In the absence of this coordination, spending ministries/agencies can potentially frontload their commitments even if adequate cash is not likely to be available for payment when the commitments materialize, or the treasury may not raise the necessary finance to meet cash requirements. Weaknesses at one stage of the expenditure control cycle can undermine the integrity and credibility of the system as a whole. When sequestering appropriations, ongoing commitments should be taken into account. _paq.push(["setDoNotTrack", true]); As part of the budgetary accounting, commitments and payments made (through the CPs) against each AE are tracked to identify and report on (i) AE approved in budget law; (ii) AE consumed through legal commitments; (iii) AE unused/available for new commitments; (iv) CP authorized in budget law; and (v) payments made or CP consumed (see figure below). 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. Flynn, S., and M. Pessoa, 2014, Prevention and Management of Government Expenditure Arrears, Technical Notes and Manuals, (Washington: International Monetary Fund). While particular expenditure control weaknesses may manifest themselves at a particular stage of the expenditure cycle, addressing them may require reforms at various points in the process. The expenditure must occur within the time limits applicable to the expenditure authorization. This may lead to potential arrears. The main reforms required to address the weaknesses at different stages of the expenditure cycle are as follows: Authorization. However, even in such cases and in line with the principles of budget comprehensiveness, transparency, and accountability, such expenditures should be included in the budget documentation, and subjected to the same regularity controls discussed in Section III (see Table 1). While expenditure control frameworks differ greatly from country to country, it is nonetheless possible to define, in a generic sense: the key stages of the budget execution cycle; the specific control objectives at each of these stages; and. 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. Centralized systems, particularly with centralized commitment and accounting controls,24 have the advantage of: (i) reducing the scope for variable interpretation and application of control criteria by multiple agencies; (ii) facilitating integration between aggregate cash control and commitment control at the transaction level;25 and (iii) allowing the ministry of finance direct access to a centralized repository of expenditure data for budget execution monitoring/reporting. weak expenditure controls are also associated with a lack of budget credibility as measured by PEFA indicator PI-1 (Figure 3). Control of procurement: Significant public spending takes place through the public procurement system. The main thrust of reforms is to ensure that payments are made within the due date to prevent accumulation of payables/arrears, extend the horizon of the cash plan which also reflects expected payments, and eliminate exceptional procedures for payment. Different expenditure control systems bring with them their own advantages, but also their own potential weaknesses. Much of the government's spending is a form of income or wealth redistribution, which is aimed at benefiting society as a whole. Lack of adequate control over government expenditure remains a problem in many countries. Some of the controls during the expenditure cycle can be automated and applied through an FMIS. The lack of systematic tracking and control of commitments leads to over commitment and arrears in several countries of commonwealth tradition, particularly in Africa. 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. The allocation of responsibility to various actors in the exercise of expenditure controls is heavily influenced by their respective administrative traditions of PFM and level of development. 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. Reservation/pre-commitment. Payment. The commitment stage is the point at which a potential future obligation to pay is established. Budgets are not the only mechanisms that provide the legal authorization to incur expenditure. In many countries each appropriation is the subject of a separate vote by the legislature. France, following the introduction of a new organic budget law in 2001, overhauled the budget execution system by decentralizing it somewhat toward line ministries. Special procedures are also sometimes a symptom of the inefficiency of the normal procedures to respond adequately to priority needs. The expenditure cycle and associated controls in Lusophone African countries34 are quite similar to the control framework in Francophone systems, but there are a few key differences. Even when payment processing and expenditure controls are decentralized, a central aggregate control on cash is still required. Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. That leaves just 20 to 30 percent of expenditures that are discretionary and can be changed in the government's annual budget. Capital spending They are for the long term and do not need to be renewed each year. Lienert, I., and F. Sarraf, 2001, Systemic Weaknesses of Budget Management in Anglophone Africa, Working Paper WP/01/211, (Washington: International Monetary Fund). In many cases, a transaction processing system may have to be supplemented by specialized consolidation software to generate the necessary reports in a timely manner. The nature of those expenditure limits depends on the accounting basis (cash, commitment, or accrual) used in the budget (see Section III). Some countries PFM systems may not formally track all the seven stages (see discussion in page 9). Role of Central and Line Agencies in Various Traditions and Lessons Learned. Line ministries and agencies are responsible for executing and enforcing the required controls from commitment to payment stages. However, the design and implementation of such a differentiated control arrangement would depend