Tracking Progress and Controlling Funds: Concepts

1
Tracking Progress and Controlling Funds Concepts

• Bill Dorotinsky, PRMPS
• Budget Management Course
• March 1-2, 2004

2
The HIPC Expenditure Tracking work illustrated
that PEM systems remain weak in basic areas.
(Percent of countries not meeting each benchmark)
100
Note Based on 24 countries Final Assessments
90
80
70
60
50
40
Timely functional reporting from class system
Meets GFS definition of general government
Audited accounts to legislature within 1 year
Projections integrated into budg. formulation
Quality of internal audit (effective or not)
Accounts closed within two months of y/e
30
Fiscal monetary data reconciled
Extra (off) budget expend.
20
Pov. Red. Exp. Identified
Data on donor financing
Classification of budget
Low level of arrears
Regular tracking
Month reports
Outturn close?
10
0
Benchmark number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Execution
Formulation
Reporting
Source Actions to Strengthen the Tracking of
Poverty Related Public Spending in Heavily
Indebted Poor Countries (HIPCs), World Bank and
IMF, March 22, 2002. See http//www.worldbank.org
/hipc/hipc-review/tracking.pdf
3
Post Budget Stages

• Release of Authority to Spend or Funds
• Notification of budget
• Commitment authority issued (if done)
• Financial plans
• Warrants issued (cash draw)
• Cash transfer (if done)
• In-year modifications
• Transfer authority across accounts
• Virements across ministries
• Supplemental Budgets

4
Financial commitment stages

• Encumbrance/pre-commitment/reservation
• Commitment/obligation
• Receipt of goods and services
• Invoice
• Verification
• Paid
• Cashed/cleared

5
Commitments, agency activity, and cash outflow
time lags
6
Budget classifications

• Administrative
• Economic/object class/inputs
• Functional
• Program
• Fund
• Line Item

7
Classification Matricesfrequently used to
control
Payroll Utilities Rent Etc.
Ministry 100 20 10
Program 20 4 2
Activity 1 0.2 0.1

8
Control Approaches
Ex ante (to commitment) Ex Poste
External (to spending unit) Centralized commitment control (transaction approval) Allocations (commitment limits) Warrants (cash limits) Procurement procedures Personnel/pay rules continuous auditing Disbursement rules Central internal audit External audit Regular reporting, management intervention Quarterly close-outs Cash rationing
Internal Ministry or spending unit transaction approval Procedures to minimize risk (internal controls) Transparency Ministry internal audit Performance management
9
Central control versus Managerial Flexibility

• Tensions between needs of center to
• Control cash flow
• Control policy
• And agency need to manage programs
• Larger, less detailed allocations
• Longer time horizon
• Greater transfer authority/flexible application
  of resources

10
General Tensions
11
Essentials of Good FM

• Timely, accurate in-year reporting
• Internal controls, audit
• External audit
• Sufficient detail to identify sources of
  overspending
• Sufficiently regular reporting to allow timely
  management intervention
• Comprehensive system
• Accountability framework, control environment

12
To manage well requires

• Monitoring/managing
• Cash balances
• Cash flow
• Inflow
• outflow
• Commitments
• Arrears
• Contingent liabilities
• New legislation/mandates
• Off-budget activity

13
So what are countries doing to improve systems?
HIPC expenditure tracking Action Plans focus on
both short-term actions (bridging mechanisms)
and medium-term actions and goals.

• Typical short term measures
• Adjust budget classification (e.g. Benin,
  Cameroon, The Gambia, Mali, Niger )
• Create virtual fund (e.g. Burkina, Ghana,
  Mauritania, Tanzania)
• Rollover MT projections (e.g. Burkina, Malawi)
• Timely reconciliation (e.g. The Gambia, Ghana,
  Honduras, Nicaragua)
• Begin or enhance FMIS (e.g.Guyana, Malawi)
• Rationalize bank accounts (e.g. Mozambique)
• Bring all revenues on-budget (e.g. Sao Tome)

• Typical medium term measures
• Overhaul budget law (e.g. Mozambique, Malawi)
• MTEF development (e.g. Zambia, Mali)
• Internal audit capacity (e.g.Tanzania, Malawi,
  Honduras)
• Classification and coverage to GFS standards
  (e.g. Tanzania)
• Clean up annual reporting arrears (e.g. Niger,
• IFMIS development implementation(e.g. Mali,
  Malawi, Ghana)