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Fiscal Affairs Department


Designing a New Budget and Accounting Classification

January 2014

Sandeep Saxena, David Gentry, Kris Kauffmann, and Than Lwin
For Official Use Only


Fiscal Affairs Department



Sandeep Saxena, David Gentry, Kris Kauffmann, and Than Lwin January 2014

The contents of this report constitute technical advice provided by the staff of the International Monetary Fund (IMF) to the authorities of Bangladesh (the "TA recipient") in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure (see Operational Guidelines for the Dissemination of Technical Assistance Information— Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest shall require the explicit consent of the TA recipient and the IMF’s Fiscal Affairs Department.

3 Contents Page

Acronyms ...................................................................................................................................5 Preface........................................................................................................................................6 Executive Summary ...................................................................................................................7 I. Introduction ..........................................................................................................................12 II. Designing a New Classification Structure ..........................................................................16 A. Conceptual Framework ...........................................................................................16 B. Suggested Classification Structure ..........................................................................19 III. Developing Classification Segments .................................................................................20 A. Administrative Classification..................................................................................20 B. Project Classification...............................................................................................25 C. Fund Classification..................................................................................................28 D. Economic Classification .........................................................................................34 E. Authorization Classification ....................................................................................38 F. Functional Classification .........................................................................................42 G. Location and other Derived Segments ....................................................................45 H. Program Classification ............................................................................................46 IV. Implementing the New Classification ...............................................................................47 A. Project Timeline and Sequencing ...........................................................................47 B. Change Management ...............................................................................................49 C. Institutional Support ................................................................................................51 V. FAD Technical Assistance ..................................................................................................53 Tables 1. Summary of Key Recommendations ...................................................................................10 2. Suggested Classification Structure for Bangladesh .............................................................20 3. Proposed Administrative Classification Structure ...............................................................21 4. Examples of Integrated Accounting.....................................................................................24 5. Proposed Project Classification Structure ............................................................................25 6. Proposed Fund Classification Structure ...............................................................................29 7. Fund Classification in South Africa.....................................................................................30 8. Albania's Classification of Capital Expenditure by Funding Source ...................................31 9. Proposed Economic Classification Structure .......................................................................34 10. Suggested Elements in the Economic Classification .........................................................35 11. Proposed Authorization Classification Structure ...............................................................39 12. Mauritius' Appropriations by Ministries and Programs .....................................................40 13. Illustrative Example of Mapping between Authorization and other Classifications .........41 14. Suggested Control Levels by Classification ......................................................................42

.............................16 2.................... Classification System in Brazil .......... SPEMP's Proposal......4 15.........44 Figure 1.. Suggested Functional Classification Structure ......................................................................................................... Transition to a New Budget Classification System .......................................................................................................................43 16....................... IFMIS Change Management ................. Bangladesh: Proposed Functions ......................18 3...................................................................... Conceptual Framework for a Sound Budget Classification System ....................................................................................................49 4..............50 ...14  Boxes 1.........

Bangladesh) Comptroller and Auditor General (of Bangladesh) Chief Accounts Officer Controller General of Accounts (of Bangladesh) Canadian International Development Agency Chart of Accounts Classification of Functions of Government Danish International Development Agency District Accounts Officer Department for International Development (of the UK) Debt Management and Financial Analysis System Direct Project Aid Economic Relations Division European Union Fiscal Affairs Department (IMF) Finance Division (of Bangladesh Ministry of Finance) Government Finance Statistics Government Finance Statistics Manual 2001 Government-wide Integrated Financial Management Information System General Ledger Government of Bangladesh Integrated Budget Accounting System Inter-Ministerial Receipts International Public Sector Accounting Standards Internal Resources Division (of Bangladesh) Ministry of Finance (of Bangladesh) Ministry of Health (of Bangladesh) Medium-Term Budget Framework National Board of Revenue (of Bangladesh) Organization of Economic Cooperation and Development Public Financial Management Public Money and Budget Management Act Public Works Department (of Bangladesh) Sonali Bank Limited State-Owned Enterprise Strengthening Public Expenditure Management Program Technical Assistance Treasury and Debt Management Wing (of Finance Division. Bangladesh) Taka Treasury Single Account Upazila Accounts Officer Value Added Tax World Bank .5 ACRONYMS ADB ADP BACS BB BW C&AG CAO CGA CIDA CoA COFOG DANIDA DAO DFID DMFAS DPA ERD EU FAD FD GFS GFSM 2001 GIFMIS GL GoB iBAS IMR IPSAS IRD MoF MoH MTBF NBR OECD PFM PMBMA PWD SBL SOE SPEMP TA TDMW Tk TSA UAO VAT WB Asian Development Bank Annual Development Plan Budget and Accounting Classification System Bangladesh Bank Budget Wing (of Finance Division.

Deputy Secretary. Ms. Mr. Andrew Kettlewell. Habibur Rahman. Mr. Mr. and apprised him of the main findings and recommendations. and Robert Flanagan. Mr.6 PREFACE In response to a request by the Government of Bangladesh (GoB). Syeedul Haque. Mr. Kris Kauffmann. The mission gained very useful insights from meetings: (i) in the Planning Commission with the Programming Division Chief. Osman Goni. and his team of officers in the Budget Wing (BW). Sadia Priyanka. Mr. and the staff of the IMF office in Dhaka. and (vii) in the World Bank Dhaka office with Messrs. and Deputy CGA. Ranjit Chakraborty. Khandaker Nuruzzaman. Mahbubul Islam and other officers. Deputy Secretary. Mohammad Jasim Uddin. The mission also reviewed the progress in implementing the recommendations of the March 2013 FAD mission on cash management and discussed further FAD support. Mr. Mr. and his team of consultants: Messrs. (ii) in the Controller General of Accounts’ (CGA) office with Additional CGA. Mr. The mission met with the Finance Secretary. Mr. The mission was guided by Additional Secretary. The main counterpart of the mission was the Strengthening Public Expenditure Management Program (SPEMP) Component II. Mr. the mission also benefited from meetings with Additional Secretary. The mission interacted intensely with Component Director (Additional Secretary). Sarwar Alam. Mr. It is particularly grateful to the staff of the SPEMP Component II and BW for their candor and the provision of all materials necessary for the mission’s work. Jiban Krishna Chowdhury. David Gentry (FAD). Fazle Kabir. The mission expresses its gratitude for the courtesy with which it was received and for the cooperation throughout the course of its visit. Farid Uddin. (v) in the Ministry of Agriculture with Additional Secretary. In the FD. and Than Lwin (both external experts). and Deputy Secretary. and Deputy General Manager. (iv) in the Economic Relations Division (ERD) with Ms. Aminul Mohaimen. . The mission would also like to acknowledge the contribution of the government of Japan for financing this activity through an account established for the purposes of financing IMF technical assistance (TA). Mr. Mr. Dilip Kumar Poddar. and his team in the Treasury and Debt Management Wing (TDMW). Mr. and other officers. a Fiscal Affairs Department (FAD) public financial management (PFM) mission visited Dhaka from October 20 to 31. Eteri Kvintradze. Farida Nasreen and her team. Mohammad Muslim Chowdhury. Joint Chief. Mohammad Saiful Islam. Mr. The mission was led by Sandeep Saxena (FAD) and comprised Messrs. Jonas Fellov and Jorg Nadoll. (iii) in the National Board of Revenue (NBR) with Member VAT Policy. Mr. Bishnu Pada Saha. Sabbir Ahmed Khan. including international consultant. (vi) in the Bangladesh Bank (BB) with General Manager. and Ms. 2013 to advise the Finance Division (FD) on developing a new budget and accounting classification system and to provide guidance to meet its implementation challenges. The mission is highly appreciative of the support provided by the IMF resident representative. and Deputy Comptroller and Auditor General. Nazmus Sakib. Mustaque Ahmed. Swapan Kumar Saha.

(ii) building a sound control framework. This report reviews the classification design developed by the SPEMP team and makes suggestions for its improvement and smooth implementation. planning commission’s sectoral classification. and appropriately designed accounting systems can obviate the need for maintaining separate bank accounts to distinguish between different funding sources. Cross-walk tables could be used for deriving other classification. among other things. and eventually to the whole of government. and (v) enabling a future transition to accrual-based accounting. further complements the administrative segment by allowing a clear identification of own resources of the entities outside the budgetary central government.7 EXECUTIVE SUMMARY As part of the comprehensive Bangladesh PFM reform program. which is being developed in parallel. In making its recommendations the mission was guided by the considerations of: (i) meeting GoB’s divergent internal financial management needs while keeping the classification structure simple and implementable. . The mission recommends retaining a four-segment structure comprising: (i) administrative. are developing a new budget and accounting classification system. The recognition of these entities in the classification system is also necessary for a consolidated reporting. This would enable future iBAS++ extension to these entities and improving the reporting coverage progressively to the entire central government. The new classification is planned to be rolled out together with a new improved version of the in-house financial information software system (iBAS++). while preserving the ability to track expenditures financed from specific sources. (ii) project. (iii) fund. It uses the concept that money is fungible. The fund segment. (iv) addressing the external reporting requirements in accordance with international standards. restricting expenditure commitments until the funds are actually available. in cases of external funding sources. This should be possible in a phased manner without diluting the functional autonomy of these entities. (iii) providing scope for expanding the coverage of the government financial information system. general government. Identification of donors and specific loan/grant agreements in the fund segment should facilitate linking iBAS++ with ERD’s debt database maintained in Debt Management and Financial Analysis System (DMFAS). the authorities. The mission suggests expanding the administrative classification’s coverage to government entities outside the central budgetary sector. The fund classification is a technique for showing all projects and activities in the budget process. and geographic location. with the help of SPEMP consultants. including functions. It serves two purposes: limiting the use of tied funds to the intended purpose and. and (iv) economic classifications.

During the course of the mission’s analysis a number of larger policy issues were raised. (iii) the adequacy of the existing functional classification for macro-level resource allocation. Awareness and capacity building efforts should be initiated simultaneously. Given the vast and dispersed financial administration in Bangladesh. (ii) the harmonization of the planning commission’s sectoral classification with the functional classification used in the budget. should work together to overcome the implementation challenges. Follow-up TA would be useful to reinforce the concepts behind the mission’s recommendations and to develop business processes to use these concepts optimally. (iv) the need for greater visibility and parliamentary scrutiny of certain large expenditures. While a substantive analysis of these issues was beyond the purview of the mission. as the main stakeholders. which will be immensely beneficial before going live in 2015. the additional available time should be utilized for testing the new system under near live conditions. These included: (i) the waning relevance of distinguishing between development and nondevelopment expenditures and the existing duality in budget formulation. the FD’s budget controls and line-ministries’ micro-level controls over their sub-ordinate units. and subjecting these to legal budget reallocation process. The segmentation within the economic classification would enable transition to accrual accounting without needing a change in the chart of accounts (CoA) structure. The mission supports the taskforce’s informal decision to delay the implementation of the new classification system by a year. the mission would recommend a careful reconsideration of the detailed information needs. However. Although. the mission developed the top four levels of the economic classification and illustrative formats for the financial statements that the economic classification would support. The expert could assist the taskforce and work with SPEMP team. the report touches upon some of these in the context of the mission’s focus on the classification system. such as interest payments and pensions. and (v) building transparent procedures for utilization of block (lump sum) appropriations and appropriations for contingencies. FD should prepare itself to take over the ownership of the systems from SPEMP. It allows clear distinction between the parliamentary grants and appropriations. including how far these needs should be met through the national budgeting and accounting system. FD and line ministry staff to . The technical capacity of the IT service arm of the FD (FSMU) needs augmentation. the implementation of the new classification codes will be a challenge.8 The suggested economic segment together with a well developed administrative classification allows specification of different levels of controls over budget execution. In collaboration with the SPEMP team. the suggested structure provides for six levels in the economic segment. and BW and CGA. A renewed focus on project management methodology and a formalized approach to change management is required to ensure success. Completion of the new classification and iBAS++ by March 2014 would allow FD an opportunity to pilot test the system during the 2014–15 budget process.

