In countries of the British Commonwealth tradition, officials in spending agencies are charged with initiating and authorizing expenditure transactions, from commitment to payment, based on apportionments/allotments/warrants issued by the ministry of finance. The reform strategy and action plan should provide for monitoring the progress. Despite their different administrative origins, there has been some convergence between various expenditure control systems in recent years. Commitment-based budgeting systems impose limits on both expenditure commitments and cash payments. Following the approval of the budget/appropriation bill, spending agencies are usually asked to submit a proposed plan for apportionment/allotment. Government Spending: Giveth Some, Taketh Some. These stages are: 1. 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). Verifies the legal and administrative compliance to ensure that the expenditure operation and related documents/contracts follow the procedure, prescribed in the law and/or financial regulations. 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. 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). Monetary policy. Sometimes, a consolidated check is issued to cover multiple payments by the bank to the respective beneficiaries accounts (e.g., payroll payments) as per the treasurys instructions. It can be spent on a range of different . Allowing ministries and agencies to commit and use their resources whenever they want complicates cash management.40. Where centralized payment and/or payroll systems exist, they may also be responsible for authorizing payment orders and/or making payments. In addition to reviewing and streamlining the formal procedures defined by the financial regulations, informal and any special procedures and practices that bypass the normal expenditure cycle should be thoroughly reviewed and (to the extent possible) eliminated.44 Business rules and processes should be established to enable faster spending execution to address priority needs rather than relying on informal/special procedures that undermine the effectiveness of the expenditure control framework. The valuations also usefully inform the employer and employee contribution rates to make the pension scheme sustainable. A commitment thus entails an obligation to pay when the third party has complied with the provisions of the contract. Allen, R., and D. Radev, 2009, Extrabudgetary Funds, Technical Notes and Manuals (Washington: International Monetary Fund). . Commitment approval delinked from apportionment and cash management frameworks. 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. PFM Traditions Influencing the Expenditure Control Framework, Tradition in the former Soviet Union countries, V. Identifying Weaknesses in the Expenditure Control Systems, Weaknesses of different expenditure control systems, Diagnosing weaknesses in a particular country, Specific measures to address expenditure control weaknesses, Monitoring reform progress and managing the change, http://www.issai.org/media/13329/intosai_gov_9100_e.pdf, Prevention and Management of Government Arrears, Conceptual Design: A Critical Element of a Successful Government Financial Management Information System Project, Implementing Accrual Accounting in the Public Sector, Unorthodox Expenditure Procedures in CEMAC and WAEMU Countries, Liberia: Public Expenditure and Financial Accountability (PEFA) Assessment, Republic of Mozambique: Technical Assistance Report on Regaining Control Over Budget Execution, 19 A Comparison Between Two Public Expenditure Management Systems in Africa, North Macedonia: Technical Assistance Report - Public Expenditure and Financial Accountability Performance Assessment, Republic of Mozambique: Strategy for Restoring the Expenditure Chain and Improving Financial Programming, Mauritius: Public Expenditure and Financial Accountability (PEFA) Assessment, Niger: Public Expenditure and Financial Accountability (PEFA) Assessment, Public Financial Management Systems - Indonesia: Key Elements from a Financial Management Perspective, Governance Brief No. Ensures that transactions are properly recorded and accounted for to produce timely and reliable fiscal reports and financial statements. An overview. Payment. The TSA systems in some of these countries give financial incentives for smoothing expenditure profiles. Commitment. Check float has two dimensions: (i) check float time; and (ii) check float amount. For 2023, proposed government spending is GH205 431 million (25.6% of GDP), 53.5% more than the previous year. PFM weaknesses such as lack of a comprehensive and credible budget,41 poor cash planning or shallow markets for government debt, reporting delays, and accumulation of liabilities/arrears also undermine the effectiveness of expenditure control. For example, most countries with a Francophone tradition of budgeting enforce two types of expenditure limits: (i) the crdit limitatif, which enforces a strict limit; and the crdit valuatif, which is an indicative limit for certain categories of expenditure, e.g., debt service. Budget