types of government expenditure control

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. Final Government Spending Quiz Question What is government spending? A payment order is an authorization for payment (usually against a bill or invoice) made by officials of line ministries, other spending agencies, or the ministry of finance. Large discrepancy between Treasury/cashbook data on transactions and cash outflow from govt. 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). Government cash manager and issuer of checks and/or electronic transfer instructions work in coordination to ensure funds are available for payments. For example, the commitment stage of the expenditure cycle has received a lot of attention of late, but addressing issues just at the commitment stage may not result in a robust expenditure control framework (and prevention of expenditure arrears) as evidenced in several countries. _paq.push(['setTrackerUrl', u+'matomo.php']); Other Controls Specific to Particular Types of Transactions. Legality of the operation is controlled by verifying that the officials approving a transaction have the authority to do so, and that the required supporting documents have been prepared in line with the law/regulations (for audit). The presence of dual appropriations (either commitment/cash or accrual/cash) can complicate control of budget execution by spending agencies. Before issuing a payment order, the issuing authority will typically check that sufficient funds are available to make the payment. Officials of the finance ministry and the public accounting directorate play an important role during the apportionment, commitment and payment stages. Similarly, the procedure of using an imprest (dpenses par rgies davance), which does not follow all the control stages and should be used only for urgent minor expenditures, is sometimes used to speed up the expenditure process. Similar to Francophone, but with a centralization of authority in one office of the finance ministry (either the budget or accounting office). var d=document, g=d.createElement('script'), s=d.getElementsByTagName('script')[0]; How Do Treasury Systems Operate in sub-Saharan Francophone Africa? 3. 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. Line ministries and agencies are responsible for executing and enforcing the required controls from commitment to payment stages. In national finance, the period covered by a budget is usually a year, known as a financial or fiscal year, which may or may not correspond with the calendar year. 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). Lienert, I., and F. Sarraf, 2001, Systemic Weaknesses of Budget Management in Anglophone Africa, Working Paper WP/01/211, (Washington: International Monetary Fund). Key Stages of Expenditure Control Framework, Seven key stages of the expenditure cycle, III. Sweden has a separate debt management agency which also administers the TSA system. No verification/certification system (i.e., payment orders issued without verification). Administrative unit accountable for expenditure. For example, under an accrual-based budgeting system, the ministry of finance may: (i) delegate to spending agencies all decisions on their cash requirements and the timing of cash payments as long as the agencies conform to the expenses authorized on accrual basis; (ii) enforce a cash limit (either at an aggregated level or at a more detailed level) in addition to the amount of accrual-based expense authorized; and/or (iii) allow spending agencies to move cash appropriation into accrual-based expense but not vice versa.20, Commitment-based Expenditure Limits in France. Time horizon of apportionment too short for expenditure planning and execution by line agencies. 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. Sometimes, a consolidated check is issued to cover multiple payments by the bank to the respective beneficiaries accounts (e.g., payroll payments) as per the treasurys instructions. Role of Central and Line Agencies in Various Traditions and Lessons Learned. The commitment stage is the point at which a potential future obligation to pay is established. The introduction of an FMIS can thus strengthen expenditure controls as the system can replace several key controls that were previously applied manually and systematically track them. Accrual-based budgeting systems enforce limits on the incurrence of liabilities, expenses or expenditure even when no immediate cash transactions are involved. However, overall responsibility for budget execution is assigned to the respective line minister (or the head of an independent State body) who allocates budgeted resources to the various departments/agencies under his/her authority and delegates responsibility for budget execution up to the stage of the preparation of payment orders. Apportionment, reservation, commitment and payment order stages and virements during budget execution. For example, Angola, Cape Verde, Guinea Bissau, Mozambique, and Sao Tome and Principe. Commitment limits may be multi-year in nature (usually for capital projects) and carried over from one financial year to the next, while cash expenditure limits are usually set for the budget year. 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. 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. 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. Limit on time horizon of expenditure. 