French budget execution system From original budget to executed budget Pierre Messali 10/03
Some budget principlesFive major ruleswith…. major exceptions Unity: all budget appropriations must be gathered in a single budget document. No off-budget funds (but in fact, the budget includes many differents types of budget accounts, so unity outside-view, but diversity inside) Universality: receipts must not be contracted with expenditures (no exception in France but some in francophone countries) Non-assignment of receipts: receipts must not be assigned to some expenditures (butin fact,many processes alllow this affectation such as « fonds de concours » and « Budgets annexes » or « comptes spéciaux du trésor ») Annuality: appropriations are availa-ble during only one fiscal year (but in fact unspent funds can be carried over un-der certain conditions and capital expenditu-res are voted in a multi-year perspective) Specialization: appropriations must be specialized by nature, destina-tion or service (but in fact some chapters are non-specialized and very often chapters are globalized)
Annuality: appropriations are available only one fiscal year (but in fact unspent funds can be carried over under certain conditions and, above all, capital expenditures are planned in a multi-year perspective, AP and CP) Specialization: appropriations must be specia-lized by nature, destination or spending unit (but in fact some budget lines are non-specialized and/or are frequently globalized)
Once the budget is passed, what next ? Appropriations must be made available for spending. appropriations must be notified and allocated officially to line ministries by the Ministry of Finances: a decree is necesary for avoiding conflicts line ministries must make appropriations avalaible to the right spending unit, within their ministry. This may be difficult. At central level: usually easy At local level: could be uneasy to find the rigth unit. Problem of « déconcentration ».
What is « déconcentration » ? State budget includes all State appropriations to be spent: At central level by a primary « ordonnateur » At local level by a secondary « ordonnateur », (déconcentré) . No confusion with sub-national funds spent at local level : «décentralisé» (they aren’t State funds)
Primary ordonnateurs « dominate » secondary ordonnateurs: by releasing funds they decide themselves (« délégations de crédits ») by controlling, more or less, the use of these delegated funds (« délégations de compétences ») Difficulties are frequent when: déconcentration is important (Morocco) no rules for splitting the budget between central and local levels no clear classification of appropriations (central/local)
Is deconcentration an obstacle to budget allocations ? Improve programming: the lack of a clear vision of what are the appropriations for (central/local) is a key factor of difficulties for allocating appropriations once passed. Clarify the process of déconcentration: it’s atypically francophone problem and a factor of complexity. But solutions are well-identified. Three examples of what is good or bad
So, now approriations are available in line-ministries and in rigth spending unit.What next ?
Passed appropriations do not represent all available funds. The quantity of total available funds must be correctly identified in order to achieve a good assessement of the profile of the executed budget regarding the initial budget This volume can be largely monitored by ministry of finances
More (+) Unspent funds of previous year carried over * Legislative supplements (revised budget) * Neutral (=) Transfers and virements, fond de concours. * Less (-) Cancelled funds (non-legislative or legislative) * Passed appropriations.What’s more, what’s less(* flags actions that are monitorable or adjustable easily by government)
How assessing the profile of the budget execution on these basis the gap between initial appropriations and total available budget means = risk and the quality of monitoring of the MOF. the level of compliance of all adjustments regarding to the budget rules (« loi-organique ») = reliability and predictability the level of transparency of all these adjustments = risk the monitoring of these available funds = first necesary step for a better monitoring of the spending, but not a sufficient one.
Some quick comments total means never exceed 8% of initial appropriations, which is nevertheless a significant result. the room of manoeuver for Authorities mainly concerns the additive budget (notably by cancellation of funds) all theses mouvements are strictly compliant with rules and largely disclosed for transparency (so the execution’s profile is predictable and measurable). Caution: this figures represent the amount of total available means and not the amount of the spending as it will be executed later
Now, the line-ministries get all their budget means available. So, finally, the real spending is ready to start……but the spending needs to be monitored.
