Guatemala, May 2014 Prepared by Marc Robinson 1
Expenditure appropriation and control under program budgeting Parliamentary budget appropriations Executive controls Program-based controls Line-item controls 2
Line-item control totals Control by input type Salaries, supplies, travel, capital spending Sometimes quite detailed Economic classification Organizational unit control Units within the ministry Chapter system in some countries 3
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Programs in legal budget appropriations Approach of most countries Standard model Parliament votes only at program level I.e. top level of program hierarchy Sub-programs etc left to executive Too avoid creating too much inflexibility 5
Unexpected things happen during year Need to change program allocations Supplementary budget every time? Pretty cumbersome Many countries allow transfers: MoF can approve, say, 5% reallocations Can even permit some reallocations at spending minister s discretion 6
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Line-item control totals (CTs) vs. line-item information Line-item CTs under program budgeting: Entirely eliminated? Reduced? How detailed should they be? Managing risks of deregulation 8
Budget under-execution: If impossible or difficult to transfer funds Under-spent line-item funds can t be moved elsewhere MoF workload: If has to approve many requests for transfers between input categories Resources better spent on other work Like expenditure policy analysis 9
Managerial flexibility idea Accountability for results Greater freedom on how to produce results Flexibility in input choice Ministries/managers choose best input mix Major reduction in line-item controls But not total abolition 10
Far-reaching in some countries France: Economic classification provided in budget For information only Categories: personnel; operating; intervention ; capital.. Ministries can shift as they wish But can t increase personnel expenditure Also limit on staff numbers 11
In most countries, at least the following CTs are needed: Personnel expenditure; Other current expenditure; Capital expenditure. Additional CTs on a case-by-case basis, such as: E.g. on travel expenditure, consultancy etc, Utilities in some countries 12
Under program budgeting Budgets planned in terms of program Control totals set for programs Need to monitor spending by program Programs integrated into accounting Accurate accounting by program Programs integrated into Accounting structure Computerized accounting system 13 13
Program budgeting requires Incorporation of programs in BC And therefore in the CoA Full program hierarchy incorporated Sub-programs etc. Separate code digits for programs, sub-programs and subsub-programs If, say, three-level hierarchy 14 14
Ministry Internal Unit Economic Program Sub-program Sub-sub-program Functional Fund Source 1321-325-14569-257-2 15
Budgeting based on IT systems Accounting system is computer-based Must incorporate programs Other budget execution functions of IT Expenditure control Payments (usually), etc. Computerized budget preparation often Program budgeting demands all of these are programfriendly 16 16
Accounting accurately by program Allocating expenditure on inputs to programs A task for management accounting Two aspects Direct costs Indirect costs 17 17
Direct costs = expenditure items which contribute to only one program, such as Staff who only work on one program: e.g. teachers, education ministry staff who manage school system Must record direct costs against relevant program Recording personnel expenditure by program Accounting system has to change in many countries to do this 18 18
Inputs which contribute to more than one program Ministry overhead services HR, IT, financial management Support services, not outputs No outcome of own support others Some people say all indirect costs should be allocated So that all programs show the full cost of providing the service However, this is a very complex accounting task Is it practical? 19 19
How to allocate indirect costs? Method known as allocation basis Also as cost-drivers Often simple allocation basis uses E.g. by staff count, or in same proportion as direct costs Can be very inaccurate Ideally, allocation basis should reflect Contribution to each program Methods like Activity-Based Costing aim to do this But too complex and costly for most countries 20
Administration Programs Group together overhead services of ministries Support services which serve multiple programs Exception to results-based principle Partly to avoid indirect cost allocation difficulties Permit flexibility in allocation of support services between programs In response to requirements during the year Used by most countries with program budgeting sytems
Major changes to expenditure control Shift from primarily line-item based budget Program-based spending approvals With supporting transfer arrangements Accounting system must change Record & report program expenditure Chart of Accounts & Budget Classification Computerized budgeting systems. Cost allocation by programs Get direct cost allocation right Indirect cost allocation a major challenge 22 22
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Economic classification of expenditure for information & internal management Central CT for each not required Example of Detailed Economic Classification for reporting purposes (GFS version) 21 Compensation of employees 211 Wages and salaries 2111 Wages and salaries in cash 2112 Wages and salaries in kind 212 Social contributions 2121 Actual social contributions 2122 Imputed social contributions 24
Link back 220100: Office & General Supplies & Services 220101 Office Consumables 220101 Stationary Supplies 220105 Books, Reference and Periodicals 220112 Outsource Costs (inc. cleaning) 220113 Cleaning Supplies 220800 Training Domestic 220801 Accommodation 220808 Training Materials 221000 Travel-in-Country 221001 Air Travel Tickets 221001 Travel Tickets Domestic 221002 Ground Travel. etc 25