A nivel internacional:

Ability to provide resources necessary for realization program targets (budgeting), maximization of programing benefits in the budget scope (allocation), effective managing of budget assets (funds management) and realization of the results in a legal way (accounts setting), represent important skills of all managers in public sector. In practice, all managers should take roles in financial management.

Financial management means engagement of all managers. Managers in public sector often do not perceive themselves as managers who manage available resources, but rather managers who are carry out policies of certain specialized functions in the sphere of public sector. Due to complexity of public sector, financial function has its managers who are performing separately from managers on other functions (operational managers). Often, certain pressures occur between financial and operational managers and they are considered as expected, even useful if contribute to solving problems in work.

Financial management in public sector should cover, i.e. establish methodology and strategy of development of three basic segments: budget methodology, control methodology and reporting methodology.

Budget methodology

Budgeting should have two main goals: determination of priorities of spending and effectiveness and efficiency of given services by public sector.

Fact that budget in public sector annual plan of expenditures in monetary units is legally defined. Expenditures are linked to satisfaction of population needs, but is timely limited plan, by which resources needed for goals’ realization in each unit of public sector are defined. Budget is in fact a document by which different opinions, contained in governmental policies, are transformed into specific activities by resources’ allocation. It articulates expectations on incomes and expense of government ministries, agencies and other institutions and therefore, presents basis for control of organization’s work in public sector.

In terms of on financial management in public sector, managers have direct tasks:

 To manage cash assets during the current monetary year

 To participate in planning of cash assets for the following year and

 _{To justify utilization of cash assets in the past, as well as the way the funds have been used.}

From this, it stems that the main goal of this way of budgeting control of expenses and responsibility of financial managers is to maintain expenditures of some categories of expenses on budget level. However, financial management should compare effectiveness and efficiency of public expenditure through linking of financing of organizations of public sector with results achieved (information could be used on the effect for realization of this link as for example evaluation ratio, results of the program, etc.). Primary goal of such financial management-budgeting is better determination of priorities in expenses, as well as establishment of closer link between financing and results. Especially such, as newer way of budgeting, is developed in the last three decades. Only in such way it is possible to increase pressure on public sector organizations to improve its effectiveness and efficiency of services provided. Financial management of public sector must provide more clear picture on the level of services provided, the amount of money, and with which results, in other words to link budget assets with the results.

Further development of the financial management level, actually capacity level of financial management should go in the way of program budgeting establishment, meaning to show purpose of expenditures or the way in which public assets are allocated by specific program. Assets are assigned, allocated to operational organization units or specialized programs in the way they will be spent. In such way, expenditures will be in a direct way linked with the purpose, actually with the goals of assets’ beneficiaries, meaning that expending of public assets will be done in a meaning way.

Programing budgeting contributes to strengthening of responsibilities as people are appointed for each responsibility in some programs of public sector organizations and from them is expected to report on realization of those programs (such way of budgeting in Serbia in financial management of public sector should be applied from the year 2015).

Process of preparation and budget approval represents one of the most important tasks in each organization of public sector. Such task can be more or less complex depending on the business of each organization. Budget process must be transparent. Possibility of review is assumed in all activities that contributed in budget approval. Organizations’ budgets from public sector are the subject of intensive

supervision. Not only by the management itself and the ministries, but also by all beneficiaries of goods and services that are financed through budget assets. Especially is important role of managers in public sector during the budget apporval process, as it is expected from them to „defend“ financing of their organizations and programmes.

Control methodology

Control of budget realization and expenditure of public assets should be organized through:

 _{Management control}  _{Risk management}  Cash flow management

From this, it is concluded that entire burden of control is not only on the financial management.

Management control system consists of organizational structure, processes and systems developed in public sector organizations for achievement of their goals. All of this can be perceived as series of different controls or control framework meaning: defined organization goals, delegated responsibilities and roles, standards for different types of effect, system for risk management, defined policies and controls, system for the follow-up of achieved results and system of internal and external audit. In which extend this system (control framework) will be effective depends generally on the importance of the controls in public sector organizations. Especially it is important that managers, on the highest levels of decision-making in the organizations, promote importance of the controls by their own behaviour and performance. Managers on the lower levels of decision-making should also participate in development of the system of management control and in their own sector respect requests from the system. Effective system contributes to achieving high level of performance on all organizational levels and more successful understanding of risk and decreasing of effects of adverse circumstances on the organization.

