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

2. 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.

3. 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

4. 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

5. 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

6. 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

7. 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.

8. 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

9. 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

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

11. Criteria for Assessing Budget Execution System