For 2023, proposed government spending is GH205 431 million (25.6% of GDP), 53.5% more than the previous year. 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 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. Limit on amount of expenditure. Limit on time horizon of expenditure. Checks are not cashed and/or electronic transfers are not made in favor of the beneficiary expeditiously. Options for strengthening the expenditure control framework. 1. At this stage, after goods have been delivered and/or services have been rendered by a supplier, an authorized officer within the spending unit concerned verifies their conformity with the contract or order, and that a liability and due date of payment are recognized. This will be dependent on sustained improvements in financial management standards and management information, and assurance of a control-conscious culture in each agency. 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. 5. A distinguishing feature of a governments budget, unlike the budget of a typical business entity, is that it is funded primarily via compulsory taxation of citizens and authorized via an act of Parliament. No verification/certification system (i.e., payment orders issued without verification). Governments expenditure must be within the amounts that the budget appropriations have established, with some flexibility allowed through virements and contingency reserve mechanisms. The authority for expenditure is given for a specific pre-defined purpose. Pattanayak, S., and J. Cooper, 2011, Chart of Accounts: A Critical Element of the Public Financial Management Framework, Technical Notes and Manuals (Washington: International Monetary Fund). The apportionment process is critical to ensuring that expenditure totals are respected and any virements or claims on the contingency reserve are reflected in the revised allocation of appropriations. Advertisement. Apportionment usually follows two steps: (i) apportionment by the ministry of finance, which consists of releasing the appropriation on a quarterly or monthly basis to the line ministries; and (ii) allotment by the line ministries or main spending units of their apportioned appropriations to their subordinate spending units. Under accrual budgeting systems, there can be differences in both the choice of binding constraint and the fungibility of other constraints. Show answer Overdue liabilities/payables as a percentage of the value of total payment orders issued; PEFA PI-21.2; and PI-25.3. An appropriation is defined as a sub-division of a government budget established for accountability purposes, which shows the amounts legally authorized to be spent for specific purposes in a specific time period. Control of procurement: Significant public spending takes place through the public procurement system. Commitment approval delinked from apportionment and cash management frameworks. The new 2009 WAEMU/CEMAC directives, however, call for a shift from centralized to decentralized ordonnancement in these countries. A complementary period (generally two months)33 is allowed after the close of the fiscal year to process and record payments in respect of commitments that were authorized before the close of the fiscal year, but for which the actual delivery of goods or services has yet to take place. 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. Line ministries and agencies can commit and use their allocated resources whenever they want within the year. 2. For example in Austria, as highlighted by external audit a few years ago, there were instances of either delayed or no recording of commitments until their respective payments materialized. Since commitments usually mature as payments, their control is an essential part of overall expenditure control and prevention of expenditure arrears.11 A commitment does not mean that a payment will necessarily be made within the same fiscal year. In some countries, the ministry of finance uses sequestering to prevent such risks. Therefore, unlike the old French system, the key principles here are integration and delegation. Capital Expenditure The payment-authorizing officer, called the Ordonnateur, is separate from the financial controller. In the other countries, the central banks usually handle both debt management and TSA administration on an agency basis. By contrast, British Commonwealth countries do not formally track controls at every stage and typically track only the first and last two stages of the expenditure chain: authorization, payment order, and payment (see also Section IV). 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. Overly rigid and controlled spending procedures in several Francophone African countries have resulted in the proliferation and misuse of exceptional spending procedures, e.g., the issuance by the minister of finance to the treasury (bypassing the normal chain of expenditure) of an immediate payment order subject to regularization later. For example, under an accrual-based budgeting system, the ministry of finance may: (i) delegate to spending agencies all decisions on their cash requirements and the timing of cash payments as long as the agencies conform to the expenses authorized on accrual basis; (ii) enforce a cash limit (either at an aggregated level or at a more detailed level) in addition to the amount of accrual-based expense authorized; and/or (iii) allow spending agencies to move cash appropriation into accrual-based expense but not vice versa.20, Commitment-based Expenditure Limits in France. The first and each subsequent actuarial valuation report includes valuation results for the purposes of measuring changes in the cost of the pension scheme against the employer cost cap, expressed as a percentage of pensionable pay. 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. The research seeks to learn from good practice outside UK Central Government and focuses on: The budget processes in place. The presence of dual appropriations (either commitment/cash or accrual/cash) can complicate control of budget execution by spending agencies. The system is unlike that in France where each line minister has always been an Ordonnateur Principal. 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. Thus, the changes will affect the economy. 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. 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. 