Nepal Administrative Staff College
Management Learning Group
Center for Organization Development
Training on Managerial Excellence
(2071 Magh 22-29)
Session on
Budgeting, Accounting and Auditing
Yuba Raj Bhusal
February 10, 2014
Table of Contents
1.
2.
3.
4.
5.
6.
7.
Budget Concept
Main Objectives
Budget Types
Budget Classification
Principles of Budgeting
Budgeting Framework: Policy, Program, Legal
Budget Cycle: Formulation, Execution,
Evaluation
8. Recent Trends: Gender, Pro-poor, Climate
Change, Nutrition Sensitive Budgeting.
9. Challenges and Way Forward
1. Budget Concept
• Introduced in England in 1773 from a French word
‘bougette’ that means a leather bag, while opening
it by the Chancellor of Exchequer in the Parliament
to present government’s financial plan for approval.
• A financial plan and a major policy instrument to
establish macro economic stability, allocative
efficiency and fair distribution of income/resources.
• A policy making tool used to translate strategic
objectives into programs and services to meet the
socio-economic needs of the people.
• Contains overview of the economy; annual revenue
and expenditure plan; information on assets and
liabilities; and appropriations.
2. Main objectives of budget:
• enhance economic growth;
• establish a sustainable fiscal framework;
• allocate resources to programs on the basis of
governmental priorities and program effectiveness;
• operate and deliver public services efficiently;
• ensure that the budget reflects citizens’ preferences;
• ensure that spending units are well equipped and
are accountable for their actions;
• maintain balance between socio-economic and
spatial (geographic) development; and
• make socio-economic transformation of the country.
3. Budget Types
• Line item budget or ‘incremental’, where certain amount is
added to the last year’s figures, a traditional way of
estimating the expenditures.
• Zero-base budget calls for an activity to be started from
scratch i.e., zero-base. A thorough analysis, re-examination,
review & justification needed.
• Program budget is a result-oriented budgeting system that
specifies the programs/activities and seeks to relate costs to
outputs.
• Performance budget focuses to improve the efficiency of
programs and functions. It quantifies the entire result-based
chain as inputs, outputs, outcomes, and impacts to the
common people.
• Voted and non-voted: Non-voted expenditures reflect the
salaries of the heads of State, Government, judiciary, interest
payment etc. All expenses need to be voted in the Parliament
except the non-voted ones.
• Discretionary and non-discretionary: used in one’s own
discretion in a more flexible manner is called discretionary
and opposite is non-discretionary;
• Capital and operating/recurrent;
• Development and ordinary;
• Participatory and non-participatory: If the beneficiaries are
involved in the process of budgeting it is participatory and
opposite is non-participatory.
• Core and external: Core budget is the expense to be made
by the government treasury. The donors execute different
programs directly through their budget is external one.
• Central, provincial and local budget: Central budget is
allocated to and spent by the central government
institutions. Provincial budget is the budget of the subnational entities allocated to and spent by the local
governments within their territorial jurisdictions.
4. Budget Classification
Government expenditure needs to be classified for budgeting,
accounting and financial reporting. Bases of classification:
Classification by
• Organization
• Objective
• Economic
• Functional
• Program
• Location
Examples
Ministry of Finance, Ministry of
Agriculture, Ministry of Education
Wages and salaries, Travel Allowances,
purchases of materials and equipment
Expenditure on goods and services,
transfer payments, subsidies, interest
payment, social security benefits.
Defence, education, health, irrigation,
public Health, social services, economic
services etc.
Vocational Education, Malaria
eradication, Agricultural extension.
Central, Provincial, District, Municipal.
5. Principles of Budgeting
A sound budgeting and financial management system is
needed for maintaining macro economic stability (maintaining
fiscal discipline; ensuring efficiency of public resources; maintaining
monetary stability; strengthening financial system; and enhancing
private sector in economic activities).
a) Annuality: the budget is prepared for and executed over one
year. Unutilized grants lapse at the end of the fiscal year.
b) Universality: all the resources should be directed to a
common pool or fund to be allocated and used for
expenditures according to the priorities.
c) Accuracy and timeliness: formulation, approval, execution,
accounting, monitoring, reporting and auditing.
d) Comprehensiveness: covering several years and all the fiscal
operations (revenues/expenditures & the full accounting of
transactions).
e) Fiscal discipline coupled with economy implies that the
budget absorbs only the resources required to implement the
policies/ programs.
f) Legitimacy calls for the greater involvement of the
stakeholders in the budgetary processes. Wider participation
deepens debate and makes greater social consensus possible
even on difficult trade-offs.
g) Flexibility intends to provide authority to the managers
over the managerial decisions accompanied by transparency
and accountability.
