1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 2.3: Budget Execution

2. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget Reporting Module outline 2

3. Budget execution process 3 Funding released by Treasury to line ministries etc Line ministries commit funds through payroll, order or contract Payments are made for the goods & services provided Transactions recorded in the accounting system Budget reports and financial statements prepared Budget Execution Process

4. Budget implementation is not simply a matter of executing the approved budget – all countries expenditure differs from the budget Variance depends on fiscal conditions, stability and certainty in the country’s finances, the role of the finance ministry and budget system A highly itemized budget usuall experience more variance than where managers have more spending discretion The trend is to give spending units more flexibility in implementing their budgets Might not be appropriate in countries with inadequate managerial controls. Issues in budget implementation 4

5. Approved budget is unrealistic, Extreme uncertainty concerning available resources, with quarterly or monthly allotments Extra-budgetary funds outside the budget process, hoarded by spending units Significant payment arrears that are not included in financial statements Funds diverted to unauthorized purposes or private accounts Common budgetary problems 5

6. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget reporting Module outline 6

7. Functions aimed at ensuring the credibility of the budget and aggregate fiscal discipline can be included in the set of basic PFM functions: (i) functions required to ensure financial compliance; (ii) other functions that contribute to the credibility of the budget, together with financial compliance functions. Jack Diamond 2013 Getting the basics right 7

8. The PFM objectives (i) financial compliance/due processes; (ii) second, aggregate fiscal discipline; (iii) then, strategic allocation of resources and efficient public service delivery Jack Diamond 2013 Getting the basics right 8

9. financial compliance adequate control system, clear and transparent financial regulations Control of expenditures and revenues controls performed by the ministry of finance, or other central agencies and controls performed within the spending units Jack Diamond 2013 Getting the basics right 9

10. A credible annual budget is implemented with few significant deviations High transparency Public funds spent for authorized purposes only Spending units have reasonable certainty on the funds to be made available Compliance with formal rules Getting the basics right 10

11. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget Reporting Module outline 11

12. Each area of the budget has one, and only one, budget holder. All budget managers are clear on the income and costs they are responsible for and the size of their budget Budget managers are able to control the level of expenditure or income from their budgets. Financial responsibility matches the reality of management control All revenue deposited in bank account – not used locally Budgets are shown gross (not net of receipts). Principles of budgetary control 12

13. Budgetary Control 13

14. In-year budgetary adjustments: Transfer of resources – across sub-codes o by line manager/ ministry Virements – between departments o by Treasury Supplementary budgets o by Parliament Budget modifications 14

15. Budget revisions should be submitted to Parliament for approval should be limited to one revision per year Good practice: the mid-term budget review which may include in year (t): budget execution report for the first months of year (t) supplementary estimates for year (t) budget budget policy paper for year (t+1), and indicative spending for the following two years Supplementary budgets 15

16. Ensures budget units only spend what appropriated by Parliament & released by Treasury Reduces payment voucher arrears Improves effectiveness Increases the confidence in vendors that they will get paid Reduces the opportunity for rent seeking by payment offices Reasons for commitment control 16

17. The vote book 17 123 6545stationaryannual appropriation- €1000 datepayeedescriptionorderpaidbalance 15 May 2010ABC ltdpaper €240€760 1 June 2010ABC ltdpaper €240€760 5 June 2010XYZ ltdprinter paper €260€500 12 July 2010XYZ ltdprinter paper €260€500

18. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget reporting Module outline 18

19. Imbalances between cash inflows and outflows: appropriation freezes, commitment limits, cash budgeting, informal borrowing from vendors (arrears) They are disruptive for sound budget execution management (non-predictability) During budget preparation indicate new & on-going projects (delay or cancel?), scalable versus non scalable projects (no half bicycles) Often resulted from IMF quarterly ceilings on bank borrowing Cash Rationing 19

20. Main treasury system Running costs paid locally Some income may be retained locally Larger sums controlled centrally Alternative forms of payment or cash release 20

21. The standard payment system is through the ‘Treasury’: The Ministry of Finance is responsible for making the actual cash, cheque and direct bank transfers. There may be local treasuries in MDAs and/or regional locations across the country. Main Treasury system

22. Some income may be retained locally to increase spending (internally generated resources or funds) Internally generate resources 22

23. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget reporting Module outline 23

24. Reflect the structure of the budget Show funds received, committed funds, expenditures and transfers, opening and closing balance of bank accounts For example, submitted by the line ministry to the Accountant General’s Office (MoF) for reporting & the Budget Office for the budget release process Non submitted Monthly Expenditure returns may result in suspension of further budget releases Monthly Expenditure Returns 24

25. Details of receipts and payments by each ministry Compared with the performance of the previous year and relevant budget Reported to politicians (cabinet and/or parliamentary finance committee) and public May lead to supplementary budget Quarterly budget reports 25

26. International Budget Project: www.internationalbudget.org Open Budget Index 2012 (100 countries) 87 % of governments don’t adequately account to public for their spending Our Money, Our Responsibility: A Citizens' Guide to Monitoring Government Expenditures Links to national budget groups, Centre for Budget Advocacy – Ghana, Uganda Debt Network Involvement of civil society 26

27. 2012 OBI report The average score among the 100 countries studied is just 43. Only 23 countries provide significant information or better, as indicated by OBI scores that exceed 60. A disturbing 26 countries provide scant or no budget information, with scores of 20 or less. Another 15 countries provide only minimal budget information, with scores between 21 and 40.

28. 2012 OBI report Seventy-seven of 100 countries fail to meet basic standards of transparency and accountability Twenty-one countries fail to publish the Budget Proposal. Budget Proposals that countries publish provide, on average, less than three-fifths of the desired information as per international good practice criteria. The worst performers on budget transparency include Bolivia, China, Equatorial Guinea, Qatar, newly democratic Myanmar, and Zambia, which provide little to no information to their citizens about how the government is spending the public’s money. Only six countries surveyed release extensive budget information. Those top-tier countries are: New Zealand, South Africa, United Kingdom, Sweden, Norway, and France.

29. Budget execution system should ensure compliance with legislature’s authorisations Virement rules should provide managers with a certain degree of flexibility, but within the government’s policy framework Uses of appropriations should be regularly monitored The budgetary horizon (when payments and receipts are predictable) will vary over time and between countries Key messages 29