Session 4 May 28 afternoon (2)

1
Session 4May 28 afternoon (2)

• Legal framework for
• budget execution,
• fiscal reporting and
• external audit
• in OECD countries

2
Topics Covered

• Legal framework in OECD countries for
• Budget execution
• Treasury operations, including government banking
  arrangements
• Government accounting
• Fiscal reporting
• Internal audit
• External audit

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Budget execution

• Once the annual budget is adopted, the government
  is usually entrusted by parliament to execute the
  budget. USA is an exception, reflecting the
  budget power of Congress.
• Budget execution is mainly governed by
  Regulations, not Law.
• However, Parliament wants to know how budget was
  executed hence law(s) usually elaborate on
  budget execution reporting requirements.
• Parliament may also clarify delegation and
  responsibilities for budget execution in law.
• External audit is often established in the
  Constitution. A separate law is adopted.

4
Budget execution Which areas are covered by law
in OECD countries?
Law Regulations
Expenditure Control and Internal Control France 1922 Law on commitment control is an exception Most countries MOF Regulations
Government Banking Arrangements Central bank is government banker Most countries MOF Regulations
Cash Management USA one of few countries with provisions MOF Regulations
Internal Audit USA several Acts, incl. Inspector General Act. Most countries Govt or MOF Regulations
Fiscal Reporting Constitutions (e.g., Nordics) Fiscal Responsibility Laws. Government or MOF Regulations
Govt accounting UK Govt Accounting Act. Accounting basis (France) Government or MOF Regulations
5
Budget execution Three areas covered by law in
several OECD countries

1. Cancellations and transfers (virement) of budget
   line items
2. Unallocated spending for contingencies
3. Treasury Single Account Government Banking
   Arrangements

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Cancellations and transfers (virement) of budget
line items

• The BFMSL may allow government some flexibility
  in budget implementation by
• Allowing cancellation of budget authority (e.g.,
  France, up to 1.5, after informing Parliament
  Germany, by blocking specific expenditure
  commitments Sweden, MOF may cut agencies
  appropriations USA Executive has little
  flexibility rescissions must be enacted by
  Congress).
• Cancellation is disallowed for mandatory spending
  e.g., social benefits, interest payments.
• Permitting supplementary budgets (to reduce or
  raise spending, in the event of lower/excess
  revenues)
• Restrictions on transfers (between Ministries)
  and virement (between line items)may be
  specified when appropriations structure is very
  detailed (e.g., Germany) or between broad
  categories (e.g., France, asymmetric
  salary/non-salary virement Australia, Denmark
  Finland, Norway, Spain capital spending can not
  be transferred to current spending).

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Unallocated spending for contingencies

• Emergency spending. Germanys Constitution allows
  excess spending when compelling reasons.
• Contingency Funds. Japans Constitution allows
  for the CF to fund spending unforeseen in budget
  the MOF controls requests of spending ministries.
  United Kingdom has a CF, established by law in
  1974, used for making advances for spending not
  yet approved by Parliament several USA States
  have Rainy Day funds, off-budget (which
  undermine transparency).
• Unallocated spending lines. These are permitted
  by law in some countries e.g., France has a
  program entitled provisionsreserve, for
  contingencies in contrast, USA federal budget
  has no reserve.

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Treasury Single Account Government Banking
Arrangements

• Government banking arrangement usually left to
  Regulations, except
• A consolidated revenue fund e.g., UKs 1866
  Exchequer and Audit Act, requires account to be
  held at Bank of England.
• Authority of Minister of Finance to open/close
  bank accounts. New Zealand Public Finance Act
  allows departments to have accounts as the
  Minister of Finance may direct
• Also, the Central Bank Act may specify that the
  central bank is required to provide banking (and
  other) services to the State, with agreements
  specified in protocols, e.g., Frances Monetary
  and Financial Code requires this for the Banque
  de France. But not all countries require only
  central bank to perform this role commercial
  banks are permitted by law to be used for
  government treasury operations.

9
Government Accounting and Fiscal
ReportingProvisions in Laws in OECD countries

• Constitutions of Denmark and Norway require
  annual accounts to be submitted to parliamentary
  auditors, no later than 6 months after end-year
  (4 months in Swedens PF law)
• Government Accounting Laws. A few have been
  adopted in OECD countries. Japans 1947 Public
  Accounts Act contains principles for
  consolidating treasury funds, account-keeping by
  ministries the law prohibits spending from own
  revenues. United Kingdoms Government Resources
  and Accounts Act 2000 elaborates on some details
  of the new accrual accounting framework. The
  Netherlands Government Accounts Act 2001 requires
  formal discharge of ministers accounts.
• Fiscal Responsibility Acts. These are recent in a
  few OECD countries.

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Fiscal Reporting RequirementsFinlands State
Budget Act, 1988

• 1. Report on the State annual accounts,
  including
• The State annual accounts, together with
  information on the most important factors on the
  operational performance of the States
  operations.
• The report shall incorporate income statements
  and balance sheets on State public enterprises
  and extra-budgetary funds.
• 2. State annual accounts, comprising
• A statement on budget implementation, by section,
  chapter and item.
• An income and expenditure statement on revenues
  and expenditure.
• A balance sheet illustrating the financial
  position at end-year.
• A cash flow statement.
• Notes to the accounts needed to provide true and
  fair information on compliance with the budget,
  on State revenues and expenditure, on the States
  financial position, and on performance.

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Internal AuditProvisions in OECD countries

• Internal Audit is an independent, objective,
  assurance and consulting activity designed to add
  value and improve an organisations operations.
  It helps an organisation accomplish its
  objectives by bringing a systematic, disciplined
  approach to evaluate and improve the
  effectiveness of risk management, control and
  governance processes
• No laws/regulations UK, Canada, Australia,
  France
• Law or Regulation USA, Netherlands, Sweden
• Important provisions needed for
• Independence (of operations, reporting)
• Organisational structure (critical mass needed)
• Drafting /adopting international acceptable
  internal auditing standards
• Central coordination of IA policies and
  methodology (MoF)
• Competent staff
• Agreement with Manager (independence, access to
  information, reporting, in Audit Charter)

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Internal AuditProvisions in new EU countries

• IA Laws or Public Internal Financial Control laws
• Main provisions
• General provisions (responsibility manager,
  definitions, objectives, principles of IA)
• Nature, Scope and organisation (Assignments,
  structure, independence, Audit Committee)
• Requirements for appointment (eligibility)
• Right and duties Head of IA unit and staff
  (access to information/premises/top-management,
  principles of confidentiality, conflict of
  interest , reporting on activities)
• IA activities (planning, performance, reporting,
  follow-up)
• Coordination and Harmonisation of IA (Resp. MoF,
  special unit, developing policies and
  methodology, training, supervision IA units,
  reporting to MoF, CoM and parliament).

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External Audit Laws in OECD countriestheir main
provisions

• Independence institutional, financial,
  managerial and operational
• Appointment and removal Auditor-General/Chairman,
  Deputies/Board-members, staff
• Types of audit Mandatory regularity audits of
  (certification of the financial accounts)
  further performance audits/IT audits/Procurements
  audits
• Scope all public financial operations, including
  revenues, subsidies to private firms in EU
  payments from EU budget
• Powers access to information, premises
• Staff requirements education, qualifications,
  skills, integrity
• Relationships with Parliament and Government
  Committee for Budget or Economy and Finance,
  Internal audit