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Topic
1Theoretical Framework
u
LEARNING OUTCOMESBy the end of this topic, you should be able
to:
1. Identify the theory and concept of Financial
Administration;
2. Distinguish models in Financial Administration;
3. Discuss Financial Administration in Malaysia;
4. Explain legal framework in Financial Administration;
5. State the principles of Financial Administration;
6. Decribe the delegation of Authority in Financial
Administration; and
7. Explain the application of Financial Administration.
INTRODUCTION u
In education, school is an institution where !nancial
administration is an important part of the management. The !nancial
administration in education !eld must be managed according to
legislation that has been provided by the ministry. It contains
acts, laws, regulations, policies and circular so that it can be
handled with integrity and accountability. To do this, school
administrations have to prepare !nancial statements that must be
managed and kept in proper order. This is because the problems
continue to occur year after year and it will have an impact in the
Auditor-Generals Report. In this topic, we should also be able to
get an overview of basic fundamentals in !nancial administration.
It needs to be acknowledged that there have been tremendous
improvements in !nancial administration especially in the last few
years.
1.1 BASIC THEORIES AND CONCEPTS IN FINANCIAL ADMINISTRATION
What do you understand about financial management?
Financial management is the word that we have heard often, but
what does the term actually mean? Table 1.1 shows the de!nition of
!nancial administration based on the views of some prominent
writers.
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2 u TOPIC 1 THEORETICAL FRAMEWORK
Table 1.1: De!nition of Financial Administration
Writers De!nitions
Scott, Martin, Petty & Keown (1999)
Financial administration is concerned with the maintenance and
creation of economic value or wealth.
Dembowski, Frederick L.(1982)
Financial administration is the process of managing monies in
order to ensure maximum cash availability and maximum yield on
investment of cash.
Truman (1995) Financial administration is the process of how the
government get the source of money and how it is spent.
Marianne Coleman & Lesley Anderson (2000)
Financial administration characterise the process of :
Planning;rImplementation; rCoordination;rControlling;
rEvaluations of the !nances.r
Valente W. D. & Valente C. M (2001)
Financial administration is translated as the procedure or steps
that show how money is managed ef!ciently.
Caldwell & Spinks (1998) Financial administration is
utilised to the fullest potentials for the operation or program of
the organisation.
Garner, C. W. (2004) Financial administration consist:
Budgeting management;rReceipts & collections
management;rPurchasing and earning management; rExpenditures and
payment management; rAccounting and auditing management;rAsset
management.r
Guthrie, James, Walter Garms & Lawrence Pierce (1988)
Financial administration is concerned with four activities, that
include :
Conversion of accounts receivable;rConversion of accounts
payable to cash rdisbursements;
The rates at which cash disbursements clear the bank;rMaximising
the consumption of cash. r
There are two types of organisations - one with !nancial goals
while the other, without !nancial goals. In this case, school is a
not-for-pro!t organisation which falls under the second category.
This is because the core business of school is related to human
development and not to reap pro!t. Financial pro!ts are generated
in private sectors.
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TOPIC 1 THEORETICAL FRAMEWORK t 3
Some of the most important non-!nancial goals include:
Promoting favourable business relations with vendors and banks;
rEnsuring the orderly conduct of the !nancial aspects of
organisations roperations;
Building trust and goodwill of the tax-paying community.r
To measure the relationship between private and public
performances, refer to Figure 1.1 on page 4.
Figure 1.1: Organisation performance measurement
From your opinion, why should we manage our !nances? Some of the
possible answers are:
Resources such as humans, money, things and time are
limited;rRequest to that resource is not a limitation;rThere are
alternatives of getting and using the resource;rFinancial
management is the main component in the organisation;
andrEconomical source cannot be moved without proper !nancial
management.r
According to Dembowski F.L and Davey R.D (1986), the !nancial
administrations must be developed by the following:
An interpretation by legal counsel on relevant federal and
statutory guidelines rthat affect the operation of a !nancial
administration program;
A written district policy approved by the board of education
governing the rconduct of !nancial administration program; and
An on-going evaluation process that reviews progress throughout
the !scal ryear and provides appropriate performance data.
