budget entities regulatory framework
Post on 07-May-2015
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Jean-Marc Lepain
Public Finance Management Specialist
jlepain@yahoo.fr
www.slideshare.net/JeanMarcLepain/
© Jean-Marc Lepain (Lepain PFM Consulting)
Designing a Budget Entity Regulatory
Framework
Content
Part 1: Budget entity definition, types, hierarchy and
nomenclature
Part 2: Budget Entities, fiscal decentralisation and
programme budgeting
Part 3: Regulatory framework
Part 4. Implementation
Part 1 Budget Entities:
Definition, types hierarchy and
nomenclature
What is a Budget Entity Regulatory
Framework
A methodology for identifying BE by types and for organizing
them in a hierarchical structure;
A set of policies and procedures that will apply to BE for budget
formulation, budget execution, accounting and reporting;
An instrument for organizing the transition of a budget system
toward programme budgeting and result-based budgeting.
Objectives of a Budget Entity Regulatory
Framework?
Clear identification of budget entities and of rules associated with them is fundamental for:
Reorganizing the budget system in line with the structure of a new FMIS database and assisting in defining the system requirements;
Designing a good budget classification system;
Having a good system of delegation of authority and responsibilities (knowing who is doing what) and clear line of accountability (reporting);
Designing a good system of fund transfers for a smooth flowing of budget funds, efficient budget execution and good cash management;
Providing a sound foundation for programme budgeting and result-based budgeting.
BEFR as Foundation for Programme
Based Budgeting
Programmes are indentified as Budget Entities;
Role of Administrative Units involved in programme
administration is clearly defined;
A necessary segregation of duties and responsibilities is
introduced between Finance Departments, Planning Department
and Programmes in the management of funds.
BERF as Foundation for Result-based
Budgeting
BE must be linked to an identified sector policy framework (Two
or more policy frameworks, means confusion)
To each BE is assigned a number of objectives and a set of
indicators;
Business rules associated to the BE must be a direct consequence
of the objectives and indicators.
Clear segregation of duties is necessary for accountability
(Business rules);
The Five Dimensions of a Budget Entity
Regulatory Framework
Budget Entity
Nomenclature
&
Hierarchy
Budget execution Rules
Regulation & Business Rules
Fund Transfer Rules
Budget Formulation Rules
Prerequisites
Budget classification linking to the chart of accounts
Robust and efficient Treasury Single Account
Financial Management Information System
Clear policy of decentralization and deconcentration
Budget Entity Types
Primary budget users or direct budget users
Secondary budget users or indirect budget users
Public entities recipient of budget subsidies having their own
independent budget (ex: Road Fund) not consolidated into the
general budget but depositing funds on the Treasury Single
Account.
Others to be defined if necessary.
How to identify budget entities
One of the function of the BE regulatory framework is to establish a list of objective criteria for identifying BE.
BE must use budget resources;
BE must have human resources;
BE must provide public services or perform administrative functions including policy making;
BE must play a role in the achievement of the Administration’s objectives as set by the Government;
BE must have a certain level of managerial autonomy;
BE must have a line of accountability
Budget Entities and Administrative Units A Budget Entity is different from an Administrative Unit because
administrative units have no responsibility in providing services
to the public.
Typically Business Units are involved in budget preparation and
budget execution;
Different Budget Units can be used for the channeling of funds
from the central level to the end-user level.
Identifying Administrative Units involved in the process, and
rationalizing their role, is part of the design of the Budget Entity
Framework.
Administrative Units
Budget Entities should be identified in the Budget Classification and should have accounting rules;
Administrative Units have only accounting rules;
Accounts of Administrative Units are only transit accounts (Ex: account of the provincial directorate of the Ministry of Education in charge of transferring funds to schools;
Functions such as ‘allocating funds’, ‘administering funds’, ‘transferring funds’ must be clearly defined.
In a few cases, the same entities could appear both as a budget entities and an administrative units for different functions. Such cases must be eliminated as much as possible as they are signs of possible conflict of responsibilities.
