1. Budgeting Process.

An interview with Mejar Abd Hafiz bin Mohd Nazri, Staff Officer 2 Finance, 5 th Brigade
Headquarters with regard to flow and budget process has been conducted on 19 th August 19 at
Transit Hall, Kuala Lumpur. Transcript of this interview as follows:
Interviewer: Assalamualaikum and a very good morning. First and foremost I would like to
say thank you for able to spend time to explain the flow and budget process at
5th Brigade. Before that, could you share some of your background and
experiences?
Mejar Hafiz: Waalaikumsalam and good morning. I have joined General Services Corp (Pay)
on 21st May 2005. My first appointment was Pay Officer at Regiment 507
Territorial Army, Staff Officer 3 Finance at 5th Brigade Headquarters before I
have been promoted to Staff Officer 2 Finance until now. I have attended
numerous courses and seminar related to finance and budget such as Outcome
Based Budgeting (OBB) Seminar at Armed Forces level, Centralized Contract
and Direct Purchase Course, Financial and Account Management Course and
Financial Management Seminar. It is almost 14 years I have involved with
financial and budgeting management.
Interviewer: Can you explain how the budget process conducted at Brigade level? Who else
involved in the process and what is the role of the units under the Brigade?
Mejar Hafiz: Basically at Brigade level, Brigade Commander is the chairman for the Budget
Committee assisting by Chief of Staff and Staff Officer 2 Finance and attended
by units under the ambit of Brigade. Before the budget meeting conducted,
units also known as a Pusat Kos (PK) have to submit annual budget based on
current policies and guidelines to produce budget. Units will prepare budget
based on activities and needs as well as impact (outcome and endstate) for
every single budget requested. Budgets prepared by units will be separated
according to Objek Sebagai (OS) such as OS21000 for claims, OS24000 for
rental, OS27000 for sport and training, OS28000 for maintenance and OS29000
for services. Budgets prepared at units level is also known as Procurement Plan
or Rancangan Perolehan (RP). Budget meeting will be conducted once all units
have submitted the requirements. Budget committee will screening and evaluate

1
 the outcome and endstate of the applications and only reasonable applications
will be prioritized and approved. In addition, the meeting was held to identify
the needs that could be applied and joined together instead of single
application. During this meeting, Commanding Officers of units will have the
opportunities to explain and fight for their budgets. Once the members of
meeting agreed with the budgets presented, it will be compiled as a 5 th Brigade
Procurement Plan (RP) and submitted to 5th Division Headquarters. Brigade and
Division level also known as a Pusat Tanggungjawab (PTJ).
Interviewer: Once 5th Brigade Procurement Plan received by 5th Division Headquarters, what
will be the next process?
Mejar Hafiz: It will be the same process conducted at Brigade level whereby 5th Brigade and
13th Brigade will submitting their overall budget to 5 th Division Headquarters.
Division Commander will chair the meeting and assisting by Chief of Staff,
Staff Officer 1 Admin, Operation and Logistics as well as Brigade
Commanders. This process will continue to Army Field Command level
whereby it also known as Sub-Activitiy. At this level, it will go through the
same process with same additional process such as prepare draft of B60 before
submitting to Army Level.
Interviewer: So, what is the final process at Army Level?
Mejar Hafiz At Army level, budgeting is also known as a Program 4 (Army) and it is
managed by Army Planning and Development Branch (Cwg Perancagan &
Pembangunan). Assistant Chief of Staff Army Planning and Development
Branch will compile all budgets from Army Field Commands and go through
the same process. The Chief of Army will chair the budget meeting and
screening all demands based on vital, desirable and essential requirements.
Only vital and desirable demand as well as give huge impacts in outcome and
endstate will be considered due to budget constraints. Once meeting members
approved the budget presented to the Chief of Army, all activities and program
will be registered under the Program 4 (Army). The allocation will be
disseminated down following chain of command until to unit level through
B60.
Interviewer: I think it is so fascinating. Once again thank you very much for your
explanation with regard to budgeting process in the Army especially at Brigade

2
 level. Thank you.
Mejar Hafiz: You are most welcome Sir.

