BACHELOR OF ACCOUNTING WITH

HONOURS

MAY
2020

BBPC
4103

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PUBLIC SECTOR
ACCOUNTING

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NO CONTEX PAGE
T

accountability in public sector.

2 Discussion on the internal control mechanisms in 5 -

4 Summary 14

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Explanation on the definition and importance of public
accountability in public sector.

Accountability is acknowledged as one of the essential principles and

an integral component of good administration. The rules governing
accountability are essential and imperative in the public sectors and
thus, they have to be observed and practiced by all civil servants in
Malaysia. Accountability is significant in the public sector since it
involves public money. If these precepts are not given the due
priority in the management of public services in Malaysia, financial
fraud, wrongful conduct, corruption and abuse of power could easily
occur. The nexus to the principles of accountability has a significant
contribution to the quality of service and image of governmental
authorities and departments. The highest benefits accruing from good
accountability practices are ‘waste reduction’ of both financial and
other resources .The Malaysian government is committed to uphold
public sector accountability, not merely because of its responsibility to
the public, but to maintain public trust and confidence in the
government.

Accountability is defined as a clearly identified employee obligation

for the quality conduct of a specified function and be answerable for

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performance achievement. The public anticipates higher ethical
expectations from the public servants as they represent the
government and work for the benefit of the public. These
expectations extend beyond the demarcations of fiscal accountability
to include respecting the rights and dignity of all the citizens and
stakeholders. Codes of ethics, standards of conduct, and other
internal guidelines for quality work serve as regulatory measures for
channeling and influencing the behaviour of employees in the
provision of services is an accountability practices perspectives that
evaluating this perspectives could reduce the mistrust in the
government’s delivery system.

Various new approaches and transformation programmers were

introduced to improve the operations and accountability of the public
sector in Malaysiana. For example, the government has followed the
global trend by introducing results-based management by adopting the
concept of ‘new public management’ and managerial ism in the early

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1990s.The government has introduced various quality enhancement
programmers for its agencies and departments. The programmers
include the Productivity Improvement Initiatives in 1991, Total Quality
Management in 1992, Client’s Charter in 1993, ISO in
1996, Benchmarking in 1999, Key Performance Indicators (KPIs) for
government-linked companies in 2004, Key Performance Indicators
(KPIs) for all other government agencies in 2005, Treasury Strategic
Results Area and Strategic KPIs in 2007, Auditor General’s Star
Ratings on Financial Management or Accountability Index in 2007,
MAMPU’s Star Rating System on Public Management in 2008,
Government Transformation
programmers in 2009 and Key Performance Indicators (KPIs) for
the ministers and the ministries in 2009.

The objectives of these programmers are premised on providing a

sound foundation for government agencies to deliver quality service
to the public. These plans were initiated to raise the capacity of
government departments to deliver quality management and services
. High administrative costs are incurred to undertake these
programmers and the expenditure continues to increase.

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Accountability in the public sector requires public participation and
cooperation. The public plays a significant role indirectly in notifying
any negligence, misconduct, dereliction of duty or mismanagement by
civil servants in undertaking their responsibilities and duties. A
department known as the Public Complaints Bureau (PCB) was
established to resolve complaints from the public and it represents
one of the responsibilities of the Government to the public to ensure
that they always receive excellent and quality services from
government departments and agencies. Through PCB, the public or
interested parties could forward their complaints or grievances
regarding the quality of the services of government agencies such as
unprofessional conduct, mismanagement, negligence and misuse of
power and seek remedial measures on their complaints from the
relevant agencies.

Another measure launched by the government of Malaysia to improve

accountability of civil servants is the establishment of Malaysian Anti-
Corruption Commission (MACC) in

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2008, formerly known as the Anti-Corruption Agency. This
Commission plays a major role in combating corruptions in order
to guarantee independence and transparency of public sector’s
services. Since then, MACC has revealed and solved many cases
involving corruptions in the public sector of Malaysia.

Accountability is an important element of good government. It is

about the relationship between the State and its citizens, and the
extent to which the State is answerable for its actions. The concept
of accountability refers to the legal and reporting framework,
organizational structure, strategy, procedures, and actions to help
ensure that any organizations that use public money and make
decisions that affect people's lives can be held responsible for their
actions.

Public sector accountability is not led by any one agency but a

range of entities, agencies, and institutions. For example,
accountability for overseeing how public resources are
used involves members of Parliament, public entities, courts and
tribunals, inquiry agencies, and, often, monitoring by civil society

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groups and the media.The principles and concepts important to
public sector accountability include transparency, fairness,
integrity, and trust.