h) Predictability ensures the timely flow of funds to
programs/ projects formulated and approved.
i) Contestability is the quid pro quo for greater predictability
in policy development and service provision. It ensures that
existing policy is subject to review and evaluation and that
line ministries’ performance is subject to continuous
improvement.
j) Information underpins honesty, sound decisionmaking, and accurate and timely information of costs,
outputs and outcomes.
k) Honesty denotes a budget derived from technically &
politically unbiased projections. Optimistic projections
soften the budget constraint on setting strategic
priorities.
l) Transparency and accountability entail that the
decisions, together with their basis and the results and
the costs, should be accessible, clear and
communicated to the wider community. Decision
makers need information on all issues before making
decisions and would be held responsible for the
exercise of their authority thereafter.
m) Fine processes and methods imply outward looking
fiscal framework, focus on service outputs/ outcomes, and
a classification linking the expenses to spending units/
purposes.
n) Allocative efficiency calls for the allocation of resources
and consequently the expenditures based on established
priorities and program effectiveness.
o) Operational and managerial efficiency means delivery of
public goods and services should be cost efficient and of
high quality. It should be supported by accountability for
service levels and outputs and discretion in the relative use
of inputs.
p) Accountability/ control calls for reinforcements by
comprehensiveness, prioritization and systematic budget
and expenditure reviews, execution controls and post
execution reporting and auditing.
6. Budgeting Framework
6.1 Policy framework: Meeting the goals and targets
such as of the SDGs, MDGs, SAARCDGs, LDC
Graduation strategies, Plan Objectives, Medium
Term Expenditure Framework; Meeting Sectoral
Policies and Targets; Reducing poverty; Better Public
Service Delivery etc.
6.2 Legal framework: The Constitution; Public
Finance and Expenditure Management Law; Public
Procurement Law; Int’l Monetary Fund’s guidelines.
6.3 Other documents of legal importance such as
multilateral and bilateral agreements, commitments.
7. Budget Cycle: Formulation, Execution, Evaluation
a) Formulation and Approval
• Budgeting is a continuous process and involves the
interplay of several stakeholders. dealing with institutional
factors, recognition of economic environment, formulation
of relevant policies and implementation strategies, patterns
of legal accountability and responsiveness of the central,
provincial and all spending agencies.
• MOF is responsible to formulate the budget (Part IV, Arthik
Karyabidhi Niyamawali, 2064). It mobilizes revenue and manages
government finances; supports economic management
promoting socio-economic growth; manages public wealth;
promotes good governance; and attempts to be the best
practice leader within the public sector.
• The size of the budget is determined on the basis of
revenue + foreign aid + permissible levels of deficit = total
expenditure. The MOF performs the above duties in
consultation with the NPC & Sectoral Ministries/ Agencies.
b) Budget Execution:
i) The allotment process: After the Budget Speech by the
Finance Minister, the entire budget is submitted to the
Legislative Body of the State. As soon as the legislative approval
the Appropriation Bill becomes a Law ready to implement by
concerned agencies. MOF issues and authorizes the primary
budgetary units allotting and disbursing funds periodically
(monthly, quarterly) right from the beginning of the fiscal year.
The allotment process at the MOF is adopted to adjust
expenditure plans, policies and priorities; controlling
expenditures; coping with unforeseen changes in the economy;
promoting economy, efficiency and effectiveness of the
programs/ projects; funding new and untied programs/projects.
ii) Getting funds to service delivery units: The primary budgetary
units correspondingly need to release funds to their central and
field agencies i.e. departments, provinces and the districts.
iii) Procuring goods and services: The Procurement Law
regulates the procurement of goods, services and coordination
of works.
iv) Accounting of transactions:
Accounting of financial transactions is the major task in
financial management. The Accountants are responsible for
the performance of accounting controls, processing
transactions, record keeping, custody of the documents
supporting the accounting entries, and the information
produced on the financial status and transactions they have
made. The treasury function is more sensitive that ranges
from the commitment of expenditures to recording,
payment and accounting. Nepal's New Public Sector
Accounting Standard, 2069 at work.
v) Internal audit:
Provisions for internal audit are made for an independent,
objective, assurance and consulting activity, designed to
value and improve an organization’s financial operations. It
may provide valuable feedbacks in order to foster
improvements in public expenditure management.
vi) Progress reporting:
As the MOF has to submit quarterly and final progress report to
the Government and the President, all the spending units report
(monthly, quarterly, half-yearly and annual) to their primary
budgetary units and MOF on their financial transactions.
vii) Periodic review on execution: Periodic review of budget
execution is often justified to make the process more effective.