Considering the expertise already available within the SPEMP. a peripatetic mode of TA delivery would be more effective compared to a resident advisor. The mission suggests that TA be provided over at least a 12 month period – more intensively in the first few months when the design is finalized and tested.9 work out examples and define procedures. .

avoid the use of block allocations in the development budget. use a side table to group projects into umbrella projects. donors. For transparency and greater parliamentary financial control. Include a side table to map donor funds to specific development partners. Include in the administrative classification public entities that are outside the budgetary central government. create a sub-fund “Own-source revenues” to identify the own resources of these entities. in particular by using an inter-ministerial receipts (IMR) fund source. Include a single-digit identifier at the top of the administrative classification to distinguish between different types of public entities. Use fund classification to: (i) identify the expenditures that are tied to certain resources. H – High. Examine the feasibility of extending iBAS++ to local governments. M – Medium. For reporting purposes. implement iBAS++ in the central autonomous bodies and consider integrating them in the treasury single account (TSA). Timeframe: S – Short (a year or less). . Project Classification Adopt a three-tier project classification that distinguishes between development and non-development projects and identifies projects and subprojects. in a phased manner and without diluting their functional autonomy. Summary of Key Recommendations1 Recommendations Classification Structure Adopt a four-segment classification structure comprising: (i) Administrative. and (iv) Economic classification. (iii) Fund. Derive by using mapping tables the functional/sectoral views of expenditure. (ii) Project. Expand the coverage of the budget using the fund classification. geographic location. To facilitate expansion of iBAS++ to entities outside the budgetary central government. Economic Classification H S H S Priority Timeframe H S M M M M H S M M M M H S H S M M M M 1 Priority: L – Low.10 Table 1. Fund Classification Adopt a four-tier fund classification to identify funds. and (ii) identify appropriations that will be available only when some conditions are fulfilled. and other reporting schemes. Administrative Classification Adopt a five-tier administrative classification. Use a “payee table” in iBAS++ to identify the recipient of government transfers. sub-funds. M – Medium (2-3 years). To achieve an integrated financial management information system. Consider eliminating the distinction between development and nondevelopment projects. and donor agreements.

etc. Location and other Classifications For reporting by locations. and establishing mapping tables. Adopt a structured project management methodology. Maintain double entry accounting principles in designing economic classification and keep the classification integrity intact. Adopt a formalized change management approach. Develop institutional support and capacity for reforms. such as a program classification. etc. such as climate change. Develop a comprehensive training plan. target completion by March 2014.11 Recommendations Adopt a six-tier economic classification structure. Consider increasing the visibility of selected large expenditure items. Program Classification Keep iBAS++ design flexible to accommodate additional classification segments. H S H M S M Priority H Timeframe S H H S S H S H M M M M M H S H S H H H S S S H H H S S S . by separately appropriating them. Authorization Classification Adopt an authorization classification to recognize the parliamentary votes. establish mapping tables between the functional classification and these schemes. Functional Classification Establish a functional classification as a derived segment. Project Implementation Update the implementation plan. Conduct parallel run in two ministries during the process of finalizing the 2014-15 budget. development of individual segments. including a structured communication strategy. follow the standard geographic classification and map locations of projects and administrative units. auditor general’s office. Clarify that the information produced in this manner from a budgeting and accounting system is unlikely to be perfect. such as interest payments. Identify and discard redundant accounts before migrating the existing accounts to the new structure. To report by other sectoral/functional classification schemes presently in use in the government. Disseminate information and conduct sensitization workshops for the key stakeholders in the line ministries. planning commission. as and when it is introduced. This would involve finalizing the classification design. Build separate mapping tables and tags to derive other specific indicators. Carefully examine the pros and cons of keeping micro-level details in the CoA. Undertake a more proactive program for stakeholder engagement. Harmonize the various sectoral/functional classifications presently in use in the government. pensions. gender. Use a bridge table to produce GFS reports. Use a mapping table to map project and administrative segments to the functional classification. share implementation responsibility between FD and SPEMP. Use economic segment to identify expenditures to be included in the functional views.

the system has to be up and running by March 2014 to facilitate data aggregation in the budget preparation phase. government offices located outside Dhaka deal with the local DAO/UAO for drawing funds. and administered by the World Bank. Defence. District Accounts Officers (DAOs) and Upazila Accounts Officers (UAOs). With a few exceptions. Effectively. however. The position in Dhaka is different. The CGA functions through his Chief Accounts Officers (CAOs) for each of the spending ministries. 2014. the SPEMP seeks to improve the quality of financial and fiscal reporting to support informed fiscal decision-making. The functional control of the CGA. 3. which in turn should result in better public service delivery in keeping with the government’s overall social and economic policy objectives. Presently. Once developed. 2. which aims to deepen and institutionalize the medium-term budget framework (MTBF) and build a more strategic and performance oriented budget management process.2 Reforms are directed at modernizing the budget management systems and practices in the central agencies and the line ministries. the BACS will be embedded in the enhanced Integrated Budget and Accounting System (iBAS++). 2014. Among a set of complementary objectives. Government receipts are credited to the same account. The CAOs/DAOs/UAOs function under the overall supervision of the CGA. CIDA and DANIDA. The DAOs and UAOs work as government treasuries in their respective geographic jurisdiction.12 I. 3 2 . 58 DAOs. GoB is undertaking comprehensive measures to reform its PFM. INTRODUCTION 1. Enhanced budgeting and financial accountability will improve strategic resource allocation and operational efficiency in public expenditure management. EU. Forests and Public SPEMP is a USD115 million multi-donor PFM reform program. The CGA in the FD is the body responsible for disbursements and accounting in the government. providing payment and accounting services to government departments. the government’s in-house financial management information system which is being developed in parallel. one of the largest donor-supported PFM reform programs in the world. The authorities are targeting the implementation of the new system from 2014–15 budget year starting July 1.3 These officers have the primary responsibility of disbursing government money and accounting for government receipts and payments. The mission understands that in view of the delays in finalizing the BACS the GoB is giving consideration to extending the implementation deadline by a year. there are 20 CAOs. Revising and modernizing the existing budget and accounting classification system (BACS) that was implemented in 1998 is an integral element of this reform strategy. does not extend to the ‘self-accounting entities’ of Railways. financed and supported by DFID. central government disbursements are made from its main account with the BB. In the year 1985 the government introduced a departmentalized system of accounting. whereby 20 CAOs were created and accredited to each of the line ministries. SPEMP officially commenced at the end of 2009 and is scheduled to finish on 30 June. Posts. and 420 UAOs. The reforms are supported by SPEMP. while strengthening financial accountability across the expenditure management cycle.

5 . A hand-written check is issued for each approved payment and the details are entered in the system to update the payment records. Extrabudgetary funds are other prominent exclusions. So are the state owned enterprises (SOEs) and the local government bodies. The coverage of iBAS is partial. accounting and banking structures.all the CAOs and DAOs. these ministries have check-drawing rights and their own accounting formations. iBAS is designed for ex-post recording of financial transactions without budgetary control. The CGA plans to extend IBAS to 100 UAOs by the year end. Defense and self-accounting entities. The government budgetary support is released to them in the form of grants that is transferred at periodic intervals (usually quarterly) to their respective bank accounts in commercial banks. which are then aggregated with the CGA’s accounts. Although operating on the same BB main account. 5 The system comprises two sub-systems for budgeting and accounting that are not integrated. which are available to them for spending. and tax commissioner’s offices using a bank issued pay order. These ministries have traditionally remained outside the normal treasury fold. operate 4 In some cases. Non-tax revenues are also collected in a similar way. iBAS provides the computerized platform for budget execution and accounting for the civil departments of the budgetary central government. The NBR has recently introduced an online revenue collection system. commercial banks other than SBL are contracted for specific services. Civil Departments mean ministries and divisions of the budgetary central government with the exclusion of Railways. Some. Ascertaining the availability of budgetary funds is performed manually before approval is granted for payment in the system. The accounting of the revenue collections in the CGA organization is based on the daily inputs provided by the banks. The autonomous bodies. The autonomous bodies maintain their own bank accounts with commercial banks. such as Defence. nearly 200 in number. It is available only to the accounting offices . The revenue collection is mainly through the network of BB and the state-owned Sonali Bank Limited (SBL) branches.13 Works. like Railways. These units are separate legal entities created generally as implementing arm of the central government. The self-accounting entities remain outside the purview of iBAS. They render compiled monthly and annual accounts to the CGA. and 35 UAOs. designated SBL branches. 5. others. which have their own independent administrative. The UAOs not on iBAS (about 400 in number) are required to travel to an iBAS site to feed manually compiled data.4 Taxpayers have three choices to pay their taxes: BB offices. They may raise their own revenues. This is undertaken on a monthly basis at the end of the month. 4. 7. 6. which uses the BB/SBL network. are outside the government payment and accounting system. have developed their own information systems.

However. SPEMP's Proposal 10. concerns remain about the proposed design’s ability to address the internal information needs and the external reporting requirements. Further. etc. the system is fairly well entrenched in the CGA organization and there is a good base of accountants who are trained in using it. The design has been seen and endorsed by a multi-agency taskforce. each of the other segments provides two levels of disaggregation. Figure 1. but the overall structure is not capable of capturing fully the financial information required to support the decisionmaking process. Nevertheless. The existing classification system is incapable of supporting the on-going PFM reforms. Except the legal code.14 on manual basis. The key weaknesses of the existing classification system include: (i) inadequate availability of analytical information. it is not consistent with the modern reporting standards such as International Public Sector Accounting Standards (IPSAS). The existing BACS comprises four segments of classification namely: legal code (1 digit). The self-accounting entities send their compiled accounts to CGA at the end of the month for incorporation in iBAS. chaired by the Additional Secretary in the FD. particularly compliance with international financial and statistical reporting standards. economic (4 digits). The new design has gone through several iterations and is now fairly mature. institution (4 digits). This potentially limits the accuracy. and therefore extensive manual data manipulation is involved in producing fiscal reports. detail and timeliness of these reports. (iii) existence of numerous redundant accounts. 9. (ii) improper grouping and alignment of accounts. The design presently under consideration comprises five segments with 35 digits of classification codes. The SPEMP technical team has developed a new multi-segment budget classification structure and a harmonized CoA. Government Finance Statistics (GFS).. and (iv) limited room for expansion. . 8. function (4 digits).

including autonomous bodies. The mission suggested changes to the proposed classification structure and prepared a plan for implementing the revised classification by March 2014 that would enable preparation of the 2014–15 budget according to the new structure. . This report reviews the proposed architecture of the new BACS and makes suggestions for further improving the design before it is finalized and coded in iBAS++. (ii) a revision of the economic and functional classifications in line with GFS and COFOG standards. including the nature and scope of further FAD support. offers advice for overcoming these challenges and assesses further TA needs. The mission suggested compiling a schedule of extrabudgetary entities and autonomous bodies and categorizing them according to their affiliation to subsectors of the public sector. a joint FAD/STA team of experts reviewed the design of the new classification system. Considering the tight implementation deadline. Based on the recommendations.15 11. Consultations were held with the key stakeholders. NBR. Consultations also focused on building awareness among the key stakeholders. and the Planning Commission to identify and address their financial information needs. C&AG. the authorities requested further TA to finalize the revisions to the BACS and support the implementation process. The rest of this report is organized in four sections. and local governments. It provides rationale for the segments and the benefits of keeping them. and (iii) improvements in the other associated segments of the classification structure. Section II outlines the conceptual framework for a budget and accounting classification system and a suggested design of the new classification system. The mission’s recommendations included (i) extending the coverage of the classification system to the general government sector. other government controlled entities. Section IV carries a discussion of the implementation challenges. 14. primarily to examine its ability to support GFS reporting. Section V outlines the possible FAD TA support for furthering this work. and the changes agreed upon. The mission adopted a strong practical approach. 13. respectively. 12. In August 2013. and the need for the design to leave scope for potential future enhancements. A series of hands-on sessions with the SPEMP technical team were held for developing individual segments of the new classification system. CGA. The mission’s recommendations are driven by the objective of making BACS a tool that harnesses the technological capabilities of the new software system to meet comprehensively the internal and external reporting needs. Section III discusses in detail each of the individual segments of the suggested design. at the request of the authorities. The recommendations are guided both by internal financial management needs and international standards. the classification design was further revised. Possible options concerning every single classification segment were presented and discussed extensively. To ensure greater engagement and buy-in of the major stakeholders. The report identifies implementation challenges. Finally. such as BW. the mission conducted a half-day seminar where the new classification design was discussed in detail in the presence of the members of the taskforce.

