Financial Management and

Financial Management and Accounting in the Public SectorGary BandyAnna Maria R. PazThe context of managing public moneyThis chapter discusses the following:What is meant by the term public money?The concept of public value and how it relates to financial management.Financial aspects of the New Public Management (NPM).

What is public money?Public money is the money that government gets from taxes and spends on the provision of public servicesPublic money is the money that that might be referred to in popular newspapers as ours.Private sector vs. Public sectorFor the private sector the goal is to make money but for the public sector money is the means to an end.

[Non-profit organizations] have to be able to sustain themselves financially and to do that they may have to compete to some degree with other non-profit firms. But their ultimate goal is not to capture and seize value for themselves, but to give away their capabilities to achieve the largest impact on social conditions that they ca.

(Moore 2003)Public Benefit Entities (PBEs)PBE refers to the generic organizations that public managers work in or with. It captures organizations such as nationalized industries that are managed on a commercial basis but differ from other private sector, for-profit organizations because they are owned by a government and voluntary and charitable organizations, as well as government ministries, hospitals, schools, police forces, local governments, etc. that are commonly thought of as the public sector.Public ManagersPublic managers refer to those who are involved in the executive management of PBEs. As well as the chief executive and line managers the term include the members of the governing body, whether they are elected politicians, appointees or volunteers and private sector managers, if they produce primarily for thegovernment.

Features of PBEs:Their objective is to provide goods and services to various recipients or to develop or implement policy on behalf of governments and not to make a profit;They are always characterized by the absence of defined ownership interests that can be sold, transferred or redeemed;They typically have a wide group of stakeholders to consider (including the public at large);Their revenues are generally derived from taxes or other similar contributions obtained through the exercise of coercive powers; andTheir capital assets are typically acquired and held to deliver services without the intention of earning a return to them.Public servicesThe public sector provides goods and services that are desirable but which, for one reason or another, a market economy cannot supply effectively. There are two types of goods that the public sector provides: public goods and merit goods.Public GoodsPublic goods (and services) are commodities that are non-rivalrous and non-excludable.

Non-rivalrous means that the consumption of the commodity does not reduce the availability to others.

Non-excludable means that no one can be effectively excluded from enjoying the benefits of the commodity.Street lightsNational defenceExamples of public goods

Merit GoodsMerit goods (and services) are commodities that are excludable, but which, for reasons of equity, government decide to provide them. In general, this means that governments will provide the commodities (services) on the basis of need rather than ability (or willingness) to pay.HealthcareEducationExamples of merit goods

MonopoliesAnother way that government intervene in the market is for the management of the monopolies, especially so-called natural monopolies.

Natural monopoly is the type of monopoly that exists as a result of the high fixed or start-up costs of operating a business in a particular industry.

How big is the public sector?What is included and not included?The public sector is huge. It spends almost thirty per cent (30%) of the worlds gross domestic product (GDP).

If organizations are subject to claims by the public that what they produce is in the public interest and have inputs controlled in some way by government, they then they are within the public sector.Where does public money come from?Predominantly public money comes from taxes and duties but governments have other sources. There are services that are provided in return for a fee and there will be income from investments in the form of rents, dividends and interest. There can be income from the sale of assets and a government might also receive income in the form of grants and donations, possibly from overseas governments, aid agencies, charities or faith-based organizations.What is public value?Public value describes the value that an organization contributes to the society. Public value is supposed to provide managers with a notion of how entrepreneurial activity can contribute to the common good.Financial management under New Public Management (NPM)A public sector manager faced with an option to spend some money should ask themselves three questions:is the spending within the rules?Can we afford it?Is it value for money?

7 doctrines of NPMHands-on professional managementExplicit performance standards and measuresFocus on output and resultsDisaggregation and decentralizationIncreased competitionPrivate sector management practicesGreater discipline and parsimony in the use of resourcesThank you!!!