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. 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). When it increases, aggregate demand increases, and we expect the economy to grow higher. FSU countries. 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 . Expenditure Control: Key Features, Stages, and Actors. Key strengths: separation of responsibility for key control tasks; tracking key stages of expenditure cycle; and centralized repository of expenditure data; Key challenges: frequent and redundant controls make the expenditure process slow (and encourage proliferation of special procedures); interference by central agencies may undermine responsibilities of line managers; and possible manipulation of the complementary period. Evidence since the second world war, says Chen of HKU, shows that "the higher the government's control of a country's economy, the lower the role for private consumption in its economic . Note: BD-Budget Department; TD-Treasury Department; AD-Accounting Department; SA-Spending Agencies. A commitment thus entails an obligation to pay when the third party has complied with the provisions of the contract. The payment stage, however, is executed by a separate centralized agency (with regional branches)called cash offices in Germany and the Federal Accounting Agency in Austriawhich processes and keeps records of all payments and is in charge of accounting and preparation of financial reports. To centralize cash management, all government cash transactions should go through a TSA system (with a set of accounts linked to a top account). 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. 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. 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. Following the approval of the budget/appropriation bill, spending agencies are usually asked to submit a proposed plan for apportionment/allotment. It was centralized by a 1997 directive that applies to all the West African Economic and Monetary Union (WAEMU) countries. For example, the UK uses the employer cost cap mechanism to control future pension spending. Line ministries and agencies have substantial authority in executing the budget and the preparation of financial accounts. Since commitments usually mature as payments, their control is an essential part of overall expenditure control and prevention of expenditure arrears.11 A commitment does not mean that a payment will necessarily be made within the same fiscal year. The apportionment process is critical to ensuring that expenditure totals are respected and any virements or claims on the contingency reserve are reflected in the revised allocation of appropriations. When the float of unpaid checks is significant, payments should also be reported on the basis of checks encashed/paid. 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. 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. This authority to spend is released to the spending units through the issue of warrants/allotments/dcret de rpartition, or other mechanisms.9 Some form of centralized control during this phase of the expenditure cycle is common in almost all countries and is usually enforced by the budget department of the ministry of finance. Therefore, unlike the old French system, the key principles here are integration and delegation. Some of the controls during the expenditure cycle can be automated and applied through an FMIS. In some countries, ministries of finance regard expenditure as having taken place when funds are transferred from the ministry of finance or treasury bank accounts to the line ministries (or first-tier spending units). Your current browser may not support copying via this button. Seven Key Stages of the Expenditure Chain. The commitment stage is the point at which a potential future obligation to pay is established. PFM Traditions Influencing the Expenditure Control Framework, Tradition in the former Soviet Union countries, V. Identifying Weaknesses in the Expenditure Control Systems, Weaknesses of different expenditure control systems, Diagnosing weaknesses in a particular country, Specific measures to address expenditure control weaknesses, Monitoring reform progress and managing the change, http://www.issai.org/media/13329/intosai_gov_9100_e.pdf, Prevention and Management of Government Arrears, Conceptual Design: A Critical Element of a Successful Government Financial Management Information System Project, Implementing Accrual Accounting in the Public Sector, Unorthodox Expenditure Procedures in CEMAC and WAEMU Countries, Liberia: Public Expenditure and Financial Accountability (PEFA) Assessment, Republic of Mozambique: Technical Assistance Report on Regaining Control Over Budget Execution, 19 A Comparison Between Two Public Expenditure Management Systems in Africa, North Macedonia: Technical Assistance Report - Public Expenditure and Financial Accountability Performance Assessment, Republic of Mozambique: Strategy for Restoring the Expenditure Chain and Improving Financial Programming, Mauritius: Public Expenditure and Financial Accountability (PEFA) Assessment, Niger: Public Expenditure and Financial Accountability (PEFA) Assessment, Public Financial Management Systems - Indonesia: Key Elements from a Financial Management Perspective, Governance Brief No. Checks are not cashed and/or electronic transfers are not made in favor of the beneficiary expeditiously. Line ministries and agencies initiate the commitment and payment and verify the delivery of goods and services. This paper will help public financial management practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls. Reservation. An overview. Issuance of payment orders is integrated with a well established cash plan that is updated regularly with inputs from spending and revenue agencies. In some cases, these variations are noted in the text. Commitment-based budgeting systems impose limits on both expenditure commitments and cash payments. Pattanayak, S., and I. Fainboim, 2011, Treasury Single Account: An Essential Tool for Government Cash Management, Technical Notes and Manuals (Washington: International Monetary Fund). Sweden has a separate debt management agency which also administers the TSA system. /* tracker methods like "setCustomDimension" should be called before "trackPageView" */ 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. Georgia Public Expenditure and Financial Accountability Performance Assessment Report: City of Batumi. Lienert, I., 2009, Modernizing Cash Management, Technical Notes and Manuals, (Washington: International Monetary Fund). The lack of effective communication between treasury, which uses a cash-based budget execution system, and line agencies, which maintain their own accounting records (normally on accrual basis), leads to problems in reconciling expenditure data. It is, therefore, necessary to distinguish between such final payments by spending units and the apportionment of spending authorization to them, including the associated transfer of funds. For example, the Social Security Act requires the government to provide payments to beneficiaries based on the amount of money they've earned and other factors. Commitment. 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 . Ensures that expenditure commitments by spending units are fully in line with the expenditure limits and the released spending authority. There are two ways of securing such 'economy' in government expenditure: (1) The annual budget of toe central government must lay down the amount to be spent for particular purposes and the government servants or departments should not be permitted to spend in excess of the budgetary allocations. : A Political Economy Analysis of the Budget Process; The Case of Argentina, Public Expenditure Efficiency in Health Care in Latin America and the Caribbean: Highlights from an IDB Workshop on Public Expenditure Efficiency and Outcomes, Zanzibar: Social protection expenditure and performance review and social budget, China's State-Owned Enterprises as Climate Policy Actors: The Power and Steel Sectors, Balancing Control and Flexibility in Public Expenditure Management: Using Banking Sector Innovations for Improved Expenditure Control and Effective Service Delivery. 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). Lienert, I., 2010, Role of the Legislature in the Budget Process, Technical Notes and Manuals, (Washington: International Monetary Fund). Checks and/or electronic transfer instructions bounce due to lack of cash. Role of Central and Line Agencies in Various Traditions and Lessons Learned. Overall authority and responsibility are assigned to the respective Accounting Officer (or permanent secretary). 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. Countries of the former Soviet Union (FSU) have tended to retain centralized treasury departments to control and process government payments, while controls at the commitment, verification and payment order stages remain with the line ministries/agencies. 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. The TSA system float of unpaid checks is significant, payments should also be reported the. 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