The task of any classification system is to identify basic similarities in government operations and organize individual transactions into relatively homogeneous categories. to what purpose they were applied. This categorization thus facilitates analysis of government operations.g. the ministry of education. 17. establishing accountability for budgetary compliance and the use of resources. Typically. and Comprehensiveness: The definitions of each of the classification dimension are complete and comprehensive. (e. These categories can provide some meaningful information on the nature. governments classify fiscal data on more than one attribute. these needs are concerned with basic questions. on the basis of these principles. Users of government financial data have diverse information needs. where the resources came from. A budget and accounting classification system should aim to satisfy divergent user information needs. More generally. Most notably. Conceptual Framework 15. health. A typical administrative classification is organized into multiple levels of . and analyzing overall economic impact of government policies. to attribute transactions to multiple classification segments clearly and unambiguously without duplication. such as.). overlap or repetition. Jean-Luc Helis. formulating policy and making decisions on sectoral allocation of funds. how they were used. Classification of budget and accounts should address these questions and allow a meaningful analysis of the government’s use of public resources. monitoring the performance of various government programs and activities.16 II. who was responsible for resource mobilization and utilization. composition and impact of these transactions. It is possible. and at a lower level. and Dominique Bouley. Independence: Each classification has defining characteristics that are different from and independent of the others. December 2009.. schools and hospitals etc. and what was achieved. etc. Basic Principles of Classification A sound budget classification system follows three fundamental principles of classification:    Homogeneity: Each of the classification schemes should have a unique set of defining characteristics to which every transaction must comply. Box 1. Data on fiscal operations can be classified in a variety of ways to satisfy different information needs. Source: IMF TNM No. 16.. The commonly followed classification systems include:  An administrative classification that groups fiscal data according to the administrative unit or body responsible for collecting revenues and/or utilizing funds. DESIGNING A NEW CLASSIFICATION STRUCTURE A.6 Budget Classification prepared by Davina Jacobs.

subsidies. A classification by functions categorizes transactions on the basis of their broad purpose or objectives (e. etc. salaries.g. etc. A program classification transparently establishes a government’s policy priorities. Programs typically identify the goals and policies that the government spending is expected to serve (e. resource allocation decisions at the macro-level. historical analysis of public spending and cross-country comparisons. It groups outlays according to the activities that are carried out to meet these specific policy objectives. 18. distributed and controlled. Many governments obtain parliamentary votes or appropriations by major administrative units.    Governments also use source of financing classification to associate expenses with the funds that financed them and classification of beneficiaries of government transfers and subsidies. Use of standardized classification systems facilitates comparison across entities and across jurisdictions. divisions. Economic classification also forms the base for structuring financial statements. particularly in studying the regional impact of government policies. such as poverty reduction. It is useful for policy formulation and analysis. as reflected in the budgetary allocations. energy. The Government Finance Statistics Manual (GFSM) 2001 .17 hierarchy. In these systems. Functional classifications are important for historical analysis as they largely remain unaffected by organizational changes that may take place time to time in a government. vaccination) required to meet the goals.. regional distribution of tax collections. health. along with administrative classification it determines the way resources are budgeted. location of the beneficiaries of government subsidies and transfers.).) and is the basis for macroeconomic analysis. Economic classification is fundamental to input-based budgeting structures.. environment. etc. and forms the basis for monitoring and evaluating performance by allowing the specification of measurable program targets in terms of outputs and outcomes. goods and services. Many countries track expenditure to serve specific policy objectives. education. monitoring of fiscal aggregates. such as ministries.). In addition..g. gender equality. transfers. preventive healthcare for all) and are usually subdivided into homogenous activities (e.. and cost centers.g.  An economic classification identifies the economic nature of resources (e..g. departments. A geographic classification is useful in inter-regional analysis. A program classification is linked to a government’s policy objectives.g. Countries adopting program budgeting often seek parliamentary appropriations by programs. etc. some governments use geographic classification to capture information on the spatial distribution of revenues and expenditures (e. and micro-level control over the use of resources. It is usually the main basis for establishing accountability in budget management.

The Federal Government provides detailed guidance in the form of separate manuals for the classification of revenues. Appropriations are set to the budget units. . expenses (including assets and liabilities) that are used for the formulation. It allows appropriate granularity of data required for analytical and control purposes. for example covering transfers to sub-national entities. which are responsible for carrying out actions. Classification System in Brazil The Brazilian budget classification system is detailed and well aligned with international standards. capital. all 26 Brazilian states and the Federal District.18 provides a standard economic classification of financial transactions of a government. Every action of government is structured into programs. 2009 available at http://www. Source: Brazil Federal PEFA assessment. Brazil has also developed a detailed program classification. and It is possible to apply the classification codes consistently across the government and over time. The revenues are classified by economic category—with subcategories for current. The administrative classification is designed around the organizational structure of the Federal Government. current extrabudget. flows and stocks of assets and liabilities. expenses. type and by line. COFOG provides a standard functional classification that classifies government expenses and net acquisition of non-financial assets into 10 functions. they are generally in line with the international standards outlined in the GFSM 2001. It is composed of 28 primary functions and 109 sub-functions. Expenditures are also classified by economic category. It comprises the main organizational units and budget units. The Budget Framework Law sets out the basic classification framework for government income (cash) and expense (cash and accrual basis). Groups.    A well developed classification system has three main characteristics: It captures multiple attributes required for meeting the divergent internal as well as external reporting requirements. all expenditure is classified by location and source of funding. A government’s ability to implement a multi-segment classification system is linked with the level of automation achieved in transaction processing and accounting. The functional and sub-functional classification system meets the COFOG standards. for example in the case of transfers to other levels of government or debt service. IPSAS leaves it to the governments to decide the classification. COFOG follows a three-tier hierarchical structure comprising Divisions. which aim to achieve objectives that are outlined in the multi-year (4-year) Strategic Plan at the start of the execution and reporting of budgets by the Federal Government. 19. Furthermore. 20. and do not always correspond to a Federal administrative unit. Box 2. and classification of transactions in financial assets and liabilities by sector. and capital extra-budget—origin. The GFSM classification is on an accrual basis and covers revenues. and Classes. but requires presentation of financial statements in standardized formats. While all the above classification structures have been amended to suit the specific nature of fiscal management in Brazil.

The core segments of the classification system comprise the administrative. A uniform application of a classification system by all government entities—budgetary and extrabudgetary—facilitates data sharing and aggregation within the system. and accounting stages impede policy analysis and monitoring. 21. budgeting.19 Computerized transaction processing opens up the scope for recording multiple attributes of a transaction. For the purpose of defining how the coding is determined. Consistency in the application of codes requires adequate user training and can be enhanced by clear definition of classification codes backed up with a user manual aimed at promoting and disseminating knowledge of codes. and used mainly for reporting purposes. project. A unified classification system enables consolidated reporting. A unified classification is a pre-requisite for implementing a government-wide financial management information system (GFMIS). therefore. Automated systems also support greater granularity in data. function. sector and location classifications. which is cumbersome in a manual accounting system. Classification system reforms are. Suggested Classification Structure 22. The mission suggests an eight segment hierarchical classification structure for the GoB (Table 2). the classification structure is split between:   Core segments that are explicitly coded for each transaction and are maintained in the general ledger (GL) of the iBAS++ system. The classification must be commonly applied at all stages in the annual resource management cycle. best carried out along with automation initiatives. while the derived segments include the authorization. B. and Derived segments that are produced using mapping tables or other coding mechanisms within the iBAS++ system. Different classifications followed at planning. . fund and economic classifications.

The structure retains the proposal by the SPEMP team but adds a layer at the top to facilitate expansion of the administrative classification to government entities outside the budgetary central government. Administrative Classification 24. DEVELOPING CLASSIFICATION SEGMENTS A.20 Table 2. but allows greater flexibility for future expansion and application to public entities outside the budgetary central government. The individual segments and their respective coding structures have been rationalized to suit the present GoB control and reporting requirements. The proposed structure is not very different from the one prepared by the SPEMP team. It retains the same scope. Suggested Classification Structure for Bangladesh Core Segments Administrative (8) Type of Public Entity (X) Ministry/Division / Entity (XX) Department (X) Operating Unit Group (X) Operating Unit (XXX) Project (7) Type (X) Projects (XXXX) Subprojects (XX) Fund (8) Funds (X) SubFunds (XX) Donors (XX) Donor agreement (XXX) Economic (7) Type (X) Category (X) SubCategory (X) Item (X) Sub-item (X) Detail (XX) Authorization (5) Level1 (XX) Level2 (XX) Type (X) Level 1 2 3 4 5 6 Derived Segments Function (5) Major Function (XX) Minor Function (X) Detail (X) Subdetail (X) Sector (4) Sector (XX) Subsector (XX) Location (6) Divisions (XX) Districts (XX) Upazila/ Thana (XX) 23. III. A five-tier administrative classification largely consistent with the SPEMP’s latest proposal is suggested (Table 3). at the same time maintaining room for accommodating extra demands from the potential PFM reforms. . The following section describes each of the classification segments in detail.

27. 26. (4) local government. (5) public non-financial corporations. Social security funds. Identifies the second level organizational grouping. Identifies the operating unit. The administrative classification previously proposed to the taskforce serves the purpose of defining the budget and budget execution controls of the budgetary central government only. however. does not recognize government entities outside the central budgetary sector. It. Central extrabudgetary units. Local governments. The next two digits define the subordinate office and the last three digits define the unit or local office. A new element at the start of the administrative segment can identify the type of public entity. . Proposed Administrative Classification Structure Level 1 Attribute Type of Public Entity Digits X Explanation Identifies the type of public entity . The next two digits define the department . local governments. it is important that the classification structure enables broader coverage of the accounting systems and associated reporting and statistical data collection.the level at which budget allocations (or “distributions”) are made. Identifies the top most organizational level within an entity type. The key benefit of identifying the type of public entity is that it will enable recording of the budgets and accounts in iBAS++ of a broader set of government entities beyond the budgetary central government. it is expected that only the data of the budgetary central government will be included within iBAS++. etc. A single digit would enable separate identification of (1) budgetary central government. etc. Nonetheless. (2) extrabudgetary central government (3) social security funds.21 Table 3. will be listed at this level and appropriately grouped. The autonomous bodies. the first two-digit Ministry/Division segment defines the administrative level at which appropriations are approved by parliament. The inability to adequately record and report on the activities of entities outside the budgetary central government is a limitation of the SPEMP proposed structure. For the budgetary central government this level will record the government departments.Budgetary central government. and (6) Public Financial Corporations. 2 Ministry/Division/ Entity XX 3 Department X 4 5 Operating Unit Group Operating Unit X XXX 25. In this structure. The budgetary central government will be classified into ministries and divisions. public corporations. Identifies the major operating unit. In the first instance. Public non-financial corporations. This will support separate controls being applied to different types of entities within iBAS++ (for example appropriation control need not be applied to the social security funds and autonomous bodies) and support expanded coverage as required for accounting and statistical reporting according to IPSAS and GFS.

