PEMCh 04

Chapter 4
Managing Budget
Execution
Chapter Contents
 Objectives of budget execution
 Expenditure Cycle
 Issues of Budget implementation
 Payables, Personnel, and
Procurement management
 Public Pension Fund Management
4.1 Objectives of Budget Execution
1. Importance of budget
execution
An efficient budget implementation calls
for
Ensuring conformity of budget with
authorization
Resolving problems during implementation
Managing purchases
Adapting the execution to significant
changes in the macroeconomic
environment
4.1 Objectives of Budget…
2. Budget execution systems
The system should :
◦ ensure rigorous aggregate exp. control
◦ ensure efficient use of resources
◦ enforce the fiscal targets
◦ However, it should not limit itself to the
traditional input control which will reduce
flexibility of managers to allocate inputs
4.1 Objectives of Budget…
3. Overspending and underspending
 Overruns may be due to noncompliance of
budget with the spending limits defined.

 Overruns can be because of poor budget
preparation (Accounting& Auditing can

check overruns together with sound budget
preparation)
 Underspending may be due to insufficient
budget preparations and off-budget

spending.
4.2 Expenditure Cycle- Stages
(1) Apportionment of appropriations
and release of funds to spending units
 Funds may be released through
notification of cash limits, funds
transfers to imprest accounts and
other mechanisms
 Apportionment by the central budget
office and then by the line ministries
will be done.
4.2 Expenditure Cycle- Stages…
(2) Commitment
 It is a point where a future obligation
to pay is incurred.
 It consists of placing an order or
awarding a contract for goods and

services
 A commitment may correspond to
commitment stage or verification stage

4.2 Expenditure Cycle- Stages…
(3) Acquisition and verification
 When goods are delivered, its
conformity with the contract is verified.
Exp. at the verification stage entails a
liability
(4) Payment
 At this stage payment is made through
checks, cash or debt instruments. But,
barter payments are not agreeable.
4.3 Issues of Budget Implementation
Assuring Financial Compliance
A) Release of Funds
 Funds should be released in conformity with
budgets. Consider the following:
◦ The agencies should know funds
allocated
◦ Funds must be released on time
◦ Pay more attention to agencies in
remote areas.
◦ See that arrears are minimized.
4.3 Issues of Budget Impl…
A) Release of Funds…
 Consider the financial needs of ongoing
commitments
 An in-year distribution of payments may not
be steady and depends on many factors.
Sequestering: is the blocking of appropriations
by the MOF to balance the budget
B) Compliance Controls
 At the commitment stage(financial control)
 When goods and services are
delivered(verification)
 Before payment is made for goods and
services (accounting control)

 After final payment is made (audit)
C) Distribution of Responsibilities
 Responsibilities of line ministries regarding
the budget and programs have to be defined
 Interference may be there from MOF,
treasury or other central agencies. It may
impede effective implementation. So,
responsibilities have to be defined.
 Responsibility include budget administration
and policies related such as release of
funds, supervising bank accounts,
monitoring expenditure flow etc.
D) Budget Appropriation Management Rules
1.Annual nature of appropriation
 Annual appropriation is the classic rule.
 It creates a rush for spending at the end of
the year(squander mania),may be unplanned
 To avoid this problem, carry-over of a certain
percentage of unspent appropriations may be
allowed.
2. Transfers between line items (virements)
 Budget transfer rules must be stated in the
financial regulations or org. budget law.
 Control of transfers is a major activity in
Budget Execution
 Determining the exact inputs for a program
may be difficult. So, transfers may be needed.
3. Expenditures financed by external sources
 They have to be budgeted
 Procedures have to be designed to authorize
contracting of loans, to control indebtedness

and the total amount of loan.
 Annual drawing should be indicated
4. Special issues related to multiyear-
commitments
 Authorization for forward commitments
should be included in the budget.
 Preparing multi year estimates can help in
preparing the authorization for forward
commitments. However, a control from the
MOF is necessary
E) Other Issues of Bud. Implementation
1. Monitoring the Execution of Budget
 Systematic monitoring of Budget Execution
 Register and track the use of appropriations
 Financial reports at each stage
 A comprehensive midterm review of the
implementation of budget
2. In-year budget revisions
 Budget revision rules are needed.
 Revisions have to be made by law
 Revision above a certain limit should be
presented for legislative approval
 Procedures for authorizing emergency exp.
before the approval
 The number of revisions should be limited
4.4 Payables, Personnel,& Procurement
Mgt
A) Managing Payables and Arrears
1. Managing Payables
 Provision for advance payments, progress
payments
 Monitoring goods and services delivered.
Avoid penalties for payments

