The lack of a comprehensive and credible budget particularly affects the authorization (as the expenditure authority is not realistic), commitment (as ongoing/outstanding commitments are not adequately allocated for) and verification (as the accumulated liabilities are not fully reflected in the budget) stages. Expenditures at the verification stage are sometimes called accrued expenditures (e.g., in the US), accounts payable, or actual expenses. However, the complexity of the expenditure chain, the precise nature of the controls exercised at each stage, and the degree of centralization varies considerably across countries and is heavily influenced by their respective administrative traditions. The word budget is derived from the Old French bougette ("little bag"). var d=document, g=d.createElement('script'), s=d.getElementsByTagName('script')[0]; Key strengths: line agencies directly accountable for the use/control of their appropriations; and no complementary period. The main reforms required to address the weaknesses at different stages of the expenditure cycle are as follows: Authorization. Therefore, after warrant releases, line ministries have the power to: (i) make commitments against their budget appropriations and authorized cash ceilings without reference to the ministry of finance; (ii) issue payment orders to liquidate those commitments that have materialized; and (iii) prepare accounts of their expenditures. Authorization of expenditure. Accounting and monitoring of budget execution were carried out by the banking system. 4, Paris. For further background information and discussion on specific features of commitment control, see D. Radev and P. Khemani (2009). Under a dual accrual and cash budgeting/appropriations framework, there is a need for each agency to make projections of both its anticipated cash requirements as well as incurrence of expenses and liabilities and accumulation/realization of long-term obligations and contingent liabilities. Clarity of the legal and regulatory framework, including the roles of the key actors. *The PEFA indicators are based on the new PEFA 2016 framework. The first and each subsequent actuarial valuation report includes valuation results for the purposes of measuring changes in the cost of the pension scheme against the employer cost cap, expressed as a percentage of pensionable pay. Types of Control, Their Key Features and Objectives. 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. There is regular reporting and monitoring of overdue liabilities. The key reforms include clarifying responsibilities for verification of delivery of goods and/or services, ensuring documentary proof of delivery, and eliminating any undue delay between verification and issuance of payment orders. Once checks are made to ensure that all previously stipulated controls have been performed and documented, a payment order is issued. Large delay between verification (recognition of liability) and payment order (arrears, etc). In cases where the expenditure is subject to a previous ongoing contract (e.g., wages, utilities, rent, debt service) or statutory obligation (e.g., transfers to subnational governments), an estimate of obligation to pay should be made and treated as a commitment. The link was not copied. In the absence of this coordination, spending ministries/agencies can potentially frontload their commitments even if adequate cash is not likely to be available for payment when the commitments materialize, or the treasury may not raise the necessary finance to meet cash requirements. Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. 2. This may lead to potential arrears. Funds/cash not available in government bank accounts to implement the payment order. Monetary policy. Spending units enter into commitments only against unencumbered spending authority and the cash plan covers the expected payment profiles of commitments. Commitment-based budgeting systems impose limits on both expenditure commitments and cash payments. Payment orders are issued after documentary proof of verification. In some countries, it may conduct its own pre-payment audits prior to executing payments. The commitment stage is the point at which a potential future obligation to pay is established. Current spending They are for the short term and include expenditure on wages and raw materials. Reservation/pre-commitment. 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. In some countries, the ministry of finance uses sequestering to prevent such risks. Table 4 lists the typical problems that may arise at different stages of the expenditure cycle. 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. 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. But, fiscal policy is also used to curtail . 2. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. However, this may not be true when only a commitment has been incurred but the government does yet have a liability because, for example, the goods and services have not yet been supplied. Budgets are not the only mechanisms that provide the legal authorization to incur expenditure. 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. Some countries PFM systems may not formally track all the seven stages (see discussion in page 9). They allocate funds among their subordinate units, make commitments, purchase and procure goods and services, verify the goods and services acquired, prepare requests for payment (and make payments, if the payment system is not centralized), prepare progress reports, and may keep accounts and financial records. 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. It seeks to verify: (i) the existence of budget cover or space within the authorized limits; and (ii) that the payment is being made to extinguish the liability to a real creditor and for a claim that was not paid earlier. It can be spent on a range of different . International Organization of Supreme Audit Institutions (INTOSAI), Guidelines for Internal Control in the Public Sector, (http://www.issai.org/media/13329/intosai_gov_9100_e.pdf). 1. The allocation of responsibility to various actors in the exercise of expenditure controls is heavily influenced by their respective administrative traditions of PFM and level of development. A Government Deficit is the amount of money in the set budget by which the government expenditure exceeds the government income amount. multi-year limits for certain types of expenditure (e.g., autorisation d'engagement: for multi-year investment projects in Francesee Box 3). These stages are: 1. 1All uses of public funds should be governed by financial regulations. Authorized purpose of the expenditure. Lusophone African countries are also characterized by a higher degree of centralization in the sense that the overall budget execution responsibility, including the responsibility for financial control, is usually concentrated in one office: either the budget office itself (e.g., in Guine Bissau, and Sao Tome and Principe) or the accounting office (e.g., in Angola and Mozambique). Warrants/allotments are not used as a cash rationing tool. Show question Question While the answer to this question will depend on specific country context and weaknesses, in general caution should be exercised in the devolution of controls in countries that are at the initial stage of development of PFM systems (e.g., fragile states), or with weak capacity at line agencies to implement the required controls, and/or without strong institutions of ex post oversight (internal and external audit). 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. Key Stages of Expenditure Control Framework, Seven key stages of the expenditure cycle, III. Although sequestering may sometimes be necessary, it diminishes the predictability of budgeted/authorized expenditure and undermines the credibility of the budget, and therefore should be used only in exceptional circumstances. The amount should be correctly calculated and there should be no hidden expenses. In some cases, these variations are noted in the text. Manual processing controls: Key manual processing controls for purchasing, payment, and confirmation of receipt of goods and services are performed outside the typical information systems (e.g., FMIS) environment and should be subject to periodic internal control checks and audit. Certain sums may be spent under permanent rather than annual legislation. Lienert, I., 2009, Modernizing Cash Management, Technical Notes and Manuals, (Washington: International Monetary Fund). Cash Management: How Do Countries Perform Sound Practices? Originally designed for exceptional circumstances, the use of this procedure expanded in several Francophone African countries to settle most of the expenditures. 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