of performance, to delegate greater authority over the management to a lower level of management as practicable, and to introduce a result oriented and cost effective management.

Government Malaysian was implemented MBS from year 1990 till now. But MBS still have some problem that can be improve to be better. The problems of MBS are:

Over-emphasis on the technical aspects and neglect of human variables.

Little attention to develop understanding, receptivity and capability in using data.

Inadequate support from top level administrators.

Lack of trained staff.

Inadequate support from the Treasury itself.

Trained staff being promoted to unrelated jobs.

To solve the problem of MBS, Government Malaysian was planning to implement a new budgeting system. Government Malaysian hope that the new budgeting system, Outcome Based Budgeting (OOB) can adopted within the next three years in public sector.

Outcome Based Budgeting (OOB)

The Second Finance Minister, Datuk Seri Ahmad Husni Hanadzlah said that there have five (5) selected ministries will be use Outcome Based Budgeting (OBB) as test-bedded in 2012 and OOB will be rolled out across all the ministries start from 2013 onward. The first five selected ministries is finance, human resources and public works, while the other two ministries will be identified later.

Some of the countries have been successfully implemented OOB, like New Zealand and Canada. Malaysian Prime Minister, Datuk Seri Najib Tun Razak was still debatable the idea to implement OOB in the 2010 budget. The purpose is to ensure the concept of value for money, which is efficient, effective and economic, for the budget expenditure management can be achieve.

OBB is an integrated system that uses goals, mission and objectives to explain why the money is being spent to achieve a specific outcome and it enables policymakers to determine which activities are cost-effective to achieve national priorities. The purpose of implementation of OBB is use to overcome the weaknesses and problem that have been faced when implement MBS.