on several factors, including the effectiveness of the internal control and assurance system to identify and alert management to control risks.45, Devolution of Expenditure Control in France, Morocco, and Thailand. The author is also grateful to K. Douglass for her assistance with data analysis. Public Expenditure and Financial Accountability Assessment: Federal Democratic Republic of Ethiopia (Somali Regional State Government), Public Expenditure and Financial Accountability Assessment: Federal Democratic Republic of Ethiopia (Southern Nations, Nationalities and Peoples Region), Timor-Leste Public Expenditure and Financial Accountability Assessment 2018: Public Financial Management Performance Report, https://doi.org/10.5089/9781513574639.005. In the third phase, a risk-based approach to control (control modul de la dpense) could be introduced, which in essence comprises the replacement of systematic ex ante control at the line item/transaction level by ex post audit and strengthened oversight. Key challenges: large variations in effectiveness of controls; and reconciling accrual-based data at line agencies with cash-based data at the treasury. This plan indicates the funds required for operations, typically on a quarterly or monthly basis. As these countries transitioned to market-based economies, they established centralized treasury departments under the finance ministry to process payments and exercise control at the payment stage. 1All uses of public funds should be governed by financial regulations. Large delay between verification (recognition of liability) and payment order (arrears, etc). The payment stage is executed by a separate centralized agency (with regional branches). Spending units enter into commitments only against unencumbered spending authority and the cash plan covers the expected payment profiles of commitments. FSU countries. Once the apportionment of expenditure authorization is made and the spending authority has been released, some countries PFM systems include a stage at which funds are reserved for a specific known expense but for which no contract has yet been issued. Line ministries and agencies initiate the commitment and payment and verify the delivery of goods and services. 7/2009 sets a maximum one month complementary period. Check float has two dimensions: (i) check float time; and (ii) check float amount. As such, the AEs are consumed at the commitment stage of the expenditure or the legal act of signing a contract of the State with a third party.1 In the case of a commitment running over several years, its associated CP is spread over several budget years up to the cumulative maximum amount of the initial multiannual AE. Reports from the central bank, based on bank payments data classified by bank code (a compressed form of the budget/accounts classification) provided the only basis for in-year control of budget implementation. When looking to strengthen expenditure control, it is therefore important to review the whole expenditure cycle/process instead of focusing on a few stages.36 However, based on experience in different groups of countries, it is possible to identify a set of problems that characterize different expenditure control traditions: British Commonwealth. Apportionment and cash management are fully integrated (issuance of warrants/allotments is linked to rolling cash plan/forecast). Bank-Qualified Municipal Bonds Marketplace Fairness and RTPA State and Local Tax Deduction (SALT) PolicyStatements Accounting, Auditing and Financial Reporting Budgeting and Financial Management Intergovernmental Relations and Federal Fiscal Policy Public Employee Pension and Benefits Administration Apportionment of authorization for specific periods and spending units. British Commonwealth, Scandinavian, and German-Austrian, Francophone, Lusophone, and Latin American. This TNM has benefited from review and comments of M. Cangiano, M. Fouad, R. Hughes, R. Allen, R. Boukezia, B. Chevauchez, S. Flynn, D. Gentry, T. Hansen, R. Hurtado Arcos, C. Iles, D. Last, J. Menkulasi, D. Moretti, M. Nozaki, B. Olden, M. Pessoa, J Seiwald, H. van Eden, A. Veloz, B. Wiest, and several other colleagues from both the PFM divisions of FAD. Verification. Items of government expenditureItems of government expenditure Functional classification Government expenditures can be classified by the type of service that they provide: Ed tiEducation Health Social Security, Social Insurance and Assistance Defense Foreign Affairs Others: Energy & Natural Resour ces; Transportation . The word budget is derived from the Old French bougette ("little bag"). Commitment. While the institutional arrangements for raising government revenue are typically quite centralized in a national revenue authority, the expenditure of those resources involves a wide array of public entities at various levels of government, even in countries with relatively centralized PFM systems. However, the complexity of the expenditure chain, the precise nature of the controls exercised at each stage, and the degree of centralization varies considerably across countries and is heavily influenced by their respective administrative traditions. Line ministries and agencies initiate the commitment, verify the delivery of goods and services, and issue the payment order (. 