Non-!nancial Performance Measures Financial Performance
Measure
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4 u TOPIC 1 THEORETICAL FRAMEWORK
Figure 1.2: Sequence of statements for a strategic !nancial
plan
1.2 MODELS OF FINANCIAL ADMINISTRATION
The preparation of a strategic !nancial plan for a school
district requires the development of a series of policies,
statements and plans that are linked together as shown in Figure
1.2.
The basis for districts mission continues with the goals that
support the mission and follows the objectives that are aligned
with goals.
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TOPIC 1 THEORETICAL FRAMEWORK t 5
According to Brian Knight (1993), the School Financial
Administration Model has four major components. These are:
Financial resources; rHuman and physical resources;rTime
utilisation; andrEducational process. r
For further information, see Figure 1.4.
The process of preparing a strategic !nancial plan for the
school is presented in Figure 1.3. By referring to the school
districts mission, goals and objectives, the site-based units in
the district prepare their own goals, objectives and targets. When
these occur, the goals and objectives for site based unit become
subordinate to the district policies and organisational strategic
themes are created.
Figure 1.3: Process for preparing strategic !nancial plans
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6 u TOPIC 1 THEORETICAL FRAMEWORK T
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TOPIC 1 THEORETICAL FRAMEWORK t 7
Model A: Rational Approach
Most of the school development plans produced worldwide by state
or local educational departments and by individual schools follow a
rational planning model. This suggests a cycle of analysis, goals,
objectives, plans, resources, implementation, monitoring and
evaluation. Figure 1.5 shows is a typical example of this
process.
A global target may be achieved within a year but it may take
three or four years to compare. However, the !ne details of a plan
should only be determined for about a year ahead so that
adjustments can be made if circumstances change. Subsidiary
targets, shown as dots in Figure 1.6 indicates the concrete actions
or practical steps which, if taken over the next few terms, should
lead to realisation of the long term goals. Where work towards a
global target is intended to continue beyond the end of the year,
further sub-target can be determined as part of the next
development plan, after an annual review of progress.
Student, parent andcommunity demands
ChangingPupil needs
LEA andnationalpolicies
Analysis
School andcommunity needs
Performanceindicators?
School review
Schoolcontext
Educationaltrends
School strengthsand weaknesses
THEBUDGETCYCLE
Goals
Objectivesand priorities
Plans
Resourcesneeded
Implementation
Evaluation
Figure 1.5: Management processSource: Financial Management for
Schools; Brian Knight, 1993
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8 u TOPIC 1 THEORETICAL FRAMEWORK
According to rational approaches as shown in Figure 1.7, it
seems this approach does not re"ect the reality of school life.
This is because:
Schools are not necessarily rational organisations;rRational
planning implies a reasonably predictable and stable
environment;rRational planning is only plan from the situations
that you can only see; andrIt is best to use a straightforward and
practical situation.r
Figure 1.6: School development plan modelSource: Bershire LEA,
1989
1990 1991 1992 1993 1994
To continue implementnational curriculum
To introduce appraisalprocedures
To introduce staffINSET profiles
To extend workwith parents
To extendindustry links
To promoteschool image
To introduce moregroup work
To developbehavioural policy
To strengthen equalopportunities policy
C(not visible
from B)
GoalB
A
Rational
Figure 1.7: Model A - Rational planning approachSource:
Financial Management for Schools; Brian Knight, 1993
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TOPIC 1 THEORETICAL FRAMEWORK t 9
Model B: Pragmatic Approach
In pragmatic approach, the organisations evolutionary process is
stressed. The development and innovation of an increasingly
confused environment varies accordingly. We cannot plan for an
unpredictable future. Planning must be a learning and responsive
process. We must be able to learn to understand our changing
environment and respond to it. This situation is illustrated in
Figure 1.8.
