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BUDGET EXECUTIONPresenter: M. Shohelur Rahman Chowdhury
Procurement Specialist
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Budget execution is the phase when resources are used to implement policies incorporated in the budget.
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Requirements for budget executionCompliance - Ensuring that the budget will
be implemented in conformity with the legislature’s authorization
Adaptation - Adapting the execution of the budget to changes in the economic environment
Sound Management - Resolving problems met in program implementation and preventing any risk of abuse and corruption
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Budget execution cycleAuthorization
and apportionment
Commitment
Acquisition and
verification
Issuance of payment
order
Payment
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Authorization and Apportionment Stage
A warrant or a decree authorizes line ministries to use the appropriations or a part of the appropriations
Line ministries (main spending units) apportion the authorization to spend to their subordinate spending units
Authorization is generally granted for the entire fiscal year
In British Commonwealth countries it is granted for shorter period
Ministry of finance may freeze a part of the approved appropriations for prudent budget management
Funds should be allocated to spending units as soon as the budget is approved
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Commitment stage
Commitment stage is when a future obligation to pay is incurred
For goods and services commitment means legal commitment
Commitment entails an obligation to pay
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Verification stageThe verification stage immediately follows
the deliveriesVerification is the conformity of the delivered
goods, or rendered servicesFor debt service, personnel expenditures and
a few other expenditure items the verification stage and the commitment stage are combined
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Payment Order Stage
After verification of goods and services the authorizing officer issues a payment order
Expenditure is recognized and recorded in books of the public accountant and in the books of the authorizing officer
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Payment stage
Bill is paid by cash or cheque or electronic fund transfer
At this stage comparison with bank statements should be systematically carried out
Issue of cheques at the end of the year may lead to high fiduciary risks
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Compliance control in budget executionWhy compliance control?
To prevent blatant cases of misuse of
appropriation
Overspending
Irregularities
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Compliance control in budget executionAt commitment stage verify that
The proposal to spend has been approved by an authorized person
Money has been appropriated for the purpose stated in the budget
Sufficient funds remain available in the appropriate category of expenditure
The expenditure is classified in the correct way
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Compliance control in budget executionAt verification stage the documentary
evidence that the goods have been received and services were carried out must be verified
The expenditure has been properly committedThe invoice and other documents requesting
payment are completeThe creditor is correctly identifiedAfter final payment examine and scrutinize
the expenditure concerned and report any irregularity
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Compliance control in budget execution
At verification stage the documentary evidence
that the goods have been received and services
were carried out must be verified
The expenditure has been properly committed
The invoice and other documents requesting
payment are complete
The creditor is correctly identified
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Compliance control in budget executionCommitment may be made through different
channels which may be upstream from the annual budget cycle
Expenditure in utilities such as electricity and
telecommunication expenditure
Staff recruitment
Contingent liabilities
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Implementation and Budgetary Expenditure
Source: Allen and Tommasi 2001
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Issues in managing and monitoring budget executionDistribution of responsibilities
Ministry of financeLine ministriesSpending units
TreasuryPeriod covered: Annual RuleTransfer within the appropriationsSequestrationsIn-year budget revision
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Treasury functionCash managementManagement of government bank accountsAccounting and reportingFinancial planning and forecasting of cash
flowsManagement of government debt and
guaranteesAdministration of foreign aidsFinancial asset management
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Objectives of cash managementControlling spending in the aggregate
Implementing the budget efficiently
Minimizing the cost of government borrowing
Maximizing return o excess operating cash
balances
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What’s the money for?Performance is not a simple concept ("Achievement”,"realization","fulfillment')“Performance” can be subjective (for effort) or objective
(for results). Choose results-orientation, but don’t forget the effort
dimension.Also, the "results" must be appropriately defined, and
an exclusive focus on results without respecting process will weaken process and eventually produce bad results
“Performance” is the achievement of agreed results within resources and time provided, without diluting quality and respecting the prevailing norms of due process.
(Source: Schiavo-Campo)
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THE FOUR "P'S" OFBUDGETING PERFORMANCE
Traditional paradigm: Probity and Propriety
New paradigm: Policy and Performance
Beware of dichotomies – All Four P’s are essential to execute well the budget, and foster both integrity and operational efficiency.
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The CREAM of performance A performance indicator must be:
ClearRelevantEconomicAdequateMonitorable
Never use either one single indicator or too many indicators
(Source: Schiavo-Campo)
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THE BOTTOM LINEIt is possible to execute badly a good and
realistic budget; it is not possible to execute well a bad and unrealistic budget.
International experience demonstrates that strengthening efficiency and effectiveness in budget execution cannot be accomplished by excessive controls, but by introducing into the budget management system: A systematic, robust, and transparent dialogue on results.
(Source: Schiavo-Campo)
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THANK YOU
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