1. The World Bank Tracking Progress and Controlling Funds: Concepts Bill Dorotinsky, PRMPS Budget Management Course March 1-2, 2004

2. The World Bank 2 The HIPC Expenditure Tracking work illustrated that PEM systems remain weak in basic areas. Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, 2002. See http://www.worldbank.org/hipc/hipc-review/tracking.pdfhttp://www.worldbank.org/hipc/hipc-review/tracking.pdf 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 123456789101112131415 (Percent of countries not meeting each benchmark) Benchmark number: Note: Based on 24 countries’ Final Assessments Meets GFS definition of general government Data on donor financing Classification of budget Pov. Red. Exp. Identified Projections integrated into budg. formulation Low level of arrears Quality of internal audit (effective or not) Regular tracking Fiscal & monetary data reconciled Month reports Timely functional reporting from class system Accounts closed within two months of y/e Audited accounts to legislature within 1 year Outturn close? Extra (off) budget expend. Reporting ExecutionFormulation

3. The World Bank 3 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

4. The World Bank 4 Financial commitment stages Encumbrance/pre-commitment/reservation Commitment/obligation Receipt of goods and services Invoice Verification Paid Cashed/cleared

5. The World Bank 5 Commitments, agency activity, and cash outflow: time lags

6. The World Bank 6 Budget classifications Administrative Economic/object class/’inputs’ Functional Program Fund Line Item

7. The World Bank 7 Classification Matrices: frequently used to control PayrollUtilitiesRentEtc…. Ministry1002010 Program2042 Activity10.20.1 ……

8. The World Bank 8 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

9. The World Bank 9 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

10. The World Bank 10 General Tensions

11. The World Bank 11 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

12. The World Bank 12 To manage well requires: Monitoring/managing –Cash balances –Cash flow Inflow outflow –Commitments –Arrears –Contingent liabilities –New legislation/mandates –Off-budget activity

13. The World Bank 13 Typical short term measures: Adjust budget classification (e.g. Benin, Cameroon, The Gambia, Mali, Niger ) Create virtual fund (e.g. Burkina, Ghana, Mauritania, Tanzania) Rollover MT projections (e.g. Burkina, Malawi) Timely reconciliation (e.g. The Gambia, Ghana, Honduras, Nicaragua) Begin or enhance FMIS (e.g.Guyana, Malawi) Rationalize bank accounts (e.g. Mozambique) Bring all revenues on-budget (e.g. Sao Tome) HIPC expenditure tracking Action Plans focus on both short-term actions (“bridging mechanisms”) and medium-term actions and goals. Typical medium term measures: Overhaul budget law (e.g. Mozambique, Malawi) MTEF development (e.g. Zambia, Mali) Internal audit capacity (e.g.Tanzania, Malawi, Honduras) Classification and coverage to GFS standards (e.g. Tanzania) Clean up annual reporting arrears (e.g. Niger, IFMIS development & implementation(e.g. Mali, Malawi, Ghana) So what are countries doing to improve systems?