Financial Management in Public Sector

This assignment delves into financial management practices within public sector organizations. It highlights the importance of sound financial management due to the public's investment in these entities for profit generation. The focus is on the need for transparent and accountable practices, as evidenced by public statements and reporting to stakeholders.

MANAGING FINANCE IN
PUBLIC SECTOR

Table of Contents
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
1.1 Financial regulatory requirements in the public sector....................................................1
1.2 Evaluation of accountability in public sector while managing finance............................2
1.3 Publicly available reviews on financial information........................................................2
1.4 Role of Audit in Public Sector..........................................................................................3
LO 2.................................................................................................................................................4
2.1, 2.2 and 2.3.......................................................................................................................4
2.4 Systems required to manage finance in a public sector organisation...............................4
2.5 usefulness of ratio analysis and capital investment appraisal for public sector decision
making and control.................................................................................................................5
LO 3.................................................................................................................................................5
3.1 Stages of the public sector tender process........................................................................5
3.2 Exploration of how public sector tenders are evaluated, negotiated and awarded...........6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Financial regulation is a set of standards subjects to some restrictions, requirements and
guidelines targeted to keep integrity in Financial System. Central government or a government
organisation is responsible for maintaining these regulations. This system influences banking
sector by reducing the borrowing costs and increasing products of finances. Government creates
regulations to maintain finances of public sector. In this report management of finance for public
sector is explained through regulatory requirements, public reviews, tender process, its
negotiation etc. Further, report explains process of managing financial resources through a
presentation and systems needed to manage finance in given sector are also included here.
Moreover, ratio analysis is conducted for decision-making process with capital investment
appraisal.
LO 1
1.1 Financial regulatory requirements in the public sector.
Public sector is an important part of economy of United-Kingdom, financed by local
taxation. It is responsible for employing more than 6 million employees in UK and providing
them with services like pension benefits and other perks. FRC is responsible for governing the
requirements in public sector (Palley, 2013). Financial reporting council was developed by
Accounting Standard board (ASB) and then replaced by Accounting council, whose reporting
authority is Codes and Standards committee.
FRC has divided the framework in three parts for regulation of financial reporting.
Separate standards for different type of entity, reduces framework and follow SORP. However,
transition arrangements are also included in the framework.
International financial reporting framework has been a part of reporting framework in UK
since year 2005. IASB published IFRS for public sector which produces financial accounts for
central government, public bodies or health sector. IFRS has formulated set of standards for
public sector called International Public-Sector Accounting Standards. They are targeted to
improve quality of financial reporting by public sector enterprises.
Another standard set by FRC for managing finances are known as GAAP's i.e. Generally
Accepted Accounting Principles that are to be followed by all companies in United-Kingdom.
They are set of common principles that are to be followed for compilation of their financial
statements. IT ensures minimum level of consistency in company's statements.
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1.2 Evaluation of accountability in public sector while managing finance.
Public sector delivers their services to public using funds raised from them in form of
taxes or fees or penalties. They need to be transparent while managing their accounts, thus, a
framework needs to be established to maintain effective accounting statements with managerial
control and proper management system.
Responsibility regarding management of financial statements rests with Board,
accounting officers, elected members, chief financial officers or executives. Each body is
responsible according to part of public sector they are serving (Barlow and et.al., 2013.). This
framework is tightly regulated in aspects of accounting, covering procurement, audit process and
accounting. Independent scrutiny is done for audit by external audit committee, parliament or
public investigation commission.
Financial management when strong establishes confidence in public services and
maintains healthy relations with fund providers and taxpayers. Organisations need to ensure that
their financial statements prepared are sound and they look like the way they are intended to be
not just only in preparation process. Few characteristics that delivers accountability are:
1. Creating a good role for CEO ensuring direct reporting from audit committee and chief
executive.
2. Preparation of effective statements that reflects true and fair information regarding the
income and expenditures of the company.
