Scope of Financial Administration

Scope of Financial Administration:

The following activities are covered in the scope of Financial Administration:

(1) The collection, preservation, and distribution of public funds.

(2) The coordination of public revenues and expenditures.

(3) The management of credit operations on behalf of the state.

(4) The general control of the financial affairs of the government.

(5) Preparation of Budget, getting it passed by the legislature and regulating the expenditure and raising of revenue in accordance with the budgetary provisions as passed by the legislature.

(6) Safe custody of the public funds and proper release of funds for meeting the liabilities of the government.

(7) Maintenance of financial accounts and getting these duly audited by the competent authority.

Financial Administration involves all these activities. For the performance of these fiscal functions, well-organized machinery is organized, managed, and operationalized. There are, in general, five parts or divisions of the Financial Administration Machinery:

(1) The Legislature which is the custodian of national finances and without whose approval, no funds can be raised and no expenditure can be made.

(2) Finance Department or Finance Ministry of the government.

(3) Specliazed Financial experts, officials, and institutions.

(4) Audit Organization.

(5) Financial Committees of the Legislature.

In most of the countries, the budget is prepared by the finance ministry. In the USA, however, there is a special agency, the Bureau of Budget, for this purpose. A study of Financial Administration covers the study of all these aspects and areas.

In every government, most of the aspects of financial administration are handled by the Finance Department and its subordinate agencies. However, it must be clearly understood that though the Finance Department is the central or nodal agency of Financial Administration, yet it is not to be equated with the whole of Financial Administration. It handles financial management which is one major aspect and not the whole of Financial Administration. The scope of Financial Administration is greatly wider than the scope of Financial Management. Financial Administration refers to the financial processes and institutions involved in collecting, preserving, and distributing public funds. It is a system by which public funds are raised, managed, spent, and controlled.

The following activities form the major part of the activities of the Financial Administration of a state:

  • Financial Planning.
  • Budgeting.
  • Resource Mobilization.
  • Investment Decisions.
  • Expenditure Control.
  • Accounting, Reporting, and Auditing.

Financial Planning- It includes a whole range of government policies and demands a time frame and perception of the interrelationship among policies. It considers the sources and forms of finances, forecasting expenditures, needs, desirable fund-flow patterns, and so on.

Budgeting- It includes the examination and formulation of all important aspects of fiscal policy, equity, and social justice. It also deals with the preparation of the budget, the enactment of the budget, and the execution of the budget.

Resource Mobilization- This financial function includes the imposition of taxes, collection of rates, fees, and taxes. It is a continuous and ongoing function. The Budgetary deficit has become a regular feature of government finance. It can become a source of inflation in case it is not kept under limits. The government cannot use deficit financing at all times and too frequently. Hence, the alternative lies in additional resource mobilization. As such, in all countries, more particularly in developing countries, it is a major function of the Financial Administration.

Investment Decisions- Financial and socio-economic appraisal of capital expenditure constitutes a major function of Financial Administration. It has also to undertake project appraisal. In countries like India, since massive investments have been made in the public sector, a thorough knowledge of the concepts, techniques, and methodology of project appraisal is always indispensable for a financial administrator.

Expenditure Control- No economic system can survive without exercising financial control. In every country, there is every need for a careful utilization of resources. Executive control is the process named at achieving the goal. The legislative control is aimed at the protection of the tax-payers interest as well as the general public interest. The Legislature has to ensure the accountability of the executive. It has to keep Financial Administration under its keen vigilance and control. The Executive and legislative control over Financial Administration is a key area of public administration.

Accounting, Reporting, and Auditing- These three aspects are designed to aid both executive and legislative control. For example in India, the Comptroller and Auditor General and the Indian Audit and Accounts Department have the responsibility to ensure that accounting and audit functions are performed in accordance with the provisions of the Constitution, and the laws made on the basis of these provisions.

These are the six major functions of Financial Administration. In all countries, financial administration involves these basic and some other financial functions.

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