Public Financial Management is the field of economics that deals with budgeting of a government entity. As the major focus of financial responsibilities of the government is development and maintenance of order, Public Financial Management entails management of revenues and expenditure and includes a wide range of activities like financial planning, authentication by the stakeholders and regulatory framework for execution including acquisition and contracting, financial reporting and review.
Corporate Financial Management entails acquisition and allocation of a corporation's funds or resources, with the goal of maximizing shareholder wealth (i.e., stock value). Funds are acquired from both internal and external sources at the lowest possible cost and may be obtained through equity (e.g., sale of stock) or debt (e.g., bonds, bank loans). Resource allocation is the investment of funds; these investments fall into the categories of current assets (such as cash and inventory) and fixed assets (such as real estate and machinery). Corporate finance must balance the needs of employees, customers, and suppliers against the interests of the shareholders.
Public Financial Management is driven by certain principles such as:
- Financial resources are allocated against a plan. The planning and financing, therefore, must be undertaken in synchronization with each other.
- The financial decisions should be based on the general principles of economic costs and benefits and resource should be committed after ensuring that the benefit exceeds the cost.
- The expenditure should be controlled to keep it within the allocation and should be incurred in accordance with rules and regulations and canons of financial propriety after proper authorization.
- A system of internal control should be put in place to ensure achievement of objectives, protection of assets, elimination of waste, misuse, fraud and pilferage.
- A system of reliable accounting should be ensured to undertake review of budget execution and provide input for decision making.
- In order to keep the stakeholders informed on the execution of budget, proper internal and external audit should be periodically conducted.