Public Spending: Accountability and Transparency in Malaysia

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Improving accountability and transparency of public spending can improve the financial management in the Malaysian public sector.

Transparency is operating in such a way that is easy for others to see what actions are performed. Transparency implies openness, communication and accountability.

Accountability however is an aspect of governance that has been subject to discussions related to problems in the public sector, non-profit and private sector that denotes answerability, blameworthiness, liability and he expectation of account giving.

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The fall of the previous Malaysian government was due to the low levels of transparency in the government’s financial management and the alarming high levels of corruption and misappropriated funds in the government. Ever since the newly-elected government has taken its place at parliament, they are constantly speaking about how transparency and accountability should be the primary focus of the government. Back when our finance minister, Lim Guan Eng was newly appointed he opined that the public deserves to know the real state of the nation’s financial health. In more recent news, Dr Wan Azizah, the Deputy Prime Minister of Malaysia at the 5th ASEAN Supreme Audit Institutions (ASEANSAI) Summit reiterated that accountability, transparency, integrity and good governance are the norms of the current administration and is their priority agenda. Apart from that, the Prime Minister of Malaysia, Tun Dr. Mahatir has reinforced the current government’s stance on transparency and accountability of the government’s financials. He indicated that the primary reason of the Pakatan Harapan win was because the public was hopeful that the new government would be more responsible in upholding good governance, integrity and get rid of corrupt practices and the abuse of power. From the perspectives, of our country’s leaders, we could see how important transparency and accountability is the public sector be it financial accountability or management accountability.

A research on fiscal transparency and economic outcomes which was conducted based on IMF's Code of Good Practices on Fiscal Transparency has found positive relationships between fiscal transparency and credit rating and income rank respectively (Diagram 1 and Diagram 2) proving the relationship between transparency, accountability and improved financial management.

Full implementation of accrual basis accounting

As we know Malaysia is in efforts of transitioning from cash-based accounting standards to accrual-based accounting standards by the year 2021 and currently practices a modified cash basis accounting which is the hybrid of cash accounting and accrual accounting. The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses. Both the federal and state governments are working towards the same direction in line with the Malaysian Public Sector Accounting Standards (MPSAS) which have been structured primarily based on the IPSAS with minor changes to the standards to fit the Malaysian public sector.

Globally, there is also a trend towards accrual accounting. It can be clearly seen that there is move on the spectrum of accounting practices from the more simpler cash-basis accounting and accrual accounting at the other extreme for the more effective financial management monitoring of activities. Figure 1 and Figure 2 extracted from a PwC survey on accounting and reporting by central governments depicts the extensiveness of accrual accounting in governments today and an outlook on how the adoption of accrual basis accounting will be dominating governments throughout the world. Through the complete implementation of accrual-based accounting in the Malaysian federal and state governments, the public sector will be able to provide quality and realistic information for decision-making in allocating resources. This accounting practice, also holds the government accountable for resources entrusted to them. In the context of Malaysia, resources would refer mostly to taxpayer’s money as tax revenue accounts for one of the country’s largest revenues. Accrual accounting is known to be more superior to cash accounting as it provides an accurate and holistic picture of the government’s financial position and enhance financial management transparency and accountability. Accrual accounting in contrast with cash accounting, will account for acquisition, disposal and management of government assets, liabilities and contingent liabilities which results in transparency and quality information accessible to the public.

Usage of Public Expenditure Tracking Surveys

Researches found that when information on how funds are channelled and utilised are accessible to the public, leakages and gaps in resources can be reduced. This can be illustrated by Public Expenditure Tracking Surveys (PETS) which have been used in many countries to highlight leakages and gaps in the delivery of funds to the public. In a research on the examination of education expenditures in Uganda using PET surveys found that on average only 13 per cent of the actual expenditure allocated for schools reached these schools. However, when this information was disseminated to the public through a campaign, the funds that reached the schools showed a substantial increase up to 90 per cent. The action of publicising the results of the survey had increased incentives for the local government in its oversight function strengthened the need for accountability in the government agencies.