Performance based budgeting has been a common reform among finance ministries
worldwide to align domestic budgeting procedures with medium-term strategic plans. It also help
generate incentives to enhance public service delivery. In the government sector, the budgeting
method can be even more complicated, as the organization's goals are more complicated to
quantify than a private company's goals. For instance, the goals of a private company may be to
maximize profit. Thus, meeting of this goal can be set in the budget by aiming for a percentage
increase in revenues and possibly cutting different expenses. However, on the other hand,
budgeting in public sector organization such as Ministry of Defence, the goals can be highly
qualitative such as to protect sovereignty, integrity and national interests. This is difficult to
describe in a quantifiable, and it is even more difficult to describe how it is effectively
accomplished. In Malaysia, the government of Malaysia has embarked on a more outcome-based
strategy to the annual budget process namely outcome –based budgeting. Using outcome-based
budgeting, Malaysia has effectively linked national high-level approaches to particular budget
programs and operations using a common accountability outcome structure. The outcome-based
budgeting has been implemented in all ministries including Ministry of Defence. It also has been
implemented in the Army down to unit level.
According to Colin Drury in his management and accounting slides, Chapter 15, one of
the process in budgeting is to determine the factor that restricts output while in public service
specifically at Brigade level, there is no such process of determine the factor that restricts output.
Based on the interviewed, budget at Brigade level is focusing on the desire outcome and endstate
to be achieved by units. It is Brigade duties to evaluate and identify every single cents allocate to
units later on will contribute to Brigade outcome and endstate as a whole. Some units might
share common outcome and endstate, thus it is Brigade responsibility to centralise the allocation
and some allocation could be reduced for example if two different units in same location
intending to build an abseiling tower, it is more practical to build only one facilities and utilise
the abseiling tower together in order to achieve common outcome that is to develop military self-
confidence, highly qualified and skilled soldiers.
Other than that, there is no such process of preparation of the sales budget in Brigade
budgeting process. Other budget process conducted at Brigade level is to identify and determine

3
as well as measure the quality of each outcome in certain period of time such as the confidence
of the soldiers who are perform abseiling through the annual self-test. If there is an increase in
the percentage of the test, the budget allocated is achieve its endstate.

In conclusion, every single profit or non-profit organisation will conducting budgeting

process because it is an essential way for organisation to manage their allocation while achieving
their targets. The budgeting process offers a management planning, coordination and control for
organisation. However, it is often a difficult process either in private or government sector
because it required details planning and between activities, allocation involved and impact to
organisation. At Brigade level, outcome-based budgeting have showed more impact to units as
well as to overall organisation performance.

2. Return on Investment.

In general, the return on investment is a term that relates to how well an investment
performs over time. There are many distinct ways to look at return on investment. The objective
of investing is to make money, so it is natural to pursue any offer that give maximum return on
investment. However, there are also few cases of new investors lose money because of they are
eager and chasing unrealistic rates of return on their investments without taken in account some
considerations related to investment whether they are buying real estate, bonds, stocks, mutual
funds or others. According to accountingtools website return on investment is a tool designed to
measure and evaluate income generated from the ability of an investment. The ratio is used to
compare alternative investment decisions and to determine whether current investment
constitutes an effective use of assets, money, bonds and others. The calculated return on
investment is a ratio or percentage that compares net profits with net costs. Return on investment
is popular with financial and non-financial trade people as return on investment offers a measure
of investment profitability that is both direct and easy to understand. One of the most common
investor measurements, given the simple accessibility of the necessary data and the simplicity of
the formula is the return of investment two step process which is the profit of investment (current
value - cost value) is divided by the cost of investment.

