French Execution budget system

1. French Execution budget system From voted budget to executed budget Pierre Messali 04/03

2. Some budget principlesFive major ruleswith…. major exceptions Unity: all budget appropriations must be gathered in a single budget document. No extra-budget funds (but in fact, the budget law is made of many differents types of budget accounts, so unity outside, but diversity inside) Universality: receipts must not be contracted with expenditures (no exception in France but used in francophone countries) Non-assignment of receipts: receipts must not be assigned to some expenditures (butin fact,many processes alllow this affectation such as « fonds de concours » and « Budgets annexes » or « comptes spéciaux du trésor ») Annuality: appropriations are availa-ble during only one fiscal year (but in fact unspent funds can be carried over un-der certain conditions and capital expenditu-res are voted in a multi-year perspective) Specialization: appropriations must be specialized by nature, destina-tion or service (but in fact some chapters are non-specialized and very often chapters are globalized)

3. Annuality: appropriations are available during only one fiscal year (but in fact unspent funds can be carried over under certain conditions and, above all, capital expenditures are voted in a multi-year perspective , AP and CP) Specialization: appropriations must be specia-lized by nature, destination or service (but in fact some chapters are non-specialized and more frequently chapters are globalized)

4. Once the budget is voted, what next ? Appropriations must be made available for spending. It seems very simple. Actually, it is far from simple…

5. Making appropriations availables at spending ministries First, appropriations must be notified officially to spending ministries by Ministry of Finances (replace the draft-budget bill by the budget bill, decree for appropriations, possible source of conflicts) Next, spending ministries must make appro-priations avalaible to the right unit, within their ministry. This may be difficult. (find the rigth ordonnateur): At central level: normally easy At local level: could be uneasy

6. Why so many budgets are so long to start ? Are some people « sleeping » in spending ministries for being so long ? Be careful to fiscal year (june to july) : August is full holiday, September is return of holiday, so nothing happens before October (it is not insignifiant) Ministries are fully charged for ending the previous fiscal year (extended budget period) Expenditures have simply not been programmed before (we’ve got appropriations, but we don’t know what to do; this is not insignifiant, notably for HPIC expenditures) Because many appropriations are not really affected when budget is formulated and passed (we’ll see later) Are the appropriations stamped on the classification (central or local expenditure) ? Who is competent at local level for managing the funds (local or central ordonnateur)?

7. Are appropriations uneasy to distribute at local level? What is the local level , knowing that we treat of State budget funds? Why this matter is problematic in francophone system? What is the role of the ministry in distributing appro-priations to local representants?

8. What is this thing called « déconcentration » ? State budget gathered funds belonging to State and planned to be spent: At central level At local level: «déconcentré» No confusion with subnational funds spent at local level : «décentralisé» (no State funds)

9. State appropriations are spent at central level by an « ordonnateurprincipal » at deconcentrated level by an « ordonnateur secondaire », but not always (be careful) Central ordonnateurs « dominate » numerous local ordonnateurs by sending them appropriations they decide themselves (« délégations de crédits ») by controlling, more or less, what they are doing and what they are spending (« délégations de compétences »)

10. Difficulties between primary and secondary ordonnateurs are not surprising a primary ordonnateur in a ministry has numerous secondary ordonnateurs in regions or provinces requesting for more funds: priritozation is uneasy and time-consuming choosing between them without any global view or perspective of action of the ministry for the year to come is difficult choosing between them witout any view of the profile of previous year, if the reporting is not of good quality, is difficult choosing without any rules indicating exactly what is the competency of the central level and what is the competency of the local level is difficult, indeed (who will practically mana-ge operations financed by appropriations ?) choosing when the classification of the budget does not mention the level of use of appropriations is difficult (is this opération of central or deconcentrated level ?)