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Discussion on the internal control mechanisms in public sector.

Internal control consists of five interrelated components:

• control environment

• risk assessment

• control activities

The control environment sets the tone of an organization, influencing

the control consciousness of its staff. It is the foundation for all
other components of internal control, providing discipline and
structure. Elements of the control environment are:

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(1) the personal and professional integrity and ethical values of
management and staff, including a supportive attitude toward
internal control at all times throughout the organization;

(2) commitment to
competence; (3)
organizational structure;
(4) human resource policies and practices.

The personal and professional integrity and ethical values of

management and staff The personal and professional integrity and
ethical values of management and staff determine their preferences
and value judgments, which are translated into standards of
behavior. They should exhibit a supportive attitude toward internal
control at all times throughout the organization.
Every person involved in the organization among managers and
employees has to maintain and demonstrate personal and
professional integrity and ethical values and has
to comply with the applicable codes of conduct at all times. For
example, this can include the disclosure of personal financial
interests, outside positions and gifts (e.g. by elected officials and
senior public servants), and reporting conflicts of interest.

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Commitment to competence

Commitment to competence Commitment to competence includes the

level of knowledge and skill needed to help ensure orderly, ethical,
economical, efficient and effective performance, as well as a good
understanding of individual responsibilities with respect
to internal control. Managers and employees are to maintain a level
of competence that allows them to understand the importance of
developing, implementing, and maintaining good internal control and
to perform their duties in order to accomplish the general internal
control objectives and the entity’s mission. Everyone in an
organization is involved in internal control with his own specific
responsibilities.

Organizational structure

The organizational structure of an entity provides:

• assignment of authority and responsibility;

• empowerment and accountability;

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• appropriate lines of reporting.

The organizational structure defines the entity’s key areas of

authority and responsibility. Empowerment and accountability relate to
the manner in which this authority and responsibility are delegated
throughout the organization. There can be no empowerment or
accountability without a form of reporting. Therefore, appropriate lines
of reporting need to be defined. In exceptional circumstances, other
lines of reporting have to be possible in addition to the normal
ones, such as in cases where management is involved in
irregularities.
Human resource policies and practices include hiring and staffing,
orientation, training (formal and on-the-job) and education, evaluating
and counseling, promoting and compensating, and remedial actions.
An important aspect of internal control is personnel. Competent,
trustworthy personnel are necessary to provide effective control.
Therefore, the methods by which persons are hired, trained,
evaluated, compensated, and promoted, are an important part of the
control environment. Hiring and staffing decisions should therefore
include assurance that individuals have the integrity and the proper
education

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and experience to carry out their jobs and that the necessary
formal, on-the-job, and ethics training is provided. Managers and
employees who have a good understanding of internal control and
are willing to take responsibility, are vital to effective internal
control.

Risk assessment is the process of identifying and analyzing

relevant risks to the achievement of the entity’s objectives
and determining the appropriate response. It implies:
(1) risk identification: • related to the objectives of the entity; •
comprehensive; • includes risks due to external and internal factors,
at both the entity and the activity levels;

(2) risk evaluation: • estimating the significance of a risk; •

assessing the likelihood of the risk occurrence;

(3) assessment of the risk appetite of the

organization; (4) development of
responses:
• four types of responses to risk must be considered: transfer,
tolerance, treatment or termination; of these, risk treatment is the
most relevant to these guidelines because effective internal
control is the major mechanism to treat risk;

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• the appropriate controls involved can be either detective or
preventive.

As governmental, economic, industry, regulatory and operating

conditions are in constant change, risk assessment should be an
ongoing iterative process. It implies identifying and analyzing altered
conditions and opportunities and risks (risk assessment cycle) and
modifying internal control to address changing risk.

Risk identification

A strategic approach to risk assessment depends on identifying

risks against key organizational objectives. Risks relevant to
those objectives are then considered and evaluated, resulting in
a small number of key risks. Identifying key risks is not only
important in order to identify the most important areas to which
resources in risk

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assessment should be allocated, but also in order to
allocate responsibility for management of these risks.

Risk evaluation

In order to decide how to handle risk, it is essential not only to

identify in principle that a certain type of risk exists, but also to
evaluate its significance and assess the likelihood of the risk event
occurring. The methodology for analyzing risks can vary, largely
because many risks are difficult to quantify (e.g. reputation risks)
while others lend themselves to a numerical diagnosis (particularly
financial risks). For the former, a much more subjective view is the
only possibility. In this sense, risk evaluation is more of an art than
a science. However, the use of systematic risk rating criteria will
mitigate the subjectivity
of the process by providing a framework for judgments to be made
in a consistent manner

Assessment of the “risk appetite” of the organization

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An important issue in considering response to risk is the
identification of the “risk appetite” of the entity. Risk appetite is the
amount of risk to which the entity is prepared to be exposed
before it judges action to be necessary. Decisions about responses
to risk have to be taken in conjunction with an identification of the
amount of risk that can be tolerated.

