CURRENT STATUS OF PUBLIC SECTORACCOUNTING IN MALAYSIA AND THE WAY FORWARD By: Datuk Wan Selamah binti Wan Sulaiman Accountant General of Malaysia 1 OVERVIEW • • • • Introduction Where Are We Now The Way Forward Conclusion 2 INTRODUCTION Components of Public Sector • Federal Government • State Government • Federal Statutory Bodies • State Statutory Bodies • Local Government, Town, District Councils & City Halls • Islamic Council of Malaysia Governing Laws & Regulations 4 . Head of Service Chief Accountant Accountant General’s Authority Accountant General was appointed by the Minister of Finance as the Registrar of the Unclaimed Monies under the Unclaimed Money Act 1965 effective from 1 Jun 1975. Assistant Accountants and Book keepers (Accounting Technician) Registrar for the Unclaimed Monies Accountant General is the chief accountant of the Federal Government and Chief Division of the Federal Treasury with the authority in all accounting matters and procedures relating to Federal and State Government accounts. Treasury Instruction 5 .Accountant General is the Head of Service for Accountants. Where Are We Now? • Current Basis of Accounting • Current Accounting Standards • Financial Statement Performance • Timeliness • Quality • Current Accounting System 6 . Current Basis of Accounting Components Accounting Basis Federal Modified Cash Basis State Modified Cash Basis Local Government Modified Accrual Accounting Statutory Bodies Accrual Accounting Islamic Council of Malaysia Modified Accrual Accounting 7 . Any unpaid accounts and receivables are taken into account for a month after the year end Accrual Accounting • Economic events are recognized when they occur regardless of when cash transaction occur. 8 . Modified Accrual Accounting • Transactions and other events are recognized on accrual basis. A typical example is the expensing of all non-financial assets at the time of purchase. meaning economic events are recognized by matching revenues to expenses at the time in which the transaction occurs rather than when payment is made (or received).Current Basis of Accounting Modified Cash Accounting • Transaction and other events are recognized on a cash basis during the year. but certain classes of assets or liabilities are not recognized. Limitation of Modified Cash Basis • • • • • Simpler but the concept is unfamiliar Ease of manipulation Less comprehensive – cash information only Provides only basic information – commitment information are not available Higher implementation cost – because of customization and limited availability • • • • • No information provided for non financial asset management Limited credibility and accountability (especially by Rating Agency) Limited basis for determining fiscal strategy Limited product/service pricing Limited disincentives for fraud and corruption 9 . Current Accounting Standards Components Accounting Standards Federal International Public Sector Accounting Standard (IPSAS) – Cash Basis State Local Government Statutory Bodies Government Accounting Standard (PPK) International Financial Reporting Standard (IFRS) (Requirement for Securities Commision and Bank Negara*) Private Entity Reporting Standard (PERS) Malaysian Accounting Standards Board (MASB) Islamic Councils Pekeliling Kemajuan Perkhidmatan Awam (PKPA) Bil. 1/2011 10 . Financial Statement Performance Components Submission Date Federal For the past 10 years. the Financial Statement of the Federal Government was submitted to the Auditor General latest by 15 March State The Financial Statements for the 11 States (excluding Sabah & Sarawak) were submitted not later than 31 March every year since 2006 Local Government* Submission of Financial Statement to the Auditor General can and need to be improved Statutory Bodies Data from 10 statutory bodies showed that Financial Statements for the year 2008 and 2009 were submitted before 31 May . Submission Of Federal Government Financial Statement To Auditor General Financial Year Date Of Submission 2001 12 Mac 2002 2002 3 Mac 2003 2003 8 Mac 2004 2004 9 Mac 2005 2005 8 Mac 2006 2006 9 Mac 2007 2007 3 Mac 2008 2008 6 Mac 2009 2009 8 Mac 2010 2010 4 Mac 2011 . 2010 14.2009 23.04.01.2011 Terengganu 15.04.04.04.2011 Selangor 16.04.2007 10.04.01.2011 Kedah 10.2007 31.01.2009 24.2007 22.05.2009 12.06.2011 Perak 18.2007 15.2010 25.Sembilan 13.04.03.03.02.04.04.2008 08.02.2011 Pahang 16.03.2007 28.02.02.Submission Of State Financial Statement To Auditor General STATE 2006 2007 2008 2009 2010 Perlis 17.2008 27.02.2010 27.2010 01.04.04.03.01.02.02.2010 24.02.2007 30.2007 29.2008 03.04.02.02.2007 02.2009 25.2009 09.2008 05.2008 26.2011 P.02.Pinang 9.2010 20.2008 10.2010 23.03.02.2008 09.02.2010 18.02.02.02.03.2008 22.2009 10.2009 18.2011 Johor 03.2009 23.02.2011 .2007 10.03.02.2009 02.2007 08.04.03.2010 21.2011 Melaka 30.02.04.04.03.2011 Kelantan 30.2008 18.02.04.2010 08.2011 N.2008 13.2009 19.2010 10.03.2008 08.2009 25.04.02.08.2007 21. 