1. Tracking Progress and Controlling Funds
Bill Dorotinsky, PRMPS
Budget Execution Course
January 16-17, 2003

2. Post Budget Stages Release of Funds In-year modifications
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. Financial commitment stages
Encumbrance/pre-commitment/reservation
Commitment/obligation
Receipt of goods and services
Invoice
Verification
Paid
Cashed/cleared

4. Commitments, agency activity, and cash outflow: time lags
New agency activity in currency units
Commitments seek to control agency activity (new commitments) to control arrears
Absent any other factor, lower new activity does not immediately reduce cash outflow because of prior balances of commitments
(b) In cash control, what happens when agency cash allowances are cut? There may be a lag between reduction in new agency activity, and even greater lag to adjustment
(c) Commitment control seeks to target new agency activity, and reduce these lags.

5. Budget classifications
Administrative
Economic/object class/’inputs’
Functional
Program
Fund
Line Item

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

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. Budget classification - functional
Health
Education
Public Order and Safety
Defense
Foreign Affairs
…………

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

10. Classification Matrices
Payroll
Utilities
Rent
Etc….
Ministry
100 20 10
Program 4 2
Activity 1
0.2
0.1 ……
Classifications can be combined to cut the budget different ways
-- add to this a time dimension (annual, monthly)
Control can occur at any level of detail. What is the control point? What is the optimal control point? For whom?
Budget/policy control and accountability
Cash control and accountability
Meeting the service delivery financing needs of agencies in terms of financing, flexibility

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

12. Control Approaches Ex ante Ex Poste External Internal (to commitment)
(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
Ex ante (before) making financial commitment
French System
New Public Management

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

14. General Tensions

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

17. 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