Tuesday, 9, September, 2008

BS321 Contemporary Issues in Public Administration

 Budget presentation formalities in the
government sector in PNG

By Tabian Ambang
Health Management Dept.
September, 09, 2008
T. Ambang @ DWU HM 204 Public Administration
 Learning Objectives

By end of this lecture you should be

able to explain the administrative
formalities of budget presentation in the
government sector in PNG.

T. Ambang @ DWU BS321 Public Administration

Chapter 1 3
 Purpose of Budget

Typically, budgets serve three major

purposes in the government sector:

1. Planning (plan & programs)

2. Coordinating (programs)
3. Controlling (resources)
 Public Sector Financial Management
 Although Government inputs are expressed
in monetary terms, outputs cannot be similarly
expressed in monetary terms as they involve
services delivery rather than profit.

 The main objective of the government financial

management is to control public spending and
controlling Government spending against budget is
the legitimate and fundamental role pf public
sector managers.
Budgets and accounting systems of many
governments are archaic and have benefited little
from modern developments in financial
management concepts and practices which are
commonly available to business sector.

Rather, budgeting and accounting have seen primarily as

macro economic tools driving policy management
which emphasis public sector borrowing and
expenditure as part of the country’s economic
policy settings.
What should government financial management
achieve?
The ultimate goal of financial management is to raise
revenue and services are delivered to the community in the
most efficient and effective manner. This goals can be
achieve by translating Government policies into financial
plans (budget) with achievable targets. An effective
financial management system is absolutely
essential in assessing revenue and expenditure
performance and in monitoring actual results against plans
and targets contained in the financial budget.
 Figure 3. Government Financial Management

ANNUAL BUDGETS
PLANNING
 Revenue raising
 Policy Objectives
Development (infrastructure,
 Resources available
projects)
 Long term/medium-
 Recurrent (programs, faculties)
term plans

Feed back
Reporting Accounting and
financial information
Implementation
Service delivery
ACCOUNTING
 Statutory requirements
 Expenditure control
 Monitoring and
management Clients of Government
Stakeholders
Chapter 1 8
Development planning often focuses solely
on development projects as they are more
likely to receive aid financing and are usually
seen as the major source of economic
growth.
 Public Sector Business Sector
Key Strategies Key Strategies
1. Quality - Quality,
2. Infrastructure - Price,
improvement Focus market,
3. Cost efficiency Logistic,
4. Technical efficiency Market expansion,
5. Allocation efficiency Innovation,
6. Others - Differentiation,
- Others

Outcome Outcome
Improve service -  Profit
delivery  Business growth
Quality output  Market expansion
 Sustainability
Improve living standard and
reduce poverty through
social and economic
development
The layers of the government Systems
in PNG

National Government

Provincial Administration

LLG/District Administration
 Different levels of budgets in the government sector

1. National budget – National Government

__________________________________________________________________________________________________

2. Provincial budget – Provincial Administration

3. Department budget – National Department (e.g.

Health Dept, Defense, Dept.)

– Provincial Departments (19
provinces + NCD),
- Govt. Institutions/Statutory
__________________________________________________________________________________________________

4. District budget - District level

_______________________________________________________________________________________________________________________

5. Program budget - Operational /Unit level

 Budgets in Public Sector Environment

The following represents budget most likely to be

used in the public sector.
Expenditure Budget: Eighty percent of budget in
the public sector is focused on expenditure – cost
of delivering goods and services (program budget).

Revenue budget: It is a budget that projects future

sales. E.g. LLG revenue through licensing fees.
Profit projections by Govt owned enterprises.
Capital Budgets: Infrastructure developments,
e.g. roads, bridges, schools, hospitals,
buildings and major equipment are called
capital expenditures.
 The Budget process

Bottom Up or Top-down budgeting

There are two basic approaches to government
budgeting: bottom up or top down.
Under the bottom up approach, implementing
agencies estimate their expenditure requirements
and these are aggregated and compare to
expected resources.
 The Budget process
Under the top down approach, the estimate resources
available are allocated between departments according to
priorities. Department then prepare their budgets within
their resource allocation. Bottom up
approach budgets makes it easier for managers to make
resource allocation decisions while top down approach
sets a maximum budget limit to guide managers in making
their resources allocation decision.
 Cont..Budget approach
Top down approach
National Government decides funding ceiling for
each government department, provincial
administration, LLG, and statutory institutions.

