PEFA PI-22; and average time lag between delivery and verification. 4, Paris. The central idea here is that not all expenditure transactions need to pass through an identical control process. In addition, they may impose limits on accumulation of cash obligations, multi-year commitments, and long-term obligations (such as pensions) and contingent liabilities (such as guarantees). Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. Show answer Payroll audits should also be undertaken regularly to identify weaknesses in the control system. Commitment-based budgeting systems impose limits on both expenditure commitments and cash payments. the use of taxes, government spending, and government transfers to stabilize an economy; the word . This requires that personnel database (where personnel information files are kept) and payroll records be linked, regularly updated, and reconciled. Reservation. Controls at the commitment, verification and payment order stages remained the responsibility of the line ministries/agencies, with variations, however, in the effectiveness with which such controls are exercised. 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. discusses specific measures for strengthening expenditure controls and addressing weaknesses in countries at different levels of administrative capacity (Section VI). 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. *The PEFA indicators are based on the new PEFA 2016 framework. Flynn, S., and M. Pessoa, 2014, Prevention and Management of Government Expenditure Arrears, Technical Notes and Manuals, (Washington: International Monetary Fund). Following the approval of the budget/appropriation bill, spending agencies are usually asked to submit a proposed plan for apportionment/allotment. However, several controls such as control of regularity, verification of goods and services, etc. There is scope for disparate application of controls by line agencies, particularly when the control criteria are not well defined. Show answer Answer A public sector spending on goods and services like education or healthcare. Expenditures at the verification stage are sometimes called accrued expenditures (e.g., in the US), accounts payable, or actual expenses. Bank reconciliations, among other things, are critical to identifying potential misappropriation of public money. 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. 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). Other specific controls relate to specific types of transactions and are designed to either reinforce macro-fiscal discipline and sustainability (e.g., controls on payroll, pensions, and incurrence or liquidation of liabilities or guarantees) or safeguard the integrity and efficiency of public procurement and payroll systems. No verification/certification system (i.e., payment orders issued without verification). Where the two are not routinely or automatically reconciled, special surveys may be required to identify ghost workers and remove them from the payroll. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. Authorized purpose of the expenditure. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. Government Spending: Giveth Some, Taketh Some. Some types of budget appropriationsdebt service, for examplemay not be subject to a strict spending limit and may be revised according to developments in interest rates and exchange rates. 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. This information is then used for preparing the baseline estimates of the detailed medium-term budget forecast. Banks were privatized and deregulated, central bank laws introduced firm limits on the amount of credit available to the government, centralized treasury departments were established to raise financing from the private sector on commercial terms, control and process government payments, and report on budget execution through the main treasury account. Budgeting, internal control and audits are commonly used by government owned hospitals in order to curb expenditures, cost benefits, analysis and management audits that could be applied are not in use. Thus, the changes will affect the economy. In some countries, it may conduct its own pre-payment audits prior to executing payments. A change management strategy should also be developed and implemented, taking into consideration the implications of the reform strategy for diverse stakeholders, from senior officials to agency heads, and the personnel who will support the new systems. The nature of those expenditure limits depends on the accounting basis (cash, commitment, or accrual) used in the budget (see Section III). Table 3 provides a summary of the roles played by central and line agencies at different stages of the expenditure cycle as well as the key strengths and challenges in different traditions. 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. In the British Commonwealth system, there is no complementary period, and at the beginning of a new fiscal year, in principle, no cash transactions pertaining to the previous years budget should take place. Khan, A., and M. Pessoa, 2013, Accrual Budgeting; Opportunities and Challenges, Chapter 11, PFM and its Emerging Architecture (Washington: International Monetary Fund). In some countries, the ministry of finance uses sequestering to prevent such risks. The descriptions of the various traditions provided below are broad and general, and in practice, there are variations among the countries belonging to each tradition. Excessive time lag between reservation and commitment resulting in unnecessary encumbrance on available funds. Under a dual accrual and cash budgeting/appropriations framework, there is a need for each agency to make projections of both its anticipated cash requirements as well as incurrence of expenses and liabilities and accumulation/realization of long-term obligations and contingent liabilities. Once the specific problems and weaknesses in expenditure control have been identified, the government needs to develop tools and measures to address them. Ensures that transactions are properly recorded and accounted for to produce timely and reliable