Applying corporate finance mechanism: Opportunities for public service delivery agencies

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Turning to the financial mechanism of the limited liability company, the public service delivery agencies have many channels to mobilize financial resources. Photo: Thuy Linh.

Many channels to mobilize financial resources

At present, the Article 21 of Decree 16/2015/ ND-CP of the Government stipulates thatthepublic service delivery agencies’ autonomy mechanism allows public service delivery units to self-finance regular expenditures and investment expenditures byadopting the financial mechanism as an enterpriseasaone member limited liability company with 100% charter capital (limited liability company). The use of financial mechanisms by enterprises will bring many benefits for the public service delivery agencies.

Assoc. Prof. Le Van Ai, lecturer of the Institute of Finance, said that the scope of capital mobilizationforfinancial limited company is larger. Turning to the financial mechanism of alimited liability company, the public service delivery agencies are not only allowed to mobilize financial resources under the financial mechanism of the public service delivery agencies, but they can alsomobilize through the bond issuance channel, andat the same time, beinvested directly by the State in accordance with the law.

"When changing the financial mechanism, the right to use the financial resources and assets of the State is larger. The public service delivery agencies are not only able to use its financial resources to perform its key tasks, but also to use financial resources to invest outside of the business, as long as it complies with legal requirements and under the supervision of the competent state management agencies”, said Mr. Le Van Ai.

On the other hand, according to many experts, the distribution and use of financial results is more profitable as the public service delivery agencies are allowed to set up more funds, the right to decide the level of spending and use of funds mainly given to business leaders after consultation with the union. Particularly for the financial and property responsibilities for the State, despite the difference between the level and content, the two financial mechanisms are responsible for the State in terms of finance and property.

Mr. Le Van Ai also said that the application of financial mechanisms as enterprises helps improve financial management efficiency in the public service delivery agencies and will self-finance regular expenditure and investment, tying financial management in the public service delivery unit with the operation of market economy. However, with the advantages, the public service delivery agencies also have a number of financial constraints.

Change accounting, statistics

At present, localities are reviewing the public service delivery agencies that are qualified to apply financial mechanisms like enterprises. For example, in December 2017, the Hanoi Department of Finance sent an official document requesting departments, committees, people's committees of districtsand towns, to review the roadmap for public service delivery units qualified to apply financial mechanisms as enterprises and report to the People's Committee of the city for consideration and decision.

However, according to many opinions, one of the difficulties when units change the financial mechanism is the implementation of accounting and statistics. Due to different characteristics of the mechanism, many units have had some difficulties in this task.

According to Assoc. TS. Ngo Thi Thu Hong, lecturer of the Institute of Finance, when the public service delivery agencies are allowed to apply financial mechanisms as enterprises, they will be determined charter capital and preserve capital; mobilized capital, invested capital outside the unit; management, use and depreciation of fixed assets in accordance with the enterprises’ regulations; managed revenue and cost and distributed profit; implemented the accounting and statistical mechanism like enterprises. With financial management as an enterprise, the accounting work will be applied similarly to the enterprise accounting system.

"When transforming the financial mechanism into a limited liability company, the public service delivery agencies can choose one of three types of accounting organization: organizational model of focused accounting system, organizational model of scattered accounting system, organizational model of both focused and scattered accounting system. The use of accounting forms for the public service delivery agencies will be financially autonomous in accordance with the Circular No. 200/2014/ TT-BTC dated December 22, 2014 of the Ministry of Finance on guidelines for accounting policies for enterprises, and enterprises may themselves formulate accounting book forms oftheir own but must ensure the supply of information on economic transactions in a transparent and complete manner. In case of not self-construction, the form of accounting books may be applied; the selected enterprise may apply one of the following three forms of accounting: form of general journal accounting, form of diary - ledger accounting; diary - voucher accounting”, Ms. Ngo Thi Thu Hong shared.

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Many units also said that the state financial management agencies at all levels should pay attention to organize training and retraining skills for accounting staff of non-business units when applying the new accounting system. On the other hand, non-business administrative units also need to study all financial mechanisms related to their operation, update the regulations of the new accounting system and increase the application of information technology in management, andimprove the financial analysis of the unit to serve the financial management effectively.