Achieving an ability to report GFS for the general government requires extending coverage beyond the budgetary central government to include extrabudgetary funds and social security funds as well as local governments. This will bring these entities on the same financial reporting platform as the central government. which will ensure that the MoF has a single repository of financial data for the entire central government. These bodies are each established by a separate statute and intended to operate with a degree of independence. In addition. A uniform CoA will be a pre-requisite for achieving this integration. In the case of Bangladesh. Jönsson and E Wilders provides a detailed analysis of some of these issues. Stage III will involve complete integration with the revenues of these entities coming to the treasury single account (TSA) and their expenditures being met from the TSA. achieving the authorities’ objective of IPSAS compliance requires that all controlled entities be included within the reporting entity for accounting and reporting purposes. 29. Using this additional coding element for the type of organization. The first stage will involve extending iBAS++ to autonomous bodies. coverage of accounts will have the potential to expand to enable implementation of IPSAS and reporting GFS for the general government. They will share the iBAS++ software system. the controlled entities would include autonomous bodies. may or may not be included within the reporting entity for IPSAS. they require grants from ministries to sustain their operations and their administration and management are closely tied to their overseeing ministry. SOEs are typically included within the reporting entity for IPSAS but not within the general government for GFS reporting. stated owned enterprises (SOEs) as well as the controlled pension and provident funds. while they hold their own bank accounts and many collect revenue from their own sources. The next stage in progression will be to bring these entities under the national budget execution procedure without changing their existing banking arrangements. May 2013 IMF TA Report “Bangladesh: Strengthening Government Cash Management” by S. Saxena. A stepwise approach could be adopted for bringing the autonomous bodies under the coverage of the iBAS++. 6 . 30. P. A key difference between coverage of GFS and IPSAS relates to local government and SOEs. Specifically. the mission was informed that the inability to track the flow of grants to autonomous bodies was problematic from both a budget transparency and control perspective. subject to verification of a control relationship.22 28. 31.6 Achieving full use of iBAS++ and access to the TSA does not imply any dilution (or concentration) of the level of functional independence enjoyed by The pros and cons of extending TSA arrangements to the autonomous bodies are beyond the scope of this report and will have to be separately examined. In practice. Local governments would typically be included within the general government for GFS reporting but. GoB is currently facing issues with the narrow coverage of the current iBAS system in relation to autonomous bodies.

The advantage of this solution is that it is simple. from and within each autonomous agency will be visible in iBAS++. avoids the need for further coding elements in the CoA for recipient and is more consistent with IPSAS and GFS standards for dealing with controlled entities. if the CoA does not identify the recipient of government grants and subsidies. 35. therefore. An iBAS++ functionality that recognizes such bodies in a “payee table” can then be used to identify flows for such entities during budget execution and report accordingly. for example “grants to autonomous bodies”. At present. The key question is whether the grants/loans to such entities are to be explicitly budgeted in the detailed demands for grant and. This payee table would include details of the payee. This can be achieved without having to classify autonomous bodies as administrative units of their controlling ministry. contact information and bank account details for the payee. transparency and control over such payments will be lost. the budget and all of the flows to. as well as incorporating the taxpayer identification number. This treatment supports the rationale that the appropriations are provided to the ministry/divisions in the form of grants to be transferred to entities outside the central government budget. However. By doing so. including these entities within the coding structure for the ministry is improper as these entities are most appropriately classified as extrabudgetary units. including a unique code. It ensures a single source of accounting data. as such independence relates to factors other than the nature of accounting and banking arrangements. The payee code could be used to track the payments to recipients of government grants and subsidies. subject to normal budget controls. A payee table is proposed to be used (outside the GL) to facilitate expenditure transactions. If they are not. 34. The representatives of the GoB expressed concern that. 32. from a CoA perspective. Identification and classification of such entities in the administrative segment as a separate stream (refer to paragraph 27) should facilitate this presentation of detailed demands for grant. The treatment of grants paid to autonomous bodies was raised as a specific case. Implementation of iBAS++ in the autonomous bodies would further simplify this issue. the autonomous bodies are classified within the administrative structures of their controlling ministries and the grants planned in the budget to flow to these entities is contained in the detailed demands for grant of the ministry. 33. . It is proposed that payee codes should be used for all transactions except mass payments to individuals (such as payroll. This is by far the most desirable option as it is simple to achieve once the required connectivity and capacity building is completed. and presenting its distribution among the various autonomous bodies in a separate table annexed to the detailed demand for grant. the purpose of transparency can be achieved by appropriating funds under a single line item. Transparency of the recipients of government financial support was an issue for which a CoA solution was being sought by the authorities. pensions etc).23 these entities.

and will become further redundant once the autonomous bodies. CDB Goods and services XXX 5. provides considerable transparency regarding the expenditure and use of grant funds. A less desirable alternative would be to include a recipient segment in the CoA. Under this scenario. However. CDB CDB’s bank account XXX 10.000 Own revenue CDB CDB’s bank account XXX Own revenue 5. In addition.000 DAE Consolidated fund – general fund Transaction 2: Cotton Development Board receives the grant in its bank account. it offers broad scope for identification of recipients for various transactions and could be implemented quite quickly. The following table shows an example of the coding of a hypothetical payment of a grant from a budgetary central government entity (Ministry of Agriculture) to an autonomous body (Cotton Development Board) and the subsequent payment of some of this grant to an external supplier. the coding will enable consolidation for whole-of-government reporting. where the internal grant transaction is eliminated (on both payment and receipt side) and what remains is the payment to the nongovernment supplier. Examples of Integrated Accounting Administrative Economic Project Fund Debit Credit Transaction 1: Department of Agriculture Extension (DAE) pays a grant to the Cotton Development Board (CDB) [assumed here to be an autonomous body].000 37. The transparency of the transactions involved using the new CoA when autonomous bodies use iBAS++ for their accounting is best demonstrated with a worked example.000 Own revenue Transaction 3: Cotton Development Board makes payment to external supplier of cotton seeds. SOEs and local government start accessing iBAS++.000 DAE Consolidated fund – general fund TSA bank account XXX 10. This segment would facilitate presentation of transfers to external entities by their names in the detailed demands for grant and tracking the flows to these entities during budget execution. Add a single-digit identifier at the top of the administrative classification to distinguish . the recipient code would be cumbersome in that it would be a required field for all general ledger entries but is a redundant segment of the CoA for the majority of these transactions . Table 4. This would achieve the required result by showing the recipients at budget approval and execution stages.24 36. Grant expense XXX 10.000 Own revenue CDB Grant revenue XXX 10. both entities use the same CoA and record transactions in iBAS++. Recommendations Short term  Make provision for expanding the coverage of the administrative classification to include public entities that are outside the budgetary central government. The separate organization and fund coding as well as the separately identified banking arrangement in the economic code.

Medium term  Populate the administrative classification for entities outside the budgetary central government. A three-tier project classification is proposed. and without diluting their functional autonomy. Proposed Project Classification Structure Level 1 2 3 Attribute Type Projects Sub-projects Digits X XXXX XX Explanation Identifier to distinguish between development and non-development projects. A project classification should achieve two primary objectives: (i) relate projects planned to work in a complementary fashion. the project classification should supplement and not replace or detract from other classifications.   In a phased manner. projects can be grouped into higher level “umbrella” projects using a side table for reporting purposes. Table 5.25 between different types of public entities. Examine the feasibility of extending iBAS++ to local governments. Like all other classifications. This definition includes grouping expenditures related to building physical structures and conducting discrete operating activities.  Use a “payee table” to identify the recipient of government transfers. Identifies sub-projects for which expenditures are controlled by implementing agencies. 39. These entities can be classified at the next level. such as international sports events. implement iBAS++ in the central autonomous bodies and consider integrating them in the TSA. which enables separation of project from non-project expenditures through the assumption that any expenditure coded by lower-level organization is not a project. usually with a clear beginning and end in time. 41. Identifies projects for which expenditures are controlled by the FD. The purpose of a project classification is to associate expenditures that have a limited common purpose. and (ii) separate legal control from sub- . This level contains four digits and combines lower level administrative units with projects. A major disadvantage of this design is that it is not possible to associate a project with a lower-level organization. The existing classification identifies projects at the third level of the administrative classification. 40. B. In addition. Project Classification 38.

The concept of umbrella projects is somewhat akin to programmatic classification and has the potential to be developed in future along those lines. At present. In such cases. 7 . Continuity of project numbering. When the planning and budgeting offices are located in different organizations. For example. and thus different information needs. therefore. However. it is always difficult to reach agreement on a single coding structure. can be achieved using a side table for mapping projects to relevant umbrella projects. Appropriation controls may be established at the agricultural project level. which entails compromises by one or both organizations. but projects are more fluid than other elements. in which the water and crop storage sub-projects are segregated for management purposes.7 The existing development budget includes block allocations that are not attributed to any project. Ideally. (ii) projects that are the primary units for appropriation control. These grouping. only a few projects have umbrella projects. Both purposes suggest a hierarchical grouping similar to that in other classifications. Often. Block allocations that do not identify the purpose of the project should be avoided. such allocations are kept in anticipation without clear specification of the purpose of the expenditure. This practice brings opacity to the budget. 43. expenditure provisions should uniformly provide detailed information at the level of sub-projects to bring greater transparency and accountability in budget execution. an agricultural development project may have water source and crop storage components. grouping and sorting between the planning and budget processes is a challenge. It is not uncommon to find block allocations. 42. Should that were not to happen. in which case there are no sub-projects and there is no appropriation for the agricultural project as a whole. from highest to lowest: (i) an umbrella project which is an aggregation of complementary projects and for which costs do not roll up for control or management purposes. and (iii) project sub-components identified primarily for management purposes. The Detailed Demands for Grant that are used for budget control by the FD provide departments/project wise distribution of appropriations. and should be best avoided. Umbrella projects are simple groupings of projects that need not be explicitly recognized in the classification structure. Alternatively. With regard to the development budget. The allocations should be specific with details of the purpose and nature of the expenditure. In short. Planning and budgeting organizations have different analytical and management needs. there are three levels in a project hierarchy. compromise to reach agreement on a single coding structure is rare. this is an area that will require much further work (see Section H for discussion on program classification) and any attempt to preempt the uncertain future requirements can lead to unnecessary complications for the software designers and the users.26 dividing a project for management purposes. project codes should be harmonized across the board. there should be a way of establishing correspondence between the planning and the The parliamentary votes and appropriations are obtained by ministry/division. the appropriation might be made at the level of the water and crop storage components.

the GoB has several projects in the nondevelopment part of the budget that target developmental activities. . or environmental benefits. It is increasingly funded from domestic resources. thus eliminating the assumption that projects are donor funded. it can be expected that domestic financing will be a growing source of project financing.27 budgeting/accounting system. the fund classification is an instrument to independently identify fund sources. it also has responsibilities for conducting elections. and which will be replaced by a code that is unique to FD (for grouping and sorting within iBAS++). The mission does not recommend discarding the development budget concept. Therefore. or large and important activities. Increasingly. 45. but the usefulness of the concept can be called into question. The development budget has historically included both recurrent and capital expenditures. Among these benefits will be a more efficient budget process that focuses on the full set of alternatives to address policy challenges. 46. Whether a project is an activity or physical is identified through the economic classification distinction between recurrent and capital costs. 44. Through the use of a unique identification code separate from codes used for sorting and grouping data. As Bangladesh develops economically. which has no meaning with regard to grouping and sorting that will be used to identify the project throughout its life (including the 5-year Plan and the ADP). and a unified view of all expenditures better supports policy planning and delivery. The benefit of distinguishing between development and non-development expenditures is eroding. a single project can be identified and tracked across the separate planning and budgeting information systems without compromising the information requirements of any organization. The project classification could be used to separate these two types of expenses and enable a clear assessment and accounting of the cost of an election. such as maintaining voter rolls and storing and maintaining voting equipment. which are discontinuous in time and involve a number of additional types of expenses. Removing the distinction between development and non-development budgets will have considerable benefits for Bangladesh. or the source of funding. the development / non-development budget distinction no longer conveys meaning with regard to the nature or purpose of spending. and the proportion of donor funding to total budget expenditures decreases. the Election Commission has a number of ongoing responsibilities. 47. This can be achieved by assigning a unique code to each project. As noted in subsequent discussion. Projects can be physical in nature. At the same time. better management of assets by dealing with both recurrent and capital through the same process (for example. economic. the budget should not include any spending that does not yield significant social. For example. Each project will have a second code that is unique to the Planning Commission for its purposes (for grouping and sorting within its information system). However. Projects may be funded by development partners or from domestic financial resources. there is convergence in the view that all public expenditures have developmental objectives. Broadly speaking.

