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What Is the Role of Financial Management in the Public Sector?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 21 November 2016
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Public finance refers to the revenue collected by public officials in their official capacities and the way they utilize the money. The main areas for concern in relation to public financial management is an establishment of an efficient system for the allocation of public resources with the attendant effects on macroeconomic factors and the method by which national income is distributed. As such, a study of financial management in the public sector includes an analysis of the manner in which the government can collect resources in an efficient manner and allocate the resources effectively. This can be achieved through the setting of goals, accountability, efforts toward transparency, effective development and management of assets as well as responsiveness to global changes.

The first step toward sound financial management in the public sector, as in any other enterprise, is the setting of both short- and long-term goals. Once leaders are elected, they must set goals that they hope to achieve within their official terms. This is in addition to the established governmental responsibilities, such as security, healthcare, infrastructure and welfare. When public officials know their plans, they will then have a framework for the allocation of finances toward the realization of those plans. This further instills a sense of responsible spending in the officials and also makes it easier for the public to hold them accountable for their spending when it falls short of the plan.

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Another factor that encourages and facilitates sound financial management in the public sector is the establishment of a structure whereby the financial activities of the government, both at the local and national levels, are made available to the members of the society. When the public officials know that their spending habits are under close scrutiny, this will encourage them to be more responsible and judicious in the application of public finance. One of the methods in which the spending of government officials can be closely monitored is through periodic official expenditure reports and closer analysis by a free media. If public officials understand that any financial impropriety will be exposed by the media and other society watchdogs, they will be encouraged to engage in better financial practices.

Sound financial management in the public sector includes the development and management of any assets inherent in a country. For example, if a country has natural resources, such as crude oil, it is the duty of the public officials to develop the resources and to manage the revenue from such resources to the benefit of the society in general. In the case of crude oil, this might include the building of refineries and the allocation of the revenue from the crude oil and related products to needed areas.

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