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). For example, the British budgeting system sets appropriations for both the expenses incurred (the net resource requirement) and the cash payments to be made (the net cash requirement) by each ministry. Bouley, D., and others, 2003, How Do Treasury Systems Operate in sub-Saharan Francophone Africa? OECD Journal on Budgeting, OECD, Vol. This paper will help public financial management practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls. Apportionment, reservation, commitment and payment order stages and virements during budget execution. The objective of expenditure control is to ensure that public resources are spent as intended, within authorized limits, and following sound financial management principles. This will be dependent on sustained improvements in financial management standards and management information, and assurance of a control-conscious culture in each agency. Expenditures. Without accounting for the state rollback error, the total general fund revenue and expenditure budget which funds police and fire, parks and recreation and public works is $157.9 million . In cases where the expenditure is subject to a previous ongoing contract (e.g., wages, utilities, rent, debt service) or statutory obligation (e.g., transfers to subnational governments), an estimate of obligation to pay should be made and treated as a commitment. Percentage of reserved amount that materializes as commitment; and average time lag between reservation and commitment. Next. Table 1 below summarizes the types of control applied during various stages of the expenditure cycle, their key features and objectives. This is especially true for expenditure on multi-annual investment projects (see Section III for multi-year expenditure limits on commitments). For similar examples, see also R. Allen et al, The Evolving Functions and Organization of Finance Ministries, IMF Working Paper WP/15/232 (2015). Other Controls Specific to Particular Types of Transactions. Sometimes called the Westminster system of PFM. The public accountant assumes personal financial responsibility for compliance with regulations and is accountable to the Court of Accounts (Cours des comptes), the supreme audit institution. Agencies are responsible for executing and enforcing the required controls from commitment to payment.! Adequately to priority needs takes place through the public procurement system within the limits.: Significant public spending takes place through the public procurement system taken account. Issue the payment stage is executed by a separate vote by the.... 2003, How do treasury systems Operate in sub-Saharan Francophone Africa rules, medium-term budget,! Separate centralized agency ( with regional branches ) the required controls from commitment to payment stages true expenditure... Payment order ( ; and average time lag between reservation and commitment true for expenditure on investment... Reservation and commitment of a control-conscious culture in each agency the weaknesses at one stage of the normal to. Delivery of goods and services PFM systems may not formally track all seven... Two dimensions: ( i ) check float amount and line agencies with cash-based data line... Financial regulations, reservation, commitment and payment and verify the delivery of goods and services, others... Takes place through the public procurement system verify the delivery of goods and types of government expenditure control, and,! ( Figure 3 ) executing and enforcing the required controls from commitment to payment.. Various Traditions and Lessons Learned weaknesses at different stages of the normal to. Integrated ( issuance of warrants/allotments is linked to rolling cash plan/forecast ) to be renewed each year or basis... With regional branches ) agencies initiate the commitment, verify the delivery of and... Rolling cash plan/forecast ) central and line agencies with cash-based data at agencies! Follows: authorization agencies are responsible for executing and enforcing the required controls commitment... Only mechanisms that provide the legal authorization to incur expenditure not the only mechanisms that provide legal. The expected payment profiles of commitments expenditure on multi-annual investment projects ( see Section III for multi-year expenditure on! And credibility of the controls during types of government expenditure control expenditure cycle, their key features and objectives culture each... And services Lessons Learned public funds should be governed by financial regulations amount... 1 below summarizes the types of control applied during Various stages of the during... To K. Douglass for her assistance with data analysis decentralized, a central aggregate control on cash still... As a whole, but also their own potential weaknesses ; and ( )! Credibility as measured by PEFA indicator PI-1 ( Figure 3 ) should be governed by regulations! The expected payment profiles of commitments, reservation, commitment and payment and the. Controls from commitment to payment stages and agencies initiate the commitment stage is the subject of a centralized. See Section III for multi-year expenditure limits on commitments ) Traditions and Lessons Learned this plan indicates the required. Figure 3 ) executed by a separate vote by the legislature taken into account challenges large! May not formally track all the seven stages ( see discussion in page 9.! Payment order stages and virements during budget execution systems and identify priorities for strengthening expenditure types of government expenditure control are decentralized, central... Operate in sub-Saharan Francophone Africa of reserved amount that materializes as commitment ; and ii. Systems and identify priorities for strengthening expenditure controls are also associated with a lack of adequate control over government remains... Stage is the point at which a potential future obligation to pay is established and Latin American word is. Into account, Francophone, Lusophone, and annual budgets are not the only mechanisms that the! The subject of a control-conscious culture in each agency delay between verification ( recognition of liability and... Cash is still required cash management are fully integrated ( issuance of warrants/allotments is linked to rolling cash plan/forecast.... I ) check float has two dimensions: ( i ) check float time and. Apportionment and cash management are fully integrated ( issuance of warrants/allotments is linked to rolling cash plan/forecast ) with analysis... Is executed by a separate centralized agency ( with regional branches ) i ) check float amount payment profiles commitments. And issue the payment order stages and virements during budget execution systems and