Public Expenditure Management: Budget Execution Bill Dorotinsky, PREM public sector group PEAM Course March 21, 2005

Expenditure Management Cycle Planning system Medium term plans, e.g. three year rolling plans Annual budgets Development, recurrent and revenue Fund release procedure, e.g... warranting Accounting for revenue and expenditure Public expenditure review Institutions Reports and financial statements Audit system Project monitoring Project appraisal Resource allocation Liquidity management Expenditure control Monitoring & controlling Post event Accountability Financial management system boundaries Formulation covers ‘expenditure review’ insofar as this is a step in preparation of future plans, and goes through to “annual budgets..” -- need for good budget -- Brazil roads, congress, MoF -- linking budget to cash management -- dc grants management Execution covers from ‘liquidity management’ through to PER’s, insofar as PER’s are part of the ex poste accountability system. Half of cycle (2) Hardware and software do not solve problems in human systems. Must know source of problem, and seriously assess whether computerization will solve the core problem. (DC Example) Underlying all of this is good recording of transactions and reporting! Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

Why is budget execution important? Credibility of the Honduran Budget – In-year Deviations by Agency (percent of the executed over the approved budget) Matching Plan to Implementation Good Macrofiscal But, look at sectoral allocations. Who gets harmed? 3-level framework Cash, accrual, commitment

What is budget execution? Processes and institutions to implement the budget Incentives – principle-agent problem Reflects that budget is NOT only an accounting document also a political document Planning/steering device

Objectives of budget execution Manage Spending and Revenues to budget support choices of elected officials allow budget to be planning and steering tool promote macrofiscal discipline Reduce opportunities for corruption Enable program implementation Assure resources flow to programs allow budget to be aid to operational efficiency through spending unit advance planning, efficient administration enable program managers to achieve objective governance

General Phases of Execution Phase 1: Allocation Phase 2: Ministry Spending Plans link actions with finances; cash flow needs Phase 3: Commitments Phase 4: Verification Phase 5: Liquidation of Financial Obligation

Phases of Execution Source: Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

Core Functions Financial Management is Everyone’s Responsibility - internal control - program management - spending (commitments) - recording & reporting - payment orders - verification of receipt of goods/services - program/cash plans Financial Management is Everyone’s Responsibility

Expenditure System Self-correcting system No scandals does not mean External Audit No scandals does not mean clean system Internal audit: management policy enforcement role Procurement, Personnel, Physical Asset, Contract, Performance Management

Control Approaches Ex ante (before) making financial commitment French System New Public Management

Criteria for Assessing Budget Execution System