Risk management represents core of management control. Control implementation means anticipation of risks and diminishing of adverse consequences coming from different types of risks. For risk management it is crutical to establish steps and management systems for identification and risk assessment, as well as for diminishing their influence on the organization. In the context of financial management, risk management is related to the risks that could bring to financial losses and to risks that could adversely influence to the organization goals achievement.

Cash flow management includes step-by-step control during the monetary year related to follow-up of financial performances. These are additional steps, apart from „ex ante“ and „ex post“ procedures. It allows to make changes in the approved budget, in case of necessity. It allows answers on various questions set during the monetary year. System of cash flow management is effective if provides: projected cash flows on which comparison between achieved cash inflows and outflows is made, reports to responsible management levels on budget achievement, on necessity in budget changes and on reallocation of assets surplus and timely information related to assets inflow and their expenditures and on results organization is achieving and on which basis decisions could be made on possible changes in budget, on obtaining additional assets, as well as on reallocation of unnecessary assets. Goals of system development are: disposal of cash for payment of bills (liquidity), utilization of budget assets by purpose, but in a way that they wont be unused, expenses in the framework of approved budget, assurance of organizational assumptions and resources for timely reaction on program changes and activity plans and reallocation of available funds for financing urgent, short-term priorities. In public sector organizations cash inflow happens according to the approved budget, therefore providing of funds for reconciliation of debts should not be an issue for managers. Therefore, more attention is given to expenditures’ management, in other words on cash outflow.

Reporting methodology

Reporting on budget achievement should cover accounting-financial reporting (accounting standards and principles, accounting basis, types of financial reporting, responsibilities for used public assets as well as audit of financial reports).

Budget accounting provides qualitative financial information and has following characteristics: it is based on the principals for collecting and presenting of financial information, prepares financial reports with the summary of all transactions effects, prepares information on achieved results for comparison with planned results, and exists for the public interest, as it shows in which way money is spent from the public funds. It covers various activities that are repeated in cycles, therefore for the functioning of accounting characteristic is accounting cycle.

Financial reporting presents process of building of financial reports at the end of accounting cycle, considers application of standard methods and given reporting forms, provides to publicity overview into organizational functioning in public sector. Result of reporting process are the most important financial reports: Balance sheet, Income statement and Cash Flow report.

Financial reports could be based on accounting or cash basis of accounting. We will give just in brief basic characteristics of both accounting basis, having in mind that from their choice depends improvement of financial management in public sector organizations.

Accounting basis of accountancy, is based on the principal of causality. Recognition (evidence) of incomes in accounting evidences when “earned” and recognition of expenses when goods and services are “used” for creation of incomes. Purpose is measurement of activity results th?at are achieved during the accounting period. It is more complex then cash base, as in accounting two additional important accounts are introduced: Receivables from customers and Payables. Allows more qualitative financial management as it provides complete picture on financial position of the organization. Provides better view on expenses that are not limited on one year. Application of accounting basis of accountancy presents condition for improvement of financial management in public sector organizations.

Cash basis of accounting. Incomes are recognized when money is received, and expenses when the payment is made. Accounting measures cash amount received and paid during the accounting period, therefore, activity result during the period cannot be measured. It is simple and easy to be understood. It does not provide full picture on financial position of the organization, therefore it provides limited possibilities for financial management. Cash basis of accounting is applied nowadays in many countries, but, on international level, it is noticed tendency of gradual transition to accounting basis. To this fact, necessity to improve financial management in public sector organizations contributes, therefore, results of the program made by these organizations are viewed over the longer period then one year.

Public sector in Serbia is used cash basis of accounting, but as well so called modified accounting basis. Modified accounting basis can be seen as partial application of accounting basis.

6. RESPONSIBILITIES (ACCOUNT SETTING) OF FINANCIAL MANAGEMENT OF PUBLIC