3.2009 4.2009 30.3.2010 4.3.4.3.2009 25.2.2009 30.4. Institut Penyelidikan Keselamatan Jalanraya Malaysia MIROS 13. Universiti Tun Hussien Onn Malaysia UTHM 21.1.2009 9.2010 6.2010 10.2009 29. Universiti Putra Malaysia Serdang UPMS 30.2009 22. Lembaga Pelabuhan Kuantan PLPKTN 3.2. Perbadanan harta Intelek MYIPO 30.2010 2.2009 14.3. Universiti Darul Iman Malaysia UDM 22.3.2009 18.2010 5.4.4. Agensi Kelayakan Malaysia MQA 17.5. Lembaga Kemajuan Perindustrian Malaysia MIDA 30.3. Universiti Malaysia Terengganu UMT 23.4. 2008 2009 1.2010 8.2.4.2010 .4.2010 9.Submission Of Financial Statement To Auditor General (Sample of 10 Statutory Bodies) No Federal / State Statutory Bodies ABB.2010 7.2010 3.4.2009 9. Lembaga Perindustrian Nanas Malaysia LPNM 15. Revised Federal Government Financial Statement Effective 2010 Description Old Format Revised Format Statement by Secretary General to the Treasury and Accountant General of Malaysia Not available Available Financial Statement • Balance Sheet • Statement of Cash Receipts and Payments • Statement of Memorandum Account • Notes to the Account • Statement of Financial Position • Statement of Financial Performance • Statement of Cash Receipts and Payments • Statement of Memorandum Account • Notes to the Account . 10 Financial Performance Not available Available Statement of Memorandum Memorandum of Asset Taken out Title Public Account Federal Government Financial Statement Presentation Information overload and redundant Precise and understandable .Revised Federal Government Financial Statement Effective 2010 Description Old Format Revised Format Statement of Cash Receipts and Payments Not applicable Comply with new requirement in IPSAS para 1. Research By IPN And ARI On Local Authority Issues 17 . Research Conclusion Harmonization of financial reporting format Harmonization Single set of financial reporting Enhance accountability and transparency Better corporate governance . 1 /2007 Definition of SAGA Standard Accounting Accounting package package approved by available in the market which can be customised Government according to GAAP. State Statutory Bodies. Local Authority and Islamic Council 19 . 1 /2011 Agency and Ministry level Bodies Federal Statutory Bodies. 1 /2007 vs. Scope of work Not mentioned System architecture must be approved by Accountant General’s Department (AGD) Structure of Corporate Governance Not disclosed Disclosed Post Implementation Review Not mentioned (PIR) Implementation of SAGA Federal only Statutory PKPA Bil. 1 /2011 Description PKPA Bil. PKPA Bil.PKPA Bil. Current Accounting Systems Components Accounting System Federal Government Financial and Management Accounting System (GFMAS) State State Government's Standard Computerised Accounting System (SPEKS) Local Government Statutory Bodies Standard Accounting System for Government Agencies (SAGA) Islamic Councils 20 . eSPKB/eTerimaan and GFMAS integrate with one another. eTerimaan ElectronicTerimaan to facilitate and standardize Government’s collection and accounting process in the RCs and accounts reconciliation between RCs and AOs. remuneration control. government loans. investments and preparation of the Public Accounts.Current System and Process Overview – Federal GFMAS Government Financial and Management Accounting System used in AOs and HO for financial planning. . loans and advance payments. unclaimed monies. receipts. eSPKB Electronic Budget Planning and Control System used in RCs for budget and expenditure control and monitoring. budget control and Government accounting combining accounting functions including payments. The Way Forward for Public Sector Accounting STRATEGY REFORM INITIATIVES’s (SRI) LAB (Accrual Accounting) ACTIVITY BASED COSTING (ABC) Public Sector Accounting DATA DICTIONARY FOR PUBLIC SECTOR (DDSA) OUTCOME BASED BUDGETING (OBB) . Outcome Based Budgeting (OBB) Malaysia has embarked on the implementation of Outcome Based Budgeting (OBB). Accrual accounting sets the platform for implementation of Activity Based Costing. Accrual accounting complements OBB as an effective fiscal management tool. Degree of Results Focus Ministry’s programs under MBS Alignment of programs with National Thrust and KRAs Activity Based Costing of resources Results Frame work OBB results Migration towards Accrual Accounting Level of transformation Progress Activity Based Costing Migration from Modified Cash to Accrual Accounting OBB Implementation 2011 2012 2013 2014 2015 2016 2017 Time . Performance now”. • The adoption will put the Malaysian public sector finance practice to be in line with the developed countries. .Accrual Accounting • Migration to accrual accounting has been stipulated as a policy measure in the NEM Report.SRI Lab . • Aspiration of the Malaysian Government of attaining developed nation status with the drive for “People first. Outcome of Accrual Accounting Key Result Area (KRA) of Accrual Accounting Enabling More Efficient and Effective Fiscal Management Information on consumption of resources