TOPIC 2

GOVERNMENT STRUCTURE AND THE LAW FRAMEWORK IN PUBLIC SECTOR ACCOUNTING

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TOPIC OUTLINES
Introduction Definition of Terminology Structure and administration of Malaysian Government Federal State Local The roles and powers of YDP Agung, Ruler Council, Executive, Legislative and Judiciary Law framework and accounting standards Legal provision Federal Constitution, 1957 Financial Procedure Act, 1957 Treasury Instructions Local Government Act, 1976 Statutory Bodies Act 1980 Audit Act 1957 and others Accounting Standard pronouncement Government Accounting Standard MASB IAS IFAC GASB ISA and others Reporting Objectives
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Introduction
Malaysian is a country that practiced democracy system and federalism concept Government of the people, by the people and for the people Headed by the YDPA with limited ruling power as the legislative implement the executive power lead by prime minister Concept of separation of power which are ruling by Executive, Legislative and judiciary.
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Definition of Terminology
Legal Provisions Refers to the any laws that passed by the legislative authority Including Constitution and Act, enactment, ordinance Regulations
Any rules that approved by the administrative/ministries Including TI, TC, etc.

Standards
Any rules that proposed and approved by the regulated professional bodies Including accounting standard (FRS, MASB, FRS), auditing standard, etc.

Statutory Bodies any organization bodies with any names that are form under Federal Law requirements and also the organizations that form Public Authorities or Government Agencies excluding the public authorities or organization that are registered under Company Act 1965 (Section 2, SBA, 1980).
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Definition of Terminology .. cont

Federalism
Refers to two level of government administration that is federal/central government and state government and in each must have separate power and freedom to manage its own level without interference.

Separation of power
Refers to the power of YDPA as a head of the country will exercise by the three bodies namely legislative, executives and judiciary.

Local Government
Refers to any organization that Formed under Local Govt. Act 1976
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Structure and administration of Malaysian Government

Federal Government
RULERS COUNCIL EXECUTIVE COMMISSION PARLIAMENT CABINET

YDPA

LEGISLATION

JUDICIARY AUDITOR GENERAL

JUDGES

HOUSE OF REPRESENTATIVES

SENATE

MINISTRIES

COURT

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Power of FG
Federal list covers the areas of:
External affairs, Defense Internal security Civil and criminal law Citizenship Finance Commerce and industries Shipping Communication Health and labour
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Structure and administration of Malaysian Government

State government
Ruler/Sultan

LEGISLATIVE COMMISSION DUN

EXECUTIVE

High Court

EXCO

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Power of SG
States List covers areas of:
Land Agriculture Forestry Local government Muslim law Several others

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Structure and administration of Malaysian Government

Local Government
Consist of City Hall, City Council, Municipal Council and District Council

CITY HALL
Directly under the Federal

City Council
State Administrative Centre >100,000 Population >RM80 Million yearly yield Have financial institutions

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Local Government ..cont

Municipal Council
Town Centre >100,000 population >RM20 Million yearly yield Administration centre

District Council
Rural based

<100,000 scattered population <RM5 M yearly yield

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Local Government ..cont

Activities and Function Main activities of LG
Cleanliness Health development control and development

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The roles and powers of main institution

YDP Agung Constitution (Article 20(2), the executive powers of YDPA has power in:
Appointment of PM Not to consent to the dissolution of Parliament Request for a meeting of the Rulers Council

Roles and privileges

The supreme head of state Acts on the advice of Parliament and PM except as above by his won discretion
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Power of YDP Agung .. cont

Given the right to appoint senators on the advice of PM All Acts passed by two main houses of Parliament will be examined before made into law Act as head of Judicial Authority and has right to appoint Chief Justice, Federal and High Court judges as per Federal Constitution and advised of PM Given privilege of pardoning wrongdoers and civil offence committed in Federal Territories and override sentences passed out by Military Court
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Power of YDP Agung .. cont

