Professional Documents
Culture Documents
Public Financial Management Bill
Public Financial Management Bill
Good Practices
Bill Dorotinsky
Halong Bay, Vietnam
The World Bank
October 9, 2003
Outline
I. Framework
a. Expenditure Management Cycle 3
b. Three Objectives 4
c. Five Principles 5
II. Good Practices 6
a. Basic Institutions 7
b. Core processes 8
III. Budget Execution – Objectives 9
a. Core treasury functions 10
b. Contingent liabilities 11
c. Expenditure Control Approaches 12
1. Central versus Delegated Control 13
2. General Tensions 14
d. Managing Well 15
e. FMIS 16
f. Essential of Good Financial Management 20
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Expenditure Management Cycle
Financial management system boundaries
ma n
Liq
Expenditure
uidi t
age
review
me n
ty
Public expenditure
review Institutions Fund release
procedure, e.g...
warranting
Accountability
Pro
re
i tu
j
nd
ec
l
pe ntro
tm
x
E co
on
Audit system
i to
Pos
r in
t ev
revi ent g
g
i t or i n Accounting for
ew Mo n l i ng revenue and
c o ntrol
Reports and & expenditure
financial statements
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Basic principles of PEM
• Comprehensiveness
– include all revenue and expenditure, all agencies
• Accuracy
– record actual transactions and flows
• Annuality
– cover a defined period of time (e.g. one year budget, multi-year
forecasts)
• Authoritativeness
– only spend as authorized by law
• Transparency
– information on spending is public, timely, understandable
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What are Good Practices?
• Attaining and Maintaining Good Basic
Institutions
– Basic public finance institutions must work
well for good policy and program outcomes
– Too often countries reach for advanced OECD
reforms, neglecting basic institutions
• Dedication to continuous system
examination, learning and improvement
– institutional development is long term
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What are the basic institutions?
Trea s u ry Budget
I
n
t M
I e u C
C D r l o
n a R
e n t m
f s pr e
bt a i-
o. h Laws
l
y E p
S e h o
y M Practices a e r
M g A
s
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g Organizations
m u
r n
s
t
in
m nt d I
e Pl g
nt i a v
m
t n e
Control Environment
Accounting and Record Keeping
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External Audit
Core Processes
- Budget Allocations - asset management
- Supplemental Budgets Ministry of Finance - procurement, contracting
- Virements
- In-year monitoring and correction
- payroll/personnel mngmnt
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Core Treasury Functions
• Cash management (flow and stock)
• Financial asset management
• Debt management, servicing;
– Guarantee and contingent liability management
• Accounting (policy, chart of accounts, general ledger)
and reporting
• Revenue collection, forecasting
• Account management (payment, collection,
reconciliation)
• Central Bank relations
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Contingent liabilities
• Government acts as a guarantor of debt repayment
in the event that the borrower cannot make
repayment, or of payment under certain conditions
– Loan, pension benefit, bank deposit, agricultural price
• Contingent debt must be managed with the same
detail as direct debt.
• As with direct debt these contingent debts must be
inventoried and monitored in a central location
• Active identification, monitoring, management of
risk important
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Expenditure Control Approaches
Ex Ante Ex Poste
(to commitment)
External Centralized commitment control Central internal audit,
(to spending (transaction approval) external audit
unit) Allocations (commitment limits) Regular reporting
Warrants (cash limits) Quarterly close-outs
Procurement rules
Personnel/pay rules
Internal Ministry or spending unit Ministry internal audit
transaction approval Performance
Procedures to minimize risk Management
(internal controls)
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Central control versus
Managerial Flexibility
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General Tensions
Agent “accountability”
- for results +
Central +
Management authority
control
Agent
Incentive
Financial
for off-
budget
activity
Delegation -
- Efficiency, economy +
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To manage well requires:
• Monitoring/managing
– Cash balances
– Cash flow
• Inflow
• outflow
– Commitments
– Arrears
– Contingent liabilities
– New legislation/mandates
– Off-budget activity
– Understanding future impact of current decisions
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Definitions
What is an FMIS?
• Financial management system:
– Information system that tracks financial events and
summarizes information
– supports adequate management reporting, policy
decisions, fiduciary responsibilities, and preparation of
auditable financial statements
– Should be designed with good relationships between
software, hardware, personnel, procedures, controls and
data
• Generally, FMIS refers to automating financial
operations
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Definitions
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Criteria for Assessing Budget Execution System
Element Budget Execution Features
Aggregate Commitment control system limits commitments to available resources, supporting avoidance
Fiscal of arrears during retrenchment.
Discipline Treasury cash management further supports matching of expenditures to revenues.
Treasury payment system and internal controls support proper payments.
Accounting system and Financial Management Information System (FMIS) support
comprehensive, timely and accurate information on spending and revenues for government and
line ministry management.
Fiscal and banking accounts regularly reconciled.
Annual accounts closed in timely manner.
Debt management assures sustainable debt policy, timely issuance of debt for cash flow
management and reaching the spending target.
Internal audit detects and corrects fraud, waste, and abuse; assures integrity of financial
information.
External audit assures fairness and accuracy of financial reporting, effectiveness of internal
audit and control systems.
Allocative Commitment and Treasury controls execute the budget as approved.
Efficiency Formal, transparent procedures used to amend budget if necessary.
Frequency of FMIS reporting allows management action to correct deviations from approved
budget.
Technical Budget execution (commitment and cash controls) limits critical expenditures, but supports
efficiency flexible resource use at program level (e.g. across non-personnel economic classifications, with
respect to seasonal spending patterns) for efficiency (controls are not excessively detailed to
prevent management of program).
FMIS supports program managers.
Civil service system supports quality public staff, flexibility in reallocating staff resources,
restructuring workforce.
Procurement system supports competitive, efficient, timely contracting.
Internal audit may identify options for improved economy and efficiency.
Source: Draft Federal Republic of Yugoslavia PEIR, May 2002
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