fiscal reports and financial statements. When the FSU countries were centrally-planned economies (i.e., before their transition to market-based economies), the ministry of finance played a minor role, mainly as the financial administrator of the central plan. The scope for establishing such advanced systems, however, remains challenging in many developing countries. Governments expenditure must be within the amounts that the budget appropriations have established, with some flexibility allowed through virements and contingency reserve mechanisms. var u="https://piwik.pentaho.aidcvt.com/"; Ideally, the FMIS should have, in addition to the usual transaction processing function, a consolidation feature or module that receives periodic data from relevant entities, carries out consolidation of data in accordance with relevant standards, and generates required management reports for control purposes. The allocation of responsibility to various actors in the exercise of expenditure controls is heavily influenced by their respective administrative traditions of PFM and level of development. In some countries, a powerful accounting organization (. The line ministries have substantial authority in executing the budget. However, overall responsibility for budget execution is assigned to the respective line minister (or the head of an independent State body) who allocates budgeted resources to the various departments/agencies under his/her authority and delegates responsibility for budget execution up to the stage of the preparation of payment orders. Overdue liabilities/payables as a percentage of the value of total payment orders issued; PEFA PI-21.2; and PI-25.3. A Government Deficit is the amount of money in the set budget by which the government expenditure exceeds the government income amount. This is known as retenciones de crdito in Spain (and a similar arrangement in Portugal) and engagement budgtaire in France which precedes the engagement juridique or legal commitment stage. This should be supported by adequate monitoring at each stage of the expenditure cycle and ex post auditparticularly external audit to start withto ensure effective compliance. A long check float time is not a good practice as it not only complicates cash management but can also be misused to write and issue checks despite not having enough liquidity in the bank account to cover the value of the check. 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. The cash plans should be prepared in conformity with budget authorization and systematically take account of ongoing commitments. Key strengths: separation of responsibility for key control tasks; tracking key stages of expenditure cycle; and centralized repository of expenditure data; Key challenges: frequent and redundant controls make the expenditure process slow (and encourage proliferation of special procedures); interference by central agencies may undermine responsibilities of line managers; and possible manipulation of the complementary period. See Guidelines for Internal Control in the Public Sector at http://www.issai.org/media/13329/intosai_gov_9100_e.pdf. Commitment control is not comprehensive, i.e., it focuses only on commitments likely to materialize during the year. Spending units enter into commitments only against unencumbered spending authority and the cash plan covers the expected payment profiles of commitments. The expenditure cycle and associated controls in Francophone African countries derive largely from the French system as it existed prior to 1960s in the French provincial governments (prfectures).30 However, many Francophone African countries not only intensified the centralization of controls in the late 1990s,31 but the minister of finance also became the single and principal payment-authorizing officer (Ordonnateur principal unique).32 The responsibility for financial control is typically centralized in the ministry of finance, with its staff out-posted in the line ministries/spending agencies. But, fiscal policy is also used to curtail . Environmental Conservation and Protection, Ethiopia, The Federal Democratic Republic of, Hong Kong Special Administrative Region, People's Republic of China, Macao Special Administrative Region, People's Republic of China, Selected Legal and Institutional Papers Series, Annual Report on Exchange Arrangements and Exchange Restrictions, The Evolving Functions and Organization of Finance Ministries. Types of Control, Their Key Features and Objectives. This is especially true for expenditure on multi-annual investment projects (see Section III for multi-year expenditure limits on commitments). Table 1 below summarizes the types of control applied during various stages of the expenditure cycle, their key features and objectives. Managing the change process would involve communicating effectively to all relevant stakeholders a broad understanding of why the changes are necessary and what objectives are sought to be achieved. 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. 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. In this context, the function of financial and expenditure control has been merged with the treasury and verification of the regularity of certain current expenditures (such as salaries, leases and certain procurement contracts) has been delegated to line agencies at the commitment level. 2. 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. If a liability has been incurred by the end of the fiscal year, this would be enough to report the expense or expenditure against the accrual appropriation. Delivery date is captured and time lag between delivery and verification monitored. How Do Treasury Systems Operate in sub-Saharan Francophone Africa? To provide accountability, the budget proposals should be sub-divided by entity/purpose. Pattanayak, S., and I. Fainboim, 2011, Treasury Single Account: An Essential Tool for Government Cash Management, Technical Notes and Manuals (Washington: International Monetary Fund). _paq.push(["setDoNotTrack", true]); Your current browser may not support copying via this button. 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