Any proceeding against YDPA be brought to a special court under Sec. 182(2) FC. The highest commander of armed forces in the country Head of religion in the states which do not have Sultan Has the power to override and pardon offences any sentences passed out by Syariah Court Highest honour and privilege of giving awards, order of politeness and others Any proceeding against YDPA be brought to a special court under Sec. 182(2) FC. The highest commander of armed forces in the country Head of religion in the states which do not have Sultan Has the power to override and pardon offences any sentences passed out by Syariah Court Highest honour and privilege of giving awards, order of politeness and others

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The roles and powers of main institution

Ruler Council
Setup with the formation of the Federaion of Malaya in 1948 Based on the Malay struggle against the Malayan Union Main objective is the development of the country and the people and protect the interest and status of rulers Represent by Rulers/Sultan of the nine states and Yang DiPertua Negeri(Gavenor) of Malacca, Penang, Sabah and Sarawak
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The roles and powers of main institution

Role of Council of Rulers
Tied to interests of the Malay Rulers and religion Administrative affairs of the country Article 38[2] FC stated:
Selection of YDPA and his Deputy Approve of disapprove any law and gives advice on whatever appointment that requires approval or consultations of the Council under FC Appoints members of the Special Court Section 1 Article 182 Grants pardon and postpones sentences under Section 12 Article 42 Consider matters relating to national policies eg: amendments to the immigration policy etc.
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The roles and powers of main institution

LEGISLATIVE POWER (Art. 44 FC)

legislative power for federal govt. is under Parliament which consist of YDPA and 2 council (Senate and House of Representative)
legislative power for state govt. is under State Legislative Assembly power to make laws or to amend existing laws. to levy taxes or to change existing taxes

to sanction expenditure of public money

to approve budget
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Legislative .. cont
The Ninth Schedule of the FC stated: Legislative power is shared between Federal and State Government Systematically distributes it in a Federal List, State List and a Concurrent List Federal list covers the areas of: External affairs, Defense Internal security Civil and criminal law Citizenship Finance Commerce and industries Shipping Communication Health and labour
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Legislative .. cont
States List covers areas of:
Land Agriculture Forestry Local government Muslim law Several others

Concurrent List covers areas of: Governed by both Federal and State Government
Social welfare Scholarship Wildlife protection Town and country planning Any disputes, Federal law takes priority
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The roles and powers of main institution ..cont

Power of Executive (Art. 39-40 FC)

Power to govern the country

In Federal the power is in the hand of YDPA In State the power is in the hand of The Ruler Both delegate their power to cabinet/exco Power to formulate policies

Policies implemented by govt. administrative agencies.

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The roles and powers of main institution .. cont

Judicial Power (Art.121-130 FC)

power to hear and determine whether a person has committed a crime and the appropriate sentence
interpret the legality of any legislative and executive acts Head of Judiciary is the Lord President of Federal Court the constitution gives Judicial power exclusively to federal court, court of appeal & the 2 high court judges.
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Law framework and accounting standards

Government deals with a very large sum of money and a complex structure of operation They are only a steward not the owner There for, the need the system that enable them to control, monitor, and provides internal and external assurance to their stakeholders. This can achieve through rules and regulation
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The Purpose of Rules and Regulation in PSFM

LEGALITY
Meets the legal requirement

CONTROL TOOLS
All resources and expenditures (money and property)

PROTECTION
Avoid from misused, fraud, waste, divertion, etc

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Needs of rules & regulation

Diverse of government objectives Large amount of annual expenditure at all levels to ensure accountability of public money to take care of public interest to ensure objectives are achieved

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Hierarchy of Legal Provisions, regulations and standards

Federal Constitution, 1957 The Acts ((FPA, 1957, AA, 1957, LGA, 1976, SBA, 1980, FRA, 1997) The Regulations (TI, TC,TCL) Accounting Standard (FRS, MASB, PPK, ISA, IAS, GASB, IPSAS)

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Relationship between Constitution, Act and Financial Regulation