Development of responses The result of the actions outlined above

will be a risk profile for the organization. Having developed a risk
profile, the organization can then consider an appropriate response.

Control activities are the policies and procedures established to

address risks and to achieve the entity’s objectives. To be effective,
control activities must be appropriate, function consistently according
to plan throughout the period, and be cost effective, comprehensive,
reasonable and directly relate to the control objectives. Control
activities occur throughout the organization, at all levels and in all
functions. They include a range of detective and preventive control
activities as diverse, for example, as:

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(1) authorization and approval
procedures; (2) verifications;
(3) reconciliations;

(4) reviews of operating performance;

1. Authorization and approval procedures

Authorizing and executing transactions and events are only done by

persons acting within the scope of their authority. Authorization is the
principal means of ensuring that only valid transactions and events
are initiated as intended by management. Authorization procedures,
which should be documented and clearly communicated to managers
and employees, should include the specific conditions and terms
under which authorizations are to be made. Conforming to the terms
of an authorization means that employees act in accordance with
directives and within the limitations established by management or
legislation

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2. Verifications

Transactions and significant events are verified before and after

processing, e.g. when goods are delivered, the number of goods
supplied is verified with the number of goods ordered. Afterwards,
the number of goods invoiced is verified with the number of goods
received. The inventory is verified as well by performing stock-takes.
5. Reconciliations Records are reconciled with the appropriate
documents on a regular basis, e.g. the accounting records relating
to bank accounts are reconciled with the corresponding bank
statements.
3. Reconciliations

Records are reconciled with the appropriate documents on a regular

basis, e.g. the accounting records relating to bank accounts are
reconciled with the corresponding bank statements.
4. Reviews of operating performance

Operating performance is reviewed against a set of standards on a

regular basis, assessing effectiveness and efficiency. If performance
reviews determine that actual

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accomplishments do not meet established objectives or
standards, the processes and activities established to achieve
the objectives should be reviewed to determine if improvements
are needed

Monitoring

Internal control systems should be monitored to assess the quality

of the system’s performance over time. Monitoring is accomplished
through routine activities, separate evaluations or a combination of
both.
(1) Ongoing monitoring

Ongoing monitoring of internal control is built into the normal,

recurring operating activities of an entity. It includes regular
management and supervisory activities, and other actions
personnel take in performing their duties. Ongoing monitoring
activities cover each of the internal control components and
involve action against irregular, unethical, uneconomical, inefficient
and ineffective internal control systems.
(2) Separate evaluations

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The scope and frequency of separate evaluations will depend
primarily on an assessment of risks and the effectiveness of
ongoing monitoring procedures. Specific separate evaluations cover
the evaluation of the effectiveness of the internal control system and
ensure that internal control achieves the desired results based on
predefined methods and procedures. Internal control deficiencies
should be reported to the appropriate level of management.
Monitoring internal control is aimed at ensuring that controls are
operating as intended and that they are modified appropriately for
changes in conditions. Monitoring should also assess whether, in
pursuit of the entity’s mission, the general objectives set out in the
definition of internal control are being achieved. This is accomplished
through ongoing monitoring activities, separate evaluations or a
combination of both, in order to help ensure that internal control
continues to be applied at all levels and across the entity, and that
internal control achieves the desired results. Monitoring the internal
control activities themselves should be clearly distinguished from
reviewing an organization's operations which is an internal control
activity

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Discussion on the recommendations to enhance the quality of
internal control in the effort to improve the public accountability

1. Clarifying what public services citizens get for their money

Currently, there is too little independent challenge and scrutiny of

the link between the funding allocated to public services, how well
they perform, and how sustainably they can run. Responsibilities for
most policy areas are overlapping, with ministers and other political
leaders deciding what services should be provided. Meanwhile, the
Treasury decides how much money to allocate, and local leaders
such as police chiefs and hospital executives determine how a
service is run. This arrangement commonly results in failure to
consider how spending affects performance. To address this, we
propose that government and Parliament should ensure that
transparent, authoritative information and
data underpins the spending review process, which sets departments’
budgets for the next three to five years.

