1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT
Module 2.3: Budget Execution

2. Module outline Expenditure cycle: from allotment to payment
Getting the Basics Right
Budgetary Control
Budget Reporting

3. Expenditure cycle Budget Execution Process
Authority 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

4. Expenditure cycle Issues in budget implementation:
Budget implementation is not simply a matter of executing the approved budget – outturns will always show some variance the original budget due to various factors … in all countries.
The trend is to give spending units more flexibility (discretion) in implementing their budgets.
Budgetary flexibility might not be appropriate in countries with inadequate managerial controls.

5. Expenditure cycle Common budgetary problems:
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 not included in financial statements and approved budgets.
Funds diverted to unauthorized purposes.

6. Module outline Expenditure cycle: from allotment to payment
Getting the Basics Right
Budgetary Control
Budget Reporting

7. Getting the basics right
Functions aimed at ensuring the credibility of the budget and aggregate fiscal discipline can be included in the set of basic PFM functions:
functions required to ensure financial compliance;
other functions that contribute to the credibility of the budget, together with financial compliance functions.
Jack Diamond 2013

8. Getting the basics right
Financial compliance
adequate control system;
clear and transparent financial regulations.
Control of expenditures and revenues
controls performed by the ministry of finance, and other central agencies;
controls performed within the spending units.
Jack Diamond 2013

9. Getting the basics right
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.

10. Module outline Expenditure cycle: from allotment to payment
Getting the Basics Right
Budgetary Control
Budget Reporting

11. Budgetary control Principles of budgetary control:
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.
Budgets are shown gross (not net of receipts).

12. Budgetary control

13. Budgetary control Budget modifications In-year budgetary adjustments:
Transfer of resources – across sub-codes
by line manager / ministry
Virements – between departments
by Ministry of Finance / Treasury
Supplementary budgets
by Parliament

14. Budgetary control Supplementary budgets
Budget revisions should be submitted to Parliament for approval.
Good practice: the mid-term budget review 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.

15. Budgetary control Commitment control
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.

16. Budgetary control The vote book 123 6545 stationary
annual appropriation-€1000
date
payee
description
order
paid
balance
15 May 2010
ABC ltd
paper
€240
€760
1 June 2010
5 June 2010
XYZ ltd
printer paper
€260
€500
12 July 2010

17. Module outline Expenditure cycle: from allotment to payment
Getting the Basics Right
Budgetary Control
Budget Reporting

18. Budgetary reporting Monthly Expenditure Returns
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 Ministry of Finance: Treasury for reporting & the Budget Department for the budget release process.
Non submitted Monthly Expenditure returns may result in suspension of further budget releases.

19. Budgetary reporting Quarterly budget reports
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.
Review the need for supplementary budget.

20. Key messages
Budget execution systems 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.