In this approach also, we need a strong underlying sense of
direction, core ethos of mission and values. This approach seems
more realistic and practical to many schools in our current
environment. It is "exible and it builds on existing strengths. It
is suited to a complex process such as curriculum development.
Figure 1.8: Model B - Pragmatic planning approachSource:
Financial Management for Schools; Brian Knight, 1993
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10 u TOPIC 1 THEORETICAL FRAMEWORK
Model C: Entrepreneurial Approach
Rational planning and small step advances are not the benchmarks
of the manufacturer. Basically, the manufacturer is an exploiter of
opportunity. So, the manufacturers planning requires a positive
search for opportunities and the availability of resources to
exploit them as they occur.
An example of this approach is given by Goodchild and Holly
about Garth Hill School. This describes how Stanley Goodchild as
the new headmaster of a failing school rapidly developed a broad
strategy to respond immediately to the situation, but also to
exploit it. So changes in school uniform and the appearance of the
school were used to bring positive publicity. Subsequently he
identi!ed computer technology as the schools core development. A
series of innovations followed a new computer centre, a business
of!ce, electronic mail, a new hi-tech library, links with
industry.
This entrepreneurial approaches is illustrated in Figure 1.9,
where a plan that allows attack of an opportunity x, which
initially appears tangential to main thrust to point B, actually
opens up an unexpected opportunity to reach point C.
Figure 1.9: Model C - Entrepreneurial planning approachesSource:
Financial Management for Schools; Brian Knight, 1993
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TOPIC 1 THEORETICAL FRAMEWORK t 11
Model D: Lateral Approach
The lateral approach is another approach that can be used to
plan on visionary statement of future goals and identi!cation of a
full range of possible routes by which they could be achieved.
In this approach, brainstorming and divergent thinking are
required. In Figure 1.10 below, we can see and suggests a plan
which explores several routes, two of which prove abortive, but one
which leads to a long-term objective D.
Figure 1.10: Model D - Lateral-planning approach[Source:
Financial Management for Schools; Brian Knight, 1993]
Which Approach Is The Best?
There is no single answer. Each school and management team needs
to adopt the approach best suited to its situation. In practice,
two or more approaches can be combined. Mike Wallace (1991),
suggest that;
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12 u TOPIC 1 THEORETICAL FRAMEWORK
In practice, the choice will often depend upon the personality
and mindset of the senior management team. Conservatives may refer
the pragmatic approach, radicals, and the lateral or
entrepreneurial approach. Whatever you do, you need to feel
comfortable.
The most important thing is, you must understand a clear purpose
and set of priorities, produced in whatever way seems comfortable,
directed to your schools !nance management.
Figure 1.11: Different planning approachesSource: Financial
Management for Schools; Brian Knight, 1993
SELF-CHECK 1.1
1. List four major components of the School Financial
Administration Model.
2. State four types of mode in Financial Administration.
3. Why doesnt the rational approach re"ect the reality of school
life? Discuss.
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TOPIC 1 THEORETICAL FRAMEWORK t 13
1.3 INTRODUCTION TO FINANCIAL ADMINISTRATION IN MALAYSIA
ACTIVITY 1.1
Discuss with your friends why !nancial administration in the
education !eld is an important part to be managed.
Figure 1.12: Proper !nancial administration is importantSource:
http://www.CartoonStock.com
Financial administration in Malaysia is almost the same as
international business !nance. It is concerned with the maintenance
and creation of economic value and wealth. This means that the goal
of the organisation is to maximise shareholders wealth and it is
done by maximising the price of the existing common stock. In
Malaysia, the bene!ts are not only focussed on shareholders, but
also to provide bene!ts to the society.
In Malaysia, the !nancial administration also deals with many
decision makings. For example, when to introduce a new product,
when to invest in new assets, when to replace existing assets, when
to borrow from banks, when to issues stock or bonds, when to extend
the credit to a customer and how much cash to maintain.
