Professional Documents
Culture Documents
5
Line-Item Budgeting Systems (LIBS)
Characteristics of LIBS:-
• A budget made up of a series of ‘votes’ in which each vote is
a subdivision of budget.
• Focused on items/object of expenditure
• LIBS is more concerned with financial inputs than the output
of its activities.
• LIBS is not concerned with the attainments of policy
objectives and their relationship to costs.
• The presentation of the budget is on organizational basis
(ministry or department) rather than looking at programmes of
expenditures.
• LIBS is more of a control tool.
• LIBS is less concerned with the performance
Advantages
Advantages
Under PPBS, the term programme and performance were used for
operating expenditure only and it includes various components.
The components of programme are functions, objectives,
activities and responsibility centre while the components of
performance are appropriateness, adequacy, effectiveness and
efficiency of the programmes.
The Hallmarks of PPBS in Malaysia:
1. It focuses on overall agency objectives.
2. Emphasizes programmes/activities to meet the objectives.
3. Emphasizes objectives of spending.
4. The main thrust is to evaluate performance and to ensure various
agency/departments attain the objectives. (Evaluation of success)
5. It is management-oriented. Us the principle ‘let managers manage’.
6. Involved Performance Evaluating as follows:-
It is meant to assess the achievement of objectives of
programme/activity of each agency.
It involves a comparison between the actual output for a given
period and the planned or targeted output for the same period
and identifying the causes for any variance between the two.
Performance indicators must be developed to financial and
physical performance of programmes/activities undertaken.
Development of Performance Indicators refers to the selection of
suitable units of measurement which reflect the output of each
activity/programme in either qualitative or quantitative term.
Modified Budgeting Systems (MBS)
Objectives of MBS:-
(i) To improve programme performance in the utilization of funds
(improve policy)
(ii) To improve on the distribution and allotment of funds according to
priorities set
(iii) To upgrade on accountability especially amongst lower officers.
(Control Officers – Top Government Officials – manage the fund-
distribute to the particular department)
(iv) To improve public sector accountability through Programme
Agreements and Exception Reports – why did we fail to achieve the
target?
(v) Prudent use of resources without waste, fraud and abuse of power.
(vi) Flexibility in management resources – provide freedom /latitude for
the programme manager to adjust the allocation given
(vii) More generalized approach rather than a stricter approach to control
the expenditure.
(viii) Evaluate the performance of programmes and take corrective action
to overcome the problems identified. – remedial action
Elements of MBS
1. Expenditure Limit / Target
- Limit or ceiling imposed on an agency in the implementation of
expenditure. The ceiling will be decided upon by both the Treasury and
Agency
-For example: if the expenditure limit is RM30million for an agency for a
particular financial year, the agency should not exceed the limit without
due cause.
- Comprises:-
a) Existing Policy - Refers to programmes that have already been
approved by Law, the Cabinet, the Ministry, the Treasury or any other
authority and are still being implemented in the current year and would
continue to be implemented in the following year. Expenditure Target /
Limit is set annually for the existing policy on the assumption that the
scope of the programme would not change or increase or decrease from
the previous level.
b) New Policy – refers to programmes planned to be implemented in the
next budget period. They are also extension or enlargement of existing
policy. (Add up to existing policy, introduction of new courses,
establishment of new departments or units)
c) One-Off – refers to the unavoidable extraordinary, non-annual or non-
recurrent expenditure exceeding the threshold. It is considered as one-
time purchase. (E.g. CHOGM, NAM, ASIAN Games,etc)
2. Programme Agreement
-The most vital element of MBS
-An agreement between the Treasury and the agency on the desired
performance on the part of the agency for a particular financial year. Agency /
Programmes should seek to achieve the targets sets in the programme
agreement.
3. Exemption Report
-A report to be submitted by the agency / programme in the event that targets
set in the programme agreement are not achieved. Reasons should be given
as to why targets were not achived. Thus, they must ask for exemption from
having to comply by agreement. (Clarify why unable to achieve the target)
4. Programme Evaluation
-An evaluation of the programmes to determine the extent to which targets
have been achieved.
-A schedule of programme to be evaluated and the issues to be addressed
must be included in the Programme Agreement.
-Each programme should be evaluated once in 5 year.
-Criterion of effectiveness – objective orientation
-Criterion of efficiency – cost optimization – cost effectiveness
5. The Expenditure Limit set by the Federal Treasury for the
existing policy enables the Agency to set priorities among
programmes and encourage prudent management of public funds.
6. The generalized approach to expenditure control adopted in MBS
provide the Manager some leeway or latitude in adjusting the
allocation provided by Parliament according to the needs of
situation.
7. The Exemption Report would be a good feedback mechanism for
ensuring public accountability if the Treasury seriously reviewed
the Reports submitted by the Agencies.
A More Generalised Approach to Expenditure Control
This approach emphasizes on two main element:-
1)Provision of greater flexibility/authority to managers
throughout an organization and particularly to the line
management level. The flexibility/authority usually relates to
decision regarding how a given amount of resources are to be
deployed.
2)Stricter control over aggregate resources whereby
supplementary allocations are rarely provided or even
considered. Breaches of aggregate control are dealt with swiftly
and effectively.
The above elements are based on two principles of MBS namely
“Devolution of Authority’ and ‘Accountability to Match
Authority”.
BENEFITS OF MBS
Line-Management Level:-
•To improve motivation among line managers through increasing
awareness and understanding of top management priorities through
programme agreement
•Greater flexibility in the deployment of resources within aggregate
constraints
•To enable budget preparation at the line-management level to take place
at the same time as the preparation of work plans, that is two or three
months before the beginning of the year and thereby make budgeting at
this level a more meaningful exercise
•To enable the financial plans regarding input, output and impact to be
used as a management tool
•To enable better integration of decision-making of financial and
programme policy
BENEFITS OF MBS
Others:-
1.Rational allocation of resources to government programmes – it will be
achieved by imposing fiscal limits upon agencies and by forging a link between
inputs and outputs. Here, discipline and rationality are to be imported into the
budget process by explicitly quantifying a binding expenditure limit for each
agency.
Others:-
4.MBS seeks to reorientate the focus of accountability on issues of programme
efficiency and effectiveness – MBS seeks to measure performance against pre
determined output targets.
6. It will bring some certainty to the final allocation in the hope of drawing top
management into the budget process. Expenditure target seeks to make more
certain what a departmental budget would be and should draw top
management back to the budget arena.
CRITICAL EVALUATION OF MBS
-ZBBS later spread to many states and local jurisdictions and was
adopted by the Federal Government when Carter become the President
in 1977.
-It continues in many states and local government in the US but has
been largely discarded in the Federal Services. Nevertheless, the
requirement of report submission by various agencies must still use
ZBB format.
The Format of ZBBS