Session 4 May 28 afternoon (2). Legal framework for budget execution, fiscal reporting and external audit in OECD countries. Topics Covered. Legal framework in OECD countries for Budget execution Treasury operations, including government banking arrangements Government accounting
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Session 4May 28 afternoon (2)
Legal framework for
fiscal reporting and
in OECD countries
Legal framework in OECD countries for
Treasury operations, including government banking arrangements
Once the annual budget is adopted, the government is usually entrusted by parliament to execute the budget. USA is an exception, reflecting the budget power of Congress.
Budget execution is mainly governed by Regulations, not Law.
However, Parliament wants to know how budget was executed: hence law(s) usually elaborate on budget execution reporting requirements.
Parliament may also clarify delegation and responsibilities for budget execution in law.
External audit is often established in the Constitution. A separate law is adopted.
Budget execution: Which areas are covered by law in OECD countries?
The BFMSL may allow government some flexibility in budget implementation by:
Government banking arrangement usually left to Regulations, except:
Also, the Central Bank Act may specify that the central bank is required to provide banking (and other) services to the State, with agreements specified in protocols, e.g., France’s Monetary and Financial Code requires this for the Banque de France. But not all countries require only central bank to perform this role: commercial banks are permitted by law to be used for government treasury operations.
Government Accounting and Fiscal Reporting—Provisions in Laws in OECD countries
Constitutions of Denmark and Norway require annual accounts to be submitted to parliamentary auditors, no later than 6 months after end-year (4 months in Sweden’s PF law)
Government Accounting Laws. A few have been adopted in OECD countries. Japan’s 1947 Public Accounts Act contains principles for consolidating treasury funds, account-keeping by ministries; the law prohibits spending from own revenues. United Kingdom’s Government Resources and Accounts Act 2000 elaborates on some details of the new accrual accounting framework. The Netherlands Government Accounts Act 2001 requires formal “discharge” of ministers’ accounts.
Fiscal Responsibility Acts. These are recent in a few OECD countries.
Fiscal Reporting Requirements—Finland’s State Budget Act, 1988
1. Report on the State annual accounts, including:
The State annual accounts, together with information on the most important factors on the operational performance of the State’s operations.
The report shall incorporate income statements and balance sheets on State public enterprises and extra-budgetary funds.
2. State annual accounts, comprising:
A statement on budget implementation, by section, chapter and item.
An income and expenditure statement on revenues and expenditure.
A balance sheet illustrating the financial position at end-year.
A cash flow statement.
Notes to the accounts needed to provide true and fair information on compliance with the budget, on State revenues and expenditure, on the State’s financial position, and on performance.
Internal Audit—Provisions in OECD countries
Internal Audit is an independent, objective, assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes
No laws/regulations:UK, Canada, Australia, France
Law or Regulation:USA, Netherlands, Sweden
Important provisions needed for:
Independence (of operations, reporting)
Organisational structure (critical mass needed)
Drafting /adopting international acceptable internal auditing standards
Central coordination of IA policies and methodology (MoF)
Agreement with Manager (independence, access to information, reporting, in Audit Charter)
Internal Audit—Provisions in new EU countries
IA Laws or Public Internal Financial Control laws
General provisions (responsibility manager, definitions, objectives, principles of IA)
Nature, Scope and organisation (Assignments, structure, independence, Audit Committee)
Requirements for appointment (eligibility)
Right and duties Head of IA unit and staff (access to information/premises/top-management, principles of confidentiality, conflict of interest , reporting on activities)
IA activities (planning, performance, reporting, follow-up)
Coordination and Harmonisation of IA (Resp. MoF, special unit, developing policies and methodology, training, supervision IA units, reporting to MoF, CoM and parliament).
External Audit Laws in OECD countries—their main provisions
Independence:institutional, financial, managerial and operational
Appointment and removal:Auditor-General/Chairman, Deputies/Board-members, staff;
Types of audit: Mandatory regularity audits of (certification of the financial accounts); further performance audits/IT audits/Procurements audits;
Scope: all public financial operations, including revenues, subsidies to private firms; in EU payments from EU budget
Powers: access to information, premises
Staff requirements: education, qualifications, skills, integrity
Relationships with Parliament and Government: Committee for Budget or Economy and Finance, Internal audit;