Federal Constitution is too brief. (mandatory and have to be complied) The other related Acts (FPA, AA, LGA, etc) are made to give more detailed interpretation and explanation of the sprit of FC (mandatory and have to be complied) Treasury Instructions gives even more detailed explanation regarding the public finance as general (mandatory) Treasury Circulars and Treasury Circular letters are detail explanations regarding a certain matter for day to day operation in a particular year (mandatory) Federal Constitution does not dictate everything in detail. (mandatory and have to be complied)
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Legal provision
Federal Constitutions, 1957 In Malaysia the constitution is known as Federal Constitution and becomes the basis in making new law. All other laws must be consistent with the constitution The supreme source of legal and the most important All the other law and regulation must be consistence with the FC Provides a basic and important requirement for FG financial aspect (Part VII) (Article 96 112)
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Federal Constitutions, 1957

Main financial requirement stated in FC:
Procedure to collect revenues (Article 96) Accounting requirement (97) Financial reporting and budgeting (99) Withdrawal of the public money (98,100, 101,102, 103, 104) Auditing (105, 106,107) Responsibilities to state government (108,109, 110) Power to make borrowing (111, 112)

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FC .. cont
Summary Flow of Financial requirement in FC
Make law to collect the Revenues (96)

Create CF To Record Revenues (97) Proposed budget to withdrawal the money from CF (98, 100, 101,102, 103, 104)

Prepared the annual financial statement for CF (99) Audit the annual financial statement (105, 106, 107) Approved by the legislative and published the FS
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FC ..cont
Others requirement
Grants for States (109)
Federal shall make to each state a grant, capitation grant State Road Grant for maintenance of state roads Parliament may vary rate of capitation grant, but if reduce, it should not be less than 90% of the previous years Federal shall create State Reserve Fund and make grant for State development purpose

Assignment of Taxes and Fees to the States (110)

Each state will receive portion of taxes collected within the states Each state will receive 10% of export duties of mineral produced by states
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FPA, 1957
Specific act that interpret and explain the financial requirement stated in FC Provides guidance for; Control and management of public finance for Malaysia Provides a financial and accounting procedure for collection, custody and payment of public monies and procedure for purchase, custody and disposal of public properties Provides authority for the investment of money standing in the consolidated funds To enforce provisions of the Federal Constitution relating to finance
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FPA, 1957 ..cont

Main content of FPA
Interpretation of Terms (Part I: Section 3 ) - Duties of Accounting Officers (Part II: Section 4) - Control and Management of Public Finance (Part 3: Section 6- 21) - State Financial & Accounting procedure

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FPA, 1957 ..cont

Section 3 Interpretation of Terms
Accounting officer Bank Consolidated Fund Enactment Financial authority in relation with federal State financial authority Financial year Legislature Menteri Besar or chief Minister Public money Public service of Federation Public stores State accounting officer
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FPA, 1957 ..cont

Control and Management of Public Finance
The Federal and state keep separate Consolidated Funds and are managed differently Federal Consolidated Fund is managed by the Federal Minister of Finance At State level, it is managed by the State Financial authority

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FPA, 1957 ..cont

Consolidated Fund Account
Consolidated Revenue account to keep all money except loans and trusts Consolidated Loan Account to keep all moneys received by way of loan Consolidated Trust Account to keep all money received subject to a trust and to be applied in accordance with the terms of the trust

Contingencies Fund -Created by Article 103 of the Federal Constitution - Money in this fund shall be applied by the Minister to meet urgent and unforeseen need of expenditure for which no other provision exists -Amount used must be replaced by a supply Bill
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FPA, 1957 ..cont

Payment of Money
No money shall be withdrawn from the Consolidated funds except in the manner as provided by this section By warrant approved by Minister to meet for charged expenditure By warrant to meet expenditure appropriated by a Supply Act, or as authorised by Article 102 of the Federal Constitutions Money in Trust accounts only for the purpose of trusts Minister has power to limit or suspend any expenditure authorised Warrant issued for any year shall lapse at the close of one calendar month following the financial year
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 Estimates and Virement

FPA, 1957 ..cont

The estimates are required to show clearly divisions and subdivisions of every purpose of expenditure The estimates should show as nearly as possible the amount expected to be received or spent during the year The estimates of expenditure in respect of any financial year shall show purposes and subdivision of such expenditure Estimates of personal emolument should show approved number of public offices for each purpose of expenditure No addition to public offices (position or alteration of rate of personal emolument under any purpose of expenditure may be made without prior approval of Treasury/Chief Minister Virement or transfer of allocation between subheads within the same head is allowable but with prior approval from Treasury/state financial Authority Supplementary budget should be prepared after all possible virements have been made Restriction no virement from personal emoluments
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FPA, 1957 ..cont

