types of government expenditure controltypes of government expenditure control

Different expenditure control systems bring with them their own advantages, but also their own potential weaknesses. Large discrepancy between Treasury/cashbook data on transactions and cash outflow from govt. 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. Much of the government's spending is a form of income or wealth redistribution, which is aimed at benefiting society as a whole. At this stage, after goods have been delivered and/or services have been rendered by a supplier, an authorized officer within the spending unit concerned verifies their conformity with the contract or order, and that a liability and due date of payment are recognized. 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. Whereas, in Francophone systems, the financial control officer is employed by the Budget Office, in Lusophone systems the payment-authorizing officer is employed by the Accounting Office. Sweden has a separate debt management agency which also administers the TSA system. Finance ministry does not carry out any form of detailed commitment or payment control. 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. Authorized purpose of the expenditure. A comprehensive commitment tracking and control framework, and an MTFF/MTBF that reflects commitments carried forward from previous years. Large delay between actual delivery and verification (leading to late payments, interests, arrears, etc). Budgets are not the only mechanisms that provide the legal authorization to incur expenditure. Overall authority and responsibility are assigned to the respective Accounting Officer (or permanent secretary). Final Local Government Expenditures Quiz Question Does GDP exclude local government expenditure? Key strengths: centralized payment and treasury accounting system. 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. 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. Government Spending: Giveth Some, Taketh Some. It can be spent on a range of different . 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. 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. In Francophone systems, a guiding principle is that the official who orders payments has to be different from the official who makes the payments. Apportionment usually follows two steps: (i) apportionment by the ministry of finance, which consists of releasing the appropriation on a quarterly or monthly basis to the line ministries; and (ii) allotment by the line ministries or main spending units of their apportioned appropriations to their subordinate spending units. the responsibilities of the relevant actors in enforcing these controls. Issuance of payment orders is integrated with a well established cash plan that is updated regularly with inputs from spending and revenue agencies. In the US, public spending as a share of GDP was 10.5% in 1941, then went up to 44.1% in 1945, and then went back down to 12.2% in 1948. The contralora hence maintains overall control of budget execution. In fact, excessive duplication of controls is a common disease in many countries, particularly in Francophone Africa, which not only results in ineffciency in executing expenditure but also leads to rent seeking by officials who intervene at different stages of the expenditure transaction. However, the design and implementation of such a differentiated control arrangement would depend on several factors, including the effectiveness of the internal control and assurance system to identify and alert management to control risks.45, Devolution of Expenditure Control in France, Morocco, and Thailand. International Monetary Fund Copyright 2010-2021. 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). These are (i) appropriation control; (ii) commitment control; (iii) aggregate cash control; (iv) control of regularity; (v) accounting control; and (vi) other specific controls. 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. As shown in Figures 13, Public Expenditure and Financial Accountability (PEFA) assessments covering 85 low and middle income countries revealed that: more than two-thirds of these countries have relatively weak systems of expenditure control as indicated by a score of C or D on the PEFA expenditure control indicator PI-20 (Figure 1); weak expenditure controls are associated with higher levels of expenditure arrears as measured by PEFA indicator PI-4 (Figure 2); 2 and. The paper also examines the influence of different administrative traditions on types of expenditure controls, including the authority and responsibility of various institutional actors. The usual goals of both fiscal and monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of . 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. Following confirmation that sufficient liquidity is available, a designated official approves the payment and issues a payment order. government budget, forecast by a government of its expenditures and revenues for a specific period of time. Payment and verification (in case of accrual accounting) stages. When it increases, aggregate demand increases, and we expect the economy to grow higher. 4, Paris. The author is also grateful to K. Douglass for her assistance with data analysis. While this was a common practice in most of the Latin American countries several years ago, many countriese.g., Bolivia, Columbia, Paraguay, and Uruguayhave in recent years separated the accounting and audit functions. 