Therefore, entering into a commitment or incurring a liability in excess of the limit would not, in the absence of other controls, constitute a breach of law. Finance ministry monitors budget execution by line ministries/agencies. Seven Key Stages of the Expenditure Chain. 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. The TSA systems in some of these countries give financial incentives for smoothing expenditure profiles. A distinction can be made between the treatment of high value and risk-prone transactions vis--vis low value transactions. This includes countries where the ministry of finance assigns a financial controller or a budget offcer to each line ministry in order to control expenditure commitments. 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. Broadly speaking, it exists not only in the United Kingdom, but also in Australia, New Zealand, Indian sub-continent, and many countries in Africa, Asia, Europe and the Caribbean that were former British colonies. Line ministries and agencies can commit and use their allocated resources whenever they want within the year. fiscal policy, measures employed by governments to stabilize the economy, specifically by manipulating the levels and allocations of taxes and government expenditures. The new 2009 WAEMU/CEMAC directives, however, call for a shift from centralized to decentralized ordonnancement in these countries. 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. 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. Minimizes the cost of financing government programs by smoothing the gap between cash inflows and outflows. On the sectoral side, growth in public administration, defence and other services decelerated to a two-year low of 2.0 percent YoY in Q3 versus 5.6 . A distinguishing feature of a governments budget, unlike the budget of a typical business entity, is that it is funded primarily via compulsory taxation of citizens and authorized via an act of Parliament. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. The expenditure must occur within the time limits applicable to the expenditure authorization. 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. There is regular reporting and monitoring of overdue liabilities. New commitments are authorized after ascertaining uncommitted balance within the authorized expenditure limit. Nonetheless, recent theoretical and empirical evidence supports a mixed relationship between these variables. While the answer to this question will depend on specific country context and weaknesses, in general caution should be exercised in the devolution of controls in countries that are at the initial stage of development of PFM systems (e.g., fragile states), or with weak capacity at line agencies to implement the required controls, and/or without strong institutions of ex post oversight (internal and external audit). 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). 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). Cash Management: How Do Countries Perform Sound Practices? The commitment stage is the point at which a potential future obligation to pay is established. 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. _paq.push(['trackPageView']); Note: BD-Budget Department; TD-Treasury Department; AD-Accounting Department; SA-Spending Agencies. _paq.push(['setTrackerUrl', u+'matomo.php']); Payments authorized in annual budget do not fully reflect commitments carried forward from previous years (e.g., investment projects contracts). Upstream reforms such as introduction of a medium-term fiscal/budget framework, changes to the budget calendar, improving the costing of budget policies and programs, or enhancing the size or management of contingency reserves may also be required to strengthen budget credibility. 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. None of the Scandinavian countries have formalized apportionment (or in-year release of spending authority) mechanisms. 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. Key Stages of Expenditure Control Framework, Seven key stages of the expenditure cycle, III. Commitment approval is linked to (and cancels) the respective reserved amount. 1. Role of Central and Line Agencies in Various Traditions and Lessons Learned. These are (i) appropriation control; (ii) commitment control; (iii) aggregate cash control; (iv) control of regularity; (v) accounting control; and (vi) other specific controls. FSU countries. 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. Financial accounts are prepared by the ministries and agencies and consolidated by the ministry of finance. For example, the UK uses the employer cost cap mechanism to control future pension spending. Fiscal measures are frequently used in tandem with monetary policy to achieve certain goals. Public sector spending, also referred to as government spending or public expenditure, refers to the money that the government spends. Under commitment-based budgeting systems, there is a need to separately track and account for both expenditure commitments and payments, liquidate the latter against the former during the course of the budget year, and carry unused commitment appropriations between years. 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. For a further discussion on expenditure arrears, see S. Flynn and M. Pessoa (2014). 4, Paris. The valuations also usefully inform the employer and employee contribution rates to make the pension scheme sustainable. The central idea here is that not all expenditure transactions need to pass through an identical control process. 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. Evaluating the strength of expenditure controls and addressing any weaknesses requires a clear understanding of the key features of an effective expenditure control system as well as the different approaches to putting them into practice. In the second phase, the focus should be on progressive devolution of controls to spending agencies in parallel with a reinforcement of procedures for auditing and reporting. Before issuing a payment order, the issuing authority will typically check that sufficient funds are available to make the payment. This plan indicates the funds required for operations, typically on a quarterly or monthly basis. 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. As these countries transitioned to market-based economies in the 1990s and early 2000s, and steps were taken to establish independent central banks, separate monetary policy from management of government liquidity, and reduce fiscal dominance over the banking sector, it was obvious that corresponding changes had to be made in the fiscal institutions responsible for budget execution and control. 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. The common practice was for lines of credit to be given to line ministries/agencies to spend against accounts in local banks. *The PEFA indicators are based on the new PEFA 2016 framework. Reservation/pre-commitment. This control is a key element of the overall cash management system. Expenditure Control: Key Features, Stages, and Actors. For 2023, proposed government spending is GH205 431 million (25.6% of GDP), 53.5% more than the previous year. Box 2 describes the other specific controls that can supplement these general controls. Strengthening expenditure control in a particular country can, therefore, sometimes require difficult judgments about whether to reinforce traditional administrative arrangements or seek to modernize them. 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. Excessive number of redundant controls leads to payment delays,37 arrears, and proliferation of exceptional procedures that bypass the normal expenditure control framework. For example in Austria, as highlighted by external audit a few years ago, there were instances of either delayed or no recording of commitments until their respective payments materialized. Limit on time horizon of expenditure. Ukrainian President Volodymyr Zelenskyy said he met with the secretary-general of the Organization for Economic Cooperation and Development on Tuesday and discussed a "fair tax system for Ukrainians." 