Study unit 6: Managing budget execution
6.1 Concept and fundamentals of financial management.
6.2 Execution cycle.
6.3 Systems involved in the budget execution.
6.4 Budget execution risks.
6.1 Fundamentals of Financial Management
Why?
What?
How?
6.1.1. Why?
 The financial management in public sector is focused that
financial resources and other scarce resources are safe guarded
in the best interest of the public.
 To ensure that there is no deviation from applicable legislation
governing public money.
6.1.1. Why? (Contd)
 To promote accountability and responsibility.
 For effective and efficient provision of community services
needed by the people, at the least cost to the people.
6.1.2. What?
 Understanding the financial position, financial resources ad risks
of the institution at any given time.
 Evaluating the impact of strategies on the financial position,
financial resources and risk.
 Determining financial targets derived from planned goals and
activities.
6.1.2. What? (Contd)
 Understanding and managing the returns and risks.
 Periodically measuring and evaluating achievement of budgeted
financial targets.
 Initiating corrective action when required.
6.1.3. How?
 How are finances managed?
 By developing:
 financial policies
 standards
 processes
 implementation of applicable legislation
 establishment of oversight committees
 reporting
 establishment of other financial controls
6.1.3. HOW?
 By accounting and reporting on:
 Revenue generated and expenditure incurred.
 Reporting on capital expenditure (monthly, quarterly, mid-
term and annually).
 Effective management of fixed assets and investments.
 Effective management of creditors and debtors.
 Effective management of fixed and movable assets.
6.2. Budget cycle execution
6.2.1 Objectives of budget execution
 Objectives of budget execution:
 Ensure implementation in conformity with appropriation granted
in legislation.
 Adapts implementation to significant changes in macroeconomic
environment.
 Resolves problems arising during implementation.
 Direct expenditure management at achieving the 3E’s and
avoiding 3G’s.
6.2.2 The management of budget execution
 The Main Purpose:
 To improve effective management of budget execution, and to minimise
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any opportunity of fraud and corruption within public procurement.
To avoid unnecessary type of expenditure which include and not limited
to unauthorised, irregular, fruitless and wasteful expenditure.
To reflect on the legislative framework governing public monies and
fiscals.
Effective management of expenditure by vote, and revenue by source.
Strengthening internal controls for effective management of budget
execution.
6.2.3 Authorisation of budget execution
 Authorisation processes by Ministry of Finance/National
Treasury:
 Budget approval by Parliament authorises ministries to spend
money consistent with legal appropriation.
 Minister of Finance is authorised to exercise financial control over
the implementation of the annual National Budget (PFMA, section
6(1)(d).
6.2.4 What happens?
 What happens if budget execution is not well controlled:
 Overspending which is regarded as unauthorized expenditure.
 Result in an expenditure that would not be in accordance with
the purpose of the vote.
 Fruitless and wasteful expenditure.
 Irregular expenditure.
 Underspending.
6.2.5 Commitments
 Incurring commitments
 Deviations from authorised amounts:
 Pre-approval spending
 Use of funds in emergency situations
 Expenditure funded from rollovers
 Virement
 Adjustments budget
 Transfer of assets and liabilities following transfer of functions
 Executive directives
Class discussion activity:
6.3 Systems involved in the budget execution
 Medium Term Expenditure Framework (MTEF)
 Public Finance Management Act (PFMA)
 Medium Term Budget Policy Statement (MTBPS)
6.3 Systems involved in the budget execution (Contd)
 Role-players
 National Treasury
 National and Provincial Departments
 Budget Council
 Cabinet and Provincial Executive Council
 Financial and Fiscal Commission (FFC)
 National and Provincial Legislatures
 Parliamentary Committees
 Forum of South African Directors-General (FOSAD)
6.4 Managing budget risks
 Fundamentals of managing risks.
 Risk means the probability and extent of potential harm, loss or missed
opportunity.
 Risk need to be identified and evaluated.
 Risk need to be analysed and measured.
 Types of risks (financial risks, operational risks, compliance risks, strategic
risks and political risks).
6.4 Managing budget risks (Contd)
 The spectrum of risk management
 Implementation of comprehensive risk management programme.
 Section 38(1)(a)(i) of the PFMA provides that the higher end of the
risk management spectrum that applies to departments, trading
entities, and constitutional institutions.
6.4 Managing budget risks (Contd)
 Operations of managing risks
 Risk identification and analysis
 Risk Control
 Internal Audit
 Audit Committee
 External audit
6.4 Managing budget risks (Contd)
Class discussion
 What are the challenges in managing the budget
execution?
Some of the challenges
1. To plan and execute multiple programs within budget allocations.
2. To achieve government objectives including goals of development plan.
3. To demonstrate that resources are being spent properly on the right things and that
results are being achieved.
4. To manage risks properly.
5. Insufficient system support.
6. Lack of knowledge of the systems.
7. Insufficient information available.
8. Lack of proper planning.
9. Political interference.
Conclusion
 Budget execution is important to service delivery, governments’ achieving their
developmental goals, implementation of government programs/ projects.
 Sound management, effective and efficient execution of it thereof, remains
imperative in particular to economic growth and to avoid for example the 3
“gremlins”.
 Accountability regarding the execution of budget is critical and those entrusted with
its execution must account and be responsible on how it is executed.