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BUDGET EXECUTION

Presenter: M. Shohelur Rahman ChowdhuryProcurement Specialist

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Budget execution is the phase when resources are used to implement policies incorporated in the budget.

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Requirements for budget executionCompliance - Ensuring that the budget will

be implemented in conformity with the legislature’s authorization

Adaptation - Adapting the execution of the budget to changes in the economic environment

Sound Management - Resolving problems met in program implementation and preventing any risk of abuse and corruption

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Budget execution cycleAuthorization

and apportionment

Commitment

Acquisition and

verification

Issuance of payment

order

Payment

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Authorization and Apportionment Stage

A warrant or a decree authorizes line ministries to use the appropriations or a part of the appropriations

Line ministries (main spending units) apportion the authorization to spend to their subordinate spending units

Authorization is generally granted for the entire fiscal year

In British Commonwealth countries it is granted for shorter period

Ministry of finance may freeze a part of the approved appropriations for prudent budget management

Funds should be allocated to spending units as soon as the budget is approved

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Commitment stage

Commitment stage is when a future obligation to pay is incurred

For goods and services commitment means legal commitment

Commitment entails an obligation to pay

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Verification stageThe verification stage immediately follows

the deliveriesVerification is the conformity of the delivered

goods, or rendered servicesFor debt service, personnel expenditures and

a few other expenditure items the verification stage and the commitment stage are combined

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Payment Order Stage

After verification of goods and services the authorizing officer issues a payment order

Expenditure is recognized and recorded in books of the public accountant and in the books of the authorizing officer

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Payment stage

Bill is paid by cash or cheque or electronic fund transfer

At this stage comparison with bank statements should be systematically carried out

Issue of cheques at the end of the year may lead to high fiduciary risks

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Compliance control in budget executionWhy compliance control?

To prevent blatant cases of misuse of

appropriation

Overspending

Irregularities

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Compliance control in budget executionAt commitment stage verify that

The proposal to spend has been approved by an authorized person

Money has been appropriated for the purpose stated in the budget

Sufficient funds remain available in the appropriate category of expenditure

The expenditure is classified in the correct way

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Compliance control in budget executionAt verification stage the documentary

evidence that the goods have been received and services were carried out must be verified

The expenditure has been properly committedThe invoice and other documents requesting

payment are completeThe creditor is correctly identifiedAfter final payment examine and scrutinize

the expenditure concerned and report any irregularity

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Compliance control in budget execution

At verification stage the documentary evidence

that the goods have been received and services

were carried out must be verified

The expenditure has been properly committed

The invoice and other documents requesting

payment are complete

The creditor is correctly identified

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Compliance control in budget executionCommitment may be made through different

channels which may be upstream from the annual budget cycle

Expenditure in utilities such as electricity and

telecommunication expenditure

Staff recruitment

Contingent liabilities

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Implementation and Budgetary Expenditure

Source: Allen and Tommasi 2001

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Issues in managing and monitoring budget executionDistribution of responsibilities

Ministry of financeLine ministriesSpending units

TreasuryPeriod covered: Annual RuleTransfer within the appropriationsSequestrationsIn-year budget revision

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Treasury functionCash managementManagement of government bank accountsAccounting and reportingFinancial planning and forecasting of cash

flowsManagement of government debt and

guaranteesAdministration of foreign aidsFinancial asset management

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Objectives of cash managementControlling spending in the aggregate

Implementing the budget efficiently

Minimizing the cost of government borrowing

Maximizing return o excess operating cash

balances

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What’s the money for?Performance is not a simple concept ("Achievement”,"realization","fulfillment')“Performance” can be subjective (for effort) or

objective (for results). Choose results-orientation, but don’t forget the effort

dimension.Also, the "results" must be appropriately defined, and

an exclusive focus on results without respecting process will weaken process and eventually produce bad results

“Performance” is the achievement of agreed results within resources and time provided, without diluting quality and respecting the prevailing norms of due process.

(Source: Schiavo-Campo)

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THE FOUR "P'S" OFBUDGETING PERFORMANCE

Traditional paradigm: Probity and Propriety

New paradigm: Policy and Performance

Beware of dichotomies – All Four P’s are essential to execute well the budget, and foster both integrity and operational efficiency.

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The CREAM of performance A performance indicator must be:

ClearRelevantEconomicAdequateMonitorable

Never use either one single indicator or too many indicators

(Source: Schiavo-Campo)

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THE BOTTOM LINEIt is possible to execute badly a good and

realistic budget; it is not possible to execute well a bad and unrealistic budget.

International experience demonstrates that strengthening efficiency and effectiveness in budget execution cannot be accomplished by excessive controls, but by introducing into the budget management system: A systematic, robust, and transparent dialogue on results.

(Source: Schiavo-Campo)

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THANK YOU