3. Senior must possess financial management skills that are required for finance function.
4. Evaluation and identification of management risks.
5. Preparation of budget before the beginning of accounting year relating to the year which
is going to start in accordance to financial plan.
1.3 Publicly available reviews on financial information
A market review was launched in august 2015 for financial advice on improper working.
It was named Financial Advice Market Review (FAMR), it was aimed at various ways being
explored in which government or industry regulators could take collective or individual steps for
market development (Hood and Dixon, 2013). Under which they would take steps for
stimulation of developing market delivering accessible and affordable advice.
Review backdrops a responsibility, for increased requirements from individuals taking
charge of own financial structure. Few happenings like change in demography or social structure
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has led to more complex or varied decisions. However, greater decisions are taken by people
with or without limited guidance or advice due to advanced technology and awareness among
public regarding cost of advice. Intervention by government or regulators assist the sector in
creating more cost-effective ways for delivering appropriate advice to public with the effective
use of technology. It is clear that unless society is unable to create consumer engagement in
financial services, no sustainable solution would be achieved in long term.
Few recommendations are made to handle barriers in accessing advice by consumers:
 Affordability: A positive change was brought by RDR in advice quality with large
amounts to be invested. To find the causes in retail investment market RDR was
developed improving professionalism level in intermediary sector (Herbane, 2013.). To
become more cost-effective steps are required to be taken for making provision on
guidance and advice to the mass market.
 Accessibility: Most of the people lacks in confidence while facing financial issues. There
are number of ways proposed for them in order to effectively engaging in advice. It
covers them to advice more easily including their own information.
 Consumer redress and Liabilities: It has been found that concerns regarding future
prevents consumers to make decisions. It is important for consumers to recognise concern
and build confidence in the sector.
This Review has helped many consumers to develop confidence in consumers at all
stages (Laegreid and Christensen, 2013.). It promotes improvement in accessibility and
affordability guidance and advice. Continuity in focus is required for effectively reviewing the
outcome of measures being adopted.
Each year a review is hosted in United-Kingdom to account the financial performance.
Ex: NHS a healthcare unit in UK had assessment of its financial statements, and reviews were:
Quality Improvement: Healthcare unit is providing quality services to its patients as per
assessment by Healthcare commission and giving excellent money value.
Strengthening system supporting action reducing health inequalities: Helping policy makers
and planners to enhance their knowledge upon what is required for healthy action for equality.
1.4 Role of Audit in Public Sector.
Audit in public sector is regulated by IFAC (International Federation of Accountants),
who ensures the quality of audit, its role and safeguarding of auditor's independence. Few
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measures that are proposed by EC that IFAC supports: Compliance with International Standards
on audit, strengthening committee of audit, transparency in selection process of auditor and
enhancing reporting of auditor. Either organisation can go for internal or external audit both are
having different roles.
External audit is essential for accountability process for public funds. Auditors appointed
externally give independent opinion on financial statements. They ensure appropriate conduct of
financial affairs with management of performance and usage of resources. As public money is
attached in businesses in given sector external audit has special features: Appointment of auditor
must be independent; no other body can restrict scope of external audit other than statute;
reporting can be done to public or other significant stakeholders. (De Vries and Nemec, 2013.)
Internal audit is conducted for the purpose of maintaining accounts and improving
operations of organisation. Internal auditors are appointed by board or management internally
within the organisation. They follow International Standards for professional practice of Internal
Audit and ensure continuous improvement in services offered.
LO 2
2.1, 2.2 and 2.3
Encl. in PPT.
2.4 Systems required to manage finance in a public-sector organisation.
Management of public finances are defined by CIPFA (The Chartered Institute of Public
Finance and Accountancy), where resources are prearranged, directed and controlled. In order to
carefully handle monies of public various accounting techniques like standard costing or
absorption costing can be followed. Moreover, budget preparation is best tool to avoid over
expenditure and overcome the excess expenses being made (Warner, 2013).
Performance analysis can be conducted in the organisation to identify input and output of
organisation. Targets are set to be achieved by the organisation because unachievable targets are
not taken seriously by employees and results in non-achievement of goals. A disciplined and
systematic collection and processing of information regarding performance is required.