4
 It cannot be deny that return on investment offers numerous advantages to business units
or entrepreneurs due to its simplicity but effective at the same time, able to measures the
competition in the market and simplest calculations in financial ratios. The advantages of return
of investment are it offers better measurement of profitability, in terms of profitability and usage
of assets, return on investment helps to compare distinct business units, return on investment is
significant in evaluating investment division efficiency and return on investment is considered
the single most important measure of performance of an investment division and it includes other
performance aspects of a business unit.
On the other hand, there are also issues with regard to return on investment. One of the
issues is business unit having hard time to define and apply profit and investment terms because
there are so many ways to apply profit measurement such as profit before interest and tax, profit
after interest and tax, profit after deducting all allocated fixed costs and others. Similarly goes to
the investment terms, it could be defined as net book value, historical cost of assets, current cost
of assets, assets including or excluding intangible assets. If business unit unable to define type of
profit terms to be used in measurement, it is afraid that business unit would facing problem in
future in identify its return on investment. The return on investment also may influence a
divisional manager to choose only investments with high rates of return (such as rates which are
close or above target return on investment). Moreover, divisional manager may refuse to invest
in any project that would reduce the division’s return on investment even though it could
increase the value of the business. However, although this investment would not contributed as
much to the business as a whole, it is likely that another division may invest in this project which
could improve its current return on investment which may be lower than a division’s return on
investment which has rejected the investment. Based on both situation above, those types of
decisions made could distort overall allocation of company resources and it could lead a manager
to make under investing in order to keep its current return on investment. A better return on
investment is defined as company able to excess its return on investment at least at minimum
desired rate of return, usually based on the firm’s cost of capital.
Other than that, business units received higher return on investment and other units
received lower return on investment are affected differently by utilizing return on investment as
investment selection aspects. The return on investment evaluation provides disincentive to the
best division to expand while the division with the lowest return on investment would have an

5
opportunity to get an incentive to invest in new projects to enhance their return on investment. In
this situation, the most profitable units are demotivated to invest in a project that does not exceed
their current ROI, although the project would give a good return. This may be in conflict with
goal setting and interests of the company as a whole.
Other issues on return on investment is return on investment provides profitability and
short term results while it ignoring long term profitability focus. The return on investment
regarded as current cost and revenue at certain period and it does not taken into account to others
expenditures and investments that could increase long term profitability for a company.
Normally, managers tend to avoid any new expenses and investments due to uncertain of return
on investments or return on investment is lower that targeted. Other some business unit, it would
cut some expenses on advertising, research and development, employee training and other
aspects in order to improve the existing return on investment. However, these kind decisions will
also give negative impact for long term profitability. Thus, it is suggested for the business unit to
utilised return on investment as only one parameter of an overall evaluation criteria either to
accept or reject any new investment.
In conclusion, return on investment metric is a common technique of assessing the
economic implications of investments and actions. The calculated investment return is a ratio or
percentage, which compares net gains with net costs. This technique is popular with financial
and non-financial company and individuals alike because it simple and easy to comprehend as
well as measure profitability from investment. In order to obtain net profit using the correct
return on investment techniques, all the problems should be evaluate and resolved in line with
the present scenario and circumstances hence we able fix the problems and implement the return
on investment in a practical and systematic ways. Last but not the least, knowing the return on
investments risks and problems and may deter any misuse of return on investment
implementation as a decision-making tool.

3.1 Transfer Pricing.

Transfer pricing refers to the transfer price or controlled transactions between related
parties who are under the command of one party whether indirectly or directly. The transactions
could be supply of goods, service and others. Transfer prices are often used within the company
to record intra-firm transactions between different divisions. On one hand, they produce