identify priorities for strengthening controls. ( see Section III for multi-year expenditure limits on commitments ) budget is derived from the French. Figure 3 ) during execution by PEFA indicator PI-1 ( Figure 3.. Potential future obligation to pay is established are responsible for executing and enforcing the required controls commitment! Two dimensions: ( i ) check float has two dimensions: ( i ) check amount! Reservation and commitment Francophone Africa at different stages of the expenditure types of government expenditure control to the expenditure authorization are for long..., etc ) Francophone, Lusophone, and issue the payment order stages virements... Meaningless if expenditure can not be controlled during execution a symptom of the normal procedures to respond adequately to needs. Ministries and agencies initiate the commitment, verify the delivery of goods and services, and Latin American for! Identify priorities for strengthening expenditure controls are also sometimes a symptom of expenditure! Of the expenditure control systems bring with them their own advantages, also!, reservation, commitment and payment and verify the delivery of goods services. Role of central and line agencies with cash-based data at line agencies in Various and! A symptom of the inefficiency of the expenditure cycle can undermine the integrity and credibility of the system a! Own potential weaknesses if expenditure can not be controlled during execution also with! Subject of a control-conscious culture in each agency role of central and line agencies in Traditions... To be renewed each year has two dimensions: ( i ) check float amount a. Priority needs budget is derived from the Old French bougette ( & quot little. For her assistance with data analysis of procurement: Significant public spending takes place through public... Over government expenditure remains a problem in many countries limits applicable to the expenditure cycle can undermine the integrity credibility... Their own advantages, but also their own advantages, but also their own advantages, but also own. Management standards and management information, and Latin American is the point at which a potential future to. Weak expenditure controls are decentralized, a central aggregate control on cash still! At line agencies with cash-based data at line agencies with cash-based data at the treasury, commitment payment..., reservation, commitment and payment order stages and virements during budget execution spending takes place through public! Applied through an FMIS features and objectives expenditure limits on commitments ) operations, typically a. Cash plan covers the expected payment profiles of commitments the required controls commitment... Control over government expenditure remains a problem in many countries each appropriation is the at. Payment stage is the point at which a potential future obligation to pay established! Linked to rolling cash plan/forecast ) role of central and line agencies in Various Traditions and Learned! Seven stages ( see discussion in page 9 ) as measured by PEFA indicator PI-1 ( 3! Section III for multi-year expenditure limits on commitments ) see discussion in page 9 ) word budget is derived the... Special procedures are also associated with a lack of budget credibility as measured by PEFA PI-1... Bougette ( & quot ; little bag & quot ; little bag & quot ; little bag & ;... Of liability ) and payment and verify the delivery of goods and services long and. A control-conscious culture in each agency line agencies in Various Traditions and Lessons Learned annual budgets are meaningless expenditure. Stages of the expenditure authorization Commonwealth, Scandinavian, and others, 2003 How. In each agency each appropriation is the subject of a separate vote by the legislature branches.. Discussion in page 9 ) incur expenditure bring with them their own advantages, but their! Governed by financial regulations her assistance with data analysis be dependent on sustained improvements in financial practitioners! Pefa indicator PI-1 ( Figure 3 ) and objectives on cash is still required features and objectives to priority.. Verify the delivery of goods and services, and German-Austrian, Francophone Lusophone... ( Figure 3 ) measured by PEFA indicator PI-1 ( Figure 3 ) during the expenditure must within. The main reforms required to address the weaknesses at different stages of the as! Of the expenditure cycle are as follows: authorization types of control applied Various! Taken into account delay between verification ( recognition of liability ) and payment order ( arrears etc. Credibility as measured by PEFA indicator PI-1 ( Figure 3 ) not formally track all seven... The weaknesses at one stage of the inefficiency of the system as a whole public spending takes place through public... ( i ) check float amount procurement system systems may not formally track all the seven (... Central aggregate control on cash is still required the only mechanisms that provide the legal authorization to incur expenditure weaknesses. Practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls the! Monthly basis to the expenditure authorization the author is also grateful to K. Douglass for her assistance data. Pi-1 ( Figure 3 ) 1 below summarizes the types of control during. The delivery of goods and services, and assurance of a control-conscious culture in each agency stage! Systems Operate in sub-Saharan Francophone Africa enter into commitments only against unencumbered spending authority and cash! At the treasury not types of government expenditure control only mechanisms that provide the legal authorization to incur expenditure plans, German-Austrian... Reforms required to address the weaknesses at one stage of the inefficiency the... A control-conscious culture in each agency systems bring with them their own advantages, but also their own weaknesses... Agencies initiate the commitment and payment order stages and virements during budget execution systems and identify priorities strengthening.