Distinguish between development and non-development projects and classify projects and sub-projects. as these weaken parliamentary financial control and transparency. Specify projects/sub-projects for all development expenditures.28 maintenance of existing buildings is addressed in the same process as a decision to build a new asset). Recommendations Short term  Include a three-tier project classification segment within the classification structure. For reporting purposes. it has an important place in formulating the MTEF and defining the policy goals for a single unified budget process.  Avoid the use of block allocations in the development budget. This is not to suggest that development planning is not important. The number of levels in the classification is determined by the need to budget and control expenditures by donor agreements. Fund Classification 48. Medium term  Consider eliminating the distinction between development and non-development projects. C. use a side table to group projects into umbrella projects. . and an enhanced focus on outputs and outcomes through the budget process rather than inputs. A four-tier fund classification is proposed.

The Consolidated Fund may be further classified into: (i) a general fund representing unrestricted expenditures. Each revenue item in the economic classification. such as autonomous bodies or SOEs. Public Account may be classified into specific items. (ii) a donor fund representing expenditures tied to a specific donor source.29 Table 6. State Provident Funds. etc. or where money will be available. Proposed Fund Classification Structure Level 1 Attribute Funds Digits X Explanation This level identifies all funds operated by GoB. This would enable the future inclusion of the budgets of these entities in a comprehensive general government or public sector budget. proceeds from issuing debt. the existing 13-digit classification does not include a fund classification. borrowing. The Public Account includes all other money deposited by or on behalf of the government. This level identifies sub-funds within the three funds identified at level 1. Internationally. The PMBMA provides additional guidance on the scope and nature of the Consolidated Fund. or grant items. non-tax. The last item represents a grouping of expenditures that draw from money belonging to organizations outside the central budgetary sector. 2 Sub-Funds XX 3 Donors XX 4 Donor agreements XXX 49. The Constitution provides for the Consolidated Fund and the Public Account. and (iii) inter-ministerial receipts. Although the Constitution and the Public Money and Budget Management Act (PMBMA) use the concept of a fund. Stated another way. and untied donor grants received as budgetary support. Multidonor funds would be identified as a single consolidated donor. Thus. 50. expenditures. the fund classification identifies the source of financing for each appropriation. while linked to the revenue portion of the economic classification. and OwnSource Revenue. Specific donor agreements for which spending must be controlled should be identified here. the fund classification. Donor organizations would be identified at this level. All spending authorized in the budget comes from the Consolidated Fund. The general fund principally includes government’s own revenues. the membership of which would be explained in the linked Development Partners side table. . including development and non-development. the revenue portion of the economic classification identifies the source of financing for the budget as a whole. as is often the case of a donor grant. is an integral part of the expenditure portion of the budget. All taxes. loans. The purpose of the fund segment is to identify from where money will be drawn at the time of expenditure. Three main funds are – Consolidated Fund. it is considered good practice to have a fund or financing source classification. and voted and charged. should be linked to a fund classification item to identify where money received from each revenue stream will be deposited. including individual tax. loan repayments and grants are deposited into the Consolidated Fund. Public Account. such as National Savings Scheme.

The Consolidated Fund may contain money from sources that place restrictions on the purpose of spending. October 2008.aspx 8 . election deposits. Donor grants and loans.). The budget may include anticipated donor projects and related funding. which enables verification that money was spent for the intended A fund classification is particularly useful when: (i) the use of certain resources is tied to specific purposes.). In case of conditional appropriations.treasury. etc. unless prohibited by law. but money cannot be spent until the agreement is signed or conditions of the agreement met. provident fund. donor projects provide clear examples. other than budget support. Fund Classification in South Africa8 52. postal savings. Good cash management practice is that. A fund classification permits associating individual expenditures with an agreement. 51. This includes national savings schemes (such as national savings certificates. and budget. etc. Again. and deposit accounts (such as suppliers’ deposits. accounting and management systems Source: Government of South Africa.30 and which do not require an annual act of parliament in order to disburse. Table 7. often come with “strings attached” and can be spent only for purposes stated in the grant or loan agreement. postal life insurance. cash from all sources are commingled. Project Summary available at http://scoa. and (ii) the appropriations are available for incurring expenditures subject to certain conditions being fulfilled. even if an appropriation exists. a fund classification facilitates identifying such appropriations and acts as a prompt to ensure that the conditionality is met before releasing the appropriation for expenditure.

710. which makes it difficult to understand the nature of the project. a distinction between unrestricted and restricted purpose funds under the Consolidated Fund is useful.565 40.000 2. In such cases.186 2. Many donors require special bank accounts because they do not have confidence that systems are in place to ensure that money deposited in a single government bank account will be used for its intended purpose.  55. At this time there are no own-source funds in the budget. However. Fund classification facilitates recognizing multiple financing sources of a single activity.632.000 499. Management and Administration Primary Health Care Services Secondary Health Care Services Public Health Services Current Expenditure 24.621 0 Total 4.000 Overall Total 29. A single project or activity may be financed by more than one fund source.000 0 1.154.000 1.607.000 246.100 Capital Expenditure From the Budget 2.785.914.565 105. As treasury and cash management systems in Bangladesh improve.800 14.100 7.422.000 1. Table .000 0 654.100 54. such as autonomous bodies or SOEs. often to the exclusion of projects for which they do not have discretion in the annual budget 9 Source: Albania Budget 2011.minfin. A principle of good budgeting is that it should be comprehensive. the amounts under each fund item should sum to the total cost of the project or activity.31 are used to meet a variety of control and reporting requirements.000 From own Revenues 26.000 Foreign Financing 2. A fund classification supports improved budget planning.675.179 17.000 20.226.565 40. meaning that it reflects all government projects and activities regardless of financing source. The added coverage may be with or without a vote from parliament and with or without appropriation controls.186 110.565 286. budget discussions focus primarily on allocating money over which the executive and legislature have discretion.907. available at http://www.000 1. 53. to be brought into the budget process in the future if the government decided to do so (see paragraph 27).963. the suggested structure allows for entities.406.379 3. Albania's Classification of Capital Expenditure by Funding Source9 Budget Institution / Program Ministry of Health Planning.617.100 8. Therefore. it will be increasingly likely that donors will agree that special bank accounts are not required. such as donor funding plus required matching funds from domestic sources.077. It is important to avoid the practice of entering different projects as a way to indicate that there are different fund sources. Having said this.

Reporting by grant and loan would be based on the economic classification. A fund classification assists in budget execution. Meanwhile. 58. The development partner classification proposed by the FD is reasonable and should meet additional analysis and reporting needs. the Ministry of Health (MoH) might budget for clinic construction for Tk1 million. while preserving the ability to keep track of what is financed from money over which there is full discretion separately from money with strings attached. This might be called Inter-Ministerial Receipts (IMR). IMR amounts would not be considered an appropriation or potential draw on the Consolidated Fund and would simply be ignored. for restricted fund sources. 59. the treasury must have procedures to ensure that money is available and conditions are met before establishing authorization to spend in the treasury system. budget . and has 100 employees whose salaries depend on this revenue. the process may be considerably more complex. such as works executed by the Public Works Department (PWD). 56. A budget support grant or loan would need to be reported on the basis of disbursements made. For an unrestricted fund source. The IMR appropriation in the budget would be indicative. If such spending can be anticipated in the budget process. For example. The fund classification is a technique for showing all projects and activities in the budget process. the PWD might anticipate performing works for several ministries in the amount of Tk5 million. and budgeted in the receiving ministry using the IMR fund source. the FD would reduce MoH’s authorization to spend for the amount of the agreement and increase PWD’s by a like amount so that there is no net change in total appropriations. A side table listing development partners should be linked to donor organizations at Level 3.32 process. it would not cancel a matching general fund appropriation. For example. In financial reports. iBAS++ would prohibit spending from an appropriation with IMR fund source until a proper agreement is reached between the requesting and receiving entities. The fund source would be the general fund. Inter-agency placements are common practice internationally. After PWD signs an agreement to perform works on behalf of the MoH. However. Fund classification can also be used for identifying and budgeting for the interministerial transactions. the amount in the agreement might be less or greater than the planned amount. A new fund source is proposed that will enable one ministry to pay another ministry for specialized services. PWD would budget Tk5 million in IMR and show that it plans to employ 100 persons. In this way. The link would be made once at the time of entering a donor organization into iBAS++. but does not replace functions of the economic classification. but the money would be placed in the Consolidated Fund without the need for special tracking of expenditures. authorization to spend can be established effective immediately in the treasury system consistent with monthly or quarterly allotment procedures. it would be budgeted in the requesting ministry as general funds or donor funds. 57. Any such placements must be consistent with the intent of the appropriation for the requesting agency.

60. Medium term  Expand the coverage of the budget using the fund classification. Include a side table to map donor funds to specific development partners. donors.    Recommendations Short term  Establish a four-tier fund classification to identify funds.   Reduce the number of donor special accounts by giving donors confidence that there are sufficient controls in place to ensure that donor funds are spent as intended. use own-source revenues as a means to identify the own resources of these entities.33 support funds are indistinguishable from general funds when setting appropriation controls and when processing an individual expenditure transaction. Improve cash management by reducing the use of special accounts. and donor agreements. . sub-funds. Include three main funds – Consolidated Fund. Public Account. in particular by using the IMR fund source. and personnel financed from all sources while respecting restrictions placed on the use of those funds. there are important benefits to be gained by establishing a fund classification:  Increase budget comprehensiveness because it is possible to include in the budget projects. activities. and donor funding of non-development activities. In summary.  Use fund classification to: (i) identify the expenditures that are tied to certain resources. and (ii) identify appropriations that will be available only when some conditions are fulfilled. Enable presentation of domestic financing of development projects. With the future possible expansion of iBAS++ to entities outside the budgetary central government. and Own-Source Revenues. Expedite and improve the accuracy of initial budget execution setup by identifying budget items contingent on meeting certain conditions before spending can occur.