6
divisional performance measurement data and provide the foundation for accounting
management. On the other hand, they affect the overall tax liability of the company when
divisions operate in several tax jurisdictions. Research has further demonstrated that transfer
prices can also serve strategic purposes when certain divisions of a company face competition.
(Alles and Datar, 1998; Arya and Mittendorf, 2008; Arya et al., 2008; Baldenius and
Reichelstein, 2006; Narayanan and Smith, 2000; Zhao, 2000). Typical reasoning for the strategic
use of transfer pricing is based on the capacity of the company to practice price discrimination by
charging transfer prices to its own affiliate on terms that are more favourable than those charged
to unrelated competitors, the company is able to enhance the affiliate's competitive position
against the unrelated competitors. However, the capacity of the company to practice such price
discrimination may be restricted by the so-called arm’s length principle. According to….. arm’s
length principle is defined as “entities that are related via management, control or capital in
their controlled transactions should agree the same terms and conditions which would have been
agreed between non-related entities for comparable uncontrolled transactions”. According to
Article 9 of the Organization for Economic Cooperation and Development (OECD) Model Tax
Convention, arms’ length principle express that the transfer price between two related companies
should be the same price paid in similar situation for similar products by unrelated parties
dealing with each other in arm's length. The arm’s length principle is accepted by majority
countries by including an according provision in domestic legislation. When implementing the
arm’s length principle, most jurisdictions regard a comparable uncontrolled price as the most
reliable indicator of an arm length price and failure to comply with the arm’s length principle
could lead to action or penalty. One of the main reason for arm’s length principle established is to
provide multinationals and independent companies with a wide parity of tax treatment. Since the
arm’s length principle places affiliated and independent companies on a more equal footing for
tax reasons, it prevents creating tax advantages that would otherwise disturb the relative
competitive positions of each type of organization. Basically, different countries have differences
in tax rates, if left unchecked the practice could result in shifting of profits from high tax to lower
tax countries especially to multinational enterprises. Thus, with the arm’s length principle, the
multinational enterprises who able to control their companies around the world are no longer
able to shift profits from high to low tax countries illegally and unlawfully for the purpose to

7
gain higher profit. This principle want that controlled transactions are conducted based on market
rates.
In conclusion, transfer pricing refers to the terms and conditions of their controlled
transactions agreed by associated companies. These prices are important. They affect the
individual performance of associated companies and hence the amount of taxes they pay.
Transfer pricing rules provide the terms and conditions of controlled transactions which slightly
similar for uncontrolled transactions. The main objective of these rules is to avoid profit shifting
from high tax to low tax countries. The arm’s length principle in transfer pricing allow countries
authorities to control multinational enterprises from unlawfully shifting profit from higher to
lower tax countries. The Organization for Economic Cooperation and Development (OECD) has
integrated the arm’s length principle as part of the transfer pricing regulations setting out the
guidelines to be applied by multinational enterprises in determining the terms and conditions of
regulated transactions.

3.2 Describe the tax avoidance in multinational corporate decision making.

Today’s environment has showed that tax avoidance have become an integral part of
modern business practices especially for multinational corporations. Although these practices
have gained significant media attention and public criticism globally, some corporate leaders
have shown notable nonchalance towards their tax avoidance practice or have even expressed
pride what they have done. Due to their size and the unclear space between national politics and
the globalized economy in which they navigate, multinational corporations play a prominent and
contentious role in today's global economy Spero & Hart, 2010).. According to …………..
multinational corporations define as “an enterprise that engages in foreign direct investment
(FDI) and that owns or controls value-added activities in more than one country”. Multinational
corporations work across jurisdictions and accountable to their stockholders. Governments are
intended to protect their citizens ' interests and stay bound to some political and territorial space,
applying taxation as an essential component of their national sovereignty. According to …… tax
avoidance is define as “the legal means by which businesses or individuals use tax laws to lower
their tax liability”. For instance, this can imply that prospective taxpayers attempt to circumvent
a taxable activity by preventing a tax base from being created in the first place.

