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Module

Budget Execution and Control Processes

Public Financial Management (PFMx)7

The Budget Cycle

Defining Budget Execution

Budget Execution is the process by which…

… financial resources are made available to,

and used by the Executive based on an approved budget.

ApprovedBudgetExecutiveLegislature

Key Aspects of Budget Execution

ApprovedBudget

$

$

ExecutiveLegislature

MinistryofFinance/Treasury

Ministries,Departments,andAgencies

Key Aspects of Budget Execution

$

$ $ $

MinistryofFinance/Treasury

Ministries,Departments,andAgencies

Spendand

Control

Spendand

Control

Spendand

Control

Key Aspects of Budget Execution

$

$ $ $

MinistryofFinance/Treasury

Ministries,Departments,andAgencies

Spendand

Control

Spendand

Control

Spendand

Control

Legal andAdministrativeRequirements

Budget Execution and Integrity of PFM

EffectiveBudgetExecutionandControl

GoodPublicFinancialManagement

ArrearsSizeofarrears

Budget Execution Control : Assessments

BudgetcredibilityAccuracyofExpenditureforecasts

PEFASCORES(For85countries)

Source:(www.pefa.org).Note.Theratings“Strong,”“ModeratelyStrong,”“ModeratelyWeak,”and“VeryWeak”arealignedwiththePEFA“A”through“D”scores.

VeryModeratelyModeratelyVeryWeakWeakStrongStrong

StrengthofExpenditureControl

NoDeviation

SmallDeviation

ModerateDeviation

VeryLargeDeviation

VeryModeratelyModeratelyVeryWeakWeakStrongStrong

StrengthofExpenditureControl

Small

Moderate

ModeratelyLarge

VeryLarge

Notreported

Executive

ApprovedBudget

Characteristics of a Government Budget

Funded through compulsory taxation

Authorized by a law of Parliament/Legislature

Four Constraints imposed by Budget Law

Administrative unit responsible to execute expenditure

Allowed time period for expenditure

Specific purpose of expenditure

Limit on the amount of expenditure

7KeyStagesoftheBudgetExecutionCycle

IncurrenceofObligations

AuthorityandIntenttoSpend

ClearanceofObligations

1.Authorization 2.Apportionment 3.Reservation

4.Commitment 5.Verification

6.PaymentOrder 7.Payment

Authority and Intent to Spend

§ Legalspendingauthority

§ Example:BudgetAppropriation

1.Authorization

Authority and Intent to Spend

§ Apportionedforspecifictimeperiod,and/orspendingunits

§ Example:Monthlyallotment

1.Authorization 2.Apportionment

§ Fundsreservedforspendingbeforelegalcommitment

§ Example:SpanishSystem

Authority and Intent to Spend

1.Authorization 2.Apportionment 3.Reservation

Incurrence of Obligations

§ Futureobligationto pay

§ Example:Suppliercontract

4.Commitment

§ Confirmationofgoodsandservicesreceived,andrecognitionof liability

§ Example:Recordof stock

Incurrence of Obligations

4.Commitment 5.Verification

Clearance of Obligations

§ OrdertoPaya billtoclearthe liability

§ Example:‘Ordonnancement’in FrenchSystem

6.PaymentOrder

§ ActualPaymenttodischargeliability

§ Example:Checkto supplier

Clearance of Obligations

6.PaymentOrder 7.Payment

7KeyStagesoftheBudgetExecutionCycle

IncurrenceofObligations

AuthorityandIntenttoSpend

ClearanceofObligations

1.Authorization 2.Apportionment 3.Reservation

4.Commitment 5.Verification

6.PaymentOrder 7.Payment

Risks to Budget Execution without Effective Control

$

$ $ $

MinistryofFinance/Treasury

Ministries,Departments,andAgencies

Budgetoverruns

Arrears

Bypasskeystages

Poorqualityofdata

Lackoffiscalresponsibility

Seven Budget Execution Controls

Budget Execution Controls: Appropriation

Budget Execution Controls: Commitment

Budget Execution Controls: Aggregate Cash

Budget Execution Controls: Verification

s

Budget Execution Controls: Regularity

Budget Execution Controls: Accounting

Budget Execution Controls: Other

Seven Budget Execution Controls

Financial Management Information System (FMIS)

GFMISGovernment

Financial Management

Information System

FMISFinancial

Management Information System

IFMISIntegrated Financial

Management Information System

FMIS defined:

An IT based system supporting government financial management

Financial Management Information Systems (FMIS)

A tool that:Performs financial management functions

Provides timely and accurate financial information

Strengthens expenditure controls

Improves transparency and accountability

The Budget Cycle and FMIS

Maintains approved budget

Tracks budget execution steps

Generates payment instructions

Maintains accounts

Enables some automatic controls

FMIS Core and Non-core Systems

Four Stages of the FMIS Development Process

The Budget Cycle

Function of Internal Audit

Internal Audit versus Internal Control

Internal Audit versus External Audit

Budget Execution and the Budget Cycle

Spend

Control

Support Systems

• BudgetExecution

Budget Execution is the process by which…

… financial resources are made available to,

and used by the Executive based on an approved budget.