that supports sustainability of fiscal policies An essential component of the results framework of accountability of programs under Outcome Based Budgeting . Why Accrual Accounting? How Can Accrual Accounting Benefit the Public Sector in Malaysia? • Costing data of output enables more effective evaluation of alternatives to achieve the outcomes – Cost Savings • Information on assets facilitate unlocking of values – Revenue Generation • Assets listing provide a database for infrastructure management leading to better maintenance of assets – Better Service Delivery Accountability • Accounting for consumption of resources • Improve performance and financial management of each agency Sustainability • Facilitate revenue management by each agency • Promotes intergenerational equity of public policies • Completeness of accountability of resources Better Measure of Policies Effect • More effective measure in complimenting results framework of OBB • Better accountability of executive government Organizational Efficiency and Effectiveness • Compliment results framework of OBB • Costing of outputs and measured against outcomes Promote Greater Integrity • Curbs teeming and lading of expenditure • Promotes transparency • Minimizes year-end shopping • Compatibility with developed economies More Efficient and Effective Fiscal Management . Trends in Developing Countries Selected ADB Developing Member Countries: Direction of Government Accounting DMC Current Basis General Direction Fiji Islands Modified cash Accrual Indonesia Modified cash Accrual Marshall Islands Modified cash Accrual Philippines Modified accrual Accrual Sri Lanka Modified cash Accrual Azerbaijan Accrual Accrual China. People’s Republic of Modified accrual Accrual Mongolia Modified accrual Accrual Uzbekistan Accrual Accrual Malaysia is not yet in the radar screen of accrual accounting . programs and activities Accrual accounting together with Activity Based Costing will transform existing data to information and eventually to knowledge where better informed based actions can be taken Data Information Knowledge Action .Migration Path Accrual Accounting Modified Accrual Modified Cash “As-is” Status • Assets are not capitalized • Liabilities are recorded outside the accounting system • System is distributed and disparate • IPSAS cash basis of accounting • Costing information is not integrated Phased Out Approach • Record Accounts Payable (AP) • Record Accounts Receivable (AR) • By 2014 “To-be” in 2015 • Assets and liabilities are accounted for • Centralized system with single database • Fully integrated with OBB and other relevant systems • Full IPSAS compliant on accrual accounting • Costing data on outputs. Activity Based Costing • • • • Activity-Based Costing (ABC) is a method of allocating costs to products and services Used as a tool for planning and control Allows managers to attribute costs to activities and products Costs can be identified and passed on to users only when the product or service uses the activity • • • Identify high overhead costs per unit and finding ways to reduce the costs To facilitate OBB implementation and evaluation Integration of ABC and Accrual Accounting will produce a useful information for decision making . Public Sector Data Dictionary (DDSA) What is DDSA? • • • Data Dictionary is defined as description of data DDSA set the standard for data description to be used by public sector agencies AGD involve in 4 out of 11 Working Groups •Accounting and Finance .member •Project Monitoring .member •Human Resource .member Objectives of DDSA • • • • • Ease of implementation and integration of application systems within and between agencies Facilitate the exchange of data between government agencies Assisting agencies in the development of application systems Allow users to communicate with each other using the same definitions and data format Facilitate communication between the public and private sectors through the use of standard data definitions .Chairman •Data Generic . Evolution (Federal) Before Current Future Modified Cash Basis Modified Cash Basis Branch Accounting System GFMAS 1 GFMAS IPSAS Cash (Revised) IPSAS Accrual IPSAS Cash Accrual basis . Evolution (State) Before Current Future Modified Cash Basis Modified Cash Basis Manual SPEKS SPEKS (Accrual) IPSAS Cash IPSAS Cash IPSAS Accrual Accrual Basis . MASB Future Accrual Basis SAGA IPSAS Accrual . PERS. Other systems SAGA IFRS. MASB IFRS. SAGA. PERS. PKPA 1/2007.Evolution (Local Government. Statutory Bodies) Before Current Modified Accrual Basis Accrual Basis Manual . PKPA 1/2011. CONCLUSION Implementation of Accrual Accounting together with OBB and ABC is hoped to bring Malaysia at par with other developed countries OBB Accrual Accounting ABC At par with Developed Countries Full support . commitment and cooperation from every one of you is very much needed to make this transformation a success . Thank You For Your Attention Together we make this happen…… 35 .