International Practice
on Budget Execution
and Control
Katherine Barraclough and
Bill Dorotinsky
Public Financial Management Workshop, NOSPA, Vientiane, Lao PDR May 23-26
Budget Execution and Control
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Concerned with budget execution, accounting
and fiscal reporting
Processes and institutions to:
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Implement the budget
Manage resources, assets (and policies)
Report on resource use
Ex poste audit reports and resource use
Key questions:
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Are deficit targets going to met?
Are budget adjustments that were agreed at the
preparation stage being implemented?
Will the budget outturn align with the budget plan?
Are expenditure priorities being reflected in the budget?
Basic Principles for Budgeting
• Comprehensiveness
• Include all revenue and expenditure, all agencies
• Accuracy
• Record actual transactions and flows
• Annuality
• Cover a defined period of time (e.g. one year budget,
multi-year forecasts)
• Authoritativeness
• Ensure implementation is in line with appropriate laws
• Transparency
• Information on spending is public, timely and
understandable
• Predictability
• Stability in the macro and strategic policy and funding
in the short and long term
Cash Budget
• Advantages:
• Appropriations are on a cash basis and define
the limits for payment and annual
commitment
• Fits well with the need for compliance and
expenditure control
• Expenditures are classified by organisation
and object of expenditure (line item)
• Disadvantage:
• Tendency to overlook issues of government
objectives, their links to the budget, and the
services to be delivered by the government
• This can be overcome through an appropriate
classification system
Budget Classification (1)
• Classification is important for:
• Policy formulation
• Identification of resources allocation
among sectors
• Identification of activities of government
• Level of performance to be assessed
• Establishment of accountability for
compliance of authorizations, policies
and analysis
• Everyday budget administration
Budget Classification (2)
• Budget can be classified according to:
• Function: for historical and high level analysis and
policy formulation
• Organisation: for accountability and budget ration
• Fund: source of financing
• Economic: for statistical purposes, compliance, control,
and economic analysis
• Program: for allocating resources based on
government objectives and cost-benefit analysis
• Other: as needed based on country circumstances
• COFOG and GFS
• COFOG:
http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4
• GFS: http://www.imf.org/external/pubs/ft/gfs/manual/
The Budget Execution Process
1. Authorization Stage:
Allotment process for money
to be spent consistent with
legal appropriations
6. Accounting Stage:
Transaction recorded in the
books as complete
2. Commitment Stage:
when a purchase order
is made or a
contract is signed
3. Verification Stage:
ensuring that
goods have been
delivered as per
the contract
5. Payment Stage:
paying the actual bill
4. Payment Authorization Stage:
Ordering person is different from the
authorizing person
Key Considerations
• Ability to revise budget appropriations in-year
• Excessive switching may indicate a lack of budgetary
discipline and/or poor budget formulation
• Quality of information on outturn expenditure
• Information needs to be timely, accurate, and reliable
• Limits on use of exceptional procedures
• Avoid excessive use of procedures that by-pass
expenditure controls
• Adjusting expenditures in year
• Only changes in expenditure policy can deliver sustained
changes in expenditure levels
• Pursuing good governance
• Ensuring the basic principles are followed
• Areas of responsibility
Responsibilities for the CBO
• Budget Administration
• Administering the
system of release of
funds
• Monitoring expenditure
flow
• Preparing in-year budget
revisions
• Managing central
payment system/bank
accounts
• Administering the central
payroll system
• Consolidating accounts
and preparing progress
reports
• Policy
Implementation
• Reviewing progress
independently or
jointly with spending
agencies
• Identifying policy
revisions where
appropriate
• Proposing to Cabinet
reallocations of
appropriations
Responsibilities for Spending
Agencies
• Budget Administration
• Allotting funds among
subordinate units
• Making commitments,
purchasing and
procuring goods and
services
• Verifying the goods and
services acquired
• Preparing requests for
payment
• Preparing progress
reports
• Monitoring performance
indicators
• Keeping the books
• Policy
Implementation
• Periodically reviewing
the implementation of
the program
• Identifying problems
and implementing
adequate solutions
• Reallocating
resources among
sector programs
Internal Control (1)
• Compliance controls:
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Commitment stage: financial control
Delivery: verification
Before payment: accounting control
After final payment: audit
Principles of Internal Control
Establishment of
responsibility
Physical, mechanical and
electronic controls
Segregation of duties
Independent internal verifications
Documentation procedures
Other controls
Internal Control (2)
Ex Ante (to commitment)
Ex Poste
External
(to spending
unit)
•Centralized commitment control
(transaction approval)
•Allocations (commitment limits)
•Warrants (cash limits)
•Procurement rules
•Personnel/pay rules
•Central internal
audit, external
audit
•Regular reporting
•Quarterly closeouts
Internal
•Ministry or spending unit transaction
approval
•Procedures to minimize risk (internal
controls)
•Ministry internal
audit
•Performance
management
• Any system is a mix of approaches
• Approaches will vary with fiscal conditions
• As with any trend, they can go too far
External Control
• Independence
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Adequate resources, government support and staff
Head of Audit Office should be selected on professional
merit
Independent of the executive
Relevant scope of work
• Capacity
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Professional expertise and technical knowledge
Access to information
Effective working relationship with Ministry of Finance and
spending agencies
• Impact
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Available to the public
Focus on issues of importance
Executive commitment to follow up on findings
Issues for Developing Countries
Condition
Impact on Public Expenditure
Poverty
Lack of resources to respond to rising
demands/expectations for public services. Tendency for
budget to be a wish list.
Economic Instability
Inadequate slack to “ride out” cyclical shocks and other
disturbances. Tendency to have a short-term view of
budgeting.
Low Revenue Base
Vulnerability to adverse shifts in commodity prices, terms of
trade, and low access to capital markets.
Informal Market Sector
Much economic activity is extra-legal, in disregard of formal
rules and regulations; weak enforcement.
Informal Public Sector
Formal rules concerning civil service, public expenditure
and procurement tend to be ignored or violated.
Low Political Mobilization
Inadequate development of interest groups to express
public opinion and monitor government performance.
Schick, A., “A Contemporary Approach to PE,” (World Bank, 1998) 31.
Ratings of Public Financial
Accountability
Elements of a sound public
financial system
Lao PDR China
Vietnam Thailand Korea
Cambodia
1
Quality and openness of the budget
process
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2
Appropriateness of internal financial
and performance management
systems
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3
Quality of public sector accounts and
management information
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4
Effectiveness of public external audit
and evaluation function
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OVERALL
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Ratings: low= medium= high=
Source: World Bank, East Asia Update, (2001)
Best Practice – budget
presentation
• Budget information should be presented in a
way that facilitates policy analysis and
promotes accountability
• Budget data should be reported on a gross
basis, distinguishing revenue, expenditure,
and financing, with expenditure classified by
economic, functional, and administrative
category.
IMF Manual on Fiscal Transparency (2001)
Best Practice – budget execution
• Procedures for the execution and monitoring of
approved expenditure and for collecting revenue
should be clearly specified
• There should be a comprehensive, integrated
system which provides a reliable basis for
assessing payment arrears
• Budget execution should be internally audited, and
audit procedures should be open to review
• Frequent reports on budget developments should
be presented to the legislature and final accounts
should be presented within a year of the end of the
fiscal year
IMF Manual on Fiscal Transparency (2001)