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Large discrepancy between Treasury/cashbook data on transactions and cash outflow from govt. Same as Francophone, but the official approving commitments and payments is usually the same (unlike separation of responsibility in Francophone countries). General Services: Finance ministry monitors budget execution by line ministries/agencies. The key questions to be asked are: (i) whether all the key stages of the expenditure cycle and associated business rules and processes have been clearly defined; and (ii) whether the required controls at each stage have been clearly specified and consistently applied. Both the central agency/finance ministry and line agencies are involved in various tasks during the expenditure cycle. When it increases, aggregate demand increases, and we expect the economy to grow higher. A long check float time is not a good practice as it not only complicates cash management but can also be misused to write and issue checks despite not having enough liquidity in the bank account to cover the value of the check. This devolution/decentralization of financial and expenditure control should be gradual and based on predefined competency criteria for line ministries/agencies who should demonstrate that they can operate with higher levels of delegated authority. Control of procurement: Significant public spending takes place through the public procurement system. International Monetary Fund Copyright 2010-2021. Managing the change process would involve communicating effectively to all relevant stakeholders a broad understanding of why the changes are necessary and what objectives are sought to be achieved. 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. Types of Controls and Institutional Actors, Controls applied at different stages of the expenditure cycle, Authority and responsibility of various institutional actors, IV. 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. Other Controls Specific to Particular Types of Transactions. For example, payments after the deduction of taxes are frequent in some countries, with negative consequences not only on transparency, but also on both tax collection and competition among suppliers. 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. Lack of adequate control over government expenditure remains a problem in many countries. While providing examples of expenditure control practices from more than 32 countries, the paper points out that more than two-thirds of the 85 low and middle income countries covered by the publicly available Public Expenditure and Financial Accountability (PEFA) assessments have weak systems of expenditure control that are also associated with higher levels of expenditure arrears and a lack of budget credibility. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. Key Stages of Expenditure Control Framework, Seven key stages of the expenditure cycle, III. As a result, progress stalled and the reform was not pursued further. The descriptions of the various traditions provided below are broad and general, and in practice, there are variations among the countries belonging to each tradition. As part of the comprehensive reform of its budget framework in 2001, France introduced multiannual commitment authorizations as a means of controlling expenditure obligations and associated payments for programs or projects that span more than one year (e.g., investment projects). In particular, the new law: (i) divests the financial controllers of the responsibility for regularity control (contrle de rgularit) of budget managers (administrateurs de credit), which was transferred/decentralized to the line ministries; (ii) requires the financial controllers to assess the fiscal sustainability of decisions taken by budget managers to reinforce macro-fiscal discipline; and (iii) also requires the controllers of central agencies, such as the General Inspectorate of Finances (Inspection gnrale des finances), to apply a risk-based approach to control. It also proposes some indicatorsmainly based on the PEFA frameworkthat could be used to assess reform progress. The line ministries have substantial authority in executing the budget. Administrative unit accountable for expenditure. Where countries have cash appropriations and accrual based financial statements, this usually gives rise to differences between budget execution reports and financial statements that require reconciliation. Apportionment. Allen, R., and D. Radev, 2009, Extrabudgetary Funds, Technical Notes and Manuals (Washington: International Monetary Fund). Moussa, Y., 2004, Public Expenditure Management in Francophone Africa: A Cross-Country Analysis, Working Paper WP/04/42, (Washington: International Monetary Fund). At the same time, centralization has the disadvantage of: (i) undermining spending responsibilities of managers in line agencies in the day-to-day management of line ministries/agencies budgets; (iii) inefficient decision-making (including superimposed prioritization) and rigid controls by the ministry of finance when it lacks the detailed information on the spending requirements of agencies;26 and (iv) presenting opportunities for rent seeking by officials implementing multiple and cumbersome controls. Commitment approval is linked to (and cancels) the respective reserved amount. Expenditure committed but respective reservation/ encumbrance not annulled. Spending agencies submit month-wise expenditure plans (along with their budget submission) to serve as the basis for issuance of spending authority (warrant/allotment) after budget approval. Some types of budget appropriationsdebt service, for examplemay not be subject to a strict spending limit and may be revised according to developments in interest rates and exchange rates. At the same time, they have the disadvantage of: (i) potential disparate application of controls by various agencies particularly when the control criteria are not well defined; (ii) increasing the risks of non-compliance and/or collusion (as both the authority to spend and the responsibility to ensure the regularity of transactions is assigned to the same agency) in the absence of strong internal and external audit functions; and (iii) prolonging the preparation of financial reports (as expenditure data has to be collected and complied from multiple sources) required by central agencies for budget execution monitoring. 4, Paris. Government Spending: Giveth Some, Taketh Some. 