Budget ExecutionBudget Execution

Sanjay VaniSanjay VaniPREM Learning Week – Public Finance Analysis PREM Learning Week – Public Finance Analysis and Management Course April 24, 2007and Management Course April 24, 2007

What is budget execution?What is budget execution? Processes and institutions that implement Processes and institutions that implement

the budgetthe budget– Laws, rules, regulations, practicesLaws, rules, regulations, practices– Line ministries, MoF, treasuryLine ministries, MoF, treasury– Control framework Control framework

(Note : Budget is (Note : Budget is notnot a comprehensive a comprehensive statement of financial flows; it is limited to statement of financial flows; it is limited to those transactions included in the budget. those transactions included in the budget. Budgets do not include off-budget or extra-Budgets do not include off-budget or extra-budgetary funds, nor do they accurately budgetary funds, nor do they accurately reflect assets, liabilities and risks.)reflect assets, liabilities and risks.)

Why is budget execution Why is budget execution important?important?

It affects It affects – the cost and quality of servicesthe cost and quality of services– the volume of government expenditure, the volume of government expenditure,

and and – the relations between citizens and the relations between citizens and

government. Citizens know their government. Citizens know their government through the services they government through the services they receive from it.receive from it.

Objectives of Budget Objectives of Budget ExecutionExecution

Manage Spending and Revenues per budgetManage Spending and Revenues per budget– support choices of elected officialssupport choices of elected officials– allow budget to be planning and steering toolallow budget to be planning and steering tool– promote macrofiscal disciplinepromote macrofiscal discipline– reduce opportunities for corruptionreduce opportunities for corruption

Enable program implementationEnable program implementation– ensure resources flow to programsensure resources flow to programs– enable program managers to achieve objectivesenable program managers to achieve objectives

Ensure accountabilityEnsure accountability– timeliness in reporting timeliness in reporting – authenticity of reportingauthenticity of reporting

Phases in Budget ExecutionPhases in Budget Execution Phase 1: AllocationPhase 1: Allocation Phase 2: Ministry Spending PlansPhase 2: Ministry Spending Plans

– link actions with finances; cash flow needslink actions with finances; cash flow needs Phase 3: Commitments (award contracts)Phase 3: Commitments (award contracts) Phase 4: Actual receipt of goods/servicesPhase 4: Actual receipt of goods/services Phase 5: PaymentPhase 5: Payment Phase 6: AccountingPhase 6: Accounting Phase 7: ReportingPhase 7: Reporting Phase 8: AuditPhase 8: Audit Phase 9: Parliamentary ScrutinyPhase 9: Parliamentary Scrutiny

(Note : These phases are not necessarily sequential)(Note : These phases are not necessarily sequential)

Ministry of Finance

Treasury

SpendingMinistry

Spending Unit

- Budget Allocations- Supplemental Budgets- Virements- In-year monitoring and correction

- Warrants (cash allocations)- Cash Flow Management (forecasting, planning, sequestration)- debt management- financial asset management- accounting (policy, system management, chart of accounts)- make payments- collect revenues- account management and reconciliation- Central Bank relations

- internal control- program management- spending (commitments)- recording & reporting- payment orders- verification of receipt of goods/services- program/cash plans

Roles of various players in Budget ExecutionRoles of various players in Budget Execution

Issues in Budget ExecutionIssues in Budget Execution Predictability in the availability of funds – Predictability in the availability of funds –

cash rationingcash rationing In year transfers – credibility of the budgetIn year transfers – credibility of the budget Weak procurement planning – bunching of Weak procurement planning – bunching of

expenditures towards the year endexpenditures towards the year end Weak procurement management - use of Weak procurement management - use of

less competitive methodsless competitive methods Lack of a commitment control system - Lack of a commitment control system -

arrearsarrears Delay or a lack of reconciliation and Delay or a lack of reconciliation and

clearance of suspense accounts and clearance of suspense accounts and advances – violation of budget disciplineadvances – violation of budget discipline

Issues in Budget ExecutionIssues in Budget Execution Weak internal controls – waste and abuse of Weak internal controls – waste and abuse of

resourcesresources Lack of internal audit – weakens internal control Lack of internal audit – weakens internal control

frameworkframework Delays in accounting and reporting – managers Delays in accounting and reporting – managers

having no access to full information before having no access to full information before making decisionsmaking decisions

Weak external audit - delay in audits - little Weak external audit - delay in audits - little evidence of response or follow up on audit reportsevidence of response or follow up on audit reports

Legislature’s review is non-existent or extremely Legislature’s review is non-existent or extremely limited – weak accountability limited – weak accountability

Reforms in Budget Reforms in Budget ExecutionExecution

Treasury Modernization – cash Treasury Modernization – cash managementmanagement

FMISFMIS Accounting Reforms – Accrual accounting - Accounting Reforms – Accrual accounting -

IPSASIPSAS Procurement ReformsProcurement Reforms PIFC reforms – Managerial AccountabilityPIFC reforms – Managerial Accountability Internal Audit ReformsInternal Audit Reforms External Audit ReformsExternal Audit Reforms Legislature Reforms - PACLegislature Reforms - PAC

PEFA: The PFM High-Level Performance Indicator PEFA: The PFM High-Level Performance Indicator

SetSet C(ii) Predictability and Control in Budget ExecutionC(ii) Predictability and Control in Budget Execution

– PI-13 Transparency of taxpayer obligations and liabilities PI-13 Transparency of taxpayer obligations and liabilities – PI-14 Effectiveness of measures for taxpayer registration and tax assessmentPI-14 Effectiveness of measures for taxpayer registration and tax assessment– PI-15 Effectiveness in collection of tax payments PI-15 Effectiveness in collection of tax payments – PI-16 Predictability in the availability of funds for commitment of expenditures PI-16 Predictability in the availability of funds for commitment of expenditures – PI-17 Recording and management of cash balances, debt and guaranteesPI-17 Recording and management of cash balances, debt and guarantees– PI-18 Effectiveness of payroll controls PI-18 Effectiveness of payroll controls – PI-19 Competition, value for money and controls in procurement PI-19 Competition, value for money and controls in procurement – PI-20 Effectiveness of internal controls for non-salary expenditure PI-20 Effectiveness of internal controls for non-salary expenditure – PI-21 Effectiveness of internal audit PI-21 Effectiveness of internal audit

C(iii) Accounting, Recording and Reporting C(iii) Accounting, Recording and Reporting – PI-22 Timeliness and regularity of accounts reconciliation PI-22 Timeliness and regularity of accounts reconciliation – PI-23 Availability of information on resources received by service delivery units PI-23 Availability of information on resources received by service delivery units – PI-24 Quality and timeliness of in-year budget reports PI-24 Quality and timeliness of in-year budget reports – PI-25 Quality and timeliness of annual financial statements PI-25 Quality and timeliness of annual financial statements

C(iv) External Scrutiny and Audit C(iv) External Scrutiny and Audit – PI-26 Scope, nature and follow-up of external audit PI-26 Scope, nature and follow-up of external audit – PI-27 Legislative scrutiny of the annual budget law PI-27 Legislative scrutiny of the annual budget law – PI-28 Legislative scrutiny of external audit reports PI-28 Legislative scrutiny of external audit reports