Bottom up approach:
Each government department, provincial
administration, LLG, and statutory institutions identify
key development priorities and document and
present their budget.
 Funding allocation approach
Top down approach

Advantage:
- Avoid high expenditure request,
- Control of limited resources,
Disadvantage:
- Govt. organisations getting less funds
- Organisations strategy plans will be
sustained in the long g run.
Bottom up approach
Advantages:
- Government organisation will present a realistic
budget forecast with a clear picture of their budget
and operational requirements, and strategic
operational activities.

Disadvantage
- Government organisation will present unclear and
realistic budget forecast.
- Time consuming, need to justify budget
requirements.
Delivery of Goods and Services:

Government organisations use

program budget
 Budget Formalities in the
Government Sector
Budget Focus: Delivery of goods and services
(expenditure budget). Funding allocation is
based on program budget.
Allocation of budget to specific programs at the
province and district level.
National budget National Government

Provincial/ Nat. Depts. Budget Provincial Administration

National Departments &
Institutions

District budget District Administration

Program areas at the district level

Program budgets

Specific program and sub

Program activities, projects, program program areas
 Program Budget

District Health Manager

Disease Env. Family Health

Control Health Services Admi.

Water Supply Family Planning Admin Cost

T. B
Malaria
Waste Disposal Immunization Operations
HIV/ADS
 Budget at the Program Level

Program Level
District Health Budget

Disease Env. Family Health Unit Level

Control Health Health Serv. Admi.
 Budget at the District Level

District Budget Planning Committee

District
District Administrator Budget
District Level

Dist. Health District District

District District
Services Commerce Social Services
Agriculture Education

Program Level
Program Budget
 E.g. of a budget at the Provincial level
Provincial Budget Planning Committee
Provincial Budget

Provincial Administrator

Provincial
Districts District Budgets Provincial Division Budgets
Divisions

Prov. Health Office

District 1
Provincial
District level
District 2 Prov. Education Office
level
District 3 Prov. Planning Office

District 4 Prov. Agri. Office

 Budget at the Provincial Level
To ensure budget documents
Dept. of Finance meets financial standards

To provide political leadership

Prov. Governor
- To prioritize key
Developments areas
Provincial Budget Planning Committee -Ensure budget meets -
province’s development
Policies.
Provincial Administrator
To provide administrative leadership
(Provincial Budget

District Provincial Divisions

Administrator (Principle Advisors)

Districts’ Budgets Provincial Divisions’ Budget

 PNG Govt’s National Budget
Dept. of Finance

20 Provincial National Departments

Admin in PNG

Statutory Bodies
Morobe

Dept. of Health
East New Britain

Dept. of Education

Eastern Highlands
Dept. of Planning

Central
Dept. of Police
 Budget at the National Level

National Parliament

Dept. of Finance

20 Provincial
Administrations National Departments
in PNG
 Budget Allocation

How funds are allocated to the

Provincial Administrations and the
National Departments once the budget
is passed.
 Budget allocation
Budget passed by the
National Parliament National parliament

Budget deliver to Govt.

Department Treasury Departments & institutions

Provincial National Departments

Administrations Government Institutions

Provincial Treasury Office

Department’s
Division of Finance

District Treasury Office

 Budget Allocation
Budget passed by the
National Parliament

Department of Treasury

Provincial District Department

Treasury Treasury Treasury
Offices Offices Offices

Programs Programs Programs

at the at the at the
Provincial District National
Level Level Level
 Government operational schedule is divided into
four quarters in a year.