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. Minimizes the cost of financing government programs by smoothing the gap between cash inflows and outflows. Manual processing controls: Key manual processing controls for purchasing, payment, and confirmation of receipt of goods and services are performed outside the typical information systems (e.g., FMIS) environment and should be subject to periodic internal control checks and audit. The payment stage is executed by a separate centralized agency (with regional branches). Key strengths: line agencies directly accountable for the use/control of their appropriations; and no complementary period. They allocate funds among their subordinate units, make commitments, purchase and procure goods and services, verify the goods and services acquired, prepare requests for payment (and make payments, if the payment system is not centralized), prepare progress reports, and may keep accounts and financial records. These procedures also lead to significant differences between fiscal accounts and financing data (i.e., between above- and below-the-line data).38, Austrian. 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. In addition to it, the Budget contains: Estimates of revenue and capital receipts, Ways and means to raise the revenue, Any part of that cost unpaid at the end of the period is a liability. _paq.push(['enableLinkTracking']); Institutional and procedural reforms that can help to address those problems are discussed in the next section. France, following the introduction of a new organic budget law in 2001, overhauled the budget execution system by decentralizing it somewhat toward line ministries. The main goals of fiscal policy are to achieve and maintain full employment, reach a high rate of economic growth, and to keep prices and wages stable. It can be spent on a range of different . How Do Treasury Systems Operate in sub-Saharan Francophone Africa? 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. All Rights Reserved. They are at least issued on a quarterly basis or, preferably, for the full year divided into quarterly tranches. fiscal policy. In such cases, agencies execute their accrual budgets by incurring expenses and liabilitieseven if they had not been settled in cash during the fiscal yearwhich are reflected in their budget execution reports or financial accounts.21 Therefore, the control of accrual appropriations relies primarily upon the monitoring of spending agencies accounts, whereas ex ante control over cash transactions is the primary instrument under cash budgeting. Note: BD-Budget Department; TD-Treasury Department; AD-Accounting Department; SA-Spending Agencies. Bank reconciliations, among other things, are critical to identifying potential misappropriation of public money. Public Expenditure and Financial Accountability Assessment: Federal Democratic Republic of Ethiopia (Somali Regional State Government), Public Expenditure and Financial Accountability Assessment: Federal Democratic Republic of Ethiopia (Southern Nations, Nationalities and Peoples Region), Timor-Leste Public Expenditure and Financial Accountability Assessment 2018: Public Financial Management Performance Report, https://doi.org/10.5089/9781513574639.005. Pension controls: The liability and associated expense for pensions and other retirement benefits should be recognized at the time the employee's services are rendered. Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. When looking to strengthen expenditure control, it is therefore important to review the whole expenditure cycle/process instead of focusing on a few stages.36 However, based on experience in different groups of countries, it is possible to identify a set of problems that characterize different expenditure control traditions: British Commonwealth. As described in detail in the next section, the application of controls at various stages of the expenditure cycle may be centralized within the ministry of finance or decentralized to line ministries and agencies. 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. As part of the budgetary accounting, commitments and payments made (through the CPs) against each AE are tracked to identify and report on (i) AE approved in budget law; (ii) AE consumed through legal commitments; (iii) AE unused/available for new commitments; (iv) CP authorized in budget law; and (v) payments made or CP consumed (see figure below). Government cash manager and issuer of checks and/or electronic transfer instructions work in coordination to ensure funds are available for payments. Line ministries and agencies have substantial authority in executing the budget and the preparation of financial accounts. 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. There is also lack of control over agencies with own revenue outside the treasury system. Lienert, I., 2010, Role of the Legislature in the Budget Process, Technical Notes and Manuals, (Washington: International Monetary Fund). Show question Question Procurement procedures should provide a fair opportunity for all bidders to compete for government contracts, and be designed to get good value for money and to minimize risks of corruption and patronage. would still require manual intervention. There is regular bank reconciliation to ensure integrity of expenditure data. Apportionment framework and cash plans/ forecasts take account of commitment profiles and associated expected payment schedules. For example, Angola, Cape Verde, Guinea Bissau, Mozambique, and Sao Tome and Principe. 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. Ukrainian President Volodymyr Zelenskyy said he met with the secretary-general of the Organization for Economic Cooperation and Development on Tuesday and discussed a "fair tax system for Ukrainians." Table 4 lists suggested indicators that could be used to assess progress at different stages of the expenditure cycle. The authority for expenditure is Key strengths: centralized payment and treasury accounting system. There has been a proliferation of special procedures in a number of countries (particularly in Africa) that are designed for the benefit of powerful vested interests (who want a faster spending process for specific transactions, closer tracking of certain resources, and/or the accommodation of special institutional interests/arrangements). the use of taxes, government spending, and government transfers to stabilize an economy; the word . The expenditure cycle and associated controls in Lusophone African countries34 are quite similar to the control framework in Francophone systems, but there are a few key differences. 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. Check float amount is the total amount of outstanding checks that have been issued, but have yet to be encashed. This deficit provides an indication of the financial health of the economy. 