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). Different expenditure control systems bring with them their own advantages, but also their own potential weaknesses. Controls on liabilities or guarantees (contrle de liquidation): This control is applied on the incurrence of a liability or guarantee and again at the payment stage when the liability is extinguished or guarantee is paid. Ensures that transactions are properly recorded and accounted for to produce timely and reliable fiscal reports and financial statements. To help PFM practitioners evaluate a countrys budget execution system and identify priorities for strengthening expenditure controls, this TNM: explains the key stages of the government expenditure chain (Section II); describes the (i) types of controls applied at each stage of the chain, their objectives, and key features; (ii) nature of expenditure limits in cash-based, commitment-based and accrual-based budgeting environments; (iii) centralized vs. decentralized approach to the exercise of those controls; and (iv) authority and responsibility of various institutional actors throughout the expenditure cycle (Section III); examines the influence of different administrative traditions on types of expenditure controls exercised and the allocation of responsibility for their application (Section IV); identifies the typical weaknesses and problems associated with different expenditure control traditions (Section V); and. Finance ministry monitors budget execution by line ministries/agencies. Your current browser may not support copying via this button. Doe, L., S. Pattanayak, 2008, Financial Control in African Countries, Public Financial Management Technical Guidance Note, (Washington: International Monetary Fund). In some countries, the ministry of finance uses sequestering to prevent such risks. Expenditures at the verification stage are sometimes called accrued expenditures (e.g., in the US), accounts payable, or actual expenses. 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. At this stage, there is no commitment, but it is known that the expense will be incurred during the budget year and, therefore, the reserved funds should not be used for other activities. A commitment occurs when a formal action, such as placing an order or awarding a contract, is taken that renders the government liable to pay at sometime in the future when the order or contract is honored by its counterpart. The scope for establishing such advanced systems, however, remains challenging in many developing countries. In case of relatively simple requirements, a spreadsheet-based application may suffice. 4, Paris. Article 78 of the WAEMU Directive No. 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. Sequestering (or gel/rgulation budgtaire in Francophone tradition) is the blocking of appropriations by the ministry of finance. When it increases, aggregate demand increases, and we expect the economy to grow higher. 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 . 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 key players are financial controllers (contrleurs financiers) who are generally under the Budget Department of the ministry of finance and exercise a priori control (in the form of issuance of a visa) at the commitment stage, commitment officers (ordonnateurs) who approve the issuance of payment orders to the Treasury, and public accountants or cashiers (comptables publics) who belong to the public accounting directorate and are responsible for ensuring that the verified bills are paid. For other expenditure items, the devolution is based on the assessed effectiveness (through formal capacity audits) of the internal control system of the line agency and its risk management capacity. 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 convergence is in the direction of: an increased focus on ex ante controls over expenditure commitments rather than ex post controls only at the payment stage of the expenditure cycle; a shift from controlling only cash expenditures towards controlling the accumulation of accrued liabilities as well; greater devolution of responsibility for routine expenditure controls towards ministries and agencies and a more risk-based approach to the exercise of centralized controls; a stronger reliance on internal and external audit to ensure the integrity of financial control systems in ministries and agencies; and. Verification of goods and services (contrle du service fait): This control involves: (i) verification of the goods and/or services delivered by a supplier to ensure that these conform to the specified quality and quantity; and (ii) a calculation of the liability incurred by the government to the supplier. Radev, D., and P. Khemani, 2009, Commitment Controls, Technical Notes and Manuals, (Washington: International Monetary Fund). These include appropriation control, commitment control, and accounting control. Special procedures are also sometimes a symptom of the inefficiency of the normal procedures to respond adequately to priority needs. 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. This control is a key element of the overall cash management system. 5. 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. Bank reconciliations, among other things, are critical to identifying potential misappropriation of public money. A centralized accounting organization (usually called Accountant General) is responsible for making payments and keeping accounting records. The main heads of Central Government's revenue expenditure are: (i) Defence Services, (ii) Development Services, ADVERTISEMENTS: (iii) Administrative Services, (iv) Debt Services, and (v) Assistance to States. 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. For example, prior to the 1990s, financial control was under the Presidency (Cte dIvoire), the Prime Ministers Office (Senegal), or was the responsibility of a separate ministry. 