After analysing the performance gaps and issues involved are identified between the
estimated and actual level of performance. Budgets are prepared to identify such issues only,
organisation can understand and identify the improvements required.
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Standard costing is followed for the purpose of maintaining accounts as per fixed and
variable rates per unit of raw material, labour or overheads. It includes fixed and variable
overheads; thus, organisation is able to identify what expenses are over spent. Such that they are
able to overcome the deficiencies in their cost-effective techniques.
Audit control systems when effectively planned and controlled helps the organisation to
evaluate risks in financial and operational activities as well. Audits in public-sector are
recommended by external auditor, as they generate independent opinion.
2.5 Usefulness of ratio analysis and capital investment appraisal for public sector decision
making and control.
Ratio analysis is performed to assess various aspects of operational activities of a
company. It identifies liquidity, performance, efficiency and solvency of an organisation. It is
based on financial statements to get idea of analysis of finances. Key ratios are current ratio,
debt-equity ratio, return on equity ratio or price earnings ratio etc. They are relatively easily
calculated.
Capital investment appraisal is important to any organisation to understand the feasibility
of project. When considering a project investment appraisal is formulated involving committing
of substantial resources (Huber and Scheytt, 2013). It requires a knowledge of tactical or
strategic objectives, using an extent of probabilities cash flows can be analysed like inflation
rates.
In public sector ratio analysis and capital investment appraisal is important as monies of
public are concerned with organisation in public-sector. There should be minimum risk involved
in any kind of expenditure or investment made, so that funds of public can be easily recovered.
LO 3
3.1 Stages of the public-sector tender process.
Public-sector organisations make purchases based on procurement or tender process. It
considers value for money, supply security, product consistency, after sale services etc. as key
elements to evaluate various tenders. Tendering is a process, offer, proposal or bid asking from
supplier expressing their interest in response for a specific need for supply of goods or services.
Procurement Procedure: As per European legislation high value contracts require a tender
process to be followed and an advertisement in Official Journal of European Union. An internal
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procedure is followed to handle procurement process, thresholds are set and they vary from
organisation to organisation.
Direct Purchase threshold: Using written or oral quotations, goods or services are obtained from
wherever convenient by organisation.
Quotation threshold: Purchaser has to obtain minimum number of quotations, generally three for
goods and services before selecting appropriate. For small value purchases a verbal quotation is
acceptable, however, they are mostly in written format (Bach and Stroleny, 2013. P).
Tender threshold: Offers are required to be evaluated properly as the value of procurement
increases it becomes more important to demonstrate its value.
TENDER PROCESS
 Formulating a team for procurement: Possible representatives, managers and budget
holders are selected at first for managing budget estimation and whole process of tender.
 Budget: It is prepared to ensure that sufficient funds are available for making purchases.
Budget is one of the common feature in public sector companies. Request for quotation is
generally prepared to ensure availability of funds.
 Documentation: A document is prepared specifying terms and conditions, criteria of
selection and criteria of awarding. Request for proposal is the document used to attract
biding, however additional steps may be followed after tender process (as per
government).
 Advertisement: medium of notice is decided by the value of contract, whether it is to be
directly notified to suppliers to be published online on websites like www.tenders.gov.in,
i.e. site in press. Moreover, advertisement can be made through journals or magazines
that are generated officially (Akbar and et.al., 2013.). Even though electronic processes
are followed for bidding still it may be required by government from suppliers to submit
bid in hard-copy form.
 Selection of candidate: If suppliers are notified for tender then selection process will be
using objective evaluation on the basis of technical or financial data. As the process is
followed to make purchase from supplier who is providing a good value for public
money.
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 Preparation of Bid Process: As per directions in tender invitation suppliers submit their
bid in accordance to directions given in it. Directions includes product specifications,
maximum rate per quantity etc.