January April July October

to to to to
March June September December

First Second Third Fourth

quarter quarter quarter quarter
allocation allocation allocation allocation
 Supplementary Budget
Supplementary budget is released to cater for the
period in suspension while waiting for the national
budget to be passed (January – March).

National budget is passed during parliament session

in the beginning of the year (Jan- March).
 Budget Allocation Approaches
Most often funds are allocated according the
nature of the program.

For example

Programs – Allocation based on program budget

allocation on quarterly based, and direct to each
specific program
Projects and Investments – Based on large sum
allocation.
 Cont…Budget Allocation
Budget allocation to the hospitals and
Educational Institutions – based on
formula approach allocation.
 Cont…Budget Allocation
The funding agencies employ one of the
following six types of budget approach when
allocation budget resources to the organisations:

1. Line-item,
2. Program,
3. Lump sum,
4. Formula,
5. Performance or function,
6. Zero-based.
 1. Line-Item
In a line-item budget, each category of activity is
afforded its separate appearance. Line-item budgets
facilitate low levels of detail for both planning and
cost control purposes.

Among the advantages of line-item budgets are ease

of preparation, use as detailed planning vehicle and
utility as a means of comparing performance from
one fiscal period to another fiscal period.
Warner (2004) provides a model to illustrate the simplicity and utility
of the line-item budget:

Line-item Budget
Program: E.g. Dist. Health Services

Activities Last Year This Year Next Year

Materials K K K
Stationeries K K K
Transport K K K
Utilities K K K
Salaries K K K
Total K K K
 2. Program Budget
By its nature, a program budget focuses on the services the
organisation provides to its clients. Therefore, the program
budget more readily relates to overall organizational goals and
objectives. Its attractiveness is further enhanced by its
usefulness when establishing priority for specific division
programs relative to the department.

The program budget development is typically an extension of

the line-item budget development method. Robinson and
Robinson (2004) explain that each program in the program
budget appears separately and is broken out in categories
similar to the line-item budget.
Warner (2004) provides a model to illustrate the simplicity and
utility of a program budget approach:

Program Budget Approach

Activities MCH Health Prom Env. Health

Materials K K K
Stationeries K K K
Transport K K K
Utilities K K K
Salaries K K K
Total K K K
 3. Performance Budget
Performance budgets share characteristics with program
budgets, but performance budgets focus primarily on what
functions perform. Tasks rather than programs are
highlighted.

Among the functions displayed within a performance budget

are technical services (i.e., cataloging, materials processing);
planning (budgeting, automation, employee selection,
interviewing, development; patron contact (circulation desk,
email & telephone contacts).
 Warner (2004) provides this model for the Function Budget:

Performance Approach

Activities District N0. 1 District. 2 District. 3 Total

Staff K K K K
employment
Training K K K K
Research K K K K
Administration K K K K
Clinical K K K K
Total K K K K
 4. Zero-Based Budget
Zero-based budgeting shifts the emphasis from
comparing present performance and/or programs to
the past or to the current activity.

Zero-based budgeting requires that a “clean slate”

be the starting point for budget development
(Zach, 2002)
 5. Formula Budget Approach
When an organisation is funded through the formula
budget, the budget allocation is typically tied to a
numeric value such as full-time-equivalencies
(FTEs), i.e., number of FTEs registered students
multiplied by a fixed dollar amount yields the budget,

For example, funds are allocated according to the

number of students at an educational institution.
Formula: number of students, kina per head.
 6. Lump Sum
Typically, lump sum budgeting involves the allocation
of a “lump sum” of budget resources to the an
organisation.

Lump sum budgets can be perceived as representing

a high-level of flexibility and control within the
organisation itself to use the fund.
 cont…Lump Sum
Once the lump-sum is allocated, the organisation
proceeds with lower-level allocations among planned

activities.

For example, funding for capital, projects and

investment – health centre new building
construction
 Em tasol
na see you in next lecture
Costal Watchers Memorial Light house in
Madang