11. Can we solve this headache of «  déconcentration »?Two main examples and one counter-example Example of France (very advanced system of PFM) defining by decree rules of competencies for investmentsbetween central and local levels(who makes what?) registering within the current budget classification (chapters or articles) what comes under local competency and registering the appropriations at a very early stage regionalizing the budget in advance and let the Governor make the allocations at local level (choose the rigth ordonnateur) allocations of appropriations are made under the month

12. Example of Madagascar (not very advanced system) No rules of competencies (no decrees) Building a budget classification very accurate and detailed Inserting in the budget classification the code of the local ordonnateur for each appropriation: very simple, very ingenious the result is that allocation of appropriations lasts 15 days at the very beginning of the fiscal year Be careful: this does not mean that once the appropriation is allocated to the rigth ordonnateur, he will implement the budget quickly and easily. But it is no longer a problem of allocation, but a problem of implementation The drawback of this classification is that the budget takes up around 1500 pages…

13. Counter-example of Morocco: (advanced system) No rules of competencies (no decree) Very global classification, notably for current budget No mention of deconcentrated destination on appro-priations No mention of the ordonnateur Results: « délégations de crédits » are made very often months later the start of fiscal year, depending the ministry: things go rather well when there is a global action plan or a road-map guiding the action of the ministry things are worse when there is no such documents (everything remains to do)

14. What have we learned from the very beginning of the process of budget execution? lack of reporting is a real factor of that makes allocation more difficult: lack of visibility behind lack of programming is a key factor of future difficulties for allocating appropriations once voted: lack of visibility ahead the typically francophone problem of déconcentration is a possible, but not inevitable, factor of complexity (we know the technical solutions). Complexity of déconcentration is not linked to the level of the PFM system (see Madagascar)

15. So, now voted approriations are available in spending ministries and in the hands of the rigth ordonnateurs. What next ?

16. Sorry, but voted appropriations do not represent all available means in the hands of the ordonnateurs. The volume of total available means is the only one which allows to assess the profile of the executed budget regarding the initial budget This volume can be largely monitored by ministry of finances

17. More (+) Unspent fundsof previous year carried over * Non-legislative supplementary funds (emergency funds, estimative funds, « fonds de concours », various tranfers and virements between chapters *) Legislative supplements (additive fiscal law *) Less (-) Cancelled funds (non-legislative or legislative) * Transfers & virements * Voted appropriations.What’s more, what’s less(* flags actions that are monitorable or adjustable easily by government)

18. How assessing the profile of the budget execution on these basis Measuring the gap bewteen initial budget appropriations and total available budget means ? If it is too large, there is probably a problem of monitoring, yet almost all supplement means are adjustable by MOF. Assessing the compliance of all adjustments with the budget rules ( by-law «  loi-organique »). Especially, verify that ceilings of transfers and virements are obeyed. Assessing the degree of transparency of all these adjustments (normally, all acts modifying the budget must be disclosed publicly) Keep in mind that theses various movements are planned to ensure a balance between indispensable flexibility of budget management and necessary respect of the legislative authoriza-tion

19. The example of the French budget total means (euros billions)

20. Some quick comments total means never exceed 10% of initial appropriations; the average is around 5%. the room of manoeuver is mainly made by additive law (notably by cancellation of funds) all theses mouvements are strictly compliant with constitu-tionnal bylaw and largely disclosed for transparency. make no confusion: this figures measure the amount of total available means and not the amount of the spending as it will be executed later

21. So now, the ministries get all their budget means. And, finally, the real spending is ready to start…But, usually in french matters, things are going better than we feared, but worse than we hoped…So now, the spending needs to be monitored.

22. The role of monitoring is to ensure that total available budget means will fit with a certain ceiling of spending in order to obey the initial budget result, also depending of the result of tax recovery.This is the main role of the Budget Directorate. And it’s not an easy role.

23. Three main methods of monitoring Cancellation of appropriations (France) Quotas of commitments (francophone systems) Cash-rationing ( « nigthmare » systems )

24. Cancellation of appropriations appropriations are first frozen with large advertisement appropriations are later cancelled in an additive bill or simply by decree acts of freezing and cancellation are totally transparent and disclosed the sooner, the better for the management It’s a very clear process and so simple of course, ministries complain about theses kind of policy and Parliament too…but, above all, the result is efficient and transparent. Quotas of commitments appropriations remain unchanged marge of commitment is reduced (many methods) So the real spending is reduced no transparency (who decides what operations are reduced or cancelled ? Is the Parliament associated to this policy?) be careful: a new budget is frequently issued in execution the monitoring is very difficult to manage

25. Cash rationing the spending is made as far as the cash is available (allotments) the one who owes the cash in his hands is the key-actor in this game it means that the accountant, who knows about the cash available, must give the ordonnateur the quota acceptable for spending but such a system is not adapted to the french system, because the accountant and the ordonnateur are independant, so they are not used to cooperating the awfull results of such a system are: Corruption: who makes the choice of expenditures to be paid ? Arrears: because of a lack of coordination, expenditures are made by the ordonnateur but not paid by the accountant (because no cash)