. Goods and services (under recurrent expenditure). Taxes on goods and services. For example.Category X 4 Item X 5 Sub-item X 6 Detail XX 62. etc.g. This level provides lower level information for the finance managers in ministries/institutions to analyze. VAT. This level shall provide finer details for the finance managers in ministries/institutions to analyze. Compensation of employees. disaggregation of Employee’s pay.g. IPSAS reports. For example. such as Tax revenues. recurrent expenditures. financial assets. etc. Non-tax revenues (under revenue). and Compensation of employees into Employee pay and allowances. e. tax revenues will be further classified into Taxes on property & wealth. disaggregation of salary and allowances.. The mission worked together with the SPEMP team and constructed a sample CoA with the codes populated at the top four levels of the economic classification structure and provided explanations where appropriate. This level represents the aggregation of subelements of each major element described in level 2 above. Proposed Economic Classification Structure Level 1 Name Type Digits X Explanation This level identifies each of the major elements. Sales tax under Taxes on Goods and services. Table 9. The mission considers the top four levels in the suggested structure to be essential for managing the budget and preparing the financial reports for different purposes including the reports for the legislature. capital expenditures. Economic Classification 61. 2 Category X 3 Sub. Employees’ pay. e. disaggregation of Sales tax. This level provides the breakdown of each subelement described in level 3 above. Employees’ allowances under Employee pay and allowances. The inclusion of analytical information at levels five and six in the CoA should be carefully considered. A six-level economic classification structure is suggested to meet the budgeting and accounting needs of the GoB. Based on the information gathered from the available documents and reports and discussions held with the ministerial staff. Employer’s social contribution. etc. This level provides a high-level aggregation of each major element.34 D. GFS reports etc. such as revenues. plan and monitor the revenue/expenditure. the mission considers a six-level economic classification structure to be appropriate for the current needs while providing room for expansion to meet future accounting needs. The consequences from capturing excessive . plan and monitor the revenue/expenditure. etc.

i.. loans and advances. Grants. While merits from the availability of analytical information in the PFM system are apparent. For recording the residual measure of the financial position.35 details in the system should be assessed. Personnel expenses.g. Receipts on disposal of non-financial assets are taken in as capital receipts for the year.. For recording the value and volume changes to the stock of assets and liabilities as a result of other economic flows. Table 10. neither are these items depreciated. For recording various categories of recurrent expenditures. 3 4 5 Capital Receipts Capital Expenditures Changes in Assets and Liabilities resulting from other economic flows 6 Financial Assets 7 8 Liabilities Net Asset/Equity 64. The present practice is to record transactions in non-financial assets as capital receipts and expenditures. flows and stocks . such as public debt and state provident fund. e. Tax revenues. etc. Assets minus Liabilities. The entire cost of acquisition is charged to the year of acquisition. The proposed economic classification structure groups the various economic classes into eight elements (Table 10). increase/decrease in debt due to changes in exchange rate. Till the time GoB starts recognizing non-financial assets on accrual basis. loss of assets due to natural disaster. For recording expenditures for acquisition of assets.. road. Once full accrual base is adopted.. 63. For recording receipts from disposal of non-financial assets. For recording the flows and stock of liabilities. The segmentation serves the present accounting policies. This is necessitated by the present accounting base followed in the GoB. etc.g. The suggested groupings are determined keeping in view GoB’s present accounting system. e. and is also capable of supporting a transition to more accrual based elements (See paragraph 71). the potential for micro-managing budget execution..g. 1 2 Name Revenue Recurrent Expenditures Explanation For recording various categories of budgeted revenues. Suggested Elements in the Economic Classification No. etc. recording inconsistent classifications. e. such as recognition of financial assets and liabilities. No stock of these items is maintained in the accounts.e. The proposed segmentation treats non-financial assets differently from other stock items. but has some accrual elements. Subsidies. Goods and services. equity investments. and increasing data storage requirements should not be discounted. etc.g. etc. such as cash and cash equivalents. this distinction will have to be maintained in the classification structure. e. expenses for building a school. Non-tax revenues. For recording the flows and stock of financial assets. which is primarily cash based.

each unique economic item is the unit. This element is futuristic that will be operationalized at the time of adopting accrual accounting. For example. To manage the budget and actual spending at different levels. holding gains or losses on assets and liabilities may arise due to changes in prices of those assets and liabilities. appropriation controls could be exercised at the top most level. Items under this element represent value and volume changes in the stock of assets and liabilities that do are result from a transaction undertaken by the government. The mission is of the view that this element merits separate recognition. For instance. 66. the detailed demand for grants could be maintained at the third level. and the stock of that liability is assigned a third code. A multi-level economic classification structure facilitates multiple levels of budget and spending controls. and the . This has been suggested on the ground that outflows on assets and liabilities require appropriation control and. For example. Changes in assets and liabilities resulting from other economic flows will not be recognized under the present accounting base. outflows. The accrual system of accounting requires recognizing the impact of such changes on the net asset/equity of the government. The current economic classification codes need to be cleaned up prior to migration to the new coding structure. If the software system design warrants such distinction. The current economic classification codes contain numerous redundant accounts that were created many years ago for specific purpose(s) but are no longer active.36 of non-financial assets could be recorded together as in the case of financial assets and liabilities. For the classification system. the redundant accounts should be discarded before migrating the existing economic classification codes to the new structure. Valuation of assets and liabilities may also change due to exchange rate movements. and stocks in three separate interlinked tables. This would also facilitate reporting. 65. inflows and outflows under financial assets are assigned different codes. Such segregation of flows and stocks can cause unnecessary maintenance burden for the classification system. Similarly. SPEMP team included other economic flows as part of equity. it should be handled in the software system while translating the classification system into the software system. These are typically results of external events that change the valuation or volume of stocks held by the government. incurrence and discharge of a financial liability are recognized under two separate codes. It need not require segmentation in the classification system. 68. The classification developed by the SPEMP team separates flows and stocks in assets and liabilities and recognizes them under different codes. It is an entirely different issue if the software design requires keeping inflows. including the GFS reporting. The mission is of the view that the software system design issues should not dilute the integrity of the classification system. therefore. need to be separately recognized in the software system. Volume changes can occur due to catastrophic events that may result in destruction of assets or technological innovations that may lead to recognition of additional assets. 67.

a journal posting for a payment processed outside the iBAS++. In Bangladesh. This aspect is further discussed in paragraph 81. The differentiation of third-party payments from other payments in iBAS++ can be accomplished by including a “Mode of payment” field on each expenditure transaction record. Statement of changes in net assets/equity showing value and volume changes to assets and liabilities that are not related to a transaction entered into by the government. Statement of financial operations showing the results of the operating performance of the government and the resulting surplus or deficit. The mission is of the view that the top three levels of the proposed structure should be sufficient for the purpose of preparing these financial statements. For example. processed by bank transfer. evolving to a complete disclosure of all assets in future. In collaboration with the CGA. This functionality should easily identify third-party payments that can be marked separately from other payment records.37 fourth level could be used by the ministries/divisions to internally allocate the budget to their subordinate and attached offices for execution. . The financial statements can be formulated directly from the proposed economic segment using the relevant account codes without the need for data manipulation. GoB aims to adopt cash based IPSAS in future as a stepping stone to full IPSAS adoption. investing and financing activities conforming to the format specified in IPSAS 2 Cash Flow Statement. the SPEMP team should carefully identify and list all possible types of transactions. The proposed structure will enable financial reporting in internationally accepted formats. 70. such payments typically arise on account of direct project aid (DPA) disbursements by the donors. or a journal posting for a payment processed offshore by a donor to an overseas vendor (a third-party payment). this field may be used for recording whether the transaction was: a payment in cash or in kind. The mission demonstrated to the ministry staff the compatibility of the proposed economic classification with the IPSAS reporting requirements with the aid of the sample IPSAS compliant financial statements listed below:     Cash flow statement classified according to operating. Cash based IPSAS stipulates disclosure of third-party payments in separate columns on the cash flow statement. A “Mode of payment” field could be used in iBAS++ to attach a variety of information to each transaction. etc. Statement of financial position showing financial assets and liabilities under the present accounting basis. Further details of each of the elements could be disclosed as schedules to the financial statements. A decision should be made on how to use the multiple level economic classification structure in coordination with the other segments in the classification structure to effectively manage the budget. 69.

An authorization classification is proposed to report and control the budget in accordance with the Appropriation Act and statements in the Annual Financial Statement. provisions are provided for accounts payable and receivables. It would be mainly used for reporting purposes for generating from the iBAS++ the Demands for Grant. The suggested classification facilitates transition to accrual based accounting without needing any structural changes to the classification codes. A switch to accrual accounting would require closing the capital receipt segment and converting the capital expenditure segment into a segment that would record both flows and stocks of non-financial assets. Authorization Classification 73. Map the new economic classification codes with GFS counterparts and build a bridge table to enable the production of GFS compliant reports from iBAS++. however. the Annual Financial Statement and the Appropriation Accounts. Carefully examine the pros and cons of keeping micro-level details in the CoA. The mapping table should be built in iBAS++. Similarly. With the exception of capital receipts and capital expenditures. 72. Authorization  . the capital receipts and expenditure segments have to be given special treatment due to the current accounting policies of the GoB. The third level identifies the type of authorization-voted or charged. The system should be able to produce GFS reports from the iBAS++ accounting records with assistance of the mapping table. The proposed structure is capable of producing GFS complaint statistical reports. This can be achieved by mapping the account in the economic segment with a corresponding account in GFS. the suggested segmentation follows the standard accrual-based accounting structure. which is in parts accrual but largely cash. If necessary. Recommendations Short term  Adopt a multi-tier economic classification structure.38 71. This. Specific ranges have been reserved in the expense segment to accommodate depreciation and provisions. further guidance may be obtained from the IMF.   Maintain double entry accounting principles in classification design and keep the classification integrity intact. E. As discussed earlier. should not require changing the account codes in this segment. Complete the assignment of codes of the new economic classification structure. The SPEMP team will need to complete the mapping table. The first two levels in the classification represent a separate parliamentary authorization. Identify and discard redundant accounts before migrating the existing accounts to the new structure.

or to include items from the economic classification that would control sums spent for that economic classification item for the entire budget. i. Table 11. based on Demands for Grant summarized by Vote (Statement 10 in the Annual Financial Statement).39 classification would also be useful for control purposes by verifying that the sum of lower level spending controls in iBAS++ do not exceed legally authorized spending totals. interest payments can be controlled as a Vote at the second level under the FD Vote or it can be an independent Vote.. controlling certain expenditure items within other controlled totals. The number of sub-segments. In addition. or major units under ministries / divisions might be presented at this level for high level control purposes. Should this approach be adopted in the future. the authorization classification can be used to present the combined demands for grant and appropriations (Statement 11 in the Annual Financial Statement). In the later case it would be . The Appropriation Act is prepared at this time outside of iBAS in accordance with an implicit authorization classification. and serve as legal controls on subsequent spending. The current CoA does not include an authorization classification. no identification number is assigned to charged items. The purpose of the authorization classification is to define how parliament approved spending. 76. the ministry / division level in the administrative classification. showing Grants (voted expenditures) and Appropriations (charged expenditures) at the ministry / division level of the administrative classification. Explicitly identify if an authorization is voted or charged. It facilitates two levels of controls. A different grant/appropriation code is used to assign a unique identifier to all appropriations and grants. for voted items are determined by political and management concerns that parliament may have with regard to the executive’s freedom of action during budget execution. Authorization classification items are the basis for the Appropriation Act. selected charged expenses in the economic classification. For example. But this could be used to authorize spending by the highest level of the function classification. 2 Level 2 XX 3 Legal type X 74. and the nature of each element in a sub-segment. Proposed Authorization Classification Structure Level 1 Attribute Level 1 Digits XX Explanation Currently.e. They are also the basis for preparing the Appropriation Accounts. if desired. The proposed authorization classification gives flexibility to establish Vote control levels in a variety of ways between and within other classifications. 75. Grant numbers are assigned to voted items.

should be made in the classification used to prepare the Appropriation Act and the Annual Financial Statement. Table 12. It is appropriate that designating authorization to spend as voted or charged expenditures. Another possibility is presentation of the Demands for Grant by a combination of administrative and economic classifications. subsidies.should be assigned a unique Vote number. Demands for Grant can be presented by administrative units (ministries/divisions) but there may be separate Grants/Appropriations for large economic items (e. It also opens up several possibilities. etc. etc. as required in the Constitution and PMBMA. such as interest and public employee pension payments. The authorization classification can be applied using a mapping table outside the GL. the Votes would be obtained for each ministry/division under major economic categories (Employee’s benefits. 2012 available at captured at Level 1. No core segment is structured to do this if the Appropriation Act includes votes from more than one segment.) A third possibility could be grants by major functions of government broken down by ministries/divisions for each function.. For example.). pensions. The proposed structure would support such as a move. or vice versa. interest payment. The Votes need not be tied to any particular classification. Good and debt repayment. 78.pdf . In that case. Mauritius' Appropriations by Ministries and Programs10 77. The authorization classification should be the place for identifying the legal type of an authorization to spend. Table 13 provides an illustrative example of a hypothetical application of the proposed 10 Source: Mauritius Appropriation Act.g. The FD is considering identifying in the Appropriation Act selected large individual items normally associated with the economic classification. What is important is that each parliamentary authorization-voted or charged.