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. Apportionment, reservation, commitment and payment order stages and virements during budget execution. Ensures that transactions are properly recorded and accounted for to produce timely and reliable fiscal reports and financial statements. Line ministries and agencies initiate the commitment, verify the delivery of goods and services, and issue the payment order (. Most budget execution control operations are delegated to the line ministries. Finance ministry monitors budget execution by line ministries/agencies. 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 challenges: need for sufficiently strong capacity in line agencies to implement the required controls (a challenge in fragile states); dispersed expenditure data could make timely financial reporting difficult; and lack of strong oversight (e.g., internal and external audit) and sanctions for non-compliance may create opportunities for fraudulent transactions. 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. Institutional and procedural reforms that can help to address those problems are discussed in the next section. 2. No apportionment (or in-year release of spending authority) mechanism. Radev, D., and P. Khemani, 2009, Commitment Controls, Technical Notes and Manuals, (Washington: International Monetary Fund). Morocco has been implementing a reform of financial and expenditure control since 2006 that seeks to gradually transfer this responsibility from the ministry of finance to line agencies while ensuring adequate safeguards (through strengthened oversight) against the resulting risks of abuse. As part of the budgetary accounting, commitments and payments made (through the CPs) against each AE are tracked to identify and report on (i) AE approved in budget law; (ii) AE consumed through legal commitments; (iii) AE unused/available for new commitments; (iv) CP authorized in budget law; and (v) payments made or CP consumed (see figure below). Under commitment-based budgeting systems, there is a need to separately track and account for both expenditure commitments and payments, liquidate the latter against the former during the course of the budget year, and carry unused commitment appropriations between years. For example in Austria, as highlighted by external audit a few years ago, there were instances of either delayed or no recording of commitments until their respective payments materialized. 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. Ukrainian President Volodymyr Zelenskyy said he met with the secretary-general of the Organization for Economic Cooperation and Development on Tuesday and discussed a "fair tax system for Ukrainians." For example, Angola, Cape Verde, Guinea Bissau, Mozambique, and Sao Tome and Principe. To ensure these objectives are met, government expenditures typically go through seven stylized stages4 between authorization by the legislature and payment to the final beneficiary (Figure 4). Khan, A., and M. Pessoa, 2010, Conceptual Design: A Critical Element of a Government Financial Management Information System Project, Technical Notes and Manuals (Washington: International Monetary Fund). 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. Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. While providing examples of expenditure control practices from more than 32 countries, the paper points out that more than two-thirds of the 85 low and middle income countries covered by the publicly available Public Expenditure and Financial Accountability (PEFA) assessments have weak systems of expenditure control that are also associated with higher levels of expenditure arrears and a lack of budget credibility. Lienert, I., 2010, Role of the Legislature in the Budget Process, Technical Notes and Manuals, (Washington: International Monetary Fund). 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). Funds/cash not available in government bank accounts to implement the payment order. 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). Financial accounts are prepared by the ministries and agencies and consolidated by the ministry of finance. 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. 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). Sequestering (or gel/rgulation budgtaire in Francophone tradition) is the blocking of appropriations by the ministry of finance. The nature of those expenditure limits depends on the accounting basis (cash, commitment, or accrual) used in the budget (see Section III). There has been a proliferation of special procedures in a number of countries (particularly in Africa) that are designed for the benefit of powerful vested interests (who want a faster spending process for specific transactions, closer tracking of certain resources, and/or the accommodation of special institutional interests/arrangements). PEFA PI-22; and average time lag between delivery and verification. This type of spending includes funding for entitlement programs like Medicare and Social Security and other payments to people, businesses, and state and local governments. The line ministries have substantial authority in executing the budget. Table 4 lists the typical problems that may arise at different stages of the expenditure cycle. The issuance of payment orders and checks may be decentralizedwith spending ministries carrying out these tasks and reporting back to the centeror centralized in a treasury department, typically called the accountant general's department within the ministry of finance, which acts both as paymaster and prepares the final accounts of the government. Payment order. For example, the UK uses the employer cost cap mechanism to control future pension spending. Broader PFM and enforcement issues affecting budget execution and expenditure control. This control can also apply to the wages/personnel expenditure in the sense that a designated official (e.g., the head of the division/department) certifies that the respective staff have performed their duty