The strengthening of the expenditure control framework should not be viewed as an independent activity and should be integrated with other PFM reforms, including changes to budget execution processes. The system is unlike that in France where each line minister has always been an Ordonnateur Principal. 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. Even when payment processing and expenditure controls are decentralized, a central aggregate control on cash is still required. Issuance of payment orders is integrated with a well established cash plan that is updated regularly with inputs from spending and revenue agencies. Both the central agency/finance ministry and line agencies are involved in various tasks during the expenditure cycle. An overview. 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. Check float amount is the total amount of outstanding checks that have been issued, but have yet to be encashed. Transactions undertaken using exceptional procedures often end up being registered in suspense accounts that are rarely cleared due to lack of budget cover and are neither properly tracked nor reported. 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. Three of the seven stages (commitment, verification, and payment) involve a third party (a creditor, supplier, beneficiary, etc.) Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. Allen, R., and others, 2015, The Evolving Functions and Organization of Finance Ministries, Working Paper WP/15/232 (Washington: International Monetary Fund). This plan indicates the funds required for operations, typically on a quarterly or monthly basis. The amount should be correctly calculated and there should be no hidden expenses. 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). These include appropriation control, commitment control, and accounting control. The authority for expenditure is given for a specific pre-defined purpose. This type of spending includes funding for entitlement programs like Medicare and Social Security and other payments to people, businesses, and state and local governments. A commitment thus entails an obligation to pay when the third party has complied with the provisions of the contract. For similar examples, see also R. Allen et al, The Evolving Functions and Organization of Finance Ministries, IMF Working Paper WP/15/232 (2015). Authorization of expenditure. 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. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. Bank-Qualified Municipal Bonds Marketplace Fairness and RTPA State and Local Tax Deduction (SALT) PolicyStatements Accounting, Auditing and Financial Reporting Budgeting and Financial Management Intergovernmental Relations and Federal Fiscal Policy Public Employee Pension and Benefits Administration Time horizon of apportionment too short for expenditure planning and execution by line agencies. While particular expenditure control weaknesses may manifest themselves at a particular stage of the expenditure cycle, addressing them may require reforms at various points in the process. the use of taxes, government spending, and government transfers to stabilize an economy; the word . But these funds may take some time to be further transferred to subsidiary spending units under the line ministries and then be spent on the salaries or goods and services that constitute final expenditure. For a further discussion on expenditure arrears, see S. Flynn and M. Pessoa (2014). 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. Lusophone African countries are also characterized by a higher degree of centralization in the sense that the overall budget execution responsibility, including the responsibility for financial control, is usually concentrated in one office: either the budget office itself (e.g., in Guine Bissau, and Sao Tome and Principe) or the accounting office (e.g., in Angola and Mozambique). while others are purely internal to the government. International Organization of Supreme Audit Institutions (INTOSAI), Guidelines for Internal Control in the Public Sector, Conceptual Design: A Critical Element of a Government Financial Management Information System Project, Accrual Budgeting; Opportunities and Challenges, Role of the Legislature in the Budget Process, A Comparison Between Two Public Expenditure Management Systems in Africa, Systemic Weaknesses of Budget Management in Anglophone Africa, Public Expenditure Management in Francophone Africa: A Cross-Country Analysis, Organization for Economic Cooperation and Development, Managing Public Expenditure: A Reference Book for Transition Countries, Public Expenditure and Financial Accountability (PEFA) assessments, Treasury Single Account: An Essential Tool for Government Cash Management, Chart of Accounts: A Critical Element of the Public Financial Management Framework, Public Sector Governance and Accountability Series, II. Seven Key Stages of the Expenditure Chain. For example, the British budgeting system sets appropriations for both the expenses incurred (the net resource requirement) and the cash payments to be made (the net cash requirement) by each ministry. There is potential scope for over commitments and/or manipulation of in-year data on commitments which may not be systematically recorded/tracked in a timely manner at the respective stage of the expenditure cycle.39, Scandinavian. Lienert, I., 2009, Modernizing Cash Management, Technical Notes and Manuals, (Washington: International Monetary Fund). 