Certain sums may be spent under permanent rather than annual legislation. The author is also grateful to K. Douglass for her assistance with data analysis. In fact, excessive duplication of controls is a common disease in many countries, particularly in Francophone Africa, which not only results in ineffciency in executing expenditure but also leads to rent seeking by officials who intervene at different stages of the expenditure transaction. This deficit provides an indication of the financial health of the economy. Authorized purpose of the expenditure. When the FSU countries were centrally-planned economies (i.e., before their transition to market-based economies), the ministry of finance played a minor role, mainly as the financial administrator of the central plan. To centralize cash management, all government cash transactions should go through a TSA system (with a set of accounts linked to a top account). This should be supported by adequate monitoring at each stage of the expenditure cycle and ex post auditparticularly external audit to start withto ensure effective compliance. Expenditures at the verification stage are sometimes called accrued expenditures (e.g., in the US), accounts payable, or actual expenses. Banks were privatized and deregulated, central bank laws introduced firm limits on the amount of credit available to the government, centralized treasury departments were established to raise financing from the private sector on commercial terms, control and process government payments, and report on budget execution through the main treasury account. The allocation of authority and responsibility to various actors for enforcing the controls at each stage of the expenditure cycle varies from one country to another, but some common features can be noted (see Table 2). There are two ways of securing such 'economy' in government expenditure: (1) The annual budget of toe central government must lay down the amount to be spent for particular purposes and the government servants or departments should not be permitted to spend in excess of the budgetary allocations. Finance ministry does not carry out any form of detailed commitment or payment control. By contrast, British Commonwealth countries do not formally track controls at every stage and typically track only the first and last two stages of the expenditure chain: authorization, payment order, and payment (see also Section IV). The contralora hence maintains overall control of budget execution. Ensures that expenditure is covered in the budget and the proposed amount of expenditure includes all relevant expenses. Economy Minister Mohd Rafizi Ramli said, if the government is . Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. The expenditure must occur within the time limits applicable to the expenditure authorization. Budget calendar revisedand, if necessary, legal framework amendedto ensure budget approval before the start of the fiscal year. 7/2009 sets a maximum one month complementary period. Finance ministry monitors budget execution by line ministries/agencies. Manual processing controls: Key manual processing controls for purchasing, payment, and confirmation of receipt of goods and services are performed outside the typical information systems (e.g., FMIS) environment and should be subject to periodic internal control checks and audit. Limit on amount of expenditure. Identifying gaps and weaknesses in expenditure control in a particular country requires a systematic review of the integrity of the expenditure cycle, looking at: Definition/specification of key stages of the expenditure cycle, including the control criteria. The expenditure cycle and associated controls in Francophone African countries derive largely from the French system as it existed prior to 1960s in the French provincial governments (prfectures).30 However, many Francophone African countries not only intensified the centralization of controls in the late 1990s,31 but the minister of finance also became the single and principal payment-authorizing officer (Ordonnateur principal unique).32 The responsibility for financial control is typically centralized in the ministry of finance, with its staff out-posted in the line ministries/spending agencies. The lack of a comprehensive and credible budget particularly affects the authorization (as the expenditure authority is not realistic), commitment (as ongoing/outstanding commitments are not adequately allocated for) and verification (as the accumulated liabilities are not fully reflected in the budget) stages. The valuations also usefully inform the employer and employee contribution rates to make the pension scheme sustainable. The apportionment process is critical to ensuring that expenditure totals are respected and any virements or claims on the contingency reserve are reflected in the revised allocation of appropriations. The key difference is in the degree of centralization between countries that follow the British Commonwealth, German-Austrian, and Scandinavian traditions of PFM and those that follow the Napoleonic traditions of PFM (France, Portugal, and Spain). Apportionment of authorization for specific periods and spending units. Your current browser may not support copying via this button. PFM weaknesses such as lack of a comprehensive and credible budget,41 poor cash planning or shallow markets for government debt, reporting delays, and accumulation of liabilities/arrears also undermine the effectiveness of expenditure control. In fact, with the functionalities available from a modern IT-based FMIS, information on budget execution can be made quickly available, and it becomes straightforward for the ministry of finance/treasury to track expenditure transactions as they pass through the various stages of the expenditure cycle, even when transactions are fully administered within line agencies. Defence Services: They account for nearly 20% of the total revenue expenditure of the Central Government in India. *The PEFA indicators are based on the new PEFA 2016 framework. The actual expenditures may be greater than or less than the budget. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. Lusophone African countries are also characterized by a higher degree of centralization in the sense that the overall budget execution responsibility, including the responsibility for financial control, is usually concentrated in one office: either the budget office itself (e.g., in Guine Bissau, and Sao Tome and Principe) or the accounting office (e.g., in Angola and Mozambique). Budgets are not the only mechanisms that provide the legal authorization to incur expenditure. Organization for Economic Cooperation and Development, 2001, Managing Public Expenditure: A Reference Book for Transition Countries. Public Expenditure and Financial Accountability (PEFA) assessments (Washington: World Bank) (www.pefa.org). Check float amount is the total amount of outstanding checks that have been issued, but have yet to be encashed. Whereas, in Francophone systems, the financial control officer is employed by the Budget Office, in Lusophone systems the payment-authorizing officer is employed by the Accounting Office. bank accounts (as reflected in bank statements). Types of Controls and Institutional Actors, Controls applied at different stages of the expenditure cycle, Authority and responsibility of various institutional actors, IV. This includes, but not limited to: failure to check the availability of funding before authorizing expenditure; failure to record and maintain data on commitments; delays in processing of payments; circumvention of controls at key stages, including through collusion; and poor record keeping, including of verification documents. 3. Key strengths: line agencies directly accountable for the use/control of their appropriations; and no complementary period. the responsibilities of the relevant actors in enforcing these controls. No apportionment (or in-year release of spending authority) mechanism. Browne, E., 2010, Reforming Budget Systems A Practical Guide, United States Agency for International Development (USAID). This authority to spend is released to the spending units through the issue of warrants/allotments/dcret de rpartition, or other mechanisms.9 Some form of centralized control during this phase of the expenditure cycle is common in almost all countries and is usually enforced by the budget department of the ministry of finance. If an FMIS is envisaged, its configuration and rollout should explicitly be linked to planned expenditure control reforms. The three main types of government expenditure include public services, transfer payments, and debt interest. This is especially true for expenditure on multi-annual investment projects (see Section III for multi-year expenditure limits on commitments). This used to be the case in all but three countries (Cameroon, Mali and Burkina Faso) of the 12 countries that comprise Sub-Saharan Francophone Africa. This objective is achieved by appropriations. Evidence since the second world war, says Chen of HKU, shows that "the higher the government's control of a country's economy, the lower the role for private consumption in its economic . The amount should be correctly calculated and there should be no hidden expenses. Verification. 2, No. Box 4 provides a few examples. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. In the other countries, the central banks usually handle both debt management and TSA administration on an agency basis. An appropriation is defined as a sub-division of a government budget established for accountability purposes, which shows the amounts legally authorized to be spent for specific purposes in a specific time period. To be able to exercise upfront control over the future resource requirements related to pensions, countries implementing accrual budgeting (e.g., the UK, Australia and New Zealand) include the accruing cost and any unfunded liabilities of pension schemes17 within budgetary limits for each government department.18. Payments authorized in annual budget do not fully reflect commitments carried forward from previous years (e.g., investment projects contracts). Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. For example, under an accrual-based budgeting system, the ministry of finance may: (i) delegate to spending agencies all decisions on their cash requirements and the timing of cash payments as long as the agencies conform to the expenses authorized on accrual basis; (ii) enforce a cash limit (either at an aggregated level or at a more detailed level) in addition to the amount of accrual-based expense authorized; and/or (iii) allow spending agencies to move cash appropriation into accrual-based expense but not vice versa.20, Commitment-based Expenditure Limits in France. The line ministries have substantial authority in executing the budget. Once the specific problems and weaknesses in expenditure control have been identified, the government needs to develop tools and measures to address them. KUALA LUMPUR, March 1 The government still has space to monitor the country's expenditure particularly development expenditure to ensure it is more prudent and accurate according to the project plans and this will indirectly assist the government in terms of better revenue needs. There is potential scope for over commitments and/or manipulation of in-year data on commitments which may not be systematically recorded/tracked in a timely manner at the respective stage of the expenditure cycle.39, Scandinavian. Advertisement. Reservation. Cash Management: How Do Countries Perform Sound Practices? This setting aside of an allotment for a future expenditure should not be confused with a legal commitment as no specific contract is signed at this stage. Table 4 lists some specific tools and measures that can address weaknesses at different stages of the expenditure cycle. Key strengths: separation of responsibility for key control tasks; tracking key stages of expenditure cycle; and centralized repository of expenditure data; Key challenges: frequent and redundant controls make the expenditure process slow (and encourage proliferation of special procedures); interference by central agencies may undermine responsibilities of line managers; and possible manipulation of the complementary period. g.type='text/javascript'; g.async=true; g.defer=true; g.src=u+'matomo.js'; s.parentNode.insertBefore(g,s); Table 3 provides a summary of the roles played by central and line agencies at different stages of the expenditure cycle as well as the key strengths and challenges in different traditions. To ensure bank reconciliation and reliability of expenditure data used for financial reporting, it is important to compare and reconcile the transactions recorded in the cash book (which records the details of checks issued) with those in the bank statements. 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