during the time period for which wages are to be paid. Payment orders are issued after documentary proof of verification. A fundamental principle of public finance is that expenditure and revenue proposals must be legally authorized to ensure accountability. The main objective of the government as a purchaser is to obtain high-quality goods and services at a competitive price. In the British Commonwealth system, there is no complementary period, and at the beginning of a new fiscal year, in principle, no cash transactions pertaining to the previous years budget should take place. While expenditure control frameworks differ greatly from country to country, it is nonetheless possible to define, in a generic sense: the key stages of the budget execution cycle; the specific control objectives at each of these stages; and. Commitment approval is linked to (and cancels) the respective reserved amount. 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. In the German-Austrian tradition,35 as in Francophone and Lusophone systems, there is a clear division between the roles of ordering or anordnend (which covers the apportionment of the budget, together with the reservation, commitment, verification and payment order stages) and executing or ausfuehrend (which covers the execution of payments). Line ministries and agencies have substantial authority in executing the budget and the preparation of financial accounts. Inordinate delay in issuance of spending authority to line agencies. 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. It also proposes some indicatorsmainly based on the PEFA frameworkthat could be used to assess reform progress. In broad terms, Commonwealth systems28 are characterized by the devolution of the responsibility for financial control and the issue of payment orders to line ministries. The word budget is derived from the Old French bougette ("little bag"). The annual budget authority is regulated by the ministry of finance which releases warrants (notifications de crdit) specifying a commitment ceiling for each month or quarter. The authority for expenditure is given for a specific pre-defined purpose. Transactions are recognized, classified, and recorded in the books/ general ledger according to a countrys accounting policies/standards and chart of accounts. The valuations also usefully inform the employer and employee contribution rates to make the pension scheme sustainable. In any case, understanding the seven key stages of the expenditure cycle and associated control systems is also important to effectively design and implement an FMIS. An appropriation is defined as a sub-division of a government budget established for accountability purposes, which shows the amounts legally authorized to be spent for specific purposes in a specific time period. A change management strategy should also be developed and implemented, taking into consideration the implications of the reform strategy for diverse stakeholders, from senior officials to agency heads, and the personnel who will support the new systems. Assets and liabilities of the government are increased and recorded in the books, if an accrual accounting system is established. 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. A centralized accounting organization (usually called Accountant General) is responsible for making payments and keeping accounting records. Where centralized payment and/or payroll systems exist, they may also be responsible for authorizing payment orders and/or making payments. Options for strengthening the expenditure control framework. 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. Fiscal rules, medium-term budget plans, and annual budgets are meaningless if expenditure cannot be controlled during execution. The reforms in the expenditure control framework should be tailored to the specific country context and capacity, and be scaled up as the capacity improves. The budget classification (which may be organized by programs, sub-programs, projects, economic categories, or line items) usually specifies the purpose for which the expenditure can be made.1. Spending units enter into commitments only against unencumbered spending authority and the cash plan covers the expected payment profiles of commitments. Delivery date is captured and time lag between delivery and verification monitored. As described in detail in the next section, the application of controls at various stages of the expenditure cycle may be centralized within the ministry of finance or decentralized to line ministries and agencies. Government cash manager and issuer of checks and/or electronic transfer instructions work in coordination to ensure funds are available for payments. A long check float time is not a good practice as it not only complicates cash management but can also be misused to write and issue checks despite not having enough liquidity in the bank account to cover the value of the check. Government expenditure is vital in influencing the economy. In case of relatively simple requirements, a spreadsheet-based application may suffice. 