Tracking Progress and Controlling Funds Concepts Bill Dorotinsky

Tracking Progress and Controlling Funds: Concepts Bill Dorotinsky, PRMPS The World Bank Budget Management Course March 1 -2, 2004

The HIPC Expenditure Tracking work illustrated that PEM systems remain weak in basic areas. (Percent of countries not meeting each benchmark) 100% Note: Based on 24 countries’ Final Assessments Fiscal & monetary data reconciled Month reports 3 4 5 6 7 8 9 10 11 12 Formulation Execution Audited accounts to legislature within 1 year Regular tracking 2 Accounts closed within two months of y/e Quality of internal audit (effective or not) 0% Benchmark number: 1 Low level of arrears 10% Projections integrated into budg. formulation 20% Pov. Red. Exp. Identified 30% Classification of budget 40% Data on donor financing 50% Outturn close? 60% Extra (off) budget expend. 70% Meets GFS definition of general government 80% Timely functional reporting from class system 90% 13 14 15 Reporting Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, 2002. See http: //www. worldbank. org/hipc-review/tracking. pdf The World Bank 2

Post Budget Stages • Release of Authority to Spend or Funds – Notification of budget – Commitment authority issued (if done) • Financial plans – Warrants issued (cash draw) – Cash transfer (if done) • In-year modifications – Transfer authority – across accounts – Virements – across ministries – Supplemental Budgets The World Bank 3

Financial commitment stages • • Encumbrance/pre-commitment/reservation Commitment/obligation Receipt of goods and services Invoice Verification Paid Cashed/cleared The World Bank 4

Commitments, agency activity, and cash outflow: time lags The World Bank 5

Budget classifications • • • Administrative Economic/object class/’inputs’ Functional Program Fund Line Item The World Bank 6

Classification Matrices: frequently used to control Payroll Utilities Rent Ministry 100 20 10 Program 20 4 2 Activity 0. 2 0. 1 1 Etc…. …… The World Bank 7

Control Approaches Ex ante Ex Poste (to commitment) • Centralized commitment control (transaction approval) (to spending • Allocations (commitment limits) unit) • Warrants (cash limits) • Procurement procedures • Personnel/pay rules • “continuous auditing” • Disbursement rules External Internal • Ministry or spending unit transaction approval • Procedures to minimize risk (internal controls) • Transparency The World Bank • Central internal audit • External audit • Regular reporting, management intervention • Quarterly close-outs • Cash rationing • Ministry internal audit • Performance management 8

Central control versus Managerial Flexibility • Tensions between needs of center to – Control cash flow – Control policy • And agency need to manage programs – Larger, less detailed allocations – Longer time horizon – Greater transfer authority/flexible application of resources The World Bank 9

General Tensions The World Bank 10

Essentials of Good FM • Timely, accurate in-year reporting – Internal controls, audit – External audit • Sufficient detail to identify sources of overspending • Sufficiently regular reporting to allow timely management intervention • Comprehensive system • Accountability framework, control environment The World Bank 11

To manage well requires: • Monitoring/managing – Cash balances – Cash flow • Inflow • outflow – – – Commitments Arrears Contingent liabilities New legislation/mandates Off-budget activity The World Bank 12

So what are countries doing to improve systems? HIPC expenditure tracking Action Plans focus on both short-term actions (“bridging mechanisms”) and medium-term actions and goals. Typical short term measures: • • Adjust budget classification (e. g. Benin, Cameroon, The Gambia, Mali, Niger ) Create virtual fund (e. g. Burkina, Ghana, Mauritania, Tanzania) Rollover MT projections (e. g. Burkina, Malawi) Timely reconciliation (e. g. The Gambia, Ghana, Honduras, Nicaragua) Begin or enhance FMIS (e. g. Guyana, Malawi) Rationalize bank accounts (e. g. Mozambique) Bring all revenues on-budget (e. g. Sao Tome) Typical medium term measures: • • • Overhaul budget law (e. g. Mozambique, Malawi) MTEF development (e. g. Zambia, Mali) Internal audit capacity (e. g. Tanzania, Malawi, Honduras) Classification and coverage to GFS standards (e. g. Tanzania) Clean up annual reporting arrears (e. g. Niger, IFMIS development & implementation(e. g. Mali, Malawi, Ghana) The World Bank 13