Departments should publish statements at the end of each spending

review that set out any changes to planned spending, and how

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these will be delivered in practice. These should be independently
scrutinized to check the quality of financial and performance models
used by departments to underpin the proposed statements. This
proposal would ensure that decisions are based more clearly on
evidence. It would increase understanding of spending decisions
which otherwise may seem arbitrary, and encourage continuous
improvement in the data that underpins decision making.

2. Ensuring that accountability across public services works in practice

There are many examples of instances when accountability

arrangements have failed to protect the public. Specific
accountability arrangements vary between policy areas, but
sometimes accountability is not built in from the start or is
dismantled over time – in either circumstance, this can cause harm
to specific groups or individuals. However, ministers do not always
take responsibility for ensuring that policies have effective
accountability arrangements built into them: this should change.

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We propose that there should be a systematic way to assess the
effectiveness of accountability arrangements. To do this in the area
of financial management, the Treasury should further develop its
guidance to assess the quality of accounting officer system
statements (the documents prepared by each accounting officer which
outline all the accountability arrangements within the department and
its agencies).To do this more widely, especially in relation to policy,
departments should review other accountabilities on an ongoing basis.
The findings from these reviews should be published and signed off
by the minister responsible. These changes would encourage
government departments
and agencies to ensure that effective accountability arrangements
are put in place and maintained. This would help to ensure that
policies work as intended.

3. Parliamentary scrutiny that promotes learning and improvement

Parliamentary select committees are the ultimate form of scrutiny,

checking the work of government. Yet scrutiny typically comes late
and, too frequently, at the point of political crisis. In doing so, it can

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miss opportunities to drive improvement. This is partly due to lack of
resources, and the limited time that MPs have available. It also
results in few issues being followed up over the medium and long
term. These inherent weaknesses are compounded by the temptation
for MPs to engage in political theatre, rather than in-depth scrutiny.

There are two ways to promote improvements in scrutiny. Select

committees should apply scrutiny earlier – using the new information
generated by our proposed feasibility assessments, system
statements and strengthened ombudsman services, detailed
elsewhere in this report – to get issues onto their agendas before
they escalate. Also, when failure happens despite early intervention,
committees should be able to follow up issues over the long term,
to minimize the risk that similar failure might reoccur. This would
involve scrutinizing the Government’s efforts to implement the
recommendations made by public inquiries. To support these efforts,
we also recommend that the committees are given more staff
resources. These improvements would have several
benefits. Earlier scrutiny would prevent issues from developing into
crises that are solved

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by punishing those perceived to be responsible. This also would
enable committees to act as a forum where those responsible can
learn from their mistakes, and correct their course of action.

4.Strengthening scrutiny of the links between local public services

Government provides a wide range of services on which the public

rely. Many of these services have to be delivered in a joined-up
way, on a routine basis, to benefit the public. This is challenging,
because decisions made in some areas have an impact on others
in ways that are not always well understood. While responsibility for
each service is vested in a particular individual, there is no overall
responsibility for examining the links between services. This creates
accountability gaps, which can be detrimental to performance.

Our recommendation is that the Government should build up local

capacity to track the links between different local public services,
and to examine how these relationships influence the respective
performance of services. To do so, it should review the case for
setting up local Public Accounts Committees (PACs) – initially in
combined mayoral authorities – to serve as a forum to convene the
local leaders responsible for different services to discuss service
performance and the links between services.

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We also need capacity to track the links between different local
public services, and to examine how these influence service
performance. This could take the form of new performance
assessment units, which could aggregate data independently and
share this information as part of a network. These changes would
not absolve local public service leaders of their responsibilities,
especially where services fail. However, they would improve local
leaders’ ability to pre-empt failure by enabling earlier discussions
about how services place pressure on each other. It also would
promote learning about how service leaders can work together
better to mitigate these challenges, and deliver better services to
the public.

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Summary

Accountability is an important component of public sector reform.

Increased accountability can help put an end to waste, inefficient
use of resources and corruption, and can also improve delivery of
services. Information technology (IT) and information systems (IS)
have had a significant impact on the public sector, and there is an
expectation that they will create greater accountability.

The definition of the concept of internal control was summarized.

The legal framework that guides the internal control function was
outlined in detail. The reasons for implementation (objectives) and
components of internal control were treated in detail. Other aspects
on internal control were also discussed. These included
characteristics, operational means, possible problems and role
players in internal control.

Recommend public accountability and when it works, it benefits

everyone. It enables people to know how the Government is doing,
and how to gain redress when things go wrong. It ensures that

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ministers and civil servants are acting in the interests of the people
that they serve. Accountability is a part of good governance, and
can increase the trustworthiness and legitimacy of the state in the
eyes of the public.

(3,300 words)

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