MANAGEMENT ACCOUNTING

1
PART 3

• MANAGEMENT ACCOUNTING
• IN
• PUBLIC SECTOR ORGANISATIONS

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Management Accounting

• Core activities of Management Accounting
• Participation in the planning process at both
  strategic and operational levels
• The initiation of and the provision of guidance
  for management decisions
• Contributing to the monitoring and control
  performance through the provision of reports on
  organizational ( and segments) performance
• CIMA, 1996.p.3

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Planning and Control in Public Sector
Organizations(Source J P. p. 21)
Strategic Planning
External Internal
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PLANNING AND CONTROL

• Planning decisions pursue or to reject or to
  undertake or to delay or to modify or abandon etc
  of certain activities within an organization
• Control tasks that ensure the planned
  activities are implemented, followed and the
  ultimate objective are achieved

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Planning and Control

• Principal stages of planning and control
  processes in public sector organizations
• Planning of fundamental aims and objectives
• Operational planning
• Budgeting
• Controlling and measuring
• Reporting, analysis and feedback.

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Planning

• Two types of planning
• Strategic planning
• setting the overall objectives of the
  organization (planning for the fundamental aims
  and objectives)
• Operational planning
• for implementing actions needed to achieve the
  fundamental aims and objectives

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Strategic Planning

• This is the starting point for the management
  process in public sector organizations
• The overall aims and objectives depend very much
  on the nature of the organizations
• For PSO statutory requirements, central
  government intervention, national and local
  political play their part in the formulation
  process of overall aims and objectives being
  external to the main planning and control cycle

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Vision of IIUM

• IIUM aims at becoming a leading international
  centre of educational excellence which
• Revitalizes the intellectual dynamism of Islam
  and the Muslim Ummah
• Integrates Islamic revealed knowledge and values
  in all academic disciplines and educational
  activities
•  
• Seeks to restore a leading and progressive role
  of the Muslim Ummah in all branches of knowledge
  thereby,
• Contributing to the improvement and upgrading of
  the qualities of human life and civilization

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Operational Planning

• Involves determining the strategies and actions
  required for the implementation
• Breaking down the fundamental aims (designed at
  strategic planning stage) into a series of
  targets to be aimed and activities to be pursued
• Thus it provides the framework within which the
  organization will operate in order to achieve its
  fundamental objectives
• May be expressed in of financial or non-financial
  terms

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Mission of IIUM

• To undertake the special and greatly needed task
  of reforming the contemporary muslim mentality
  and integrating Islamic Revealed Knowledge and
  Human Sciences in a positive manner.
• To produce better quality intellectuals,
  professionals and scholars by integrating the
  qualities of faith (iman), knowledge (ilm), and
  good character (akhlaq) to serve as agents of
  comprehensive and balanced progress as well as
  sustainable development in Malaysia and in the
  Muslim world.
• To promote the concept of Islamisation of human
  knowledge in teaching, research, consultancy,
  dissemination of knowledge and the development of
  academic excellence in this university.
• To nurture the quality of holistic excellence
  which is imbued with Islamic moral-spiritual
  values, in the process of learning, teaching,
  research, consultancy, publication,
  administration and student life.

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Operational Planning

• Categories of Planning
• Long-term planning - gt 5 years
• New Economic Policy (DEB)
• Medium-term planning 1-5 years
• e.g. The Eight Malaysia Plan (RMke8)
• (2000 2005)
• Short-term planning up to 1 year
• Annual Budget

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Budgeting

• Provides an essential link between planning and
  control
• Planning role
• express the inputs (labour, materials and other
  resources) needed to achieve the planned
  activities in monetary terms - for the purpose
  of comparison
• Control role
• shows clearly the inputs and other resources that
  have been allocated to individuals or departments
  to permit them undertake the tasks for which they
  are responsible

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Budgeting

• Capital budgeting
• -detailing the planned receipts from any sales
  of assets and planned payments for acquisitions
  of capital assets
• -requires the preparation of capital works
  schedule
• Revenue budgeting
• -covers the first year of the medium term
  planning
• -a firm short-term plan of action
• -determines the achievement of the fundamental
  objectives in the budget year
• -determines the tax charges
• -provides a standard for performance evaluation
• -provides a link between planning and control

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Control

• Control
• comparing the budgeted results with the actual
  results to ensure
• the levels of expenditure are not exceeded and
• the planned activities are achieved
• E.g. Budgetary Control
• Measurement
• recording the expenses actually incurred, and
  where possible the output achieved,
• detecting departures from the budgeted
  expenditure, and
• taking actions to correct any deviation

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Budgetary Control

• Objectives
• to ensure that all expenditure are in line with
  the budgeted amounts, and
• the level of activity envisaged in the budget are
  achieved
• Activities
• the preparation of the annual budget, controlling
  and measuring, and reporting, analyzing and
  feedback
• involves the continuous measuring of actual
  expenditure and outputs and compare this with the
  budgeted position

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Budgetary Control

• Features of good budgetary control
• Collection of data (inputs and outputs) is
  initiated at the lowest level of activity (i.e.
  cost centres/responsibility centres expense,
  profit and investment)
• The structure of responsibility centres
  corresponds with the programme or activity
  structure of the organization
• Information on budget position must be relevant
  and timely as well as sufficient (include causes
  of variances)
• Controllable and non-controllable expenditure can
  be distinguish

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Control through cost accounting

• Cost accounting in expense centres
• Costs are allocated to the appropriate cost
  centres for the purpose of budgetary control
• The information helps to determine unit cost of
  products or services
• Total costs/suitable measure of service provision
• Useful in decision making and control the
  knowledge of different types of costs is
  essential
• E.g. Marginal costs vs fixed costs
• Admitting extra students to a course or treating
  extra patient
• If the centres have identifiable and measureable
  output - allocation of resources should also be
  based on planned level of activity
• length of road cleaned or number of dustbins
  emptied
• Contracting out services to private sectors
• need to consider non financial costs default or
  bankruptcy of contractors
• catering, maintenance, repairs etc

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Control through cost accounting

• Cost accounting in profit and investment centres
• prices can be determined either from the
  estimated cost incurred or market forces
  pressures
• Knowledge on cost behaviour is also important
• peak and off-peak season for transportation
  should be able to allocate costs on seasonal
  basis
• Since output are measurable (saleable), there is
  various types of cost accounting technique
  available for the purpose of control
• e.g ABC,

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Reporting, analysis and feedback

• Notifying the individuals or departments
  responsible for the budget on the deviations as
  they occur
• Relevant, accurate and timely reports of actual
  and budgeted position are essential for the
  management to monitor the performance of the
  respective management levels
• Budgets may need to reviewed or adjusted
  depending on the reasons of the deviations thus
  the operational plans

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Behavioural Considerations

• Congruency
• Incongruency may lead to departmentalism
  within public sector orgamisations
• Departments compete with each other for resources
  as much as possible, with little regard being
  paid to the optimal allocation needed to achieve
  the objectives of the organisations
• Budget slack vs padding vs performance of
  managers
• This may lead to inefficiencies and extravagant
  spending
• straight-jacket less flexible (annuality
  principle)
• This may lead to unnecessary spending expenses
  incurres simply it is in the budget