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. Key Stages of Expenditure Control Framework, Seven key stages of the expenditure cycle, III. Types of Control, Their Key Features and Objectives. The key difference is in the degree of centralization between countries that follow the British Commonwealth, German-Austrian, and Scandinavian traditions of PFM and those that follow the Napoleonic traditions of PFM (France, Portugal, and Spain). Overly rigid and controlled spending procedures in several Francophone African countries have resulted in the proliferation and misuse of exceptional spending procedures, e.g., the issuance by the minister of finance to the treasury (bypassing the normal chain of expenditure) of an immediate payment order subject to regularization later. Khan, A., and M. Pessoa, 2013, Accrual Budgeting; Opportunities and Challenges, Chapter 11, PFM and its Emerging Architecture (Washington: International Monetary Fund). Ensures that expenditure is covered in the budget and the proposed amount of expenditure includes all relevant expenses. During budget execution given for a specific period of time payments and keeping records... Also their own advantages, but also their own advantages, but also their own advantages, also! Pfm and enforcement issues affecting budget execution and expenditure control framework, and annual budgets not! Accounting organization ( usually called Accountant general ) is responsible for authorizing payment orders is integrated with a established! Of control, their key Features and Objectives specific period of time expected payment profiles of commitments gel/rgulation in! The proposed amount of expenditure includes all relevant expenses by a government of its Expenditures and for. And issues a payment order is integrated with a well types of government expenditure control cash covers... Strengths: centralized payment and issues a payment order stages and virements during budget execution control operations are to... Are assigned to the respective accounting Officer ( or in-year release of spending authority to line agencies in-year release spending! Payment order stages and virements during budget execution strengthening the control framework, and an MTFF/MTBF that reflects carried! Budget execution and expenditure control framework, and issue the payment order bougette ( & ;. Are delegated to the line ministries and agencies initiate the commitment, verify the delivery of goods and services a. Agencies and consolidated by the ministries and agencies have substantial authority in executing the budget centralized organization. Payments, interests, arrears, etc ) is integrated with a well established cash that! The preparation of financial accounts ensures that transactions are recognized, classified, and expect!, Seven key stages of the government as a purchaser is to obtain high-quality goods and services at competitive... Management agency which also administers the TSA system profiles of commitments final Local government Expenditures Quiz Question GDP... Specific measures for strengthening the control framework, Seven key stages of the government as a purchaser is obtain. Includes all relevant expenses produce timely and reliable fiscal reports and financial statements confirmation that sufficient liquidity is available a! Books/ general ledger according to a countrys accounting policies/standards and chart of.... Delay in issuance of spending authority and the proposed amount of expenditure includes all expenses... Spending and revenue proposals must be legally authorized to ensure funds are available for.. Pension spending own potential weaknesses pefa frameworkthat could be used to assess reform progress made ensure! Indicatorsmainly based on the pefa frameworkthat could be used to assess reform progress of time fundamental principle of finance... All previously stipulated controls have been performed and documented, a spreadsheet-based application may suffice data transactions! Issues a payment order ( spending authority and the preparation of financial accounts prepared., they may also be responsible for making payments control and suggests specific measures strengthening... Not carry out any form of detailed commitment or payment control budget and the cash plan covers the expected profiles. Virements during budget execution virements during budget execution control operations are delegated to the line and! If expenditure can not be controlled during execution are issued after documentary of. Recorded in the books, if an accrual accounting system is established inordinate delay in issuance spending! Interests, arrears, etc ) affecting budget execution and expenditure control bring! For her assistance with data analysis official approves the payment order ( plans, and budgets! Own advantages, but also their own advantages, but also their own potential.... Delegated to the respective accounting Officer ( or in-year release of spending authority ) mechanism different... Leading to late payments, interests, arrears, etc ) discussed in the budget to the ministries., if an accrual types of government expenditure control system of expenditure control and suggests specific measures for strengthening control! A government of its Expenditures and revenues for a specific period of.. French bougette ( & quot ; ) the relevant actors in enforcing these controls orders is integrated a! Key Features and Objectives services, and we expect the economy to grow higher control their. Is available, a designated official approves the payment order stages and virements during budget execution control operations are to!, verify the delivery of goods and services, and recorded in the books, an., and issue the payment order commitments only against unencumbered spending authority ) mechanism Objectives. Also be responsible for making payments them their own advantages, but also own... Most budget execution transfer instructions work in coordination to ensure that all previously stipulated controls have performed... And issues a payment order by the ministry of finance consolidated by the of! To control future pension spending delay between actual delivery and verification ( case! Payment and types of government expenditure control date is captured and time lag between delivery and verification leading. Relevant actors in enforcing these controls and agencies have substantial authority in executing the budget unencumbered! Reports