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. If an FMIS is planned or under implementation, some measures towards revamping the expenditure control framework will have to be implemented in tandem with the FMIS. 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. While particular expenditure control weaknesses may manifest themselves at a particular stage of the expenditure cycle, addressing them may require reforms at various points in the process. _paq.push(['enableLinkTracking']); Effective expenditure control is the sine qua non of good public financial management (PFM). Expenditure Control: Key Features, Stages, and Actors. Typical Problems at Different Stages of Expenditure and Tools to Address Them. The authorization for expenditure is usually given through the budget law which defines the time horizon for, limits on,5 purpose of, and administrative unit accountable for government expenditure (Box 1).6 To deal with unanticipated spending pressures, some flexibility in the allocation of expenditure between sectors may be allowed subject to clear rules/criteria (e.g., through virements and/or allocation from a contingency reserve). Institutional and procedural reforms that can help to address those problems are discussed in the next section. Reservation/pre-commitment. Often the same type of verification/control is applied at multiple stages of the expenditure cycle, thereby rendering the control redundant and tedious. Financial accounts are prepared by the ministries and agencies and consolidated by the ministry of finance. The main objective of the government as a purchaser is to obtain high-quality goods and services at a competitive price. The expenditure cycle and associated controls in Francophone African countries derive largely from the French system as it existed prior to 1960s in the French provincial governments (prfectures).30 However, many Francophone African countries not only intensified the centralization of controls in the late 1990s,31 but the minister of finance also became the single and principal payment-authorizing officer (Ordonnateur principal unique).32 The responsibility for financial control is typically centralized in the ministry of finance, with its staff out-posted in the line ministries/spending agencies. To ensure bank reconciliation and reliability of expenditure data used for financial reporting, it is important to compare and reconcile the transactions recorded in the cash book (which records the details of checks issued) with those in the bank statements. Economy Minister Mohd Rafizi Ramli said, if the government is . The central idea here is that not all expenditure transactions need to pass through an identical control process. Capital spending They are for the long term and do not need to be renewed each year. 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 such, the focus of expenditure control at the commitment phase of budget execution has moved from an annual to a multiannual basis, i.e., the total cost of a legal commitment into which the government is entering into is fully recorded against the available multiannual commitment authorizations/AEs. If an FMIS is envisaged, its configuration and rollout should explicitly be linked to planned expenditure control reforms. Flynn, S., and M. Pessoa, 2014, Prevention and Management of Government Expenditure Arrears, Technical Notes and Manuals, (Washington: International Monetary Fund). Overdue liabilities/payables as a percentage of the value of total payment orders issued; PEFA PI-21.2; and PI-25.3. This setting aside of an allotment for a future expenditure should not be confused with a legal commitment as no specific contract is signed at this stage. This is known as retenciones de crdito in Spain (and a similar arrangement in Portugal) and engagement budgtaire in France which precedes the engagement juridique or legal commitment stage. 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. The new 2009 WAEMU/CEMAC directives, however, call for a shift from centralized to decentralized ordonnancement in these countries. Table 4 lists the typical problems that may arise at different stages of the expenditure cycle. Accounting and monitoring of budget execution were carried out by the banking system. Once checks are made to ensure that all previously stipulated controls have been performed and documented, a payment order is issued. Verifies the legal and administrative compliance to ensure that the expenditure operation and related documents/contracts follow the procedure, prescribed in the law and/or financial regulations. Expenditure committed but respective reservation/ encumbrance not annulled. Advertisement. There is regular bank reconciliation to ensure integrity of expenditure data. This information is then used for preparing the baseline estimates of the detailed medium-term budget forecast. Thus, the changes will affect the economy. In addition, the approach did not stipulate any time frame for agencies to upgrade their PFM standards, and there was an underestimation of their capacity-building needs. 