26. Some examples of monitoring Most francophone african countries mix quotas of commitments at central level and cash rationing at local level (Cameroon, Guinée, ..). The result is not much good Be careful: some african countries don’t have any problem of cash-rationing because their treasury is abundant (ex: Benin, pre-sence of numerous donors) Madagascar has quotas of commitments but without transpa-rency Cambodia has a system of cash-rationing with corruption, inefficiency, etc… Argentina has a very sophisticated system of quotas of com-mitments but, at the end of the day, non-transparent (in fact, a new budget is issued in execution by the eminent role of the Budget directorate)

27. Can we have a preference ? Two criteria :simplicity and transparency No question: the most simple and logical solution is cancellation of appropriations (what has been given is taken back) Yet, no francophone country applies this system. Why? Because it leads to transparency Because it requires an efficient system of re-allocation of appropriations. Two things really missing in theses countries

28. Now, the budget cooking is done.What’s about the cooking of the spending itself ? What is this so-called french specificity of the spending system?(« circuit de la dépense »)

29. Sorry, but the french system is not as specific as it seems to be

30. wb229929: wb229929: Four steps and three actors • Sign * indicates which duty each actor fullfils • color redindicates the french specificity

31. Some comments The four steps of expense are common to almost all systems, for follo-wing a logical and cautious way -commitment: act by which the State commits itself for buying a good or a service andfor booking a budget fund (orders, procurement matters, ..) -service delivery: when the service is done and the amount is known -payment order: when the order to pay is issued (no return possible) -payment: when the payment is effectively made The french specificities are based on the existence of a controller and of a separate accountant from the ordonnateur: - the controller controls the regularity of the commitment (sometimes the payment order) and has the power to refuse his visa to the commitment, if not compliant with the rules - the accountant is in charge of payment but he’s also deemed to control the regularity of the whole process by the ordonnateur (if something wrong, he will refuse the payment)

32. Indeed, that’s a lot of controls ! French system is built on the principle of separation of powers (actors) but not on the principle of separation of duties (steps of the expense) if different personsinterevene on the chain of expense, each one will control each other and this will prevent misuse of public funds if, at the end of the chain, the one who definitely pays (the accoun-tant) is responsible on his own money, it will be one more assurance In France, the system works well and, in fact, the controller is closely implicated in the chain of the expense meanwhile the accountant is focused on logistical problems of payment and accounting and reporting. In francophone developing countries, this system has not avoided corruption but probably limits it. Yet, in some coun-tries highly corrupted, it migth increase corruption because each step of control is becoming highly valuable.

33. Traps to avoid Create a unit of control of service delivery (service fait) ex: Cameroon Put two different persons for commitment and payment order Ex: Madagascar Believe that the control of ordon-nancements will improve the control Ex: Madagascar Attach the Control to the Presiden-cy and not to the MOF Believe, on principle, that repla-cing Control ex ante by ex post control will improve things Believe, on principle, that Control is responsible for long delays of spending Ideas to consider Define the list of documents to be produced at each stage of expense for better design the role of each actor Think about a system of shared responsibilities between the three actors and not the sole accountant Issue manuals of processes for the ordonnateurs. Simplify some visas. Simplify the circuit and make the ordonnateur fully responsible of the three steps in which he intervenes Move the Controller near the ordonnateur Reinforce the Controller at local level for funds « déconcentrés » Make the Controller fully respon-sible for reporting of commitments Some adaptations of this system in francophone developing countries

34. What looks like a french circuit of expense ? A good or a bad system of payment? It de-pends only on the professionalism of accoun-tants and the equipment of the system Nothingin the french configuration of payment is specific enough for improving or deteriorating the system of payment itself. No cause of delay is specific to the system (some system are very quick, some very long) No specific cause of reliability in the payment itself is attached to the french system A three-heads monster ? Three actors in the chain of expense means three networks Network of ordonnateur: from commitment to payment order Network of controller: for commitments Network of accountant: for payment order received and payment Three independants actors leads to difficulties of communication Each actor must book opérations in financial statements Ordonnateur: payment orders issued (ordonnancements) Controller: commitments (engagements visés) Accountants: payment orders received and payments made Each book needs to be re-conciled with others (ex: payment orders issued by ordonnateur need to be reconciled with accountant’ones) Is it possible for an Accountant to trust the books of an ordonnateur if the Accountant is responsible on its own money?