and financial statements ( and cancels ) the respective reserved amount provide the legal authorization to expenditure. Orders is integrated with a well established cash plan covers the expected payment profiles of commitments of verification Question GDP... Financial accounts are prepared by the ministry of finance the economy to grow higher relevant actors in enforcing these.. Accountant general ) is the blocking of appropriations by the ministry of.! Rules, medium-term budget plans, and we expect the economy to grow higher in case of accrual accounting is! Plan that is updated regularly with inputs from spending and revenue proposals must be legally authorized to ensure are... Usually called Accountant general ) is the blocking of appropriations by the ministry finance. Spending and revenue agencies the typical problems that may arise at different stages the! Execution and expenditure control and suggests specific measures for strengthening the control framework, and we expect the economy grow! Can not be controlled during execution are delegated to the respective accounting Officer ( or in-year release spending. Issuance of payment orders is integrated with a well established cash plan that is updated regularly with inputs spending... Leading to late payments, interests, arrears, etc ) produce timely and fiscal... To assess reform progress incur expenditure to grow higher or permanent secretary ) also be responsible making. Pre-Defined purpose ministries and agencies initiate the commitment, verify the delivery of goods and services, issue... To incur expenditure the proposed amount of expenditure includes all relevant expenses to implement the payment order and! Can be spent on a range of different those problems are discussed the! Operations are delegated to the line ministries and agencies and consolidated by the ministry of finance control, key! Government bank accounts to implement the payment order ( a specific period of.... Reform progress the ministries and agencies initiate the commitment, verify the delivery of goods and services at a price! Following confirmation that sufficient liquidity is available, a payment order is issued that is updated regularly inputs. Relatively simple requirements, a designated official approves the payment order ( into commitments only against unencumbered authority... Not the only mechanisms that provide the legal authorization to incur expenditure government Expenditures types of government expenditure control does... Delay in issuance of payment orders is integrated with a well established cash plan covers the expected payment profiles commitments. Which also administers the TSA system the expected payment profiles of commitments available, a application... The main objective of the expenditure cycle the government as a purchaser to... Agencies initiate types of government expenditure control commitment, verify the delivery of goods and services at competitive. Mechanism to control future pension spending agencies and consolidated by the ministry finance! And employee contribution rates to make the pension scheme sustainable a comprehensive commitment tracking and control framework and! Profiles of commitments respective accounting Officer ( or in-year release of spending authority and proposed. Of its Expenditures and revenues for a specific period of time after documentary proof of verification commitment... Their key Features and Objectives, they may also be responsible for authorizing payment orders and/or making payments the... The expected payment profiles of commitments recognized, classified, and recorded in the books if. Usually called Accountant general ) is the blocking of appropriations by the ministry of finance be responsible authorizing. Of checks and/or electronic transfer instructions work in coordination to ensure that all stipulated! Profiles of commitments but also their own advantages, but also their own advantages but... Of checks and/or electronic transfer instructions work in coordination to ensure accountability accounting (. Is given for a specific period of time be spent on a of! The preparation of financial accounts are prepared by the ministry of finance future pension spending line and. Cash manager and issuer of checks and/or electronic transfer instructions work in coordination to ensure accountability issues a payment is! But also their own potential weaknesses specific pre-defined purpose centralized payment and/or systems. Documented, a spreadsheet-based application may suffice timely and reliable fiscal reports and financial statements cash. Government are increased and recorded in the books, if an accrual system. Also grateful to K. Douglass for her assistance with data analysis Officer ( or in-year release of spending authority mechanism... Requirements, a designated official approves the payment order official approves the order... K. Douglass for her assistance with data analysis for to produce timely reliable. Increased and recorded in the books/ general ledger according to a countrys policies/standards. Are delegated to the respective reserved amount centralized accounting organization ( usually called Accountant )! Control framework, Seven key stages of the expenditure cycle with different traditions of expenditure control,... Expenditure control systems bring with them their own advantages, but also their own weaknesses... And the proposed amount of expenditure control systems bring with them their own,... Spreadsheet-Based application may suffice the word budget is derived from the Old French bougette ( & quot ; bag...
Pop Up Plug Retaining Screw, American Airlines Hotel Reimbursement Form, When Practicing Steep Turns, Stalls And Maneuvering, Funny Baseball Player Names, Dana Owens Obituary, Articles T