3.2 Exploration of how public-sector tenders are evaluated, negotiated and awarded.
After bidding is completed, process of evaluation, which is based upon series of factors is
conducted by purchaser. Each of the factor is given weight, but price is recommended to be
given the least weight of all. Bid evaluation process is strictly confidential, no clarifications can
be asked from suppliers in such process. There is a committee for evaluation of bid, they conduct
process as per efficiency parameters (Allen and et.al., 2013). After receiving complete bids at
deadline according to objective of purchase or award criteria. No bid is accepted after last date of
submission, suppliers have to submit it before the deadline.
After Bid evaluation is over, Negotiation is the next step, because then supplier is
selected. When an appropriate supplier is found then the contract is awarded to them. To get
awarded, supplier is required to fulfil requirements of award contract. Negotiations are made
between supplier and purchaser regarding price and requirements of purchase (Philippon and
Reshef, 2013). Terms of contract are incorporated in letter of contract or agreement entered with
the selected party. Till the completion of contract relationship between purchaser and supplier is
maintained by this contract.
Tender Document:
UK Trade and Investment
NHS GROUP
National Healthcare Services supports standing offer through tender process around number of
pharmaceutical product categories. Hospital networks are requested to strictly use equipment
specified in the contract.
Companies offering equipment outside the scope of contract are able to reach hospital or health
services directly. However, procurement process is required to make purchase above 200000
dollars.
Details of procurement are published on NHS government tender. Website: www.tenders.gov.in
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CONCLUSION
After going through this report, it is concluded that there are various regulations required
to be followed by the organisations having impact on operations of business. Proper management
control should be there for managing finances of public in organisation. Reviews of public are
important for taking further decisions regarding funding and expenses. Organisations should
follow proper systems for managing finances and they need to assess the capital requirements for
company. Moreover, for making purchases there is procurement process that is required to be
followed. Companies are required to manage expenditures after evaluation and negotiation with
the seller party. Organisation in public sector are required to maintain finances of public as they
invested in the company for the purpose of generating profit. Financial management practices
must be sound and can be seen on face, as the statements are presented to public and
stakeholders.
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REFERENCES
Palley, T.I., 2013. Financialization: what it is and why it matters. In Financialization .pp. 17-40.
Palgrave Macmillan UK.
Barlow, J and et.al., 2013. Europe sees mixed results from public-private partnerships for
building and managing health care facilities and services. Health Affairs.32(1). pp. 146-
154.
Hood, C. and Dixon, R., 2013. A Model of Cost‐Cutting in Government? The Great
Management Revolution In UK Central Government Reconsidered. Public Administration.
91(1). pp.114-134.
Laegreid, P. and Christensen, T. eds., 2013. Transcending new public management: the
transformation of public sector reforms. Ashgate Publishing, Ltd.
De Vries, M. and Nemec, J., 2013. Public sector reform: an overview of recent literature and
research on NPM and alternative paths. International Journal of Public Sector
Management.26(1). pp. 4-16.
Huber, C. and Scheytt, T., 2013. The deposit of risk management: Reconstructing risk
management after the financial crisis. Management Accounting Research. 24(2). pp. 88-99.
Bach, S. and Stroleny, A., 2013. Public service employment restructuring in the crisis in the UK
and Ireland: social partnership in retreat. European Journal of Industrial Relations.19(4).
pp. 341-357.
Akbar, S and et.al., 2013. The impact of recent financial shocks on the financing and investment
policies of UK private firms. International Review of Financial Analysis. 26.pp. 59-70.
Allen, R and et.al., 2013. The international handbook of public financial management. Springer.
Philippon, T. and Reshef, A., 2013. An international look at the growth of modern finance. The
Journal of Economic Perspectives. 27(2).pp. 73-96.
Warner, M.E., 2013. Private finance for public goods: social impact bonds. Journal of Economic
Policy Reform.16(4).pp. 303-319.
Herbane, B., 2013. Exploring crisis management in UK small‐and medium‐sized enterprises.
Journal of Contingencies and Crisis Management. 21(2).pp. 82-95.
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