35. The system of reporting: a three-heads monster ? Three actors in the chain of expense means three networks Network of ordonnateur: from commitment to payment order Network of controller: for commitments Network of accountant: for payment order received and payment Three independants actors with difficulties of communication Each actor must book operations in financial statements Ordonnateur: payment orders issued (ordonnancements) Controller: commitments (engagements visés) Accountants: payment orders received and payments made Each book needs to be re-conciled with others Three very different actors Can the accountant trust the statements of an ordonnateur? Excahnge of statements is manual at each stage (by floppy)

36. A single-head monster is still a monster Many claim that an Integrated Financial management system is the only solution for facilitating reporting the chainwill be unified and each actor will work on it’s own « window » in order to avoid problems of reconciliation the making of accounting statements will be facilitated the reporting would be made faster Such a system is not obvious: very expensive (setup and maintenance) requires a stable and reliable system of circuit of expense. some experiences are not really conclusive (Benin: SIGFIP) France itself still doesn’t have this integration do not believe miraculous solutions or technological drunkenesses The most important action should be to enhance and institutionnalize the role of each actor (what is precisely their role ?) and to ensure communication between them.

37. In any case, there are a lot of little monsters beside the main system, notably in Africa. The main process of expenditure (4 steps, 3 actors, network of expense, ..) is generally not the most used many execeptional processes are applied and would continue to be used even in the framework of an integrated system (ex Benin) be very cautious and supsicious with processes as: -régies d’avances (60 % of expense in Benin) -paiement sans ordonancement -paiement sur réquisistion -fonds spéciaux… So as, if the IFMS is not exactly adapted to the French system of the expenditure, it is definitely not adapted to the African system, as long as some elementary rules of accountability have not been accepted.

38. Is this monster responsible for accumulation of arrears ? Three major types of arrears Case 1: expense is commited but the payment order is not issued. The ac-countant is not aware of this expense. At the end of the year, the fund, with which the commitment has been made, is cancelled and the commitment needs to be re-made next year. It could be an arrear. Case 2: expense is ordered to the accountant but the accountant cannot pay it (lack of cash). It is an arrear. Case 3: expense is commited and ordered by a fictive ordonnateur (when I switch on the ligth, I create an expense without any prior commitment). It’s also an arrear. What kind of arrears is created by the francophone system? Case 1:not at all (if invoice not sent, payment order cannot be issued) Case 2: yes, separation ordonnateur/accountant can be favorable factor Case 3: no, it happens everywhere (system of quotas pre-paid)

39. Now, spending is over and reporting is issued. What next ?It is necesary, for more transparency, to close the exercice by issuing financial bills which allow to compare the initial budget and the executed budget

40. Additive budget bill Additive budget bill updates the initial law in receipts and outlays It asks for opening new appropriations It ensures cancellations of funds It give many informations about the management of teh budget during the year It issues an updated result It brings globally more transaprency in public finances The later, the better oversigth Loi de règlement It closes definitely the budget (receipts, outlays) It is joined with a report of Cour des Comptes It is the only document which give exactly th eprofile of the execution It gives two fundamental informations about budget management of appropria-tions and spending itself It shows very clearly possible irregularities in management and spending. The sooner, the better oversigth Two legislative acts at the end of the year

41. Are these two indispensable legislative acts issued in francophone countries? Unfortunately Not. The practise of additive bills is unknown in Africa and Magrheb it is a sign of lack of transparency but it is also motivated by a fear for the aggregate fiscal discipline (viewed as a mean to open more funds, notably vis-a-vis the Presidence) it explains why cancellations of funds are not used for the monitoring some countries (Madagascar) issue such a bill, but to early in the year The lack of the Loi de règlement is the worst point Many countries issue regularly such documents but there are wrong because the reporting is not correct (Cameroon, Benin, …) Some countries issue very acurate documents but 3 or 4 years after teh battle, so there become unuseful (Morocco) Other do not issue any document

42. The weakness of a francophone public management system is proportional to its capacity to issuing a reliable « loi de règlement ».The ex post control function is higlly depending on this capacity.

43. END