Budget Execution

Question 1

Budgetary Control (1)

Answer 1

One of the main issues in public services is to ensure that once a budget has been set, it is adhered to for the purposes originally intended. Ensuring that funds are only spent in accordance within the appropriate approval should limit such diversion. Even where there are good reasons for a change of policy, any diversion of funds must be transparent and subject to the correct approval.

Funds should also be spent efficiently and effectively. In many countries there has been criticism that while funds are spent in the correct areas, they are not spent effectively and services are often inefficient. Clearly, it is important both to manage budgets effectively
and to ensure as well that services are operated efficiently.

Question 2

Controlling Operations (1)

Answer 2

Treasury managment—need to manage uneven cash inflows such as tax receipt that otherwise may not match expenditire outflows.

Following the enactment of the budget by the state legislature, there needs to be a controlled release of funds to match the expenditure profiles as anticipated in the budget. Funds will not be released until the legislature is confident that this has happened. In a parliamentary system this is often the role of the comptroller (and auditor general) who works for the legislature rather than for the government. In other types of governance arrangements it will be one of the roles of the Ministry of Finance or Ministry of Planning, which are employees of the government (as opposed to legislature).

Question 3

Controlling Operations (2)

Answer 3

When considering the issue of control from above, we can conclude that to ensure moneys are spent as approved by legislature, the most appropriate system would be one linking the actual expenditure to the lines or authorities given by the state. That is line item budgeting.

N.B. remember the differnece between Francophone countreis where the authorising officer for payments is not accountable to the line manager in the ministry but, eventually, to the Ministry of Finance. In Anglo-type systems, the line managers are accountable, up to the accountable officer within the ministry

Question 4

Controlling Operations (3)

Answer 4

There needs to be a regular review of the actual expenditures and incomes against the budget. After the budget is set, it should be profiled in order to identify accurately the timings of the various budget items. The profiling of a budget allows for the timely release of funds, and will also help in monitoring whether the actual performance is complying with the budget.

The actual performance must be set against budgets in a timely fashion and reported to the person responsible for that activity. The area of responsibility is not always clear-cut, and care needs to be taken.

In order for control to be effective it is important that budget reports be timely, accurate and relevant.

Question 5

Taking action

Answer 5

Any accounting system must provide information to allow the users of the information to make informed decisions. If there are areas of underspend and areas of overspend, then the obvious solution is that of virement. However, this is a one-off solution; if the situation is likely to be ongoing then the future budgets should be reconfigured to take account of the new method of operating.

If there is a fundamental problem with the original budget, then there should be an update of the budget that is seen as permanent, and justified. If there is no problem with the budget but a problem with implementation, then corrective action needs to be taken. The need for action is not only to solve a current problem but also to safeguard the integrity of future budgets. If incremental budgeting is being used then the current budget is used as a basis for the future; if the budget is no longer valid then the future budgets will also be invalid.

Question 6

Budgetary Control (2)

Answer 6

Control can be divided into three broad levels.

• The legislature will control the approval of the budgets via passing of annual finance acts (laws).
• It will then control the release of funds until it is reasonably assured that funds already released are spent in accordance with its approval.
• The final level is the control of activities by managers.

The first two of these levels are concerned with legality of the spending; the final level is the identification and analysis of areas that are the responsibility of managers, to ensure that the funds are achieving their intended purposes within the budget.