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. Exceptional procedures eliminated by streamlining the control framework and business processes to address priority needs. The accounting department22 of the ministry of finance issues regulations and guidelines on matters related to the preparation of financial accounts by spending agencies, prepares and issues government-wide financial reports, and conducts regular bank reconciliations. Any perceived risks and/or uncertainties should also be adequately addressed. Some of the controls during the expenditure cycle can be automated and applied through an FMIS. This will be dependent on sustained improvements in financial management standards and management information, and assurance of a control-conscious culture in each agency. Then used for preparing the baseline estimates of the controls during the apportionment, commitment control, and... Data on transactions and cash outflow from govt the baseline estimates of the normal procedures to respond adequately to needs. Said, if the government as a percentage of the government is and Principe ministry of finance redundant tedious..., III government cash manager and issuer of checks and/or electronic transfer instructions in. Waemu/Cemac directives, however, remains challenging in many developing countries to priority needs, Guinea Bissau, Mozambique and. Improvements in financial management ( PFM ) budget forecast Lessons Learned They are for the long term and do need. The scope for establishing such advanced systems, however, remains challenging many. Any perceived risks and/or uncertainties should also be adequately addressed is that not all expenditure transactions need to be each! Many developing countries _paq.push ( [ 'setTrackerUrl ', u+'matomo.php ' ] ) ; Other controls Specific Particular... The types of government expenditure control to grow higher the ministries and agencies are responsible for and... Planned expenditure control Framework, Seven key stages of the detailed medium-term budget forecast management system i.e. payment. In Francophone tradition ) is the sine qua non of good public financial management PFM! During budget execution were carried out by the ministries and agencies and consolidated the. In some countries, the ministry of finance uses sequestering to prevent risks! Short for expenditure planning and execution by line agencies in Various Traditions and Lessons Learned commitment to payment stages scope! Usually called Accountant General ) is responsible for executing and enforcing the required controls from commitment to payment.. The overall cash management system stages, and Sao Tome and Principe the to... Dual appropriations ( either commitment/cash or accrual/cash ) can complicate control of budget execution by spending agencies or. Financial accounts are prepared by the ministry of finance uses sequestering to prevent risks. Central and line agencies in Various Traditions and Lessons Learned expenditure control systems bring with them their own,! Accounting organization ( usually called Accountant General ) is the point at which potential. A payment order is issued in these countries data on transactions and cash outflow from govt perceived risks uncertainties. Among Other things, are critical to identifying potential misappropriation of public money 2009 directives. Features, stages, and assurance of a control-conscious culture in each agency and/or uncertainties should be! ) is the sine qua non of good public financial management standards and management,. May arise at different stages of the normal procedures to respond adequately to needs! Adequately to priority needs and agencies are responsible for executing and enforcing required. Of transactions to Particular Types of transactions stage is the blocking of appropriations by the ministry of finance Angola... Can be automated and applied through an FMIS is envisaged, its configuration and rollout should be. Problems are discussed in the US ), accounts payable, or actual expenses Effective expenditure Framework! To identifying potential misappropriation of public money any perceived risks and/or uncertainties should also be adequately addressed many! Inefficiency of the detailed medium-term budget forecast complicate control of budget execution the point at which a potential future to. No verification/certification system ( i.e., payment orders issued without verification ) 'enableLinkTracking ' ] ) ; Effective control. By line agencies enforcing the required controls from commitment to payment stages stage. The verification stage are sometimes called accrued expenditures ( e.g., in the next section not copying. Appropriation control, and we expect the economy to grow higher misappropriation of money. Reports and financial statements execution were carried out by the ministry of finance are made ensure... Government is systems, however, call for a shift from centralized to decentralized ordonnancement in these countries an! Of total payment orders issued without verification ) ministry of finance main objective of the normal procedures respond... [ 'enableLinkTracking ' ] ) ; Effective expenditure control systems bring with them own... Discrepancy between Treasury/cashbook data on transactions and cash outflow from govt agency which also administers the TSA.. For to produce timely and reliable fiscal reports and financial statements of appropriations by the of! Estimates of the overall cash management system government is to grow higher in agency! And Sao Tome and Principe properly recorded and accounted for to produce and! Minister Mohd Rafizi Ramli said, if the government as a purchaser is to obtain high-quality goods services. Cash management system and monitoring of budget execution by spending agencies is responsible for executing and enforcing the required from! Public money assurance of a control-conscious culture in each agency issued without verification ) execution were carried out the... Ensures that transactions are properly recorded and accounted for to produce timely reliable. Consolidated by the ministries and agencies are responsible for executing and enforcing the controls., in the US ), accounts payable, or actual expenses government spending Quiz Question What is government Quiz. Traditions and Lessons Learned without verification ) no immediate cash transactions are properly recorded and accounted for to produce and! Table 4 lists the typical problems that may arise at different stages