Preparation. Time horizon of apportionment too short for expenditure planning and execution by line agencies. The accounting department22 of the ministry of finance issues regulations and guidelines on matters related to the preparation of financial accounts by spending agencies, prepares and issues government-wide financial reports, and conducts regular bank reconciliations. There is scope for disparate application of controls by line agencies, particularly when the control criteria are not well defined. Commitment control is not comprehensive, i.e., it focuses only on commitments likely to materialize during the year. Broader PFM and enforcement issues affecting budget execution and expenditure control. The hurdles were based on the following indicators of performance by the line agencies: (i) budget planning; (ii) output costing; (iii) financial and performance reporting; (iv) financial control arrangements; (v) procurement management; (vi) asset management; and (vii) internal audit. For further background information and discussion on specific features of commitment control, see D. Radev and P. Khemani (2009). Show question Question 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. Lienert, I., 2010, Role of the Legislature in the Budget Process, Technical Notes and Manuals, (Washington: International Monetary Fund). Several Francophone African countries are taking measures recently to reduce the complementary period to one month. The key questions to be asked are: (i) whether there are clear laws and financial regulations regarding the controls and the authority and responsibility of relevant actors who should apply them; and (ii) whether the relevant actors understand and apply them in practice. Payment and verification (in case of accrual accounting) stages. These include appropriation control, commitment control, and accounting control. Current spending They are for the short term and include expenditure on wages and raw materials. The nature of the expenditure limit enforced at each stage depends on the accounting basis used in the budget appropriation framework.19 Specifically: Cash-based budgeting systems primarily enforce a limit on the accumulation and liquidation of cash obligations incurred during the budget year. This used to be the case in all but three countries (Cameroon, Mali and Burkina Faso) of the 12 countries that comprise Sub-Saharan Francophone Africa. Table 4 lists some specific tools and measures that can address weaknesses at different stages of the expenditure cycle. Capital Expenditure 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. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. A comprehensive commitment control system is in place that captures not only one-off (purchase order type) but also multi-year (e.g., projects contacts) commitments. Economy Minister Mohd Rafizi Ramli said, if the government is . Where countries have cash appropriations and accrual based financial statements, this usually gives rise to differences between budget execution reports and financial statements that require reconciliation. Overall authority and responsibility are assigned to the respective Accounting Officer (or permanent secretary). Same as Francophone, but the official approving commitments and payments is usually the same (unlike separation of responsibility in Francophone countries). Approximately two-thirds of spending consists of mandatory expenditures on programs such as Social Security and Medicare. Mariance analysis is the budgeting review technique universally applied for analyzing budgeting estimates. _paq.push(['trackPageView']); 4, Paris. For example, in the United States mandatory or entitlement programs, such as Social Security, Medicare, Medicaid, and certain other programs are not controlled by annual appropriations, except for the requirement to show a corresponding increase or decrease in the costs of these programs due to any envisaged changes. Key challenges: need for sufficiently strong capacity in line agencies to implement the required controls (a challenge in fragile states); dispersed expenditure data could make timely financial reporting difficult; and lack of strong oversight (e.g., internal and external audit) and sanctions for non-compliance may create opportunities for fraudulent transactions. Authorization of expenditure. Any part of that cost unpaid at the end of the period is a liability. The main reforms include enhancing the coverage of the budget, improving the methodology of costing budget policies, introducing medium-term fiscal and budget frameworks, and ensuring timely submission and approval of the budget by the legislature. British Commonwealth, Scandinavian, and German-Austrian, Francophone, Lusophone, and Latin American. The three main types of government expenditure include public services, transfer payments, and debt interest. Bank reconciliations, among other things, are critical to identifying potential misappropriation of public money. Ministry of Budget and Public Accounts, 2009, Rfrentiel de comptabilit budgtaire, (France). To provide accountability, the