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14 u TOPIC 1 THEORETICAL FRAMEWORK
The implementation of !nancial administration in Malaysia is as
per shown in Figure 1.14:
1. Assessing the current position of the school or college
against its environment;
2. Assessing the current strengths and weakness in the use of
human and !nancial resources in the organisation;
3. Reviewing the aims of the organisation and whether these
should be changed in light of this strategic audit process;
4. Considering, and costing, the alternative ways in which the
organisation could develop to meet its objectives;
5. Reaching decisions on the priorities for the future
planning;
6. Developing the long term, medium terms and actions plans for
the use of resources to meet aims.
According to Wallace (1991), !nancial administration is involved
in an ongoing cyclic process which are:
1. Establishes strategic aims for the organisation;
2. Builds long and medium terms plans which will enable the
strategic aims to be met;
3. Produces an annual plan which is based on the priority of the
objectives;
4. Establish action plans which include details of objectives,
resource needs, supervision and criteria for success;
Figure 1.13: Product knowledge is a part of !nancial
administrationSource: http://www.CartoonStock.com
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TOPIC 1 THEORETICAL FRAMEWORK t 15
Financial administration is always directly related to strategic
development of an organisation. The implications are:
1. A logical, rational and totally intended planning perspective
!nancial plans are fully known;
2. A logical but instrumentalist perspective building year by
year on where we are now incremental !nancial plans;
3. A political perspective dependent upon the operation of
internal and external pressures !nancial plans subject to power
dynamics;
4. A cultural perspective in which planning is linked to status
quo;
5. A visionary perspective in which organisational development
is driven by a view of where we are going !nancial plans linked to
the major objectives;
6. A natural selection perspective in which future direction is
determined by the strength of the competition between other
perspectives - !nancial planning is evolutionary but cannot be
forecasted
5. Monitor the progress of action plans and outcomes from
these;
6. Evaluate the contribution of these outcomes to the overall
aims of the organisation as a prelude to review and
re-planning.
Figure 1.14: Business processSource: Accounting; Horngren,
Harrison & Robinson, 1995
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16 u TOPIC 1 THEORETICAL FRAMEWORK
1.4 LEGAL FRAMEWORK FOR FINANCIAL ADMINISTRATION
There are some rules that we must understand in !nancial
administration. It is the rules and policies that must be used in
the administration of the organisation, especially in school
administration. They include, act or laws, regulation, statement
policies and circular. It can also be represented as shown in
Figure 1.15 below:
ACTIVITY 1.2
Why do you think we must have a good school leadership to manage
our school !nancial administration? Discuss with your classmates
and present it in class.
Figure 1.15: Legislations aspect in !nancial management
1.4.1 Act
There are two types of act that can be used in school !nancial
administration as shown in Figure 1.16. There are Educational Act
1996 and Finance Act 1957.
Figure 1.16: Types of act in Administration of School
Finance
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TOPIC 1 THEORETICAL FRAMEWORK t 17
A. Educational Act 1996 According to Seksyen 130 (2), minister
can create the rules and policies on
account book keeping and auditing account statement including
the fund that the organisation receive as an academic
institution.
The responsibility and accountability of a leader of a public
entity in ensuring sound !nancial management is even heavier as can
be seen in the responsibilities of the Controlling Of!cer (Pegawai
Pengawal) and this is stated in Financial Procedure Act 1957
(revised 1972)
B Finance Act 1957 Perkara 18, surcharge will be charged to the
government of!cer if:
(i) Failed to collect the revenue or tax;
(ii) The payment transaction is made without referring to the
regulations that has been adhered;
(iii) Involved in losing or obliterating government
property;
(iv) Failed to keep a complete account statement; and
(v) Late in settling payments.
1.4.2 Regulation / Policies
In terms of regulation, it is explained by Account Regulation
and Audit 1962. In this regulation, school management must keep the
!nancial statement and another set of book keeping in a good
condition. Every year, school administration board, must submit
!nancial statement for the whole year of !nance before 31st March
of the next year.