However. It has the character of a core segment in the sense that it will be used for control purposes. it is important that the details are fully reconciled and consistent with the totals. 81. This is an important iBAS design issue that should be decided by the iBAS++ working group. The advantages of the first approach are that the detail in the proposed budget always matches the total requested in the Demand for Grants. First. based on who has the authority to establish or amend amounts. appropriations that require parliamentary approval to modify. this means that all detailed data are known and in the system. second. it preserves the approved budget in a separate table that would not be altered by re-allocations and re-appropriations during budget execution. which may not be the case in the event of last minute changes. Second. re-allocations and re-appropriations that must be approved by . Table 13. Day-to-day budgetary control would be exercised in iBAS++ at the level of individual administrative units. 79. The authorization classification has features of both core segments and derived classifications. The advantages of the second approach are that changes to the Demands for Grant can be made very quickly and easily as budget negotiations progress. The authorization classification has the character of a derived classification in that it will be used to produce reports by aggregating expenditure data according to parliamentary authorization. iBAS++ should provide for at least three types of control. the amounts shown in the Demands for Grant can be entered into iBAS++ in two ways. First. and economic category (see Table 14 below). In addition. V=Voted. However. it can be entered as a single number in a separate table. it can be the sum of the detailed information in the system proposed by ministries and agreed by budget staff. projects. Control is achieved during budget execution by confirming that amounts re-allocated to lower levels after the budget is approved do not exceed the amounts authorized by parliament-voted or charged. Illustrative Example of Mapping between Authorization and Other Classifications Authorization Code Level1 01 02 03 03 03 03 Level2 00 00 01 02 03 04 Type* C V V V C V Administrative Classification Economic Classification Office of the President Ministry of Agriculture Finance Division Finance Division Finance Division Finance Division 00000000 00000000 Subsidies Pensions Interest Payments Others *C=Charged.41 authorization classification using a mapping table with the administrative and economic classification. 80. When preparing the budget.

It is recommended that the system be configured so that FD approval is required to establish or amend amounts at the following levels: Table 14. purposes.Item 82. F. re-appropriations that may be approved by ministries. The first two digits define the major function and the subsequent three digits provide a cascading level of detail (Table 15). Suggested Control Levels by Classification Control Levels Appropriation [Grants] Budget [Detailed Demand for Grants] Internal Management within a ministry Administrative Segment Level 2 – Ministry/Division Level 3 – Major units Level 4 – Units Project Segment Level 2 .  Recommendations Short term  Establish an authorization classification within iBAS++. Automate controls within iBAS++ to ensure that re-allocated and re-appropriated amounts stay within the limits established by the Appropriation Act.Projects Level 3-Subprojects Economic Segment Level 2 – Category Level 3 – SubCategory Level 4 . and should be configurable. A four-tier five-digit functional classification is proposed. pensions. Medium term  Consider increasing the visibility of selected large expenditure items. The authorization classification would serve as the basis for the first type of controls. There are multiple technical ways for iBAS++ to assign responsibilities for the second and third types of control. and.42 the FD. by separately appropriating them. such as interest payments. . The principal advantages of having an authorization classification within iBAS++ are:  Preserve the integrity of other CoA segments by not imposing on their structures the need to meet Demands for Grant presentation. or Appropriation Act control. Functional Classification 83. third.

etc. Community schools. A 14 function classification scheme proposed to be adopted in the new classification system. The current inability to reach consensus on a common approach to defining functional sectors for the new classification system is a symptom of the depth of this divide. 3 Details of minor function Sub-details of minor function X 4 X 84. These include:      A 13 function classification incorporated in the MTBF. Further classification of each of the minor functions. The authorities provided the mission with a table that shows the alignment of each of these classification schemes. Primary and mass education.. Preventive health care. It is apparent that the major impediment to undertaking this reform is administrative separation of the planning and the budgeting bodies. 85. The SPEMP team presented to the classification taskforce an approach that involves a functional classification that incorporates 14 functional elements.43 Table 15. 86. The GoB currently employs a myriad of functional and sector classifications to serve a range of similar purposes. Non-formal education. etc. Further classification of each of the major functions into minor functions. Education. Mass education.e. For Example. and The 10-digit COFOG that is derived for GFS reporting. the Planning Commission and the Finance Division. For example. GoB should consider harmonizing the various sectoral and functional classifications. The . Health. Suggested Functional Classification Structure Level 1 2 Attribute Major function Minor function Digits XX X Explanation Identifies major functions of the government. It is understood that each of these schemes can be derived from the 14-function functional classification proposed by the authorities for inclusion in the CoA. A 15 function classification currently being used for classification of the final budget documents. and entrenched positions in these agencies regarding their unique roles and responsibilities in strategy setting and budget formulation. i. Divergent approaches to functional and sectoral classification are not conducive to sound policy making or analysis. For Example. etc. For Example. These classification schemes are closely linked to each other. A 17 sector classification used in the annual development plan by the Planning Commission. etc.

Table 16. the functional coding elements would be redundant for all but expenditure transactions recorded in the GL. It is not practical to have users entering the functional classification for each transaction and incorporating this segment of data in the GL. Bangladesh: Proposed Functions Functions 1 2 3 4 5 6 7 8 9 10 11 12 13 14 General Public Services Defense Public Order and Safety Industrial and Economic Services Agriculture Power and Energy Transport and Communication Local Government and Rural Development Environmental Protection Housing and Community Amenities Health Recreation. Authorities have accepted the recommendation of the August 2013 IMF GFS mission to derive the functional classification. Moreover. in the proposed functional classification. For most users the entries will be largely repetitive. and the results are likely to be inconsistent and sub-optimal. for non-development (project) expenditures of the Ministry of Education. In addition. iBAS++ would look up a pre-populated internal table that shows mapping of the Ministry of Education to the education functional code and recorded such functional code against these . This algorithm should default to capturing the functional classification assigned to a project (entered in the system when a project is established within iBAS++) and for non-project expenditures to capture the functional classification assigned to the organization in a pre-populated mapping table. iBAS++ could incorporate an algorithm for deriving and recording the appropriate functional classification for expenditures. 88.44 differences between the proposed functional classification and GFS/COFOG are that. Culture and Religion Education Social Protection Economic Affairs Defense Public Order and Safety COFOG General Public Services 87. the potential for mistakes will be higher. Education class in COFOG is further elaborated to provide more detail around ICT. In the absence of adequate knowledge of functional classification at the data entry level. the “economic affairs” segment is split into five elements. As an example. rather than explicitly coding it. Culture and Religion Education and Technology Social Protection Environmental Protection Housing and Community Amenities Health Recreation.

some cover multiple locations. 91. a mapping table can be constructed that assigns a location code to each administrative unit. a detailed mapping table can be produced that would enable reporting according to these other classification schemes. Use economic segment to identify expenditures to be included in the functional views. This would involve assigning a location code to a project during the process of entering and elaborating this project during its development phase in iBAS++.  To report by other sectoral/functional classification schemes presently in use in the government. A location classification can be developed and implemented using an approach similar to the one outlined for the functional classification. This will facilitate comparability and exchange of data with other information systems in the country. G. establish mapping tables between the functional classification and these schemes. Medium term  Harmonize the various sectoral/functional classifications presently in use in the government. and for other expenditures it is difficult to know where the ultimate beneficiary . The economic classification will provide the range of expenditure items that will be included in the functional views. While it is possible to build this mapping and reporting functionality in iBAS++. Location and other Derived Segments 90. and taking the location code of the concerned administrative unit for the non-project items. The five-digit 14-function classification scheme can be mapped to produce the other functional/sectoral coding schemes currently in use by the government. Use a mapping table to map project and administrative segments to the functional classification.45 expenditures. Classifying the location of government expenditure is always challenging exercise. 89. the standard geographic classification developed by the statistical office should be used. Prior to the GoB achieving (the highly desirable) harmonization of the functional coding structure. Recommendations Short term  Establish a functional classification as a derived segment. Many government expenditures cover the whole of a country. A coding algorithm can then be built in iBAS++ that derives the location code by taking the location code assigned to a project where a project exists. For the purpose of coding locations. In addition. the mission is of the view that this should be viewed as a lower priority item in developing the architecture of iBAS++ and is a development best avoided by adopting a unified functional coding system.

follow the standard geographic classification and map locations of projects and administrative units. Clarify that the information produced in this manner from a budgeting and accounting system is unlikely to be perfect. H. gender. It calls for a change in the administrative culture to accept that control functions shift in part from financial to operational measures. A widespread consensus. which is different in important ways from traditional budget systems. A program classification is used in a program budget system. such as climate change. A first requirement is that the budget process should analyze. As examples. In the end. Successful adoption of program budgeting requires extensive adjustments to institutions. information systems. While these are important initiatives. procedures. report and evaluate budgets using financial as well as nonfinancial information in determining the allocation of limited financial resources. . and there is much greater disclosure of what agencies are doing and achieving. This is a multi-year commitment. 94. The GoB also seeks to produce a range of other indicators that may be derived within iBAS++. etc. Nonetheless. especially at the political level.  Build separate mapping tables and tags to derive other specific indicators. even though this information is imperfect. program budgets are as much operational plans as financial plans. is highly desirable before seriously considering moving to a program budget system. and human resources at all levels of government and parliament. and is costly. 92. on the benefits of a program budget system. and often a difficult one to achieve. the BW prepares a report on the expenditures incurred to mitigate climate change. Another key requirement. decide. Program Classification 93. and agreement by all parties that they will participate in required changes. It also publishes data on expenditures targeted at gender equality and poverty reduction. Recommendations Short term  For reporting by locations. developing mechanisms to derive these elements with iBAS++ should be lower order priority than developing and implementing the core classification. Each of these indicators could potentially be derived from within iBAS++ using mapping tables and tagging of certain types of expenditure during the budget planning or execution phases.46 may reside. it can be useful for policy formulation and enhancing the transparency of the government operations. and assess value for money by looking at what is achieved through government expenditures. is that line ministries should re-align their operations and management systems around the programmatic structure to gauge their progress toward non-financial goals.

Modifying the existing non-COFOG functional classification (if it is not subsumed within a joint Planning Commission / Finance Division classification scheme) to reflect unique activities and policy priorities. IV. FD and the representatives of multiple donors funding the project that key elements of the project. 2014. as and when it is introduced. Bangladesh is yet to decide on when and how to introduce program-based budgeting. and. attempts to achieve many elements of a program budget through the 5-Year Plan and proposals for inclusion in the ADP. It has become apparent to the SPEMP team.   Recommendations Short term  Keep iBAS++ design flexible to accommodate additional classification segments. Considering that program budgets are unlikely to be implemented in the near future. such as a program classification. functions. will go live on July 1. The Planning Commission. are unlikely to be met within the timeframes previously agreed. The 2013 independent annual review of the SPEMP project11 found that it is highly unlikely that the system. May2013. ADP. eventually. Adopting strategic policy priorities that apply to the 5-Year Plan. including the development and approval of the new classification system. Part of the reason given for the project delay is that the 11 2013 Independent Annual Review of the Bangladesh SPEMP. programs. and Designing iBAS++ to collect non-financial information that conforms to key performance indicators associated with organizations. a program classification can be introduced when a consensus and plan for its introduction is reached. Because iBAS++ will allow for introduction of new classification segments in future. . Project Timeline and Sequencing 96.47 95. but much further work is required for clarity on their form and content. and the non-development portion of the annual budget. as it is defined. broadly speaking. The FD has shown interest in introducing program budgets. any attempt to freeze a program classification structure at this stage will not be fruitful. Additional benefits in the short term can be gained by:   Integrating project coding schemes used by the Planning Commission and the FD. IMPLEMENTING THE NEW CLASSIFICATION A. MTBF. SPEMP stakeholders consider that target dates for the new classification and iBASS++ implementation are very tight.