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. The line ministries have substantial authority in executing the budget. In any case, understanding the seven key stages of the expenditure cycle and associated control systems is also important to effectively design and implement an FMIS. If a future valuation shows that the costs of a scheme have risen or have fallen, action needs to be taken (via adjustments to member benefits or member contributions) to return costs to the level of the cap. 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. Assets and liabilities of the government are increased and recorded in the books, if an accrual accounting system is established. A unit of government, typically a line ministry, department or agency, is assigned the responsibility to ensure that the appropriated resources are spent as intended within the authorized limits. 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. How Do Treasury Systems Operate in sub-Saharan Francophone Africa? This paper defines and explains key stages of the government expenditure chain and describes the controls applied at each stage, including their objectives and key features as well as centralized vs. decentralized approaches in application of those controls. Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. Broader PFM and enforcement issues affecting budget execution and expenditure control. This model assigns both the authority to spend and the responsibility to ensure the regularity of each transaction to the same agency. When several departments in the ministry of finance and other agencies are involved in the supervision of the expenditure cycle, clear business process rules delineating the respective functions of each are required. Controls at the commitment, verification and payment order stages remained the responsibility of the line ministries/agencies, with variations, however, in the effectiveness with which such controls are exercised. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. In case of relatively simple requirements, a spreadsheet-based application may suffice. Payroll audits should also be undertaken regularly to identify weaknesses in the control system. Total revenue including grants . Once a payment order has been issued, payments are made through various instruments including checks, electronic fund transfer (EFT), and sometimes cash, in favor of a supplier or other recipient to discharge the liability. The presence of dual appropriations (either commitment/cash or accrual/cash) can complicate control of budget execution by spending agencies. Despite their different administrative origins, there has been some convergence between various expenditure control systems in recent years. 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. This paper defines and explains key stages of the government expenditure chain and describes the controls applied at each stage, including their objectives and key features as well as centralized vs. decentralized approaches in application of those controls. Capital spending They are for the long term and do not need to be renewed each year. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. Government expenditure is vital in influencing the economy. 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. . General Services: Same as Francophone, but the official approving commitments and payments is usually the same (unlike separation of responsibility in Francophone countries). For multiannual programs/projects, the approved budget includes both the multiannual commitment limits (autorisations dengagement or AE) against which it also sets annual limits (crdits de paiement or CP) for cash payments during the year. This is what constitutes the hierarchical and risk-based control (control modul de la dpense) that Morocco has started to implement since 2008 (based on Decree n 207-1235 of November 4, 2008). In Francophone and Lusophone systems, such wide ranging responsibilities are not provided to spending agencies and various departments of the ministry of finance play a major role at key stages of the expenditure cycle. What are the main areas of expenditure for local government? Therefore, after warrant releases, line ministries have the power to: (i) make commitments against their budget appropriations and authorized cash ceilings without reference to the ministry of finance; (ii) issue payment orders to liquidate those commitments that have materialized; and (iii) prepare accounts of their expenditures. Mariance analysis is the budgeting review technique universally applied for analyzing budgeting estimates. Several Francophone African countries are taking measures recently to reduce the complementary period to one month. Stage of the Expenditure Cycle, Controls, and Actors. In the German-Austrian tradition,35 as in Francophone and Lusophone systems, there is a clear division between the roles of ordering or anordnend (which covers the apportionment of the budget, together with the reservation, commitment, verification and payment order stages) and executing or ausfuehrend (which covers the execution of payments). Where centralized payment and/or payroll systems exist, they may also be responsible for authorizing payment orders and/or making payments. Arrears are the expenditures at the verification stage that have not been paid by the due date of payment specified either in specific contracts or procurement legislation or assumed under general commercial terms.12. 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. There has been a proliferation of special procedures in a number of countries (particularly in Africa) that are designed for the benefit of powerful vested interests (who want a faster spending process for specific transactions, closer tracking of certain resources, and/or the accommodation of special institutional interests/arrangements). Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. 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. Expenditure committed but respective reservation/ encumbrance not annulled. Final Local Government Expenditures Quiz Question Does GDP exclude local government expenditure? 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 . Expenditures authorized through standing/ permanent legislations are forecast and included in the budget documents. In some countries, one single department may be responsible for both treasury management and accounting functions (which may be discharged by different divisions/units within the same department). Budget modifications during the year are done according to legally prescribed processes (e.g., virements, contingency reserves, and supplementary/revised budgets), transparently, and in a way that promotes governments chosen objectives. 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. France, following the introduction of a new organic budget law in 2001, overhauled the budget execution system by decentralizing it somewhat toward line ministries. For example, there could be standing legislation for entitlement programs,7 servicing of debt, or payment of subscriptions to international organizations, which provides permanent legal authority to incur such expenditure subject to meeting specified parameters or criteria. This paper will help public financial management practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls. This deficit provides an indication of the financial health of the economy. Ensures that expenditure is covered in the budget and the proposed amount of expenditure includes all relevant expenses. The actual expenditures may be greater than or less than the budget. 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. 5. Check float has two dimensions: (i) check float time; and (ii) check float amount. This technical note and manual (TNM) addresses the following issues: Key stages of the government expenditure chain; The roles and responsibilities of the key institutional actors in exercising those controls; Approaches to expenditure control in different PFM traditions; Diagnosing weaknesses in expenditure control systems; and.