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Scope of financial Administration

Updated on November 11, 2013

Scope of financial Administration

The government organization which deals with the following four aspects constitutes financial administration.  They are:

1.  The collection, preservation and distribution of public funds.
2.  The coordination of public revenues and expenditure.
3.  The management of credit operations on behalf of the State.
4.  The general control of the financial affairs of the government.

In modern governments all the above aspects are dealt with the Finance Department and its subordinate agencies.  Though the Finance Department may be considered as central financial agnecy of modern governments, it cannot be equated with financial administration.  Its role constitutes financial management rather than financial administration.  As a financial manager it deals with the systems, tools and techniques contributing to economic decision making in government.  These process are, in fact, the integral part of financial administration.  The scope of financial administration is much wider than what these processes suggest.

According to some authorities on public administration, the term financial administration refers to the financial processes and institutions involved in legislative financial control.  In their view, the scope of financial administration encompasses the preparation of estimates, appropriation of funds, expenditure control, accounting, audit, reporting, review and so on.  In a democratic context, this view may gain wider acceptance as it ensures executive responsibility to legislature.  But, the experience of modern democracies has shown that the legislative involvement in the determination of the desired volume, range and direction of programs, the use of independent judgment relating to the financial resources required by administrative agencies is becoming nominal day by day.  It is known fact that the average member of the legislature is not adequately informed to ensure effective control over executive.  Thus, the view appears to be of no significant validity.  Further, legislative control of financial aspects of the government does not represent the scope of financial administration in its entirety.

Yet another view advocates a budget oriented outline for the scope of financial administration.  According to them the scope of financial administration is limited to the preparation of budget, the enactment of budget and execution of budget.  Though the budget is the core of financial administration, certain operations which precede budget preparation are equally important.  There is a pertinent need to include planning process as an integral part of financial administration.

In the ultimate analysis, there is a need to adopt an integrated approach so that all the above vies are incorporated into the scope of public administration.  As an outcome of such an approach, the following aspects emerge as the core areas of financial administration.

1.  Financial planning
2.  Budgeting
3.  Resource mobilisation
4.  Investment decisions
5.  Expenditure control
6.  According, Reporting and auditing

Financial Planning:

1.  Financial Planning:
  In a restrictive sense one may consider budgeting as planning since its basic concern is to facilitate the formulation and adoption of policies and programs with a view to achieving the goals of government.  But planning, in a broad sense, includes the concerns in terms of whole range of government policy and it demands a time frame and a perception of the inter relationships among policies.  It looks at a policy in the framework of long-term economic consequences.  there is a need to coordinate planning and budgeting.  The concept of Planning Programing Budgeting System represents an attempt in this direction. Financial Administration, under this phase, should consider the sources and forms of finance, forecasting expenditure needs, desirable fund flow patterns and so on.

2.  Budgeting:  This area is the core of financial administration.  It includes examination and formulation of such important aspects as fiscal plicy, equity and social justice.  It also deals with principles and practices associated with refinement of budgetary system and its operative processes.

3.  Resource Mobilization: 
Imposition of taxes, collection of rates and taxes etc. are associated with resource mobilization effort.  Due to the ever increasing commitments of government, budgetary deficits have become regular feature of government finance.  In this context deficit financing assumes greater importance.  But deficit financing, if used in an unrestrained manner, may prove to be a dangerous problem for a nation's economy for it can cause galloping inflation.  Another challenge faced by administration is tax evasion and growth of parallel economy.  Financially public debt constitutes yet another element of state resources.  The proceeds of debt mobilization effort should be used only for capital financing.  Thus, modern financial administrator effort should be used only for capital financing.  Thus, modern financial administrator has to be fully conversant with all the dimensions of resource mobilization efforts.

4.  Investment Decisions:
  Financial and socio-economic appraisal of capital expenditure constitutes what has come to be known as project appraisal.  Since massive investments have been made in the public sector a thorough knowledge of the concepts, techniques and methodology of project appraisal is indispensable for a financial administrator.

5.  Expenditure control:  Finances of the modern government are becoming quite inelastic.  Almost every government is suffering from resource crunch.  Further, the society cannot be taxed beyond a certain point without doing a great damage to the economy as a whole.  Thus, there is an imperative need for careful utilization of resources.  Executive control is a process aimed at achieving this ideal.  Legislative control is aimed at the protection of the individual tax payers interest as well as public interest.  There is also the need to ensure the accountability of the executive to the legislature. 

6.  Accounting, reporting and auditing: 
These aspects are designed to aid both the executive control and legislative control.  In India, the Comptroller and Auditor General (C & AG) and the Indian audit and Accounts Department over which the C & AG presides ensure that the accounting and audit functions are performed in accordance with the provisions of the Constitution.


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