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. They allocate funds among their subordinate units, make commitments, purchase and procure goods and services, verify the goods and services acquired, prepare requests for payment (and make payments, if the payment system is not centralized), prepare progress reports, and may keep accounts and financial records. Some countries PFM systems explicitly recognize all or most of the above stages and track them through a budgetary accounting system, while others formally track only a few of them.16 For example, the Spanish and Portuguese-speaking countries track all seven stages and the Francophone countries track at least six stages (the reservation stage or engagement budgtaire is also sometimes tracked). Types of Fiscal Policy The government has control over both taxes and government spending. Advertisement. Box 4 provides a few examples. This is mainly prevalent in Austria, Germany, and partially in some neighboring countries. The valuations also usefully inform the employer and employee contribution rates to make the pension scheme sustainable. Capital spending They are for the long term and do not need to be renewed each year. Elementary and secondary education, utilities, public safety, health, roads, street lamps, signs, and traffic lights are the main areas of expenditure of the local governments. Several Francophone African countries are taking measures recently to reduce the complementary period to one month. Show answer But these funds may take some time to be further transferred to subsidiary spending units under the line ministries and then be spent on the salaries or goods and services that constitute final expenditure. Each request for apportionment or reapportionment should be accompanied by a financial or cash plan from the relevant ministry or spending agency supporting the request for ensuring that apportionment and cash management functions are well integrated.10. Lack of adequate control over government expenditure remains a problem in many countries. This model assigns both the authority to spend and the responsibility to ensure the regularity of each transaction to the same agency. Cash plans in these countries are used as tools for rationing expenditure authority but themselves tend to be unrealistically optimistic, as they do not reflect expected cash outflows based on commitments. Check float has two dimensions: (i) check float time; and (ii) check float amount. This objective is achieved by appropriations. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. Options for strengthening the expenditure control framework. 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). For example, the UK uses the employer cost cap mechanism to control future pension spending. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. The role of an expenditure control system is to ensure that the level and allocation of government expenditure reflect the will of the legislature as voted for in the budget.3 Expenditure controls should also reflect sound financial management principles, ensuring that public resources are utilized efficiently, incurred obligations are cleared in a timely manner, abuse/ misappropriation of public money is prevented, and private actors compete on a level playing field for government contracts. Approximately two-thirds of spending consists of mandatory expenditures on programs such as Social Security and Medicare. While this was a common practice in most of the Latin American countries several years ago, many countriese.g., Bolivia, Columbia, Paraguay, and Uruguayhave in recent years separated the accounting and audit functions. Procurement procedures should provide a fair opportunity for all bidders to compete for government contracts, and be designed to get good value for money and to minimize risks of corruption and patronage. Inordinate delay in issuance of spending authority to line agencies. 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. In addition, they may impose limits on accumulation of cash obligations, multi-year commitments, and long-term obligations (such as pensions) and contingent liabilities (such as guarantees). Environmental Conservation and Protection, Ethiopia, The Federal Democratic Republic of, Hong Kong Special Administrative Region, People's Republic of China, Macao Special Administrative Region, People's Republic of China, Selected Legal and Institutional Papers Series, Annual Report on Exchange Arrangements and Exchange Restrictions, The Evolving Functions and Organization of Finance Ministries. When the government uses fiscal policy to increase the amount of money available to the populace, this is called expansionary fiscal policy. Spending units may have bank accounts which are a subsidiary of the TSA; such accounts could be zero-balance accounts with commercial banks, with money transferred into them as the payments are approved, and with their balances swept daily into the TSAs top account for cash consolidation. For this purpose, the spending units were grouped into two categories and the devolution of financial and expenditure control started with the best-performing line agencies at the superior level. In most cases, researchers assume that control of corruption, rule of law, accountability, and government expenditure tend to have a positive impact on government effectiveness. A lack of effective expenditure controls not only threatens macroeconomic stability and fiscal discipline, but can also call into question the integrity of the public financial management system and undermine trust in a governments stewardship of public resources. Allen, R., and others, 2015, The Evolving Functions and Organization of Finance Ministries, Working Paper WP/15/232 (Washington: International Monetary Fund). Overly rigid and controlled spending procedures in several Francophone African countries have resulted in the proliferation and misuse of exceptional spending procedures, e.g., the issuance by the minister of finance to the treasury (bypassing the normal chain of expenditure) of an immediate payment order subject to regularization later. Warrants/allotments are not used as a cash rationing tool. No cash availability to make payments within the time horizon of apportionment. government budget, forecast by a government of its expenditures and revenues for a specific period of time. In the British Commonwealth system, there is no complementary period, and at the beginning of a new fiscal year, in principle, no cash transactions pertaining to the previous years budget should take place. Limit on amount of expenditure. Payment order is issued within the payment due date to discharge the recognized liability. The accounting officer in the spending ministry, usually the permanent secretary, is responsible for proper use and control of the ministry appropriations. For example, in the United States mandatory or entitlement programs, such as Social Security, Medicare, Medicaid, and certain other programs are not controlled by annual appropriations, except for the requirement to show a corresponding increase or decrease in the costs of these programs due to any envisaged changes. 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 . This deficit provides an indication of the financial health of the economy. Large delay between actual delivery and verification (leading to late payments, interests, arrears, etc). The ministry of finance in these countries does not carry out any form of detailed commitment or payment control. This approach comprised two main components: (i) a set of core financial and performance management competencies (called the hurdles) to be met by each line agency to qualify for delegation of financial management and control; and (ii) semi-contractual arrangements between the Bureau of the Budget and line agencies formally linking the reduction in central control to the achievement of the specified competencies. The classification of public expenditure can be done in 4 ways: Revenue Expenditure The revenue expenditure is funded through the current revenue of the government that includes taxes and non-tax revenues such as welfare schemes or profits, or incidental incomes. Key strengths: centralized payment and treasury accounting system. There is also lack of control over agencies with own revenue outside the treasury system. 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