1. Budget Overview Dr. Jesse Hughes jhughes@odu.edu

2. Budget Stages Formulation Formulation Execution Execution Reporting Reporting

3. Types of Budgets Line Item (or object class) Line Item (or object class) Program Program Performance Performance Zero-Base Zero-Base Medium-Term Fiscal Framework Medium-Term Fiscal Framework Capital Capital Recurrent Recurrent

4. Budget Formulation Develop a Medium Term Fiscal Framework Develop a Medium Term Fiscal Framework Construct macroeconomic modelConstruct macroeconomic model Agree on programs and costs for 3 yearsAgree on programs and costs for 3 years Conduct sector reviewsConduct sector reviews Establish basis for sector expenditure ceilingsEstablish basis for sector expenditure ceilings Approve ceilings by decision-making bodyApprove ceilings by decision-making body Adjust Ministry budgets to stay within ceilingsAdjust Ministry budgets to stay within ceilings Present budget estimates to Parliament for final approvalPresent budget estimates to Parliament for final approval

5. Budget Formulation (continued) Annual or Multi-Year Budgets Annual or Multi-Year Budgets Use prescribed IMF codesUse prescribed IMF codes Work within ceilings established in the MTFFWork within ceilings established in the MTFF Send budget to legislative body for approvalSend budget to legislative body for approval

6. Budget Execution Close interaction between accounting and budgeting systems Close interaction between accounting and budgeting systems Control aggregate spending and any deficitControl aggregate spending and any deficit Facilitate strategic prioritization of expendituresFacilitate strategic prioritization of expenditures Encourage better use of budgeted resourcesEncourage better use of budgeted resources

7. Budget Execution (continued) Budgetary Control Budgetary Control Enter approved budget into accounting systemEnter approved budget into accounting system Use commitment accounting proceduresUse commitment accounting procedures

8. Budget Reporting Part of General Purpose Financial Statements Part of General Purpose Financial Statements Assess whether resources used in accordance with approved budgetAssess whether resources used in accordance with approved budget Publish comparative statement (with audit opinion) within six months after year-endPublish comparative statement (with audit opinion) within six months after year-end

9. Budget Reporting (continued) Format of Comparative Statement Format of Comparative Statement Include original and revised budgetInclude original and revised budget Show variances and explain major differencesShow variances and explain major differences Explain any budgeted amounts that have been exceededExplain any budgeted amounts that have been exceeded

10. Best Practices IMF IMF GFOA (US) GFOA (US) IFAC IFAC UNDP UNDP GFS GFS World Bank World Bank OECD OECD

11. IMF Code of Good Practices on Fiscal Transparency Defined roles and responsibilities Defined roles and responsibilities Public availability of information Public availability of information Open budget preparation, execution, and reporting Open budget preparation, execution, and reporting Assurances of integrity Assurances of integrity

12. GFOA (US) Best Practices in Public Budgeting Establish broad goals to guide government decision making Establish broad goals to guide government decision making Develop approaches to achieve goals Develop approaches to achieve goals Develop a budget consistent with approaches to achieve goals Develop a budget consistent with approaches to achieve goals Evaluate performance and make adjustments Evaluate performance and make adjustments

13. IFAC Guidance Encourage preparation of budget to actual comparative statement Encourage preparation of budget to actual comparative statement Can use cash or accrual basis of accounting Can use cash or accrual basis of accounting Disclose differences between accounting and budgetary basis Disclose differences between accounting and budgetary basis

14. UNDP Budget Preparation Process Transparency Transparency Management Management Decentralization Decentralization Coordination and cooperation Coordination and cooperation Integration Integration Flexibility Flexibility Discipline Discipline Link to MTFF Link to MTFF Accountability and credibility Accountability and credibility Comprehensive Comprehensive

15. Government Finance Statistics Classifications Revenue Revenue TaxesTaxes ContributionsContributions GrantsGrants OtherOther Economic Expend. Economic Expend. Compensation Goods and services Depreciation Interest Subsidies Grants Social benefits Other

16. Government Finance Statistics Classifications (continued) Functional Expend. Functional Expend. General public servicesGeneral public services DefenseDefense Public order and safetyPublic order and safety Economic affairsEconomic affairs Environmental protectionEnvironmental protection Housing/community amenities Health Recreation, culture, and religion Education Social protection

17. World Bank Country Financial Accountability Assessment Timely and accurate receipt of information Timely and accurate receipt of information Regular external reporting Regular external reporting Standards used Standards used Accountability provided Accountability provided Statements audited and reliable Statements audited and reliable

18. OECD Best Practices for Budget Transparency—Part 1 Budget is key policy document Budget is key policy document Should issue pre-budget, monthly, mid-year, and year-end reports Should issue pre-budget, monthly, mid-year, and year-end reports Should issue pre-election and long- term reports Should issue pre-election and long- term reports

19. OECD Best Practices for Budget Transparency—Part 2 Disclose economic assumptions Disclose economic assumptions Tax expenditures Tax expenditures Financial liabilities and financial assets Financial liabilities and financial assets Non-financial assets Non-financial assets Employee pension obligations Employee pension obligations Contingent liabilities Contingent liabilities

