BUDGET EXECUTION

1. BUDGET EXECUTION Presenter: M. Shohelur Rahman Chowdhury Procurement Specialist

2. Budget execution is the phase when resources are used to implement policies incorporated in the budget.

3. Requirements for budget execution • Compliance - 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

4. Budget execution cycle

5. 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

6. 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

7. Verification stage • The verification stage immediately follows the deliveries • Verification is the conformity of the delivered goods, or rendered services • For debt service, personnel expenditures and a few other expenditure items the verification stage and the commitment stage are combined

8. 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

9. 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

10. Compliance control in budget execution • Why compliance control? • To prevent blatant cases of misuse of appropriation • Overspending • Irregularities

11. Compliance control in budget execution • At 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

12. 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 • After final payment examine and scrutinize the expenditure concerned and report any irregularity

13. 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

14. Compliance control in budget execution • Commitment 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

15. Implementation and Budgetary Expenditure Source: Allen and Tommasi 2001

16. Issues in managing and monitoring budget execution • Distribution of responsibilities • Ministry of finance • Line ministries • Spending units • Treasury • Period covered: Annual Rule • Transfer within the appropriations • Sequestrations • In-year budget revision

17. Treasury function • Cash management • Management of government bank accounts • Accounting and reporting • Financial planning and forecasting of cash flows • Management of government debt and guarantees • Administration of foreign aids • Financial asset management

18. Objectives of cash management • Controlling spending in the aggregate • Implementing the budget efficiently • Minimizing the cost of government borrowing • Maximizing return o excess operating cash balances

19. 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)

20. 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.

21. The CREAM of performance • A performance indicator must be: • Clear • Relevant • Economic • Adequate • Monitorable • Never use either one single indicator or too many indicators (Source: Schiavo-Campo)

22. THE BOTTOM LINE • It 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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24. THANK YOU