This includes countries where the ministry of finance assigns a financial controller or a budget offcer to each line ministry in order to control expenditure commitments. The key reforms include development of expenditure plans by line agencies and submission of these plans to the ministry of finance for decision on apportionment, and preparation of reliable cash flow forecasts to serve as the basis for apportionment. Expenditure not appropriated/authorized by the start of fiscal year. In addition to it, the Budget contains: Estimates of revenue and capital receipts, Ways and means to raise the revenue, These regulations, among other things, prescribe the establishment of responsibility for financial decisions, the segregation of duties to ensure appropriate checks and balances, and documentation procedures for maintaining a defined audit trail. The amount should be correctly calculated and there should be no hidden expenses. In national finance, the period covered by a budget is usually a year, known as a financial or fiscal year, which may or may not correspond with the calendar year. The paper also examines the influence of different administrative traditions on types of expenditure controls, including the authority and responsibility of various institutional actors. In general, relatively advanced countries have moved further in the direction of devolving their expenditure control systems than developing countries, but this is not true in all countries. Table 4 lists some specific tools and measures that can address weaknesses at different stages of the expenditure cycle. _paq.push(['setTrackerUrl', u+'matomo.php']); In broad terms, Commonwealth systems28 are characterized by the devolution of the responsibility for financial control and the issue of payment orders to line ministries. Countries of the former Soviet Union (FSU) have tended to retain centralized treasury departments to control and process government payments, while controls at the commitment, verification and payment order stages remain with the line ministries/agencies. International Monetary Fund Copyright 2010-2021. None of the Scandinavian countries have formalized apportionment (or in-year release of spending authority) mechanisms. g.type='text/javascript'; g.async=true; g.defer=true; g.src=u+'matomo.js'; s.parentNode.insertBefore(g,s); While the controls may be well specified and the roles and responsibilities of the key actors clarified in a countrys legal/regulatory framework, problems may still arise due to lack of enforcement. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. Therefore, unlike the old French system, the key principles here are integration and delegation. The system is unlike that in France where each line minister has always been an Ordonnateur Principal. Payroll controls (a subset of commitment control): The objective of payroll controls is to control personnel expenditures and staffing numbers. The word budget is derived from the Old French bougette ("little bag"). A centralized accounting organization (usually called Accountant General) is responsible for making payments and keeping accounting records. In Francophone and Lusophone systems, such wide ranging responsibilities are not provided to spending agencies and various departments of the ministry of finance play a major role at key stages of the expenditure cycle. an emphasis on transparency and accountability to the legislature and the public for expenditure overruns. This model assigns both the authority to spend and the responsibility to ensure the regularity of each transaction to the same agency. At this stage, there is no commitment, but it is known that the expense will be incurred during the budget year and, therefore, the reserved funds should not be used for other activities. This setting aside of an allotment for a future expenditure should not be confused with a legal commitment as no specific contract is signed at this stage. The common practice was for lines of credit to be given to line ministries/agencies to spend against accounts in local banks. In particular, it is important to ensure effective coordination between issuance of warrants/allotments by the budget department and cash planning and management by the treasury so that adequate cash is available for payment when the line ministries/agencies expenditure commitments materialize.23 Similarly, transaction level bank reconciliation by the accounting department and/or line agencies should be coordinated with the treasury departments monitoring of cash balances in various bank accounts. On the sectoral side, growth in public administration, defence and other services decelerated to a two-year low of 2.0 percent YoY in Q3 versus 5.6 . Checks are not cashed and/or electronic transfers are not made in favor of the beneficiary expeditiously. Warrants/allotments are not used as a cash rationing tool. The commitment stage is the point at which a potential future obligation to pay is established. Budget Preparation. Show answer A Diagnostic Framework to Assess the Capacity of a Government's Financial Management Information System as a Budget Management Tool, Rwanda Nutrition Expenditure and Institutional Review 2020. Special procedures are also sometimes a symptom of the inefficiency of the normal procedures to respond adequately to priority needs. 