GOVERNMENT OF THE REPUBLIC OF CROATIA
Ministry of Finance
TRICKS OF TRADE
OR
ACCOUNTING AND BUDGETING RELATIONSHIP
Ivana Jakir-Bajo
Bucharest, 9-10 April, 2008
THEORY OF BUDGETING AND ACCOUNTING RELATIONSHIP
 Fiscal systems or processes that involve planning, allocating and
disbursing of monetary resources
 Interrelationship and the need for coordination
 Budgeting is regarded more in terms of planning and enacting a fiscal
plan
– dependent on past
expenditures/revenues
year’s
accounting
and
current
year’s
 Accounting focuses on recording, classifying and interpreting the
financial transactions
– dependent on the budgeting of expenditure authorizations (appropriations)
being enacted by the legislative branch
Ministry of Finance
HISTORY OF DEVELOPMENT OF BUDGETING AND ACCOUNTING
RELATIONSHIP IN CROATIA
 Up to 2002 - no linkage between accounting and budgeting
 Cash basis accounting
 Financial statements have not been used
 Semi-annual and annual reports on the state budget execution
were the only valid statements
 Invoices kept in drawers until they are paid
 Large stock of arrears
Ministry of Finance
ACCOUNTING TODAY
 From 2002 - new budget accounting concept
 Based on a modified accrual accounting principle:
 revenues are recognized in the reporting period in which they are
received, provided that they are measurable
 expenditures are recognized when they incur in the reporting
period, regardless of whether they are actually paid
 depreciation of non-financial long-term assets – not recognized
as an expense; recorded as an adjustment of the value of assets in
the balance sheet
Ministry of Finance
BUDGET PREPARATION AND EXECUTION
CROATIAN GENERAL LEDGER
CLASS - 0
NONFINANCIAL ASSETS
CLASS - 1
FINANCIAL ASSETS
CLASS - 2
LIABILITIES
CLASS - 3
EXPENSES
CLASS - 4
TRANSACTIONS ON NONFINANCIAL ASSETS (e.g. acquisition) - outflows
CLASS - 5
TRANSACTION ON FINANCIAL ASSETS AND LIABILITIES (e.g. repayment of
the loans) - outflows
CLASS - 6
REVENUES
CLASS - 7
TRANSACTIONS ON NONFINANCIAL ASSETS (e.g. sales) - inflows
CLASS - 8
CLASS - 9
TRANSACTIONS ON FINANCIAL ASSETS (e.g. receivement of the loans, issued
bonds) - inflows
EQUITY
Ministry of Finance
CLASSIFICATIONS SYSTEM
ECONOMIC
GENERAL LEDGER
0
1
2
3
4
5
6
7
8
9
EXECUTION
BUDGET
CLASS
MAIN FINANCIAL
REPORTS
FUNCTIONAL
1-GENERAL PUBLIC
SERVICES
2-DEFENSE
3-PUBLIC ORDER AND
SAFETY
4-ECONOMIC AFFAIRS
5-ENVIRONMENTAL
PROTECTION
6-HOUSING AND
COMMUNITY
AMENITIES
7-HEALTH
8-RECREATION,
CULTURE AND
RELIGION
9-EDUCATION
10-SOC. PROTECTION
ORGANIZATIONAL
1- LINE MINISTRY
2- LINE MINISTRY
agency
budget user
PROGRAM
Ÿ antismoking
program
Ÿ safe trafic program
Ÿ islands
revitalisation
program
Ÿ ...etc.
Ÿ
Ÿ
Ÿ
41- line ministry
42- line ministry
Reports on spendings under each classification
Ministry of Finance
BUDGETING TODAY
 Still on cash basis
 Uses information from accounting and financial reports
 No carry-over procedure for invoices falling due for payment in the
subsequent fiscal year
 Possibilities for budget users (linked to the TSA) to carry-over their
earmarked revenues, donations, grants
 The semi-annual and annual reports on the state budget execution –
the only reports submitted to the Government and to the Parliament
Ministry of Finance
RECONCILIATION?
