Financial Budgeting in the Public Sector Research Paper

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Public sector finance is a branch of finance, which looks into the allocation and distribution of government revenues and its fiscal and monetary policies. Public finance has three fundamental attributes: public revenues, public expenditures and public debt.

Public revenue deals with sourcing by government for money to fund its activities through means such as taxation. Public expenditure concerns with the utilization of public revenue, while public debt refers to government borrowings to fund government expenditure deficits.

With this in mind, public sector accounting involves recording of financial transactions within a public sector organization. Key issues will be sources of revenue for the public institution from internal sources, and from the government, allocation of the institutions revenue in a budget and actual use of the funds received. Difference between public sector and private sector accounting is primarily: accounting principles, profit motive, operations decision making and consensus building.

First, accounting principles used in the private sector are quite different to those used in the public sector. Each country sets its own accounting principles through adapting international set standards. Given, the international accounting standards is common for both government and nongovernmental organizations, it is the financial reporting standards differ.

The non-governmental sector financial reporting accounting falls under international financial reporting standards. However, the government sector follows a different set of financial reporting accounting principles: the international public sector accounting standards, which, adapt international financial reporting standards to suit financial accounting for public sector. Accounting items such as accrual basis of accounting and the form of financial accounting statements are different.

Public sector finance is a branch of finance, which looks into the allocation and distribution of government revenues and its fiscal and monetary policies. Public finance has three fundamental attributes: public revenues, public expenditures and public debt.

Public revenue deals with sourcing by government for money to fund its activities through means such as taxation. Public expenditure concerns with the utilization of public revenue, while public debt refers to government borrowings to fund government expenditure deficits.

With this in mind, public sector accounting involves recording of financial transactions within a public sector organization. Key issues will be sources of revenue for the public institution from internal sources, and from the government, allocation of the institutions revenue in a budget and actual use of the funds received (Johnson, Et al, 2008).

Difference between public sector and private sector accounting is mainly: accounting principles, profit motive, operations and consensus building. First, accounting principles used in the private sector are quite different to those used in the public sector. The non-governmental sector accounting falls under regulation of the country’s accounting body, which sets the accounting principles such as accounting principles.

However, the government sector follows a different set of accounting principles: the international public sector accounting standards that adapt international financial reporting standards to suit financial accounting for public sector. Countries use the international public sector accounting standards as their basis for setting their individual country’s public sector accounting standards (Jones, 2011).

Private business, goal is to gain profit while the government sector goals are service delivery to the citizens. Therefore, while private sector firms seek to maximize profitability, public sector organizations seek more funding to achieve their purpose. This poses a challenge in the public sector especially in providing management incentives for productivity.

Given public sector institutions receive greater revenue share from central government when the institutions fully use prior funds allocated, this creates the tendency of managers to increase bureaucracy instead of focusing on fulfilling the goal of the organization through allocation of funds efficiently and effectively.

Management of private firms, with guidance from the board of directors, carry out their duties in line with the company’s operational plans, strategic plans basing on the firm’s mission and vision. Public sector institutions apart from their operational plans, strategic plans, mission and vision; receive additional organizational control from stipulated government regulations, policy and legislation. Thus, the public sector organizations have limitations in their management decisions options, which inhibit the growth of the organization (Jones, 2011).

In the private sector, once management has outlined its course of action; this may require consensus building depending on leadership style such as dictatorial leadership style requires little consensus building for decision making. In the public sector, consensus building operates at an accelerated level, given the highly political nature of the public sector.

It requires all parties to be on board before management undertakes critical management decision; the daunting number of consultations from its board of director, ministry, citizens, employees and third parties of interest. This is a barrier against efficiency and speed of decision making due to the consideration of many diverse factors. The bureaucratic land mine alienates creative and highly motivated staff in charge who may resign citing work frustrations.

In the public sector institutions, the budget drives funds that the institution will receive from the government depending on how the government approves its budget along with internal sources of revenue. Finally, during financial reporting, it accounts for budgeting, receiving, distribution and subsequent use.

Therefore, unlike private sector where financial reports drive the next financial period activities, in the public sector it is the financial budgeting that drives the next financial period activities. Thus the financial budget importance should not face underestimation (Johnson, Et al, 2008).

References

Johnson, W., Joyce, G., & Lee, D. (2008). Public Budgeting Systems (8th Ed.). Sudbury, MA: Jones and Bartlett.

Jones, R. (2011). Public Sector Accounting. New York: SAGE Publications.

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