Controlling Officers
Ministers of Finance or the Chief Minister may appoint a Controlling officer in respect of each purpose of expenditure A Controlling Officer is the chief accounting officer for each purpose of expenditure He is to control the authorized estimates for that particular purpose Also for all public money collected, received, held or disbursed, and all public stores received, held and disposed He should secure proper exercise or performance of his duties He is also required to report to the appropriate Service Commission and financial authority every event of possible surcharge arises or occurs under his control
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FPA, 1957 ..cont

Statement of Accounts
- Statement of Consolidated Revenue Account showing purposes and subdivisions of the: amount expected to be received and spent for the year amount actually received and spent during the year -Statement of Consolidated Loan Account showing receipts and expenditure of loan money Receipts and expenditure of Consolidated Trust Account Statements of accounts of funds created by Federal Constitution not included in Consolidated Trust Account Statements of assets and liabilities of the Federal and States showing the manner the assets are invested or held, the purpose of the outstanding liabilities Those statements, after they have been examined and audited by the Auditor General, should be presented to the legislature
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Section 9 of the Audit Act 1957 requires the financial authority of Federal and State at the end of each financial year to prepare:

Local Government Act, 1976

Act that spesifically bound all the LGs in peninsular Malaysia only Provides a detailed about:
Sources of revenues for LG (sec. 39) Accounts and Audit (Part V; sec.53 61)
(For detailed please refer to the LG Act, 1976)

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Audit Act, 1957

In FC, there are 3 articles related with the audit:
Article 105 Appointment & remuneration Article 106 Power and duties Article 107 Reports of AG (Detailed will be discuss in the audit topic)

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Statutory Bodies Act, 1980

An act that provide the requirement for preparation and submission of the statements of accounts for audit of all the statutory bodies incorporated pursuant to the provisions of the Federal Law. Main content:
Interpretation (section 2) Application and construction (Part II; sec. 3-4) Audit of accounts (Part III; sec 5-6) Submission and tabling of accounts and reports (Part IV: sec 7-8) Extension of time limit (Part V; sec 9) Miscellaneous (Part VI; sec.10- 11)

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Financial regulations
Regulations refers to any instruction/guidelines /circulars provides and approved by the department Treasury Instruction

A regulation provided by the treasury for the purpose of day to day operation Explain the procedure regarding the collecting, holds and payment of public money and procedure for purchase, holds and disposes of public stores The content of TI consist of:

Financial Procedure (power and authorise to made the expenditure and procedure for virement and supplementary and excess expenditure) Accounting procedure (collecting, holds and payment of public money and procedure for purchase, holds and disposes of public stores) Auditing procedure (Audit, Loss and write-off)
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Financial regulations ..cont

Treasury Circulars
Circulars provided by the treasury to deal with the current financial requirement policy Current and detailed guideline related with the financial aspect like budget format, financial statement etc. Eg. TC no. 5/2004 code of accounts TC no. 15/1994 Reporting format of statutory bodies

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Accounting Standard
Standard published by the accounting body Normally dealt with the reporting format and disclosure requirement Voluntary in-term of applicability, subject to the rules and regulation Normally adopt by the government agencies which have an autonomy power and practice accrual basis accounting. Eg. MASB, FRS
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Accounting Standard ..cont

Adoption of AS must be not contradict with the Rules and regulation.

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Conclusion
This topic provides detailed about: Structure, power and administrative government system Rules and regulation that need to be followed and complied by the government especially when dealt with the public fund.

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Tutorial Questions
1. What is the autonomy power and describes the FIVE (5) areas of autonomy power enjoyed by the state government in Malaysia as prescribed by ninth schedule of Federal Constitution, 1957. 2. Identify five main components of the Malaysian government system and describes the power or roles each of them. 3. Describes the purposes of the treasury circulars no. 5, 2004 and no. 2, 2009. 4. Q 1 & 9, Topic 2, pg. 45 and Q 1&7 Topic 3, pg. 59

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