Unit 2– PFM domains and sequencing of reforms Budget execution 1 Module 2.2. Expenditure and...
-
Upload
donald-blankenship -
Category
Documents
-
view
218 -
download
1
Transcript of Unit 2– PFM domains and sequencing of reforms Budget execution 1 Module 2.2. Expenditure and...
Unit 2– PFM domains and sequencing of reforms
Budget execution
1
Module 2.2. Expenditure and accounting cycle
Day 2: Sub-systems of PFM and prioritsing reforms
• Module 2.1. Expenditure Classification, budget Preparation and the MTEF
• Module 2.2. Expenditure and accounting cycle• Module 2.3. Program/Performance budget• Module 2.4. External control, legislative and
regulatory framework and IT (information technology)issues
22
Module 2.2. Objectives• This module examines a few key points (non exhaustive) of the
budget execution cycle• Management procedures of the expenditure cycle• Personnel, procurement• Financial monitoring and accountancy• Internal audit
• Aims at identifying the “basics”• Brief examination of a few issues that go beyond the basics,
including accrual accounting
33
Expenditure cycle Payroll management and procurement Financial monitoring Accounting bases
4
Module 2.2. Outline
4
The stages of the expenditure cycle
• Here are a number of stages in making payment appropriations available
• The role of the Ministry of Finance and sectorial ministries in the management and control of cycles is very different from the Anglophone to the francophone systemo Some differences will lead to define different
measures within reforms
5
Two different approach: Francophone countries. oF ex-ante controls
6
BUDGET
Allotment
Commitment
Certification
Payment order
Payment
MoF Budget department
Public Accounts department
Warrant
Limit
Supplier
7
Two different approaches: Anglophone countries.
BUDGET
Allotment
Commitment
Certification
Payment order
Payment
MoF Budget department
Public Accounts department
Warrant
Limit
Supplier
The expenditure cycle: points to consider
• Making the payment appropriations may take time, especially for regional service or local administrations
• Anglophone systems: little monitoring of commitments
• Francophone systems: burdensome, duplication of controls
8
Payment systems: points to consider
• Francophones and some anglophones (50%?): Single Treasury Account (STA):• Cash centralisation
• Desirable for a sound treasury management• Different modes
• Francophone: pre-eminent role of the Treasury in the controls and establishment of payment priorities
• Others: other versions• Anglophones without STA : hundreds or thousands of
Government bank accounts, poor cash control
9
Appropriations and Treasury management: a few key points
• Annuality: Are delays authorised? Are there additional periods?• Virement within a same code or programme (within the scope
authorised by Parliament): respective powers of the Ministry of Finance, sectorial ministries central services, etc.
• So cash plans exist? Do engagmenent plans exist?• And/or rationing (”budgetary regulation" ; cash budgeting)
over the year ?• Is this predictable?
• Budget revisions: How? How many per year?
10
Guaranteeing foundations• Take measures to make budget execution effective
• Make sure funds and credits are available, improve predictability
• Rationalise controls within the executive by accounting for specific aspects of the budgetary system• Francophone countries: rationalise control within the
Ministry of Finance, ensure transparency of the Treasury • Anglophone countries: follow commitments, audit
internal controls, strengthen the Treasury• Post-conflict countries: put in place a centralised
payment monitoring and management system
11
What does the PEFA tell us?
• PI-16 Predictability in the availability of funds for commitment of expenditures
• PI-17. Recording and management of cash balances, debt and guarantees
• PI-18 Effectiveness of payroll controls
• PI-19 Competition, value for money and controls in procurement
• PI-20 Effectiveness of internal controls for non-salary expenditure
• PI-21. Effectiveness of internal audit 12
PEFA Performance indicator: PI-16• PI-16 Predictability in the availability of funds for commitment of
expenditures
Dimensions assessed and grade :
– Extent to which cash flows are forecast and monitored: A cash flow forecast is prepared for the fiscal year, but is not (or only partially and infrequently) updated : C
– Reliability and horizon of periodic in-year information to MDAs on ceilings for expenditure commitment: MDAs are provided reliable information on commitment ceilings at least quarterly in advance: B
– Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of MDAs : Significant in-year adjustments to budget allocations take place only once or twice in a year and are done in a fairly transparent way : B13
• PI-17. Recording and management of cash balances, debt and guarantees
Dimensions assessed and grade :
• (i) Quality of debt data recording and reporting : Grade B, Domestic and foreign debt records are complete, updated and reconciled quarterly, comprehensive management and statistical reports are produced at least annually.