4, Paris. Expenditures. These are (i) appropriation control; (ii) commitment control; (iii) aggregate cash control; (iv) control of regularity; (v) accounting control; and (vi) other specific controls. Apportionment. For further background information and discussion on specific features of commitment control, see D. Radev and P. Khemani (2009). Whereas, in Francophone systems, the financial control officer is employed by the Budget Office, in Lusophone systems the payment-authorizing officer is employed by the Accounting Office. Budgets are not the only mechanisms that provide the legal authorization to incur expenditure. Approaches to prioritising expenditure where there are competing demands for funding. The TSA systems in some of these countries give financial incentives for smoothing expenditure profiles. In some countries, ministries of finance regard expenditure as having taken place when funds are transferred from the ministry of finance or treasury bank accounts to the line ministries (or first-tier spending units). PEFA Scores (200614) of 85 Countries for Expenditure Control Indicator, Citation: Technical Notes and Manuals 2016, 002; 10.5089/9781513574639.005.A001, Expenditure Control and Budget Credibility. /* tracker methods like "setCustomDimension" should be called before "trackPageView" */ _paq.push(['enableLinkTracking']); Control of procurement: Significant public spending takes place through the public procurement system. This will be dependent on sustained improvements in financial management standards and management information, and assurance of a control-conscious culture in each agency. Ensures that expenditure commitments by spending units are fully in line with the expenditure limits and the released spending authority. Overdue liabilities/payables as a percentage of the value of total payment orders issued; PEFA PI-21.2; and PI-25.3. As such, the AEs are consumed at the commitment stage of the expenditure or the legal act of signing a contract of the State with a third party.1 In the case of a commitment running over several years, its associated CP is spread over several budget years up to the cumulative maximum amount of the initial multiannual AE. To function effectively, this approach requires a high level of capacity in the line agencies with devolved authority, timely and transparent financial reporting, and a strong internal and external audit function. Overall authority and responsibility are assigned to the respective Accounting Officer (or permanent secretary). Cash plans in these countries are used as tools for rationing expenditure authority but themselves tend to be unrealistically optimistic, as they do not reflect expected cash outflows based on commitments. It was centralized by a 1997 directive that applies to all the West African Economic and Monetary Union (WAEMU) countries. 3. In some countries, it may conduct its own pre-payment audits prior to executing payments. Effective expenditure control is the sine qua non of good public financial management (PFM). Khan, A., and M. Pessoa, 2013, Accrual Budgeting; Opportunities and Challenges, Chapter 11, PFM and its Emerging Architecture (Washington: International Monetary Fund). PEFA PI-27; and value of check float (or float of electronic transfer instructions) as a percentage of total value of checks (or electronic transfer instructions) issued. They maintain systems of internal control, and regularly report to the ministry of finance and other central agencies on their financial operations. The authorization for expenditure is usually given through the budget law which defines the time horizon for, limits on,5 purpose of, and administrative unit accountable for government expenditure (Box 1).6 To deal with unanticipated spending pressures, some flexibility in the allocation of expenditure between sectors may be allowed subject to clear rules/criteria (e.g., through virements and/or allocation from a contingency reserve). The various controls applied during the expenditure cycle can be grouped into six main categories. Inordinate delay in issuance of spending authority to line agencies. not tracked. The lack of effective communication between treasury, which uses a cash-based budget execution system, and line agencies, which maintain their own accounting records (normally on accrual basis), leads to problems in reconciling expenditure data. France, following the introduction of a new organic budget law in 2001, overhauled the budget execution system by decentralizing it somewhat toward line ministries. While the institutional arrangements for raising government revenue are typically quite centralized in a national revenue authority, the expenditure of those resources involves a wide array of public entities at various levels of government, even in countries with relatively centralized PFM systems. For this purpose, the spending units were grouped into two categories and the devolution of financial and expenditure control started with the best-performing line agencies at the superior level. This devolution/decentralization of financial and expenditure control should be gradual and based on predefined competency criteria for line ministries/agencies who should demonstrate that they can operate with higher levels of delegated authority. For example, the Social Security Act requires the government to provide payments to beneficiaries based on the amount of money they've earned and other factors. Funds/cash not available in government bank accounts to implement the payment order. . A key question is whether reforms should focus on strengthening the traditional system or leapfrogging to the modern devolved approach. In fact, with the functionalities available from a modern IT-based FMIS, information on budget execution can be made quickly available, and it becomes straightforward for the ministry of finance/treasury to track expenditure transactions as they pass through the various stages of the expenditure cycle, even when transactions are fully administered within line agencies. For 2023, proposed government spending is GH205 431 million (25.6% of GDP), 53.5% more than the previous year. Some countries PFM systems may not formally track all the seven stages (see discussion in page 9). Mariance analysis is the budgeting review technique universally applied for analyzing budgeting estimates. The lack of systematic tracking and control of commitments leads to over commitment and arrears in several countries of commonwealth tradition, particularly in Africa. It is not a good practice to net payments against revenue due from the same recipient, as it hinders the transparent reporting of government revenues and expenditures as they pass through the various stages.15. Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. The cash plans should be prepared in conformity with budget authorization and systematically take account of ongoing commitments. Three of the seven stages (commitment, verification, and payment) involve a third party (a creditor, supplier, beneficiary, etc.) A unit of government, typically a line ministry, department or agency, is assigned the responsibility to ensure that the appropriated resources are spent as intended within the authorized limits. Exceptional procedures eliminated by streamlining the control framework and business processes to address priority needs. Article 78 of the WAEMU Directive No. A Government Deficit is the amount of money in the set budget by which the government expenditure exceeds the government income amount. As part of the comprehensive reform of its budget framework in 2001, France introduced multiannual commitment authorizations as a means of controlling expenditure obligations and associated payments for programs or projects that span more than one year (e.g., investment projects). At the same time, centralization has the disadvantage of: (i) undermining spending responsibilities of managers in line agencies in the day-to-day management of line ministries/agencies budgets; (iii) inefficient decision-making (including superimposed prioritization) and rigid controls by the ministry of finance when it lacks the detailed information on the spending requirements of agencies;26 and (iv) presenting opportunities for rent seeking by officials implementing multiple and cumbersome controls. An overview. It will also usefully guide technical assistance work related to modernization of government budget execution and expenditure control systems, including the design and implementation of IT-based financial management information systems. Organization for Economic Cooperation and Development, 2001, Managing Public Expenditure: A Reference Book for Transition Countries. Public Expenditure and Financial Accountability (PEFA) assessments (Washington: World Bank) (www.pefa.org). Reforms could usefully be implemented in phases as follows: In the first phase, the focus should be on establishing basic control functions such as centralized control of apportionments and simplified/streamlined but effective controls42 at other stages of the expenditure cycle, particularly commitment control backed by cash planning43 linked to timely release of funds to spending agencies. Governments expenditure must be within the amounts that the budget appropriations have established, with some flexibility allowed through virements and contingency reserve mechanisms. For example, prior to the 1990s, financial control was under the Presidency (Cte dIvoire), the Prime Ministers Office (Senegal), or was the responsibility of a separate ministry. Lienert, I., and F. Sarraf, 2001, Systemic Weaknesses of Budget Management in Anglophone Africa, Working Paper WP/01/211, (Washington: International Monetary Fund). The three main types of government expenditure include public services, transfer payments, and debt interest. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. The reforms should focus on streamlining the procurement process to reduce the time of withholding the reserved funds before they are committed, and ensuring that these reserved funds are in the TSA. Therefore, there would be no under-execution of the budget under these circumstances. the use of policy (such as fiscal policy or monetary policy) to reduce the severity of recessions and excessively strong expansions; the goal of stabilization policy is not to eliminate the business cycle, just to smooth it out. Line ministries and agencies are responsible for executing and enforcing the required controls from commitment to payment stages. 6. var u="https://piwik.pentaho.aidcvt.com/"; Payment and verification (in case of accrual accounting) stages. The central idea here is that not all expenditure transactions need to pass through an identical control process. weak expenditure controls are also associated with a lack of budget credibility as measured by PEFA indicator PI-1 (Figure 3). Excessive time lag between reservation and commitment resulting in unnecessary encumbrance on available funds. Khan, A., and M. Pessoa, 2010, Conceptual Design: A Critical Element of a Government Financial Management Information System Project, Technical Notes and Manuals (Washington: International Monetary Fund). Sweden has a separate debt management agency which also administers the TSA system. In many countries each appropriation is the subject of a separate vote by the legislature. If an FMIS is envisaged, its configuration and rollout should explicitly be linked to planned expenditure control reforms. While expenditure control frameworks differ greatly from country to country, it is nonetheless possible to define, in a generic sense: the key stages of the budget execution cycle; the specific control objectives at each of these stages; and. Officials of the finance ministry and the public accounting directorate play an important role during the apportionment, commitment and payment stages. The allocation of authority and responsibility to various actors for enforcing the controls at each stage of the expenditure cycle varies from one country to another, but some common features can be noted (see Table 2). As these countries transitioned to market-based economies, they established centralized treasury departments under the finance ministry to process payments and exercise control at the payment stage. 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