1. International Practice on Budget Execution and Control
Katherine Barraclough and
Bill Dorotinsky
Public Financial Management Workshop, NOSPA, Vientiane, Lao PDR May 23-26

2. Budget Execution and Control
Concerned with budget execution, accounting and fiscal reporting
Processes and institutions to:
Implement the budget
Manage resources, assets (and policies)
Report on resource use
Ex poste audit reports and resource use
Key questions:
Are deficit targets going to met?
Are budget adjustments that were agreed at the preparation stage being implemented?
Will the budget outturn align with the budget plan?
Are expenditure priorities being reflected in the budget?

3. Basic Principles for Budgeting
Comprehensiveness
Include all revenue and expenditure, all agencies
Accuracy
Record actual transactions and flows
Annuality
Cover a defined period of time (e.g. one year budget, multi-year forecasts)
Authoritativeness
Ensure implementation is in line with appropriate laws
Transparency
Information on spending is public, timely and understandable
Predictability
Stability in the macro and strategic policy and funding in the short and long term

4. Cash Budget Advantages: Disadvantage:
Appropriations are on a cash basis and define the limits for payment and annual commitment
Fits well with the need for compliance and expenditure control
Expenditures are classified by organisation and object of expenditure (line item)
Disadvantage:
Tendency to overlook issues of government objectives, their links to the budget, and the services to be delivered by the government
This can be overcome through an appropriate classification system

5. Budget Classification (1)
Classification is important for:
Policy formulation
Identification of resources allocation among sectors
Identification of activities of government
Level of performance to be assessed
Establishment of accountability for compliance of authorizations, policies and analysis
Everyday budget administration

6. Budget Classification (2)
Budget can be classified according to:
Function: for historical and high level analysis and policy formulation
Organisation: for accountability and budget ration
Fund: source of financing
Economic: for statistical purposes, compliance, control, and economic analysis
Program: for allocating resources based on government objectives and cost-benefit analysis
Other: as needed based on country circumstances
COFOG and GFS
COFOG:
GFS:

7. The Budget Execution Process

8. Key Considerations Ability to revise budget appropriations in-year
Excessive switching may indicate a lack of budgetary discipline and/or poor budget formulation
Quality of information on outturn expenditure
Information needs to be timely, accurate, and reliable
Limits on use of exceptional procedures
Avoid excessive use of procedures that by-pass expenditure controls
Adjusting expenditures in year
Only changes in expenditure policy can deliver sustained changes in expenditure levels
Pursuing good governance
Ensuring the basic principles are followed
Areas of responsibility

9. Responsibilities for the CBO
Budget Administration
Administering the system of release of funds
Monitoring expenditure flow
Preparing in-year budget revisions
Managing central payment system/bank accounts
Administering the central payroll system
Consolidating accounts and preparing progress reports
Policy Implementation
Reviewing progress independently or jointly with spending agencies
Identifying policy revisions where appropriate
Proposing to Cabinet reallocations of appropriations

10. Responsibilities for Spending Agencies
Budget Administration
Allotting funds among subordinate units
Making commitments, purchasing and procuring goods and services
Verifying the goods and services acquired
Preparing requests for payment
Preparing progress reports
Monitoring performance indicators
Keeping the books
Policy Implementation
Periodically reviewing the implementation of the program
Identifying problems and implementing adequate solutions
Reallocating resources among sector programs

11. Principles of Internal Control
Compliance controls:
Commitment stage: financial control
Delivery: verification
Before payment: accounting control
After final payment: audit
Principles of Internal Control
Establishment of responsibility
Physical, mechanical and electronic controls
Segregation of duties
Independent internal verifications
Documentation procedures
Other controls

12. Ex Ante (to commitment)
Internal Control (2)
Ex Ante (to commitment)
Ex Poste
External
(to spending unit)
Centralized commitment control (transaction approval)
Allocations (commitment limits)
Warrants (cash limits)
Procurement rules
Personnel/pay rules
Central internal audit, external audit
Regular reporting
Quarterly close-outs
Internal
Ministry or spending unit transaction approval
Procedures to minimize risk (internal controls)
Ministry internal audit
Performance management
Any system is a mix of approaches
Approaches will vary with fiscal conditions
As with any trend, they can go too far

13. External Control Independence Capacity Impact
Adequate resources, government support and staff
Head of Audit Office should be selected on professional merit
Independent of the executive
Relevant scope of work
Capacity
Professional expertise and technical knowledge
Access to information
Effective working relationship with Ministry of Finance and spending agencies
Impact
Available to the public
Focus on issues of importance
Executive commitment to follow up on findings

14. Issues for Developing Countries
Condition
Impact on Public Expenditure
Poverty
Lack of resources to respond to rising demands/expectations for public services. Tendency for budget to be a wish list.
Economic Instability
Inadequate slack to “ride out” cyclical shocks and other disturbances. Tendency to have a short-term view of budgeting.
Low Revenue Base
Vulnerability to adverse shifts in commodity prices, terms of trade, and low access to capital markets.
Informal Market Sector
Much economic activity is extra-legal, in disregard of formal rules and regulations; weak enforcement.
Informal Public Sector
Formal rules concerning civil service, public expenditure and procurement tend to be ignored or violated.
Low Political Mobilization
Inadequate development of interest groups to express public opinion and monitor government performance.
Schick, A., “A Contemporary Approach to PE,” (World Bank, 1998) 31.

15. Ratings of Public Financial Accountability
Elements of a sound public financial system
Lao PDR
China
Vietnam
Thailand
Korea
Cambodia 1
Quality and openness of the budget process 2
Appropriateness of internal financial and performance management systems 3
Quality of public sector accounts and management information 4
Effectiveness of public external audit and evaluation function
™  
OVERALL
™/˜
Ratings: low= medium= high=
Source: World Bank, East Asia Update, (2001)

16. Best Practice – budget presentation
Budget information should be presented in a way that facilitates policy analysis and promotes accountability
Budget data should be reported on a gross basis, distinguishing revenue, expenditure, and financing, with expenditure classified by economic, functional, and administrative category.
IMF Manual on Fiscal Transparency (2001)

17. Best Practice – budget execution
Procedures for the execution and monitoring of approved expenditure and for collecting revenue should be clearly specified
There should be a comprehensive, integrated system which provides a reliable basis for assessing payment arrears
Budget execution should be internally audited, and audit procedures should be open to review
Frequent reports on budget developments should be presented to the legislature and final accounts should be presented within a year of the end of the fiscal year
IMF Manual on Fiscal Transparency (2001)