Source: Financial procedure Act 1957
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18 u TOPIC 1 THEORETICAL FRAMEWORK
1.4.3 Circular
Finance Circular is the procedure and policies that explain how
the organisation should manage its !nancial aspects.
1.4.4 Statement
The statement often used in !nancial administration is Arahan
Perbendaharaan (AP). This statement contains the details of the
following procedures:
Financial;rAccounting;rAuditing; andrWrite-off and disposal of
assets.r
The main purpose of this statement is to explain fund management
in terms of:
Receipts and collections;rPurchase and earnings;rExpenditures
and payments;rAsset management; andrResources management. r
ACTIVITY 1.3
Find an article from the Internet about the differences between
an order statement and a circular.
SELF-CHECK 1.2
When an administrator revises policy rules and procedures, what
should be considered?
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TOPIC 1 THEORETICAL FRAMEWORK t 19
1.5 PRINCIPLES OF FINANCIAL ADMINISTRATION
There are six main major aspects, in !nancial administration. It
includes budgeting management, receipts and collections management,
purchasing and earnings management, expenditures and payments
management, accounting and auditing management and asset
management. This is shown in Figure 1.17 below:
ACTIVITY 1.4
Why do you think, as a leader, we must know and try to
understand the components and areas in !nancial administration?
SELF-CHECK 1.3
State four major legal aspects in !nancial administration.
Figure 1.17: Major aspects in !nancial administration
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20 u TOPIC 1 THEORETICAL FRAMEWORK
According to the Government Audit Department (2007), there are
nine important elements that need to be looked in !nancial
administration. These are:
Organisation management controlling;rBudget
controlling;rReceivable controlling;rExpenditure
controlling;rKumpulan Wang Amanah management controlling;rAsset,
inventory and store controlling;rInvestment controlling;rLoan
controlling; andrFinance statement;r
The scope of !nancial administration covers seven
partsmanagement, contributors, taxes, budgeting, expenditures,
accounting and collections. See Figure1.19.
Figure 1.18: Areas in !nancial administration
According to Percy, Vern & Rulon (1999), the component in
!nancial administration involve !ve areas. It can be illustrated as
Figure 1.18 below :
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TOPIC 1 THEORETICAL FRAMEWORK t 21
In the education journal, A Handbook for School District
Financial Management, by Dembowski, Frederick L, it was shown that
in administration !nancial framework, it is necessary to attain the
!nancial goals. Furthermore, in cash administration, it includes
cash budgeting, cash information and control systems, collections
and disbursement procedures for cash and borrowing.
Figure 1.20 sets out a simple form of relationships between
!nancial administration. It makes a distinction between management
decisions and administration. It is always about de!nitions of
objectives and policy, strategic allocation of resources,
motivation and team-building, creation of systems, coordination and
evaluation and reporting of information.
The strategic group might be the senior management team, but in
school it maybe referring to principles or senior assistances.
Another group is !nancial administrators who maybe referred to as
clerk at school of!ce or school secretary.
Figure 1.19: Scope of !nancial administration
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22 u TOPIC 1 THEORETICAL FRAMEWORK
Figure 1.20: Financial management relationships Source: Brian
Knight, 1993
SELF-CHECK 1.4
1. What are the six major aspects of !nancial
administration?
2. Can you list the !ve areas discussed by Percy, Vern &
Rulon in
!nancial adminstration?
3. List the seven parts of the scope of !nancial
administration.
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TOPIC 1 THEORETICAL FRAMEWORK t 23
1.5 DELEGATION OF AUTHORITY
In Malaysia, the delegation of authority can be represented as
in Figure 1.21 below:
Delegation devolution of !nancial administration to schools
increase the importance of decisions to be made and the quantity of
work to be done. In school roles depend upon the scale of internal
delegation. The more management decisions are delegated downwards
to !nancial administration, the more roles need to be modi!ed and
adjusted. Figure 1.22, below illustrates this situation.