The objectives and targets of the budget are compared with
timeline and on-going progress both physical and financial.
c) Evaluation (Control and External Audit)
The Financial Regulations have made all the budgetary units
responsible for establishing good financial control framework
in order to prevent loses and illegal action resulting from
misuse, waste, inefficiencies, delays and irregularities, fraud,
error, imperfect records, unreliable information, and nonadherence to the laws.
External auditing is an independent appraisal activity,
traditionally concerned with the evaluation of financial
statements and the accounting records on which they are
based, leading to the expression of an expert and
independent opinion on the truth, accuracy, reliability and
compliance with rules, financial records and statements.
Besides, the matters of economy, efficiency and
effectiveness have been added for performance audit.
The Auditor General’s Office prepares an independent audit
report within six months from the end of a fiscal year. The
auditors have the right to acquire all information and
explanations deemed necessary for auditing.
The audit report is submitted to the President followed by
the Parliament's Public Accounts Committee for detailed
discussion and making needful correction.
• Finally, budget performance is evaluated from control as
well as management perspectives. With a control lens
one may ask how much was authorized to be spent; what
was it to be spent on; who was authorized to spend it
(organization and official); how much was spent; and was
any left over?
• Similarly, one concerning management may raise issues
like what objectives/ targets were set and how much
achieved; were the staff and other logistics provided
satisfactorily; were the procedures observed while
achieving the results; what were the constraints/
bottlenecks in achieving the results, if any; is the project
completed satisfactorily; and would it be possible to
achieve the same results with lower costs.
• Based on the budget execution progress (after mid-year
or final evaluation) new budgeting process begins for the
next fiscal year with better ideas to improve the system.
8. Recent Trends
8.1 Gender Budgeting:
• Male and female distinct from actual biological sex while
gender is a social construct. Attributing to their
reproductive power, women play multiple roles in the
households and thus deeply entangle in domestic chorus.
Men predominantly grabbed the opportunities in the
society lagging women far behind. With the growing human
consciousness, gender equality has been largely advocated
and gender budgeting is a part of it. Main thrust of gender
budgeting is to transform financial and budgetary policies
towards achieving gender equality.
• Gender responsive budget was first introduced in Australia
in 1984 as the gender mainstreaming strategy and later
expanded to other countries including South Asia.
• Allocation: benefiting direct: 21.93+indirect 45.04 (2014-15).
• For updates on Nepal’s status please visit:
http://www.mof.gov.np/en/gender-responsive-budget-76.html
8.2 Pro-poor Budgeting: budget that focuses on reducing poverty
to the targeted level.
Allocation: 49.8 percent (2014-15).
8.3 Climate Change Budgeting: addressing the concerns of climate
change across the sectors
Allocation: direct 5.66, indirect 5.07 percent (2014-15).
8.4 Nutrition Sensitive Budgeting: addressing to practice balanced
diet through different sectors.
It is in progress in the NPC.
8.5 LDC consistent budgeting: a thrust for graduating Nepal from
the LDC category to DC status by 2022.
In progress in the NPC.
8.6 Priority-wise allocation (in percentage/2014):
Projects of National Pride: 21
P1: 85.3
P2: 11.5
P3 : 3.2
9. Challenges and Way Forward
1. Maintaining macro-economic stability (maintaining
fiscal discipline; ensuring efficiency of public resources; maintaining
monetary stability; strengthening financial system; and enhancing
private sector in economic activities) and allocative
efficiency; (scattered resources, issues of common
virement)
2. Balancing allocation between capital and
recurrent expenditure
(capital: 18.9, regular: 64.5, financing: 16.6 percent);
3. Streamlining resources to MDGs, SDGs,
SAARCDGs, 13th Plan/LDC graduation strategies/
programs, ad hoc/political project demands;
4. Balancing spatial distribution(ecological zones,
development regions; rural/urban): physical
connectivity and Electrification;
5. Balancing allocation across targeted areas
(targeted districts, social groups);
6. Ensuring budget for the projects of national pride
(irrigation 4, roads 7, power 3, airports 3, culture 2,
driking water 1, forestry 1=21)
7. Dependency on external sources (19.9 %);
8. Low level of spending (surplus budget!);
9. Distribution oriented (social security, growth in
salary and facilities, constituency development
programs, relief package for conflict affected
people, redressing the concerns of the people
affected by natural disasters; and to the farmers
in terms of loan and subsidies);
10. Imbalance of payment in foreign trade (1:8);
11. Remittance oriented economy often
unsustainable;
12. Ignoring industrial sector development
(overlooking the issues of sick industries);
13. Unsustainable social security allocation
(pension, security benefit age);
14. New generation economic reforms in
doldrums; and
15. Addressing the consumerist behavior of the
ever ambitious public sentiments’!
THANK YOU