• (ii) Extent of consolidation of the government’s cash balances : Grade B, Most cash balances calculated and consolidated at least weekly
• (iii) Systems for contracting loans and issuance of guarantees.. : Grade B, Central government’s contracting of loans and issuance of guarantees are made within limits for total debt and total guarantees, and always approved by a single responsible government entity 14
PEFA Performance indicator: PI-17
• PI-20 Effectiveness of internal controls for non-salary expenditure
Dimensions assessed and grade :
• Effectiveness of expenditure commitment controls: grade B, in place
• Comprehensiveness, relevance and understanding of other internal control rules/ procedures: Grade C; controls may be deficient in areas of minor importance
• Degree of compliance with rules for processing and recording transactions : Grade B
15
PEFA Performance indicator: PI-20
• PI-21. Effectiveness of internal audit• Dimensions assessed and grade
• (i) Coverage and quality of the internal audit function: Grade C, The function is operational for at least the most important central government entities and undertakes some systems review (at least 20% of staff time), but may not meet recognized professional standards
• (ii) Frequency and distribution of reports : Grade A, Reports adhere to a fixed schedule and are distributed to the audited entity, ministry of finance and the SAI.
• (iii) Extent of management response to internal audit findings : Grade C, a fair degree of action taken by many managers on major issues but often with delay
• Remarks:• (i) refers to an audit system culture that is rare or none existant in
francophone DC and rare in other DC16
PEFA Performance indicator: PI-21
The PIFC (Public Internal Financial Control)
• Promoted by the European Comission in Eastern Europe• Principles
• Manager responsibility• Independent internal audit• Central Harmonization Unit – CHU
• Organisation:• Internal audit systems include risk identification and are under the
responsibility of the managers• Independent internal audit of managers and inspections are put in
place by the ministry• The Ministry of Finance is in charge of coordination and unification
of the PIFC system
1717
Expenditure cycle Payroll management and procurement Financial monitoring Accounting bases
18
Module 2.2. Outline
18
Procurement – Key points• Transparency from the bidding stage to contract
award• Guarantee competition: adequate legislative and
regulatory framework• Avoid corruption:
Rules to avoid corruption:– Separation of authority, rotation of positions– Appeal procedures– Audit of the procurement process
• Adequate infrastructure• Adequate organisational dispositions
19
PEFA performance indicator PI-19
• PI-19 Competition, value for money and controls in procurement
• Dimensions assessed and grade• (i) Transparency, comprehensiveness and competition in
the legal and regulatory framework : Score B • (ii) Use of competitive procurement methods: Score C; for
at least 60% of the value of contracts awarded • (iii) Public access to complete, reliable and timely
procurement information: Score B• iv) Existence of an independent administrative
procurement complaints system: Grade D
20
21
Personnel management
• Personnel management and payroll• Very centralised in francophone countries, variable situation
in other countries
• But, weaknesses exist in all systems
• “ghosts”, personnel data files incoherent with compensation
• Periodical census, often unsatisfactory results
21
22
PEFA performance indicator : PI-18• PI-18 Effectiveness of payroll controls• Dimensions assessed and grade
• (i) Degree of integration and reconciliation between personnel records and payroll data. : Grade C, reconciliation every 6 months
• (ii) Timeliness of changes to personnel records and the payroll : Grade B, Up to three months‟ delay occurs in updating of changes to the personnel records and payroll, but affects only a minority of changes. Retroactive adjustments are made occasionally.