Figure 1.21: Delegation of authority
Figure 1.22: Changes in roles with !nancial delegationSource:
Brian Knight, 1993
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24 u TOPIC 1 THEORETICAL FRAMEWORK
In order to achieve !nancial integrity and accountability, a
leader has to:
1. Know his responsibility and details of the job;
2. Be able to carry out the tasks entrusted to him;
3. Know the standard and level of evaluation; and
4. Give full commitment and put aside personal prejudices and
preferences.
Besides these, a leader should also ensure the following:
1. Establish clear goals and ensure that there are regular
reports on the
progress of meeting these goals;
2. Ensure that reliable, complete and timely data are maintained
and used
for decision-making at all levels;
3. Ensure all programs and operations achieve their intended
results
ef!ciently and effectively;
4. Eliminate costly waste, duplication and errors;
5. Ensure that programs that do not work or are redundant should
be
terminated, streamlined or consolidated;
6. Ensure close supervision of staff to eliminate waste, fraud
and
mismanagements; and
7. Ensure all laws, regulations and policies are strictly
adhered to at all
times.
The board of management in an organisation must realise that
management must be done with excellence and make efforts to put
!nancial management in order. Commitment from the leader will give
proper signal to other personnel involved in !nancial management
that proper !nancial management must be practised.
ACTIVITY 1.5
Assume you are the superintendent and have received the needs
assessment from all site-based units in the district. You must
appoint a committee to review the assessment to set priorities and
make a recommendation.
1. Who would you select for your committee and how would you
conduct the reviews ?
2. How would you consolidate the reports?
3. How would your plan prevent possible tactical strategies from
in"uencing a policy recommendation?
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TOPIC 1 THEORETICAL FRAMEWORK t 25
A leader is needed to set goals and priorities for development
plans and for operational budgeting, strategic planning for the
sub-allocation of expenditure targets across the various programs
and activities. Strategic planning is fundamental for new policies,
savings proposals and one-off. Without regulations, budgeting will
be conducted as a routine affair whereas budgeting for performance
calls for budgeting according to departmental priorities.
Financial administration is an important aspect of recourse
management that encompasses on all responsibility areas. School
have a capacity to select their own staff, who remain employed by
the central authority, with provision for annual to the local
community.
According to Maxcy (1995), the link between the needs of the
school and the level of operation of the school management is
illustrated in Figure 1.23.
Figure 1.23: Levels of autonomy in school managementSource:
Marianne Coleman & Lesley Anderson, 2000
Administration, management and leardership levels re"ect the
degree of the autonomy in the school. Administration is de!ned as
consisting of routine work, usually carried out alone, such as
organising and !ling, management includes decision making and
supervision of others. Leadership is characterised by strategic
thinking, policy formulation, evaluation and review.
The top part of Figure 1.23, shows that the school are operating
on a range between dependency and autonomy.
District managed schools are exempli!ed by those under special
measures. Locally managed schools are characterised as those
managed in Malaysia.
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26 u TOPIC 1 THEORETICAL FRAMEWORK
Site based schools are found in Malaysias city technology
colleges or grant maintained schools.
The lower part in Figure 1.23, illustrates the level of autonomy
or dependency. District managed schools need administration
managers who spend the majority of their time on operational and
functional task, but who can assume some supervisory and management
responsibilities. Support service manager are found in schools with
more autonomy and less district control. These bursars operate
mainly at the managerial level but their role also incorporates
administration and leadership elements. This level requires the
bursar to have a greater understanding of the educational business
of teaching and learning.
School with site based management and high degree of autonomy
are likely to need School Business Managers who can think
strategically and operate at a leadership level. These people lead
their own teams, manage outsourced contracts, are full members of
the senior management team, and analyses and evaluate data for
strategic decision making providing organisational support and
understanding the learning core.
SELF-CHECK 1.5
1. How many types of level of operation are there in !nancial
administration in school?
