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This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.Any reuse requires the permission of the IMF and FAD.
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.