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. Items of government expenditureItems of government expenditure Functional classification Government expenditures can be classified by the type of service that they provide: Ed tiEducation Health Social Security, Social Insurance and Assistance Defense Foreign Affairs Others: Energy & Natural Resour ces; Transportation . Show answer Answer A public sector spending on goods and services like education or healthcare. It also proposes some indicatorsmainly based on the PEFA frameworkthat could be used to assess reform progress. Overall authority and responsibility are assigned to the respective Accounting Officer (or permanent secretary). The budget classification (which may be organized by programs, sub-programs, projects, economic categories, or line items) usually specifies the purpose for which the expenditure can be made.1. Although sequestering may sometimes be necessary, it diminishes the predictability of budgeted/authorized expenditure and undermines the credibility of the budget, and therefore should be used only in exceptional circumstances. Several Francophone African countries are taking measures recently to reduce the complementary period to one month. Large delay between verification (recognition of liability) and payment order (arrears, etc). In fact, excessive duplication of controls is a common disease in many countries, particularly in Francophone Africa, which not only results in ineffciency in executing expenditure but also leads to rent seeking by officials who intervene at different stages of the expenditure transaction. Key strengths: centralized payment and treasury accounting system. This includes, but not limited to: failure to check the availability of funding before authorizing expenditure; failure to record and maintain data on commitments; delays in processing of payments; circumvention of controls at key stages, including through collusion; and poor record keeping, including of verification documents. 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. The line agencies have responsibility for executing their budget and managing the funds/ resources assigned to them. The classification of public expenditure can be done in 4 ways: Revenue Expenditure The revenue expenditure is funded through the current revenue of the government that includes taxes and non-tax revenues such as welfare schemes or profits, or incidental incomes. They are also reconciled with bank statements. The payment-authorizing officer, called the Ordonnateur, is separate from the financial controller. Spending agencies submit month-wise expenditure plans (along with their budget submission) to serve as the basis for issuance of spending authority (warrant/allotment) after budget approval. How Do Treasury Systems Operate in sub-Saharan Francophone Africa? There is regular reporting and monitoring of overdue liabilities. Article 78 of the WAEMU Directive No. Originally designed for exceptional circumstances, the use of this procedure expanded in several Francophone African countries to settle most of the expenditures. Lienert, I., and F. Sarraf, 2001, Systemic Weaknesses of Budget Management in Anglophone Africa, Working Paper WP/01/211, (Washington: International Monetary Fund). Key challenges: large variations in effectiveness of controls; and reconciling accrual-based data at line agencies with cash-based data at the treasury. The budget should be implemented as formulated and authorized with as little deviation as possible, but there should be room to adjust to changing circumstances (e.g., genuinely unexpected events) by modifying the budget as necessary during the year. 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. This convergence is in the direction of: an increased focus on ex ante controls over expenditure commitments rather than ex post controls only at the payment stage of the expenditure cycle; a shift from controlling only cash expenditures towards controlling the accumulation of accrued liabilities as well; greater devolution of responsibility for routine expenditure controls towards ministries and agencies and a more risk-based approach to the exercise of centralized controls; a stronger reliance on internal and external audit to ensure the integrity of financial control systems in ministries and agencies; and. Doe, L., S. Pattanayak, 2008, Financial Control in African Countries, Public Financial Management Technical Guidance Note, (Washington: International Monetary Fund). This objective is achieved by appropriations. A Government Deficit is the amount of money in the set budget by which the government expenditure exceeds the government income amount. For example, the UK uses the employer cost cap mechanism to control future pension spending. By managing its portfolio of debt, it can affect interest rates, and by deciding on the amount of new money injected into the economy . Expenditures are everything that a government actually spends money on, such as social programs, education, and infrastructure. The objective of expenditure control is to ensure that public resources are spent as intended, within authorized limits, and following sound financial management principles. var d=document, g=d.createElement('script'), s=d.getElementsByTagName('script')[0]; Therefore, there would be no under-execution of the budget under these circumstances. Show answer Authorized purpose of the expenditure. This control is a key element of the overall cash management system. Check float has two dimensions: (i) check float time; and (ii) check float amount. PEFA PI-22; and average time lag between delivery and verification. The TSA systems in some of these countries give financial incentives for smoothing expenditure profiles. Government Spending: Giveth Some, Taketh Some. Therefore, unlike the old French system, the key principles here are integration and delegation. 2. Defence Services: They account for nearly 20% of the total revenue expenditure of the Central Government in India. Transactions are recognized, classified, and recorded in the books/ general ledger according to a countrys accounting policies/standards and chart of accounts. 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. 4, Paris. 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