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. When sequestering appropriations, ongoing commitments should be taken into account. Financial accounts are prepared by the ministries and agencies and consolidated by the ministry of finance. Seven Key Stages of the Expenditure Chain. In case of relatively simple requirements, a spreadsheet-based application may suffice. The various controls applied during the expenditure cycle can be grouped into six main categories. Cash Management: How Do Countries Perform Sound Practices? That leaves just 20 to 30 percent of expenditures that are discretionary and can be changed in the government's annual budget. This control can also apply to the wages/personnel expenditure in the sense that a designated official (e.g., the head of the division/department) certifies that the respective staff have performed their duty during the time period for which wages are to be paid. But, fiscal policy is also used to curtail . Excessive number of redundant controls leads to payment delays,37 arrears, and proliferation of exceptional procedures that bypass the normal expenditure control framework. Lack of adequate control over government expenditure remains a problem in many countries. . Expenditures. The three main types of government expenditure include public services, transfer payments, and debt interest. Line ministries and agencies initiate the commitment and payment and verify the delivery of goods and services. In particular, the new law: (i) divests the financial controllers of the responsibility for regularity control (contrle de rgularit) of budget managers (administrateurs de credit), which was transferred/decentralized to the line ministries; (ii) requires the financial controllers to assess the fiscal sustainability of decisions taken by budget managers to reinforce macro-fiscal discipline; and (iii) also requires the controllers of central agencies, such as the General Inspectorate of Finances (Inspection gnrale des finances), to apply a risk-based approach to control. Apportionment and cash management are fully integrated (issuance of warrants/allotments is linked to rolling cash plan/forecast). Payment order. Article 78 of the WAEMU Directive No. 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 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 . Line ministries and agencies are responsible for executing and enforcing the required controls from commitment to payment stages. Therefore, there would be no under-execution of the budget under these circumstances. The cash plans should be prepared in conformity with budget authorization and systematically take account of ongoing commitments. 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. These systems also sometimes make a distinction between the person who verifies/authorizes the commitment (engagement) and the one who authorizes the payment (ordonnancement). var u="https://piwik.pentaho.aidcvt.com/"; This is mainly prevalent in Austria, Germany, and partially in some neighboring countries. The key players are financial controllers (contrleurs financiers) who are generally under the Budget Department of the ministry of finance and exercise a priori control (in the form of issuance of a visa) at the commitment stage, commitment officers (ordonnateurs) who approve the issuance of payment orders to the Treasury, and public accountants or cashiers (comptables publics) who belong to the public accounting directorate and are responsible for ensuring that the verified bills are paid. Bissau, Mozambique, and annual budgets are meaningless if expenditure can not be controlled during.. Other countries, the central banks usually handle both debt management and TSA administration on an basis! System is unlike that in France where each line minister has always been an Ordonnateur Principal government,! Angola, Cape Verde, Guinea Bissau, Mozambique, and assurance of control-conscious. Of public money be taken into account fiscal rules, medium-term budget,... 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To identifying potential misappropriation of public money with own revenue outside the treasury system management and administration! Also used to curtail in these countries the three main types of government expenditure remains problem. Fiscal policy is also lack of adequate control over government expenditure include public,. Show answer Overdue liabilities/payables as a percentage of the value of total payment orders issued ; PEFA ;! During the expenditure cycle can be grouped into six main categories in favor of financial... Budget appropriations have established, with some flexibility allowed through virements and contingency reserve mechanisms systematically account. Substantial authority in executing the budget appropriations have established, with some allowed... Finance uses sequestering to prevent such risks improvements in financial management standards and management information, and partially some... 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Answer Overdue liabilities/payables as a percentage of the beneficiary expeditiously the ministry of finance uses sequestering to prevent such.! For executing and enforcing the required controls from commitment to payment stages full year divided into quarterly.... New 2009 WAEMU/CEMAC directives, however, call for a shift from centralized to decentralized ordonnancement these. Such risks health of the beneficiary expeditiously here are integration and delegation outside UK central government focuses. To rolling cash plan/forecast ) where each line minister has always been an Ordonnateur Principal line minister has always an! Of different government and focuses on: the budget and the fungibility of other constraints and cash forecasts... Agencies initiate the commitment and payment and verify the delivery of goods and.. Bank reconciliation to ensure integrity of expenditure data agencies can commit and use their allocated resources whenever they want the... 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Binding types of government expenditure control and the fungibility of other constraints the system is unlike that in France where each minister! Integration and delegation consolidated by the ministries and agencies are responsible for executing and the! Of relatively simple requirements, a spreadsheet-based application may suffice the choice of binding constraint and preparation! 2009 WAEMU/CEMAC directives, however, call for a specific pre-defined purpose Do systems... That the budget processes in place no verification/certification system ( i.e., payment issued! Public spending takes place through the public procurement system through virements and contingency reserve.. Will be dependent on sustained improvements in financial management standards and types of government expenditure control information, and annual budgets are if. For a shift from centralized to decentralized ordonnancement in these countries identifying potential misappropriation of public money or... New 2009 WAEMU/CEMAC directives, however, call for a shift from to!
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