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Tracking Progress and Controlling Funds. Bill Dorotinsky, PREM BEFA Course January 10-12, 2005. Outline. Concepts in Budget Execution Management Cash Management Analysis of budget execution Exploring problems Fun with data. Concepts. Post Budget Stages.

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Tracking progress and controlling funds

Tracking Progress and Controlling Funds

Bill Dorotinsky, PREM

BEFA Course

January 10-12, 2005


Outline
Outline

  • Concepts in Budget Execution Management

  • Cash Management

  • Analysis of budget execution

    • Exploring problems

    • Fun with data


Post budget stages

Concepts

Post Budget Stages

  • Release of Authority to Spend or Funds

    • Notification of approved budget

    • Commitment authority issued (if done)

      • Financial plans, apportionments

    • Warrants issued (cash draw)

    • Cash transfer (if done)

  • In-year modifications

    • Transfer authority – within ministry across accounts

    • Virements – across ministries

    • Supplemental Budgets


Financial commitment stages

Concepts

Financial commitment stages

  • Encumbrance/pre-commitment/reservation

  • Commitment/obligation

  • Receipt of goods and services

  • Invoice

  • Verification

  • Paid

  • Cashed/cleared


Budget classifications

Concepts

Budget classifications

  • Administrative

  • Economic/object class/’inputs’

  • Functional

  • Program

  • Fund

  • Line Item


Control approaches

Concepts

Control Approaches


Central control versus managerial flexibility

Concepts

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


Cash management
Cash management

  • Objectives:

    • Assure fund availability for meeting government obligations (liquidity)

    • Cash conservation

    • Minimize borrowing, borrowing cost

    • Maximize returns from idle cash

    • Risk management

  • Tools:

    • Treasury consolidated fund (single account)

    • Financial plans

    • Warrants (allowable draws on TCF)

    • Invoice payment/cash rationing

    • Debt issuance

    • Supplemental budgets


Treasury consolidated fund treasury single account

Cash management

Treasury Consolidated Fund(treasury single account)

  • Single account or accounts under treasury management – consolidation of cash

    • The more accounts, the more difficult to manage, report

  • Payment arrangements will vary:

    • Centralized: direct transaction from TCF

    • Deconcentrated: payment by spending agency from TCF

    • Decentralized: payment by spending agency from imprest account


Financial plans

Cash management

Financial plans

  • Important link between budget, agency programs and activity, cash flow

    • Links commitments and cash

  • Used for cash flow forecasting when combined with revenue forecast

    • Allows planned, orderly debt issuance

  • Usually monthly

  • Periodic variance analysis to plan, budget


Cash forecast and balances rudiments of cash management
Cash Forecast and Balances:Rudiments of cash management

1 2 3 4 5 6 7 8 9 10 11 12

Revenues

Central Forecasts

Spending

Agency Financial Plans/Allotments

Balance

Seasonal

revenue

fluctuation, spending patterns

Structural

revenue

fluctuation, spending patterns

Arrears

Over-commmitment

Random revenue shocks

Annual predictable pattern


Corrective measures smoothing cash flows
Corrective Measures:Smoothing cash flows

Cash Balance

  • Structural:

  • Budget retrenchment

  • Long-term debt

  • Allow commitment/spending only if revenues actually received

  • Contingent liability management

  • Comprehensiveness

  • Commitment controls

  • Seasonal:

  • Keep allotments or commitments below revenue, build balances

  • Short-term debt

  • Limit cash payments to cash balances (arrears)

Who bears the risk of fiscal adjustment under each option?


Cash rationing misnomer cash budgeting

Cash management

Cash rationing(misnomer cash budgeting)

  • Last resort liquidity management

  • Disruptive to programs, vendors

  • High corruption potential

    • Need transparent ex ante rules

    • Public procedure

  • Likely to undermine budget priorities



Exploring problems

Above-the-waterline observation

100 clinics,

but only 70 operating

Exploringproblems

WHY?

Budget not comprehensive

Budget fragmented

Cash triage

10 built with

donor funds,

donor funds

off-budget

10 built with

domestic funds,

capital budget

separate

10 funded in

budget, but no

cash allocated

to operate

WHY?

Weak budget law

Too rigid budget execution

Low public pay

WHY?

Donor ring-fencing

for “accountability”

Line ministry gets

flexible resource pool

Local staff seek

higher PIU pay

And what can be done about it?


Dominican republic
Dominican Republic

Budget Deviation, 1996-2000

Identifying sources of weakness for further investigation

Identifying incentives at work

Source: Dominican Republic PER 2003, background data


Dominican republic1
Dominican Republic

Budget Deviation (ratio of executed to approved budget)

Identifying trends for transparency

Source: Dominican Republic PER 2003, background data


Level 1 issues
Level 1 Issues

Republic budget revenues have performed closely to budget estimates, owing in large part to ZOP efficiency in revenue collection. Between 1995 and 2001, actual revenues collected averaged 99 % of planned levels. (This excludes own revenues and other off-budget revenues.)

Republic expenditures have been less successfully contained. Between 1996 and 2001, actual Republic expenditures averaged 106 % of planned expenditures, with the variation growing to 119 % for 200 and 117 % for 2001.

The Pension Fund has run a deficit in five of seven years between 1995 and 2001. The Health Fund has run a deficit in three of the last seven years, broke-even in three years, and had a surplus one year. The financing gaps requiring Republic Budget or other nonsocial contribution support has been increasing.

Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro


Level 3 issues
Level 3 Issues

Technical efficiency

In terms of technical efficiency, as with the Federal and Republic of Serbia systems reviewed in Volume 1, we have no detailed numbers on costs per unit of service delivered, or comparative procurement costs. However, a proxy measure is variation in aggregate budget position.

For 2000, the wage bill variation from approved budget, by budget users, was 15 percent, ranging from a high of 42 % above budget for the Ministry of Justice to a low of 54 % below budget for the Customs Service.

This degree of volatility in funding levels undermines effective program implementation. Budget users cannot plan in advance, focus on program effectiveness, efficiency, or improved productivity, if they are spending most of their time battling arrears or having no funds to operate their program.

Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro


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