8
 There are two ways used by multinational corporations to avoid taxes within the
international tax system namely intragroup loans and transfer pricing. The first technique is the
use of intra-group loans, where debt is transferred to subsidiaries in nations with greater tax
levels to reduce profits there and channeling them to low tax nations instead. However, this
technique is easy for tax authorities to identify and discover. The second technique and the most
likely utilized is transfer pricing whereby the multinational corporation will change the transfer
prices between two or more of its organizations to its advantage, transferring profit from high tax
nations to low tax regions. In low tax jurisdictions, multinational corporations can also use
subsidiaries to move profits. These subsidiaries will perform services or act as asset holding
companies, enabling reduced taxes to be paid by trans-national corporations. Despite the fact that
many of these subsidiary companies exist only on paper, they can even pay inflated charges, shift
large quantities of profit to low-tax regions and thus reduce the multinational corporations
overall tax liability. Based on both technique, Transfer pricing is known to be difficult to detect
for two main reasons. Firstly, tax authorities look at billions of intrafirm transfers annually,
which is even challenging for tax authorities with substantial funds. Secondly, when international
trade was primarily based on products, it was already hard to determine a fair price for intra-
group transfers, but this has become almost impossible owing to the double transition to more
digital goods and more service-based economies.
Tax avoidance by multinational corporations have brought impact to the countries and
undermine societal pact and harm stackholders. For state government, tax avoidance means less
revenue and greater expenses of compliance. Sometimes underfunding basic facilities can
prevent countries from meeting public requirements which can trigger cause or worsen crises.
Unfair tax competition through tax havens leads to increased tax competition among nations,
forcing countries to further lower their tax rates. Perhaps most worryingly, when citizens and
small and medium enterprises perceive that multinational corporations can avoid taxes, their
confidence to government in public fairness is undermined. Losses in tax revenue imply that
other taxpayers will have to fill the budget gaps and are likely to receive fewer facilities in
exchange from government. For business unit especially domestic, their businesses are primarily
at danger of harm to reputation. Those businesses that are not prepared to engage in tax
avoidance, or those that work in a land that have no or less chance of lowering their tax
liabilities, will have higher effective tax rates and thus have a competitive disadvantage to

9
multinational corporations that avoid taxes. Thus, tax avoidance generates unfair distortions to
the market.
In conclusion, tax avoidance methods used by multinational corporations have frustrated
tax collection agencies, governments and shareholders for many years. Despite efforts to handle
tax avoidance attempts by governments and other international organizations, multinational
corporations and their tax advisors have continuously attempted to maneuver new laws and
exploit new gaps. Although some strategies provide a proactive, deterrence-oriented strategy to
combat tax avoidance that many governments found appealing, only limited success has been
accomplished with these strategies. One of the strategy is merely to reduce corporate tax rates,
making competition theoretically void between low-tax jurisdictions and other countries.
However, this strategy is not an efficient way of tackling avoidance because some evidence
demonstrate that profit shifts have continued to grow in those areas where efficient rates have
dropped significantly. There is no government in the world able to tackling tax avoidance. A
world that is divided into numerous jurisdictions is at odds or in conflict with multinational
corporations that see the whole world as their blank canvas, are prepared to move activities
wherever it fits them and may be prey to the temptation to use the methods of tax avoidance.

4. Strategic Cost Management

Kaizen is one of techniques in cost strategic management used widely forin many
industries to improvement in all areas. Kaizen is define as "continuous improvement" and has a
simple concept. It is came from two Japanese characters that is “Kai” means change and “Zen”
means good. The founder of this concept is Dr. W. Edwards Deming, an American statistician
who made many visits to Japan in the years following World War II. Further explanation of
Kaizen in Japanese is we must always be aware of how all processes could be improved and how
each individual in the company can contribute. According to Imai Kaizen is a umbrella concept
that involves a series of activities covering operations in production planning, human resource
policies and procedures, leadership approaches to organization and management. Kaizen is
process-oriented, concentrating on discipline, time management, skill growth, engagement and
participation, morality and interaction. Kaizen generates a culture that enables creativity and
ideas for employees to strive, resulting in companies being able to respond rapidly to alter and

