1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 2.4 – Budget Execution

2. 2.2 & 2.3 Planning and budgeting 3.1 The Budget Execution Cycle 5.2 Decentralisation 1.1 Introduction 2.1 Macroeconomics of the Budget 4.1 Revenue Administration 3.2 Payroll, Procurement & IT 1.3 Budget Classification 4.3 Accounting & Reporting 4.2 Treasury Management 1.2 The Budget 5.3 Assessing & Recapitulation 3.3 Internal Control & Audit 5.1 External Scrutiny & Oversight Module map

3. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget Reporting Reform sequencing Module outline 3

4. Budget execution process 4 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

5. 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 5

6. 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 6

7. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Budget Variations Payment Controls Budget reporting Reform sequencing Module outline 7

8. 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. EC report by Jack Diamond April 2012 Getting the basics right 8

9. The PFM objectives (i) financial compliance/due processes; (ii) second, aggregate fiscal discipline; (iii) then, strategic allocation of resources and efficient public service delivery EC report by Jack Diamond April 2012 Getting the basics right 9

10. 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 EC report by Jack Diamond April 2012 Getting the basics right 10

11. 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 11

12. Legislative /parliament Executive – cabinet (ministers) - bureaucracy /civil service Ministry of Finance – Secretary to the Treasury - Accountant General (Treasury) - Budget Department /Ministry Line ministries (education, health etc) - permanent secretary/accounting officer Institutions & officials 12

13. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Payment Controls Budget Reporting Reform sequencing Module outline 13

14. 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 14

15. Budgetary Control 15

16. 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 16

17. 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 17

18. 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 18

19. The vote book 19 123 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

20. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Budget Variations Payment Controls Budget reporting Reform sequencing Module outline 20

21. 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 21

22. Main treasury system Running costs paid locally Some income may be retained locally Larger sums controlled centrally Alternative forms of payment or cash release 22

23. 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

24. Some income may be retained locally to increase spending (internally generated resources or funds) Internally generate resources 24

25. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Budget Variations Payment Controls Budget reporting Reform sequencing Module outline 25

26. 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 26

27. 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 27

28. International Budget Project: www.internationalbudget.org Open Budget Index 2010 (94 countries) 80 % 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 Global Integrity – www.globalintegrity.comwww.globalintegrity.com Involvement of civil society 28

29. Reporting for local delivery units 29 Put on notice boards and give to elected representatives, trade unions, parent- teacher associations. Press reports

30. Expenditure cycle from allotment to payment Getting the Basics Right Budgetary Control Budget Variations Payment Controls Reform sequencing Module outline 30

31. 1. A schematic view of the reform decision process 2. Stage One: Analysis and Diagnosis--PFM Technical factors 3. Stage Two: Analysis and Diagnosis--Factors External to PFM 4. Stage Three: Settling on a sub-set of reform options 5. Stage Four: Dialogue with stakeholders to agree reform actions 6. Stage Five: Decide sequencing of reform actions 7. Stage Six: Put in place an adequate delivery mechanism 8. Stage Seven: Formal monitoring and review of reform efforts EC report by Jack Diamond April 2012 Sequencing of reform 31

32. Assessing Reform Risks at the Top Political Economy Level 1. Change management is essential to address the external factors 2. Deciding on what is possible within the "basics" in PFM reform 3. Change management as risk management 4. Reform implications in deciding the feasibility of reforms Assessing Reform Risks at the Institutional Organizational Levels 1. An approach to assessing risks from external factors at the lower level 2. The institutional structure of PFM systems 3. The internal organization of PFM systems EC report by Jack Diamond April 2012 Assess reform risk (1) 32

33. A Risk-based Approach to Sequencing within the Basics 1. Reform risk as a criterion for sequencing decisions 2. Operationalizing the risk-based approach 3. Employing the risk analysis to determine reform strategy 4. Choosing the sequence of reform actions EC report by Jack Diamond April 2012 Assess reform risk (2) 33

34. 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 Reform sequencing will vary from country to country Key messages 34