• (iii) Internal controls of changes to personnel records and the payroll: grade C, Controls exist, but are not adequate to ensure full integrity of data.
• (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers: grade C, Partial payroll audits or staff surveys have been undertaken within the last 3 years 22
Expenditure cycle Payroll management and procurement Financial monitoring Accounting bases
23
Module 2.2. Outline
23
24
Financial monitoring
A necessary condition to move forward
Check its effectiveness Occurrence Delays Reliability Coverage
Occurrence and deadlines: basics
• Internally financed expenditure: monthly• Maximum period <1 month
• Quarterly or semi-annual basis, depending on the project aids
• End-of-year accounts• Maximum period of 5 months for final accounts, and
only 2 months for provisional accounts
25
Reliability
• How to tell?
• Check comparison procedures• Between banks, between the Treasury and
authorising officers
• Check issues related to arrears
26
Coverage
• Budget, of course
• But the foundations should encompass almost all of the central government
Expenditure cycle Payroll management and procurement Financial monitoring Accounting bases
28
Module 2.2. Outline
28
Accounting• Ex-post evaluation, monitoring, audit, feedback useful
for preparation• In African French-speaking countries, public accounting
developed in the traditional way, training of public accountants in the Treasury schools, assistance from French Treasury accountants
• UDEAC: 1974 works to develop corporate accounting !
• In English-speaking countries, accounting was relatively simple, but over the last few years, the influence of NPM has induced a greater emphasise placed on costs, statements, etc.
29
Accounting methods• Cash-based accounting
• Keeps track of expenses when paid for, implementation of revenue when registered
• Accruals-based accounting• Similar to corporate accounting
• Keeps track of transfers and other events when they occur. Assets, liabilities, net assets/net position, outputs and expenses
• Expenses are accounted for (including depreciation, inventory, etc.)
30
Accounting methods• Depends on the country. There are many variants
between the two extremes
31
Cash-based Accounting
Accruals-based accounting, similar to commercial accounting
Modification of the cash basis
Modification of the accrual basis
31
Towards an accruals-based accounting?• Many projets of accruals-based accounting exist
– WAEMU – Syria– Etc.
• However,• This requires a lot of effort
– UK: White paper published in 1995; first "accrual” accounts published in 2002.
– France: mission for accruals-based accounting initiated in 1996; first publication in 2007.
• Risks of creative accounting• Will the financial statements be more transparent for
the Parliament?32
Two important points to keep in mind
• Liabilities accounts (not including pension rights)Accruals-based accounting of public debt
» Commonly used (in annex systems)
Recording expenditures as soon as this debt is confirmed (liquidation)
• Financial assets accountsEg., loans to companies
• Methods sometimes designated as “modified accrual accounting”
33
The basics• The accounting system must enable to secure the basics in
terms of budget preparation, control, reporting, and complying to accounts republishing obligations as defined by the country’s regulations
• This encompasses:• An adequate budgetary classification (cf. module 1.2)• Registration od expenditures at the stage of commitment and
payment• Debt accounting though accrual accounting• Reports on arrears and other liabilities• A comprehensive coverage of the accounting system• Reports on financial assets• An assets register at least for physical assets prone to be
misappropriated or wasted34
Beyond basics
• General accounting• Anglophone and Francophone
– Implementation of a modified accrual system encompassing liabilities and financial assets
->Anglophone: double-entry book-keeping• Transition countries
– Unification of the accruals-based accounting of the Ministries with the cash-based accounting of the Treasury
• Estimate for possible liabilities• Then, accruals-based accounting for some service
agencies
35
Key message
• Budgetary procedures must guarantee that the budget is credible and the expenditure cycle is smooth. Reforms must account for both these requirements
• Audit and security procedures are essential for personnel data files management
• A comprehensive financial monitoring of expenditure is a necessary condition for a reliable PFM system
36