10
aim better or differently across main business function. Thus, Kaizen has led to drastic gains in
productivity, enriched employment and enhanced motivation. Toyota is one of the companies
who succeed by implementing Kaizen. Toyota Industries Corporation is the world's biggest
vehicle manufacturer and founded in 1926 by Sakichi Toyoda. It operates its company globally
and leads the automotive industry with the achievement of hybrid technology in environmental
technologies. Toyota's cars are sold in over 170 nations and employed around 320,808
individuals globally. To implement this technique, a serious employee engagement with the
company and discipline that involves all members, both senior officers, as middle and low
positions is required. It also includes all the company's areas.
In order to enhance productivity and effectiveness in Toyota Production System, Toyota
has adopted Kaizen technique. Toyota increase the effectiveness of manufacturing through
voluntary worker activity and organized activities instead of reduce labor costs that has never
been. It was managed under the ambit of Kaizen Costing management and Production Efficiency
Management. One of the activities is Kaizen Organised Activities. About this type of kaizen,
there has been numerous division of labor between group leaders, chief leaders, senior officials
such as sub-section leader, engineers and store executives. Each group have their own
responsibility with regard to improve overall productivity and effectiveness of Toyota Production
System. The group leaders are primarily responsible for decreasing their employees ' cycle time
by enhancing their method of operation. It contributes, of course, to the contraction of their
group's actual working hours and, after all, to the shortening of standard times. In reality, their
primary role is to establish standard job and standard time. In order to do this, the line stop
scheme is helpful for solving issues. The chief leaders is responsible to shorten their work unit's
normal times but this only occurs by changing the method to reduce of their unit’s employees. It
is a significant technique for improving manufacturing effectiveness and reducing labor costs at
Toyota. They also take over the actual reduction of working hours by process improvements
from various working components. Besides group leaders and chief leaders involved in kaizen, a
maintenance team also involved in increasing the reliability of equipment by carried out
preventive maintenance and equipment in order to reducing line stops due to breakdown of the
machine.
Other than that, voluntary workers activities also play an important roles in increase
productivity and effectiveness in Toyota Production System. The Toyota management views that

11
workers idea is important for company’s improvement. Their own activities have a different
significance than improving the effectiveness of manufacturing and reducing the cost of
manufacturing. It is important to think about their workplace and environment as well as the
quality of their products. It serves as training for their Kaizen mind and ability, for example
searching for problem in their work environment, action to be taken and solving problem. In the
case of quality rotation, an employee becomes its leader in rotation and discusses a problem with
the other employees. It forms leadership capacity, communication as well as cooperation mind.
The most important activities is to form their Kaizen Mind and Teamwork especially among
Toyota’s members. These voluntary activities also enable employees to pay attention to product
quality, productivity, expenses and safety in their operations. By implementing kaizen activities
through quality rotation or the suggestion system even if they unable to realize an important
Kaizen from financial perspective, workers are ultimately able to acquire the skills needed for
becoming supervisory staff, given the fact that supervisory employees is chosen from employees.
For these reason, the emphasis is on their own activities.
In conclusion, Kaizen is useful for solving problems in any business or industry strategy.
Kaizen's benefit in the business is that the issues are recognized at source and resolved
effectively. In addition, small improvements that are accomplished can add up major value to
significant company. Kaizen is a continuous improvement technique that helps in a business
process to eliminate waste and flaws. Despite being useful to a company, it also beneficial to
workers and clients. However, before selecting Kaizen, it is essential for business managers to
know Kaizen advantages and disadvantages. Besides eliminating waste in business processes,
Kaizen enables to enhance effectiveness. Kaizen creates standardized processes of work, lowers
costs and increases productivity. Moreover, the leader of an organization often leads Kaizen. To
qualify as a team leader, it is not essential for a worker to be in a management position. The
implementation of Kaizen thus enable workers the opportunity to assume leadership roles and
demonstrate their leadership abilities. Other Kaizen benefits include enhancing teamwork and
involving workers in decision-making.

Referrences

12
https://www.accountingtools.com/articles/return-on-investment.html

13