2. Can you list the three management levels in !nancial
administration in school?
1.6 APPLICATION OF FINANCIAL ADMINISTRATION IN GOVERNMENT SECTOR
IN MALAYSIA (SCHOOL)
Figure 1.24: It is not enough to do well on paper alone. Source:
http://www.CartoonStock.com
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TOPIC 1 THEORETICAL FRAMEWORK t 27
School !nancial management is:
Table 1.2: De!nition of School Financial Administration
Writer De!nitions
Brian Knight (1993)
School !nancial administration is a:
Clear vision of where the school should be going, based upon a
rcoherent philosophy and set of values;
Sharp focus on results, matching achievement against
outlay;rThoughtful, analytical approach to issues and problems;
andrCapacity for lateral thinkingr
C. William Garner (2004)
School !nancial administration is the administration of !nancial
resources, manage investment of public money, generate income,
manage income producing capital assets and strategic plans.
Allan R. Odden & Lawrence O. Picus (2004)
School !nancial administration is the distribution and use of
money for the purpose of providing educational services and
producing student achievement.
The areas and tasks of !nancial management are illustrated in
Figure 1.25.
Figure 1.25: Areas and tasks of !nancial managementSource: Brian
Knight, 1993
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28 u TOPIC 1 THEORETICAL FRAMEWORK
1.7.1 Accountability
Accountability as de!ned in the Oxford Advanced Learners
Dictionary means a requirement to give an explanation of ones
actions, expenditures. Accountability refers to the ability to call
public of!cials, private employers or service providers to be
answerable for their policies, actions and use of funds.
In the case of !nancial administration, accountability means
being liable and able to explain all expenditures incurred by an
organisation and ensuring that all transactions are done honestly
and adhere to all laws, policies and !nancial regulations. In the
case of the public sector, accountability is even more important
since the funds are actually public monies and liable for close
scrutiny by all interested parties.
According to Jabbra and Dwivedi, accountability is the
fundamental pre-requisite for preventing the abuse of delegated
power and for ensuring instead that power is directed towards the
achievement of broadly accepted national goals with the greatest
degree of ef!ciency, effectiveness, probity and prudence.
We also can de!ne the accountability as:
Requirement to give an explanation of ones action;rBeing liable
and able to explain all expenditures incurred by an
organisation;rEnsuring that all transactions are done honestly and
adhere to all laws, rpolicies and !nancial regulations.
In Malaysia, there are a few words that always have been used in
!nancial administration. These are in Figure 1.26 below:
Figure 1.26: Terms in !nancial administration
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TOPIC 1 THEORETICAL FRAMEWORK t 29
There are a number of basic ingredients to ensure accountability
in the conduct of affairs of an organisation. Amongst the more
important are as follows:
Set measurable goals and responsibilities;rPlan what needs to be
done to achieve the goals;rDo the work and monitor progress;rReport
on results; andrEvaluate results and provide feedback.r
1.7.2 Integrity
Integrity as de!ned in the Oxford Dictionary is quality of being
honest and upright in character. Allan R. Odden & Lawrence O.
Picus (2004), de!ned integrity as adherence to moral principles,
honesty, wholeness and soundness.
Integrity is often misunderstood or interpreted as only
encompassing corruption. Corruption is actually only one of the
elements that affect integrity. It encompasses a wide range of
elements such as honesty, trustworthiness, adhering to proper code
of conduct and having good values and ethics.
In fact, more importantly, integrity also includes good
governance, transparency, putting interest of the public !rst and
doing an honest days work. Transparency is de!ned as the state or
quality of being transparent, which in turn means that easily
understood, accessible, simple, clear and straightforward. Thus, in
every decision made to award a tender, quotation or other
associated matters in !nancial management there should be clear cut
criteria and be able to stand up to close scrutiny.
Other attributes of integrity are being able to discern what is
right and wrong, acting on what you have discerned, even at
personal cost and saying openly that you are acting on your
understanding of right from wrong. Thus, integrity encompasses a
whole range of good values and ethics at all levels be it personal,
organisational or even national.