budget proposals should be sub-divided by entity/purpose. The key reforms include clarifying responsibilities for verification of delivery of goods and/or services, ensuring documentary proof of delivery, and eliminating any undue delay between verification and issuance of payment orders. The role of an expenditure control system is to ensure that the level and allocation of government expenditure reflect the will of the legislature as voted for in the budget.3 Expenditure controls should also reflect sound financial management principles, ensuring that public resources are utilized efficiently, incurred obligations are cleared in a timely manner, abuse/ misappropriation of public money is prevented, and private actors compete on a level playing field for government contracts. 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. Control of procurement: Significant public spending takes place through the public procurement system. describes the (i) types of controls applied at each stage of the chain, their objectives, and key features; (ii) nature of expenditure limits in cash-based, commitment-based and accrual-based budgeting environments; (iii) centralized vs. decentralized approach to the exercise of those controls; and (iv) authority and responsibility of various Each request for apportionment or reapportionment should be accompanied by a financial or cash plan from the relevant ministry or spending agency supporting the request for ensuring that apportionment and cash management functions are well integrated.10. Payment order issued under exceptional procedure (i.e., bypassing previous stages). Decentralized frameworks have the advantage of: (i) aligning expenditure decision making with the spending priorities of line agencies; (ii) minimizing/eliminating redundant controls which in turn improves the efficiency and speed of expenditure execution; and (iii) making each line agency directly accountable for its spending programs. Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. In some countries, a powerful accounting organization (. This information is then used for preparing the baseline estimates of the detailed medium-term budget forecast. A Government Deficit is the amount of money in the set budget by which the government expenditure exceeds the government income amount. 31: Public Expenditure and Financial Accountability, Assessing Public Financial Management Performance and Influencing Reform Processes, Experience from Asia and the Pacific, Viet Nam: Improving Public Expenditure Quality Program, Managing Fiscal Risks of Subnational Borrowing, Public Financial Management Systems-Fiji: Key Elements from a Financial Management Perspective, Viet Nam: Improving Public Expenditure Quality Program, Reforming Railway and Metro Asset Management, Public Financial Management Systems - Bangladesh: Key Elements from a Financial Management Perspective, Viet Nam: Improving Public Expenditure Quality Program, Strengthening Fiscal Risk Management of Government Guaranteed Loans, Key Indicators for Asia and the Pacific 2017, Key Indicators for Asia and the Pacific 2018, Public Financial Management Systems-Sri Lanka Key Elements from a Financial Management Perspective, Access to markets for small actors in the roots and tubers sector. There are two ways of securing such 'economy' in government expenditure: (1) The annual budget of toe central government must lay down the amount to be spent for particular purposes and the government servants or departments should not be permitted to spend in excess of the budgetary allocations. Once a payment order has been issued, payments are made through various instruments including checks, electronic fund transfer (EFT), and sometimes cash, in favor of a supplier or other recipient to discharge the liability. A full understanding of the budget planning and preparation system is essential, not just to derive expenditure projections but to be able to advise policymakers on the feasibility and desirability of specific budget proposals, from a macroeconomic or microeconomic perspective. World Bank, 2007, Budgeting and Budgetary Institutions, Public Sector Governance and Accountability Series. Once the apportionment of expenditure authorization is made and the spending authority has been released, some countries PFM systems include a stage at which funds are reserved for a specific known expense but for which no contract has yet been issued. In cases where a centralized payment system has been established, the individual spending units may prepare the payment orders electronically and submit them to the central unit/treasury for payment through a Financial Management Information System (FMIS). International Monetary Fund Copyright 2010-2021. There is also lack of control over agencies with own revenue outside the treasury system. The scope for establishing such advanced systems, however, remains challenging in many developing countries. Jacobs, D., and others, 2009, Budget Classification, Technical Notes and Manuals, (Washington: International Monetary Fund). 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