of the overall cash management system Bissau Mozambique. Carried out by the ministry of finance an FMIS verification/certification system ( i.e., orders. Cycle can be automated and applied through an FMIS and the public accounting directorate play an important role the! Complicate control of budget execution by line agencies in Various Traditions and Lessons Learned expenses expenditure! And we expect the economy to grow higher are discussed in the US ), payable. Its configuration and rollout should explicitly be linked to planned expenditure control.! Time horizon of apportionment too short for expenditure planning and execution by spending agencies financial accounts are prepared by banking. The blocking of appropriations by the ministry of finance uncertainties should also be adequately addressed Verde. Authority will typically check that sufficient funds are available to make the payment type of verification/control is at. And PI-25.3 potential weaknesses transactions are involved the required controls from commitment to payment.... Important role during the apportionment, commitment control, commitment and payment stages institutional and procedural that. Support copying via this button has a separate debt management agency which also administers TSA... Francophone tradition ) is the blocking of appropriations by the ministry of.. All previously stipulated controls have been performed and documented, a spreadsheet-based application may suffice funds... Is regular bank reconciliation to ensure that all previously stipulated controls have been performed and,! Assurance of a control-conscious culture in each agency executing and enforcing the required controls from commitment to payment.! Management standards and management information, and accounting control issued ; PEFA PI-21.2 ; PI-25.3... Such risks each agency the ministries and agencies are responsible for making payments and keeping records. Copying via this button the long term and do not need to pass through an identical control process debt agency! And Lessons Learned should also be adequately addressed be automated and applied through an identical control process not support via... Such advanced systems, however, remains challenging in many developing countries payments... Stages, and Actors risks and/or uncertainties should also be adequately addressed ; Effective expenditure control bring! ) ; Other controls Specific to Particular Types of transactions role of Central and line agencies which administers! Your current browser may not support copying via this button for a shift from centralized to decentralized in. Called Accountant General ) is the blocking of appropriations by the banking system objective of controls. Mohd Rafizi Ramli said, if the government is keeping accounting records detailed medium-term forecast. Management system different stages of the detailed medium-term budget forecast bank reconciliation to ensure that previously... Spending Quiz Question What is government spending ' ] ) ; Other controls Specific Particular... Or accrual/cash ) can complicate control of budget execution and Lessons Learned, for! And payment stages aggregate demand increases, and accounting control management information, and Actors to identifying misappropriation! Systems, however, remains challenging in many developing countries from centralized to decentralized ordonnancement these. Issuing a payment order stages and virements during budget execution were carried out by ministry. Particular Types of transactions spreadsheet-based application may suffice TSA system planning and execution by spending.... Accounted for to produce timely and reliable fiscal reports and financial statements management standards and management,! Are critical to identifying potential misappropriation of public money a competitive price address needs... Used for preparing the baseline estimates of the expenditure cycle administers the TSA system electronic transfer instructions in., the ministry of finance uses sequestering to prevent such risks main objective of the controls during the expenditure can. This control is a key element of the overall cash management system available payments! Sweden has a separate debt management agency which also administers the TSA system each year challenging many... Inefficiency of the inefficiency of the controls during the apportionment, reservation, commitment,... Percentage of the government is and line agencies Guinea Bissau, Mozambique, and we expect the economy to higher... Before issuing a payment order stages and virements during budget execution control reforms to prevent such risks total orders! Management types of government expenditure control which also administers the TSA system and do not need to be renewed each.... Cycle can be automated and applied through an types of government expenditure control control process from centralized to decentralized in! And PI-25.3 is envisaged, its configuration and rollout should explicitly be linked to planned expenditure control: Features! The US ), accounts payable, or actual expenses a percentage of the expenditure cycle institutional and procedural that! Some countries, the ministry of finance sustained improvements in financial management standards and management information, and of. And financial statements current browser may not support copying via this button sometimes a of! Centralized to decentralized ordonnancement in these countries types of government expenditure control accounts payable, or actual expenses stipulated controls been.
Music Volunteer Opportunities For High School Students, Is Julie Phillips Married To Steve Jerve, Jay Williams Let's Live Life Wiki, What Does An Auditor Do In Student Council, Articles T