The utilisation of PETS in Uganda have similar objectives as the FMAI in Malaysia. The FMAI or the Financial Management Accountability Index was implemented by the National Audit Department of Malaysia (NAD) to help public organisations and agencies to discharge their financial management accountability through the proper management of financial resources. As defined by the NAD, Financial Management Accountability Index is an objective, quantitative assessment of the financial management compliance of the auditees. The auditees involved are the Federal and State Government Ministries, Departments, Statutory Bodies, Local Authorities and Islamic Religious Councils. The introduction of the index is in line with the emphasis on Quality Management System and Key Performance Indicator envisaged by the Government. The NAD believes that the implementation of the FMAI would be able to create healthy competition among the parties being audited by them to improve their financial management of each body or agency which would further improve the transparency and accountability of the public service delivery. While the PETS only focused on expenditure and the transfer of funds through various levels in the public sector, the FMAI has a more broader view on control indicators in the public sector. Table 1 shows the elements of assessment that falls under the FMAI and their basis of selection.

However, the execution of both these tools and the method of communicating the findings differ vastly. In conducting PETS, the citizens are also involved in providing input through questionnaires and in the monitoring of public service delivery. The findings of the survey on the public expenditure and disseminated heavily through the use of the mass media to ensure a large outreach and a larger awareness on the whereabouts of public funds, exposing misappropriation, corruption and other sort of leakages. In contrast, the execution of the FMAI is by the staff of the National Audit Department involves very little engagement with the public in being a check and balance for the public sector. Although the outcome and findings of the accountability index is made accessible to the public, through reports published by the government. The government doesn’t intend to circulate this information to the mass public to ensure their awareness on the public service delivery. Hence, we believe that the implementation of PETS in Malaysia would create a new meaning for the public sector accountability and improved transparency of the government expenditures. The implementation of PETS in Malaysia would lead to better public sector financial management in the sense that, the legislators would be able to allocate funds to each government body and agency efficiently and any forms of corruption or mishandling of funds can be curbed.

References

  1. https://www.theedgemarkets.com/article/malaysia-committed-implementing-accrual-accounting-standard
  2. https://econ.lse.ac.uk/staff/rburgess/eea/svenssonjeea.pdf
  3. FIGHTING CORRUPTION TO IMPROVE SCHOOLING: EVIDENCE FROM A NEWSPAPER CAMPAIGN IN UGANDA
  4. Ritva Reinikka Jakob Svensson 2005 The impact of transparency and accountability on public service delivery
  5. Chinedu Samuel 2018 http://www.pefa.org/resources
  6. https://www.pwc.com/my/en/assets/publications/towards-new-era-in-govt-accounting-reporting.pdf
  7. PwC Global survey on accounting and reporting by central governments 2nd edition July 2015 https://www.ifac.org/knowledge-gateway/finance-leadership-development/discussion/accrual-accounting-s-role-malaysia
  8. Fiscal Transparency and Economic Outcomes, by Farhan Hameed; IMF Working Paper 05/225; December 1, 2005 http://siteresources.worldbank.org/INTEMPOWERMENT/Resources/486312-1098123240580/tool18.pdf
  9. https://www.researchgate.net/publication/201883028_Financial_Management_Accountability_Index_FMAI_in_Malaysian_Public_Sector_A_Way_Forward
  10. https://www.investopedia.com/ask/answers/09/accrual-accounting.asp
  11. https://www.audit.gov.my/docs/BI/6Publication/3Guidelines/1.AIEngv4.pdf
  12. http://sanitationandwaterforall.org/tool/public-expenditure-tracking-survey-pets/
  13. https://www.theedgemarkets.com/article/govt-projects-scrutinised-better-service-delivery-%E2%80%94-wan-azizah
  14. https://www.theedgemarkets.com/article/dr-m-graft-committed-openly-top-leaders
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Public Spending: Accountability and Transparency in Malaysia. (2022, August 12). Edubirdie. Retrieved December 9, 2024, from https://edubirdie.com/examples/influence-of-accountability-and-transparency-of-public-spending-on-financial-management-in-the-malaysian-public-sector-analytical-essay/
“Public Spending: Accountability and Transparency in Malaysia.” Edubirdie, 12 Aug. 2022, edubirdie.com/examples/influence-of-accountability-and-transparency-of-public-spending-on-financial-management-in-the-malaysian-public-sector-analytical-essay/
Public Spending: Accountability and Transparency in Malaysia. [online]. Available at: <https://edubirdie.com/examples/influence-of-accountability-and-transparency-of-public-spending-on-financial-management-in-the-malaysian-public-sector-analytical-essay/> [Accessed 9 Dec. 2024].
Public Spending: Accountability and Transparency in Malaysia [Internet]. Edubirdie. 2022 Aug 12 [cited 2024 Dec 9]. Available from: https://edubirdie.com/examples/influence-of-accountability-and-transparency-of-public-spending-on-financial-management-in-the-malaysian-public-sector-analytical-essay/
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