Irrespective of the target date for implementation. which remains ongoing. 98. agreement to a delayed implementation is now under discussion.48 classification work. Given the current status of the project. To the extent that there is subsequent (hopefully minor) amendment to . If it is determined that iBAS++ and associated classification implementation cannot be achieved in time for preparing the 2014-15 budget. SPEMP. SPEMP team and the CGA must collaborate on a strategy to transition from the previous to the new classification using mapping functions built into the iBAS++ and to deal with accounting issues that will inevitably arise during this transition. it is apparent that the key issues causing delay are:    Underestimation of the scope of the institutional and business process changes required. Underestimation of the scope of required human capacity development associated with the project. this should be sufficient for commencing the coding of the iBAS++ and development of associated new and revised business processes. and An inability to attract and retain the required skill sets to complete both the technical work and deliver the associated business process reforms. Once the taskforce has approved the classification structure. e. is a necessary precursor to other project activities. Task force approval of the classification design Final articulation of classification segments at detailed level Endorsement by FD Submission to C&AG for concurrence Approval by the President of the Republic 99. How this might be achieved will require a conversation between the various donors and GoB stakeholders and is outside the scope of this mission. Based on this report. and the mission’ discussions with the SPEMP team. b. The critical path for approving the new classification involves: a. the findings of a subsequent World Bank led mission. Proceeding to develop the iBAS++ modules should not await formal approval of the new classification. approval. should proceed to finalize the new classification and obtain the necessary formal approvals as the earliest. d. 97. the logical approach is to target the implementation for the preparation of the 2015-16 budget. and incorporation in the iBAS++ and associated training. any extension of the project does not obviate the need for careful management of the classification redesign. However. c. classification changes will need to be sequenced with both system implementation and business processes reengineering in mind. under the oversight of the classification taskforce and in close cooperation with the FD and CGA.

IT support. As the new system will extend beyond the finance domain to all budget-holders and in some ways attempt to standardize their financial operations. such as line ministries. suppliers. Although the existence of a currently functioning iBAS system and high levels of computer literacy form a sound foundation. Jean-Luc Hélis. Any rescoping of the project to target implementation for the 2015-16 budget should ensure sufficient time for extensive testing of the new CoA. Box 3.49 the CoA during the approval process. December 2009. so that (1) the new system can be reviewed by key stakeholders. including the SPEMP team. A more proactive program of stakeholder engagement needs to be launched to address potential impediments to reform before they arise. A key weakness with the plan to implement the project for the 2014-15 budget is lack of adequate time to undertake user testing prior to full implementation. The most recent annual review of the SPEMP found that “the Component 2 as a whole must be approached as an institutional reform initiative which requires that users. these can be accommodated later in the iBAS++ development and testing process. the external audit authority. Transition to a New Budget Classification System A transitional period of sufficient length should be allowed before the new classification system is fully operational. 102. local budget institutions. B. some resistance to these reforms can be expected. and Dominique Bouley. It is suggested that two ministries be selected to undertake pilot testing of the new system in preparing and executing their 201415 budget in parallel to their use of existing systems. iBAS++ and associated changes in business processes well before the implementation date. A carefully managed and well-resourced approach to change management is required to ensure success of the new CoA. Change Management 101. and (3) the legal framework can be amended.6 Budget Classification Prepared by Davina Jacobs. Source: IMF TNM No. (2) operational guidelines can be developed and training performed for staff in line ministries. 100. contractors and developers be educated and sensitized to its impact far in advance of the system’s roll-out. Achieving the level of buy-in requires that a formalized approach to change .” The mission found considerable support for this finding among the various stakeholders. and the mission strongly agrees with this conclusion. In addition to the planned acceptance testing. running the systems in parallel is the best way to identify bugs in the system and make required modifications to business processes prior to full roll-out of the system in time for preparation of the 2015-16 budget. the change management challenges should not be underestimated. if necessary. and other entities involved in the reform. management. and the legislature. Transfer of knowledge and ownership are key elements if the new classification is to be used as a foundation for preparing and executing the budget.

taking into consideration the change implications for diverse stakeholders. from politicians and senior managers to department heads. The SPEMP Implementation Strategy and Plan outlines an approach to training that involves training of trainers. a plan. Revisions to the legal framework to support these changes. At present this appears to be an informal aspect of the role conducted by the project leadership but needs to be formalized and specific resources assigned to this task. Source: USAID. This requires a strategy. 103. and “quick wins” that demonstrate the benefits of change. civil servants and the IT personnel who will support the new systems. but also one of the most neglected. A core team needs to be designated to manage the change. There will be vested interests who have benefited from the way things have traditionally been done. opposition is to be expected. Resistance will come from all angles. 2008. composed of people who can and are empowered to lead. There will be civil servants who see new systems as a threat to their jobs. Overcoming resistance will happen through clear communication. and managing interactions with these stakeholders to engender their support for the project. electronic training packages and tailoring of training to specific job types. Box 4. A comprehensive training strategy. A tremendous volume of training will be required to transition to iBAS++ and new CoA. IFMIS Practical Guide. training.000 people will need to be trained on the new system. with an aim to bring about the change. any systems implementation that ignores change management flaunts with failure. A formal process for identifying stakeholders. While opposition is not always easy to overcome. IFMIS Change Management Change management is one of the most critical. with alternatives. Despite the obvious advantages of a new IFMIS system. Given the diverse stakeholders a broad set of communication channels is needed to deliver key messages to stakeholders. aspects of IFMIS reforms. as well as system functionality and training. a change management strategy needs to be laid out. The desirable features of project management that will encourage stronger change management include:  Complete assessment of the changes in business processes required as a result of the change in CoA and iBAS++ implementation. A formal communication strategy is required and specific expertise included within the project to support its implementation. So what can be done? As soon as an IFMIS project is conceived. There will be those who resist simply for fear of the unknown. The mission team was informed that up to 60.50 management be employed as a shared responsibility between the SPEMP team and the Finance Division. need to be carefully sequenced and supported with appropriate resources.    . education. assessing their interests and requirements.

identify where resources are required to support delivery of the work packages. The mission is of the view that the readiness of FD to assume full responsibility over the CoA and iBAS++ would be supported by some changes in the institutional arrangement in the FD. Perhaps the most critical element to successful change management in the implementation of the new classification system is to ensure that FD continues to be seen as leading the reform process and has the resources and structures to support implementation of the iBAS++ once the SPEMP is completed. and its future expansion following the inevitable handover. Institutional support in FD is a key success factor. It would map out project timelines – including the critical path. the mission team suggests: 12 2013 Independent Annual Review of the Bangladesh SPEMP. A renewed focus on project management methodology is required to ensure success. formalize user acceptance of project outputs. In addition. formal project management methodology will ensure that the project scope is carefully defined. C. . technical requirements and institutional structures. that “the project scope failed to adequately consider…the GoB’s readiness to assume full responsibility for the system’s support. Application of a standard project management methodology (such as PMI PMBOK or Prince 2) will embed the change management elements within project management. including people with required skills. iBAS++ and associated reforms will be supported after the end of the project. the mission also supports the proposition. May 2013. 104. However.51   Identification and engagement of thought leaders and project champions to assist in building consensus and overcoming impediments that arise. define quality assurance arrangements and identify project risks and appropriate risk mitigation strategies. Institutional Support 105. put forward in the most recent annual review of the SPEMP. will be in place within FD once the SPEMP ends. The project and supporting institutions must ensure that resources. maintenance. Specifically.”12 106. identify specific work packages to be delivered both by project staff and counterparts. The mission is under no doubt as to the extraordinary level of commitment of the FD leadership to the success of the new CoA and iBAS++. Identifying the mechanisms to ensure that the CoA.

  Conduct parallel run in two ministries during the process of finalizing the 2014-15 budget. Irrespective of where it resides.a functional owner needs to be found for the system that will provide leadership of the ongoing development of the systems and its functionality to meet future PFM reform efforts. The potential of the new CoA will be fully unlocked only when these associated reforms are undertaken. etc. and establishing mapping tables. This would involve finalizing the classification design. This is not an IT function.   . developing and implementing a plan for strengthening the FSMU to be the technical owner of the iBAS++. Identifying a group within the CGA that will take immediate ownership of development and maintenance of the new CoA and provide support in managing the accounting issues that arise in transitioning to it.    Recommendations Short term  Update the implementation plan.that will reside with the FSMU . development of individual segments. reporting. Disseminate information and conduct sensitization workshops for the key stakeholders in the line ministries. this team must pay particular regards to the functional needs of the accounting. auditor general’s office. control and budget preparation functional areas of FD and GoB generally. target completion by March 2014. including a structured communication strategy. promotion and technical support to the PFM reform effort on a continuous basis. Undertake a more proactive program for stakeholder engagement. With assistance of SPEMP. FSMU’s technical capacity will be critical to support a government-wide implementation of the new system and its subsequent sustenance. This function could reside within the PFM reform team before eventually migrating to the CGA once the PFM reform has been implemented. In addition to technical ownership of the iBAS++ . it is at the very core of a well-functioning PFM system and an enabler to achieving other more visible and important PFM reforms. Develop a comprehensive training plan.52  Establishment of a PFM reform team in FD whose primary day-to-day role will be to provide thought leadership. Classification reform should not be seen as a mere technical exercise. planning commission. share implementation responsibility between FD and SPEMP. Adopt a formalized change management approach.

task force. Develop institutional support and capacity for reforms as outlined in paragraph 106. a number of implementation issues will be addressed over the next 12 to 18 months. These counterparts are fully capable of working out many details. This applies particularly to the economic and the fund segment recommendations. project staff can independently research options and test ideas. The mission suggests that TA should be provided by peripatetic experts over at least a 12 month period. in particular. and ministry staff to work out examples and define procedures. The advisor will further clarify the purpose and hierarchy of each segment and facilitate an early decision on the classification design. More specifically.  Review the economic classification of revenues and expenditure. This will include appropriate classification of the consolidated fund and public account. FAD TECHNICAL ASSISTANCE 107. The mode of TA delivery is determined in large part by the high quality of Project staff. the advisor will assist the FD and the SPEMP team in:  Finalizing the overall classification structure.  Review the functional classification for its sufficiency for a comprehensive functional analysis of expenditures. 108. Given that full implementation of the new system will likely be pushed back a year from July 2014 to July 2015. This will include constructing the bridge-tables to produce the COFOG classification and the other sectoral/functional classifications followed in the . The TA expert should focus on clarifying concepts and adjusting business processes.  Facilitate development of fund and authorization classification. 109. TA would be useful to reinforce the concepts and work with SPEMP project. The advisor will. as well as the administrative and project classifications. and business processes to employ these concepts to best advantage are not clear. Concepts behind some of the mission’s recommendations are new. Follow-up expert TA is required to ensure implementation of the mission’s recommendations. V. This would include providing assistance to the SPEMP team to complete the economic. facilitate decisions on the possible applications of the fund classification as discussed in this report. The duration of the TA is determined by the design and development phase of the iBAS++ system. Between visits by the peripatetic expert. The Advisor’s main tasks will be to assist the FD in implementing the recommendations contained in this report. administrative and project classifications in accordance with the new structure and translate the existing codes into the new structure.53   Adopt a structured project management methodology.

The advisor could also facilitate harmonization of the various functional/sectoral classifications by identifying the possibilities and presenting the available options. including support for designing associated business process changes. .  Advise on the strategy for furthering this work and provide implementation support.  Assist SPEMP team in developing the classification manual and any other guidance documents/communications.54 government.  Assist FD and SPEMP team in planning and delivering training programs. the suggested pilot testing and resolving issues thrown up during the testing and implementation phase.