 Payments of contracts and recording
payments.
4.4 Payables, Personnel…
2. Arrears
 Arrears pose problems for suppliers and also
for public expenditure mgt

 Arrears in the payment of utilities is common
 Arrears have to prioritized for payments
based on the date of invoice

3. Issues Related to non-budgeted exp and
unfunded liabilities
 Funded liabilities are from expenditure that
are budgeted
 Argued that unfunded liabilities should not
be paid as they are not budgeted. However,
govt may have unavoidable unfunded
liabilities. It may be paid and approved later
on
3.Issues related to non-budgeted exp…
Unfunded liabilities include:
A) Liab. arising from legislative changes
B) Compulsory indemnities (indemnifying
contractors for a breach of contract)
Exceptional expenditures that cannot be
estimated (natural catastrophes)
B) Personnel Budgeting and Expe. Control
1. Civil Service Issues
 Civil service laws should be adequate to
regulate the responsibilities of employees

 Law should regulate quality of civil servants,
staffing level and pay costs

 Provision is needed to curb corruption
2. Comparative analysis of pay determination
systems
 Pay determination systems may be
centralized or decentralized
 Pay and compensations may be determined
with an involvement of the workers

 Check the aggregate pay, benefits etc.
3. Management and control of
personnel expenditures
A) Organizational Issues
 A central personnel mgt office may
not be required if the line ministries

manage personnel
 Both budgetary control and
managerial control are used for

controlling personnel.
 But, a central agency can help in
B) The need for a specific control
 To control personnel exp, there should be a
special focus on it. In some countries, it is

grouped with goods and services
C) Spending Limits and Staff Ceilings
 Personnel exp must be accurately estimated
 Funds for bonuses etc should be identified
4.5 Public Procurement
1. Objectives
 Right quality, and quantity at a competitive
price.
 Provide fair opportunity for all bidders
 Avoid corruption
4.5 Public Procurement…
2. Procurement Cycle
It includes:
 Identification of user needs and project
preparation
 Determination of the procurement procedure
 Tendering process
3. Principles of competition and transparency
 The procurement process should be made
open to public scrutiny
 Written records that contain the details of the
procurement should be maintained
 The legal framework and the govt’s code of
ethics should include standards for procure.
Contracting Out
 It is a means of transferring some activities to
the private sector
 Define the activities to be contracted out
 Consider various options such as lump sum
contract, price per unit contract etc.
 Contracting out will not discharge the govt
from its responsibilities.
 The govt should also design ways of dealing
with the staff that will become surplus due to
contr.out
4.6 Public Pension Fund Mgt
 Pension fund is a liability of the govt
 To lay a foundation for pension fund
governance, the risks to stakeholders have to
be identified. The risks are:
 Failure of the govt to meet its promises
 Use or misuse of the fund for other purpose
 Underperfmance of the fund due to lending
 Loss of funds due to corruption and mismgt
4.6 Public Pension Fund Mgt
Laying a foundation for Public Pension
Governance.
 Growth of retirement benefits beyond the
budget’s capacity due to demographic
changes is a major risk.
 Good governance is the solution for risks.
End of Chapter 4

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Chapter 4

budget with the spending limits defined.

preparation (Accounting& Auditing can

budget preparations and off-budget

awarding a contract for goods and

commitment stage or verification stage

services (accounting control)

contracting of loans, to control indebtedness

Avoid penalties for payments

for public expenditure mgt

based on the date of invoice

regulate the responsibilities of employees

staffing level and pay costs

with an involvement of the workers

not be required if the line ministries

managerial control are used for

special focus on it. In some countries, it is

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