1. The World Bank Tracking Progress and Controlling Funds: Concepts Bill Dorotinsky, PRMPS Budget Execution Course November 4, 2003

2. The World Bank 2 Post Budget Stages Release of Authority to Spend or Funds –Notification of budget –Commitment authority issued (if done) Financial plans –Warrants issued (cash draw) –Cash transfer (if done) In-year modifications –Transfer authority – across accounts –Virements – across ministries –Supplemental Budgets

3. The World Bank 3 Financial commitment stages Encumbrance/pre-commitment/reservation Commitment/obligation Receipt of goods and services Invoice Verification Paid Cashed/cleared

4. The World Bank 4 Commitments, agency activity, and cash outflow: time lags

5. The World Bank 5 Budget classifications Administrative Economic/object class/’inputs’ Functional Program Fund Line Item (NOTE: GFS – a statistical reporting system, not classification system or chart of accounts)

6. The World Bank 6 Budget classification - program Program/organizational objectives –Ministry of Health Children’s Health Women’s Health HIV/AIDS Vaccination

7. The World Bank 7 Budget classification - administrative Organization/administrative –Ministry of Culture –Ministry of Health –Ministry of Social Welfare –Ministry of Defense –Ministry of Justice –Parliament/legislature –Chancellory/Prime Minister….

8. The World Bank 8 Budget classification - functional Functional –Health –Education –Public Order and Safety –Defense –Foreign Affairs –…………

9. The World Bank 9 Budget classification - economic Economic/object class/’inputs’ –Personnel/personal services Salaries Benefits –Non-personal services Supplies Contracts Utilities Equipment Printing Travel –Capital

10. The World Bank 10 Classification Matrices PayrollUtilitiesRentEtc…. Ministry1002010 Program2042 Activity10.20.1 ……

11. The World Bank 11 Dimensions of Control Time –Control (allocations) versus –Reporting & monitoring Detail – classification matrix Policy – time, detail –Accountable to Executive Legislative Civil society

12. The World Bank 12 Control Approaches Ex ante (to commitment) Ex Poste External (to spending unit) Centralized commitment control (transaction approval) Allocations (commitment limits) Warrants (cash limits) Procurement procedures Personnel/pay rules “continuous auditing” Disbursement rules Central internal audit External audit Regular reporting, management intervention Quarterly close-outs Cash rationing Internal Ministry or spending unit transaction approval Procedures to minimize risk (internal controls) Transparency Ministry internal audit Performance management

13. The World Bank 13 Central control versus Managerial Flexibility Tensions between needs of center to –Control cash flow –Control policy And agency need to manage programs –Larger, less detailed allocations –Longer time horizon –Greater transfer authority/flexible application of resources

14. The World Bank 14 General Tensions

15. The World Bank 15 Essentials of Good FM Timely, accurate in-year reporting –Internal controls, audit –External audit Sufficient detail to identify sources of overspending Sufficiently regular reporting to allow timely management intervention Comprehensive system Accountability framework, control environment

16. The World Bank 16 To manage well requires: Monitoring/managing –Cash balances –Cash flow Inflow outflow –Commitments –Arrears –Contingent liabilities –New legislation/mandates –Off-budget activity

17. The World Bank 17 Core Functions - 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