There are three main points in the concept of integrityeconomy,
ef!ciency and effectiveness.
A. Economy
Economy means there should be value for money spent;rIt is also
de!ned as careful use of resources, frugality and good
rhousekeeping;
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30 u TOPIC 1 THEORETICAL FRAMEWORK
While spending public money one should ensure that it is being
spent on rgoods or services is actually worth the money;
This means that goods and services that are being purchased
should not rbe over-priced and should meet the minimum criteria of
quality for the amount being spent on them;
It implies the avoidance of expenditure above a reasonable
minimum or rof a speculative sort.
B Ef!ciency
Ef!ciency refers to measurement of cost involved in producing
the rservice or goods;
The fullest possible attainment of speci!c objectives or
standardsr
C Effectiveness
Fullest possible attainment of the goals and objectives of the
school;rEffectiveness is the impact of uses the money;rIt can also
be de!ned as what has been achieved for the money spent on ra
programme or on the delivery of a service;
This performance measurement allows one to determine the
physical or r!nancial performance over a certain period of
times;
We can ensure that the money is been used wisely and can achieve
what rwe want to get.
1.7.3 Legality
Legality refers to rules of !nancial administration policies
that must be obeyed by organisations.
Legality is divided into !ve stages. It is related to the
activities:
1. Receivable;
2. Investment;
3. Expenditure;
4. Payment; and
5. Accounting.
Based on the criteria of Anugerah Kualiti Pengurusan Kewangan
(AKPK), there are four major components as shown in Figure
1.27.
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TOPIC 1 THEORETICAL FRAMEWORK t 31
1.7.4 Productivity
Increasing outcomes for each unit of input.
Example: Cheaper education for the same but less cost.
Figure 1.27: Criteria in AKPK
SELF-CHECK 1.6
1. List the school administration tasks in !nancial
management.
2. Give !ve examples in areas related to !nancial management in
school.
3. Explain what is the difference between economy, ef!ciency and
effectiveness.
4. Write the four major components involving the criteria of
Anugerah Kualiti Pengurusan Kewangan (AKPK).
ACTIVITY 1.6
Discuss with your friend on why the concepts of legality and
productivity are important in the !nancial administration of a
school.
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32 u TOPIC 1 THEORETICAL FRAMEWORK
SUMMARY
Theory and concepts of Financial Administrationr1. Non-!nancial
performance measures.
2. Financial performance measures.
Models in Financial Administration:r1. Rational Approach
2. Pragmatic Approach
3. Entrepreneurial Approach
4. Lateral Approach
Financial administration in Malaysia:r1. Management
2. Implementation
3. Co-ordination
4. Controlling
5. Evaluation
Legal framework in Financial Administrationr1. Act
2. Regulation
3. Statement
4. Circular
Learn more, visit these websites:
National Council for Accreditation of Teacher
Educationhttp://www.ncate.org
National Policy Board for Educational
Administrationhttp://hpbea.org
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TOPIC 1 THEORETICAL FRAMEWORK t 33
The principles of !nancial administration:r1. Receipts and
collections
2. Assets
3. Purchasing and earnings
4. Expenditures and payments
5. Budget
6. Accounting and auditing
Delegation of authority in !nancial administration.r1. Changes
in roles
2. Levels of autonomy
Application of Financial Administration:r1. Area
2. Tasks
3. Terms
Act
Accountability
Autority
Autonomy
Asset
Budgets
Circular
Controlling
Coordination
Creditors
Earning
Ef!ciency
Effectiveness
Entrepreneurial
Expenditure
Evaluation
Goals
Implementation
Integrity
Lateral
Legality
Mission
Objectives
Payment
Pragmatic
Productivity
Purchasing
Rational
Receivable
Regulation
Statement
Task
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34 u TOPIC 1 THEORETICAL FRAMEWORK
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