20. OECD Best Practices for Budget Transparency—Part 3 State accounting policies State accounting policies Establish system of internal controls Establish system of internal controls Year-end report should be audited Year-end report should be audited Subject to public and parliamentary scrutiny Subject to public and parliamentary scrutiny

21. Commitments Future liability based on an existing contractual arrangement Future liability based on an existing contractual arrangement Accounting system should provide for a reservation of funds until liability established Accounting system should provide for a reservation of funds until liability established Should be disclosed Should be disclosed

22. IFAC Public Sector Committee International Public Sector Accounting Standards (IPSASs) November 2003

23. Current Status of Program Completed first stage Completed first stage Core set of 20 accrual Standards (based on IASs issued as at August 97 where appropriate)Core set of 20 accrual Standards (based on IASs issued as at August 97 where appropriate) Cash Basis StandardCash Basis Standard Identify public sector specific issues for consideration in later stages of programIdentify public sector specific issues for consideration in later stages of program Commencing second stage Commencing second stage

24. The IFAC PSC Web Site All IPSASs All IPSASs All current Exposure Drafts All current Exposure Drafts PSC Update – on most recent PSC meeting PSC Update – on most recent PSC meeting Key PSC meeting papers Key PSC meeting papers AVAILABLE FREE OF CHARGE AT: WWW.IFAC.ORG/PUBLICSECTOR

25. Adoption of IPSASs OECD, NATO, European Commission OECD, NATO, European Commission Many countries moving to accrual and considering IPSASs Many countries moving to accrual and considering IPSASs Some countries on accrual using IPSASs on specific issues (e.g. related parties, segments) Some countries on accrual using IPSASs on specific issues (e.g. related parties, segments) Cash Basis IPSAS being considered by many countries Cash Basis IPSAS being considered by many countries Translation of IPSASs: Translation of IPSASs: French, Spanish, Italian, Arabic, Russian, Bahasa, Portuguese, Mandarin, Mongolian, JapaneseFrench, Spanish, Italian, Arabic, Russian, Bahasa, Portuguese, Mandarin, Mongolian, Japanese

26. Steps to Implement IPSAS in Developing Countries and Economies in Transition Identify all government owned enterprises (IAS) Identify all government owned enterprises (IAS) All other government activity comply with IPSAS and prepare Statement of Cash Receipts and Payments All other government activity comply with IPSAS and prepare Statement of Cash Receipts and Payments Prepare Consolidated Statement of Cash Receipts and Payments (Part 1 requirements) Prepare Consolidated Statement of Cash Receipts and Payments (Part 1 requirements) Prepare Budget to Actual Comparative Statement Prepare Budget to Actual Comparative Statement

27. Steps to Implement IPSAS in Developing Countries/Economies in Transition (cont.) Start migrating to Part 2 optional disclosures Start migrating to Part 2 optional disclosures Prepare Statement of Cash FlowsPrepare Statement of Cash Flows Disclose value of financial assetsDisclose value of financial assets Disclose value of financial liabilitiesDisclose value of financial liabilities Disclose value of non-financial assetsDisclose value of non-financial assets Implement remaining IPSASs and issue complete set of audited financial statements Implement remaining IPSASs and issue complete set of audited financial statements

29. END Dr. Jesse Hughes jhughes@odu.edu

30. ATTACHMENT Cash Basis IPSAS Cash Basis IPSAS Financial Reporting under the Cash Basis of Accounting Issued January 2003 Issued January 2003 Comprehensive Cash Basis IPSAS Comprehensive Cash Basis IPSAS Includes requirements and encouragements Includes requirements and encouragements Transition from Cash to Accrual Study 14 Transition to Accrual Basis of Accounting Issued in April 2002 Issued in April 2002 to provide guidance to provide guidance

31. ATTACHMENT Accrual Basis IPSASs Issued IPSAS 1 Presentation of Financial Statements IPSAS 2 Cash Flow Statements IPSAS 3 Net Surplus or Deficit for the Period, Fundamental Errors and Changes in Accounting policies IPSAS 4 The Effects of Changes in Foreign Exchange Rates IPSAS 5 Borrowing Costs IPSAS 6 Consolidated Financial Statements and Accounting for Controlled Entities

32. ATTACHMENT Accrual IPSAS (cont.) IPSAS 7 Accounting for Investments in Associates IPSAS 8 Financial Reporting of Interests in Joint Ventures IPSAS 9 Revenue from Exchange Transactions IPSAS 10 Financial Reporting in Hyperinflationary Economies IPSAS 11 Construction Contracts IPSAS 12 Inventories IPSAS 13 Leases

33. ATTACHMENT Accrual IPSASs (Cont.) IPSAS 14 Events After the Reporting Date IPSAS 15 Financial Instruments: Disclosure and Presentation IPSAS 16 Investment Property IPSAS 17 Property, Plant and Equipment IPSAS 18 Segment Reporting IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets IPSAS 20 Related Party Disclosures Exposure Drafts on Issue: ED 23 Impairment of Assets (comments closed 31 January 2004)