Monitoring the volume of available means by: the volume of carry-over the volume of additive budgets The volume of frozen-funds ► CANCELLATION OF APPROPRIATIONS Monitoring the volume of the real spending by: the volume of allotments of funds ► QUOTAS OF COMMITMENTS the volume of available cash ► CASH RATIONING Monitoring budget executionThree methods
Some examples of monitoring Some african countries don’t have any problem of cash-rationing because their treasury is abundant (ex: Benin, presence of numerous donors) Most francophone african countries: mix quotas of commitments and cash rationing (Cameroon, Guinée, ..). The result is not very good and never transparent Cambodia: cash-rationing with corruption, inefficiency, etc… Madagascar: quotas of commitments but without any transparency Djibouti: mix of quotas of commitments and cash-rationing
A preference ? Three criteria: simplicity, transparency and efficiency cancellation of appropriations is the best system (what has been given is taken back. Very simple) But, no francophone country applies this system. Why? It requires an efficient system of re-allocation of appropriations. It leads to transparency It needs a strong leadership of the MOF and a good solidarity within the GVT
Now, the budget monitoring is done……next is the spending itself… …what is the so-called french specificity of the spending system?(« circuit de la dépense »)
« Le circuit de la dépense »Four steps and three actors • Sign * indicates which duty each actor fullfils • color redindicates the french specificity
No French specificities. The four steps of expense are existing in almost all systems: commitment: act by which the State commits itself for buying a good or a service andfor booking a budget fund (orders, procurement matters, ..) -service delivery: when the service is done and the amount is known -payment order: when the order to pay is issued (no return possible) -payment: when the payment is effectively made
Two French specificities • - the financial controller controls the regularity of the commitment (sometimes the payment order) and has the capacity to refuse his visa to the commitment, if not compliant with the rules (control of regularity) • - the accountantis separated from the ordonnateur and he is in charge of payment but he’s also in charge of the control of the regularity of the whole process by the ordonnateur (if something wrong, he will refuse the payment). Moreover he is responsible on his own money for each irregularity.
A lot of controls but a system of multi-responsibilities Three asumptions of the French system: different and independant personsintervene and each one will controls each other the one who pays is not the same who commits (=WB system) at the end of the chain, the one who pays (the accountant) is responsible on his own money In France, the system works well and prevent irregularities In francophone developing countries, this system has not avoided corruption but probably restricts it. In some countries highly corrupted, it migth increase corruption because each step of control is highly valuable.
Many accomodations with this system in francophone countries but most of time inefficient. • A suplementary separation between the actor who commits the expense and the one issuing the payment order • The controller acts always at the stage of the commitment but sometimes also at the stage of payment order • Sometimes a special unit is in charge of the service delivery • Sometimes line ministries dont have the capacity to commit the spending, only to make a proposition, so the MOF is in charge of tyhe commitment. • Sometimes also the financial control is made by the ordonnateur itself.
Logistical issues in the french system of spending The french specificity does not provide any insurance of quality of the system of payment itself. The quality depends only on the professionalism of accountants and the equipment of the system. The french specificity makes more difficult the reconciliation between statements of commitments, payments-orders and payments because these statements are issued by different operators who have difficulties to communicate.
Difficulties in reporting • Three different actors and three different tasks • Each actor must book operations in financial statements • Controller: commitments (engagements visés) • Accountants: payment orders received and payments made • Ordonnateur: payment orders issued (ordonnancements) • Each book needs to be reconciled with others • Three independant actors and three different • Can the accountant trust the statements of an ordonnateur? • Three actors in the chain of expense and three IT networks • Network of ordonnateur: from commitment to payment order • Network of controller: for commitments • Network of accountant: for payment order received and payment • Exchange of statements is manual at each stage (by floppy)
Move toward more integration of the three actors • Integrated financial system unifying the three networks of each actors. • Imply a stable and well-elaborated system of expense • Imply good practises • Very expensive system • Difficulties to implement in many african countries • Some experiences are not very conclusive (SIGFIP in Benin) • Necessity to improve the communication between the three networks • Necessity to enhance and to define more precisely the role of each actor (manual of procedures,…) • No miracle-solution, no technological « drunkness ». reduce notablypaiement sans ordonancement, paiement sur réquisistion, régies d’avances
Now, spending is over and reporting is issued. What next ?For more transparency, is is indispen-sable to close the budget exercice by issuing financial statements which allow to compare the initial budget and the executed budget
Additive budget Additive budget bill updates the initial law (receipts, outlays) It allows opening of new appropriations It ensures cancellations of funds It give many informations about the management of the budget during the year It issues an updated result The later, the better oversigth Loi de règlement It closes definitely the budget (receipts, outlays) It is joined with a report of Cour des Comptes It is the only document which gives exactly the profile of the execution It gives two fundamental informations about budget management of appropriations and spending itself It shows very clearly possible irregularities in management and spending. The sooner, the better oversigth Two legislative acts at the end of the year
Are these two indispensable legislative acts issued in francophone countries? Unfortunately, No. The practise of additive bills is unusual in Africa and Magrheb sign of lack of transparency sign of fear for the aggregate fiscal discipline some countries (Madagascar) issue such a bill, but to early in the year The lack of the Loi de règlement is the worst point Timely documents but very weak (Cameroon, Benin, …) Late documents but very acurate (Morocco) Other do not issue any document
The abilility to issuing a reliable « loi de règlement » is the real measure of the transparency and reliability of the budget execution in a francophone system. .The effectiness of the external audit is largely dependant on this capacity.