 Budget users are still confused:
– Why the data from the financial statements is not comparable with the
data from the budget execution reports?
– Should these be reconciled?
 Simple example:
In 2008 an invoice was received for a good which has been delivered
in that fiscal year.
Invoice has not been paid in 2008, but in the next fiscal year.
In the general ledger both the expense and the liability should be
recorded in 2008.
This expense/appropriation will be budgeted in 2009.
Ministry of Finance
PROBLEM IS ALWAYS IN ACCOUNTING OR PROBLEM IS NEVER IN
ACCOUNTING
 GUARANTEES
 Accounting treatment – memorandum item – each guarantee must
be separately recorded and tracked
 Budgeting - based on the activated guarantees estimated amount
of payments – treated as a transaction on financial liabilities
(repayment of loan)
 LOANS
- Accounting treatment – double entry accrual accounting system
required – keep debt stock for balance sheet purpose
-Budgeting – important future payments schedule and drawings –
requires an accounting system in place but good debt management
as well
 FINANCIAL LEASING
 PPP’s
Ministry of Finance
MANAGING COMMITMENTS AND LIABILITIES
 Liability categories: (1) accounts payable; (2) other accrued liabilities;
(3) debt outstanding
 Role of accounting and reporting
 A need to manage payables and take into account unfunded liabilities
and contingent liabilities in the budget
 Important for cash-flow planning and forecasting
 Commitment control
 Good technical support is becoming a precondition for the successful
management of commitments and liabilities
Ministry of Finance
CURRENT INFORMATION SYSTEM OVERVIEW
Current information system overview
State Treasury
Budget users
FMIS #1
SAP con.
Existing infrastructure
FMIS
(SAP-R3)
Budget user with SAP
console and FMIS #1
Invoice
FMIS #2
Reservation
Budget user with SAP
FMIS
FMIS #2
Internal network
I
Budget plan
SAP con.
SAP SEM-BW
Business Warehouse
Budget user with SAP
console and FMIS #n
Ministry of Finance
EDEG PROJECT
EDEG – Electronic Document Exchange Gateway
State Treasury
Budget users
FMIS #1
SAP con.
XML/EDI
SAP Electronic
Data Interchange
Existing infrastructure
FMIS
(SAP-R3)
Budget user with SAP
console and FMIS #1
Electronic
document #1
EDEG
(available on Internet
via secure protocols)
FMIS #2
I
Budget user with
proprietary SAP FMIS
FMIS #2
Electronic
document #2
SAP con.
Electronic
document #3
Budget user with SAP
console and FMIS #2
Master Data
Management
System
SAP SEM-BW
Business Warehouse
Ministry of Finance
FMIS REFERENCE MODEL PROJECT
Budget users FMIS reference model
State Treasury
Budget users
FMIS #1
XML/EDI
SAP Electronic
Data Interchange
Existing infrastructure
FMIS
(SAP-R3)
Budget user with
compliant FMIS #1
FMIS #2
Budget data
electronic
document
EDEG
(available on Internet
via secure protocols)
I
Budget user with
compliant FMIS #2
Invoice
electronic
document
FMIS #n
Commitment
electronic
document
Budget user with
compliant FMIS #n
Master Data
Management
System
SAP SEM-BW
Business Warehouse
Ministry of Finance
FUTURE INFORMATION SYSTEM OVERVIEW
Future information system overview
State Treasury
Budget users
FMIS #1
XML/EDI
SAP Electronic
Data Interchange
Existing infrastructure
FMIS
(SAP-R3)
Budget user with
compliant FMIS #1
FMIS #2
Budget data
electronic
document
EDEG
(available on Internet
via secure protocols)
I
Budget user with
compliant FMIS #2
Invoice
electronic
document
FMIS #n
Commitment
electronic
document
Budget user with
compliant FMIS #n
Master Data
Management
System
SAP SEM-BW
Business Warehouse
Ministry of Finance