Part 2
Budget Entities, fiscal
decentralization and programme
budgeting
Fiscal Decentralization and Budget
Entities (1)
BE Regulatory Framework requires a clear choice of model
(devolution, decentralization or deconcentration). Mix models
always create problems;
Revenue assignment and expenditure assignment must be in line
with the fiscal and administrative decentralization model chosen;
The managerial structure of budget programs should be
compatible with the model of administrative decentralisation
model;
Fiscal Decentralization and Budget
Entities (2)
Budget Entity Hierarchy must be modeled on the
decentralization system;
Business rules associated to BE must be fully in line with
decentralization regulation and policy;
The system of intergovernmental transfers must be adjusted to
the Business Entity Framework if necessary as long as it does not
violate any principle of fiscal decentralization;
Identifying Concordance between
Administrative Structure and
Programme Structure
Programs are themselves a set of budget entities;
The budget entity hierarchy must integrate program organization;
Program organization must be in line with decentralization/deconcentration principles;
Program management structure must use as much as possible existing administrative structure;
Administrative structures not part of the program management structure can be used for the channeling of funds.
Part 3 Budget Entities Regulatory
Framework
What is the methodology for BERF?
1. Identify budget entities;
2. Group budget entities hierarchically;
3. Identify for each entities “attributes” for the five dimensions
already identified;
4. After analyzing all attributes across all budget entities, then
group them in logical clusters consistent with the country
legislation and regulation.
5. Organize the segregation of functions, duties and
responsibilities between the different BE and the different
Administrative Units
Issues to be considered
Managerial structure and delegation of authority (part of the
expenditure assignment)
Level of financial autonomy
Budget formulation rules
Fund transfer rules
Budget control and budget execution rules
Accounting rules
Reporting rules
Audit
What is an attribute?
An attribute is a business rule that is closely associated with a budget
entities.
Not all attribute are legitimate. Illegitimate attribute should
be eliminate in the BERF and in business practices;
Some attribute should be questioned because they might be
cause of inefficiency;
Some attributes might conflict with other attributes or with
other budget entities’ responsibilities.
Possible list of clustered attributes
Relationship with other budget entities
Revenue assignment
Expenditure assignment
Financial Management regulation
Budget execution rules
Audit regulation
Regulation and Business Rules Regulation and Business Rules must consider:
BE attributes
Revenue assignment;
Expenditure Assignment;
Program management structure;
Fiscal and administrative decentralization/ decentraltion
rules;
Specific rules
Revenue Assignment
Who is responsible for setting the rate for own source revenue ?
Who is responsible for collecting the revenue?
Who is responsible for transferring the funds?
Who is responsible for administering the funds?
Is the revenue assignment generating some kind of imbalance and what are the consequences?
Is there any form of revenue sharing?
Expenditure Assignment Who is responsible for delivering service and what is the
system of delegation of authority?
Who is responsible for administering the service (resource
allocation and managerial decision)?
Who is responsible for financing the services?
Who is responsible for setting standard, regulations or
policies guiding the provision of service?
Fund Transfer Rules
Fund transfer rules must be specified in accordance with the model of fiscal decentralisation and the managerial structure of budget programmes;
Fund transfers can be direct or indirect;
Funds must take the shortest possible road from the source to the end users;
Fund transfers rules must follow the Treasury Single Account regulation. In case of conflict, regulations must be harmonized.
Programmes can be funded at the central level, or provincial, district or municipal levels or by a mix of funds;
Budget norms can be associated to certain types of BE;
Block grants can be used.
Part 4 Implementation of the Budget
Entities Regulatory Framework
BEFR Development
Preparation of a BERF is generally slow because several types of analysis and
framework development have to run in parallel, including:
FMIS database design or customization;
Revision of Budget Classification and Chart of Accounts;
Fiscal decentralization framework and revision of the
expenditure assignment;
Intergovernmental Fund Transfer Policy Framework
Revision of budget control procedures.
BE and Financial Management
Information System
The Budget Entity Nomenclature must be embedded in the
budget classification linking with the chart of accounts for
reporting;
Business procedure used by FMIS must be revised to become
compatible with the BE Regulatory Framework;
The BE Regulatory Framework must be compatible with FMIS
technical requirements and avoid unnecessary customization.
BERF and Database Design
There is a similarity between the design of a Budget Entity
Regulatory Framework and the preparation of an Entity
Relationship Model necessary for database design.
In case that an FMIS implementation is considered the two types
of analysis must go in parallel to generate maximum synergies.
Entities and Attributes A Budget Entity and an Administrative Entity are both
Database entities. They differs only in the nature of their
attributes.
Attributes of Budget Entities are business rules that are
captured in the Database Functional Model, not in the Entity
Relationship Model.
Attributes of Database Entities are set of data hold in
database tables.
Budget Classification & Chart of Accounts
Budget entities must be identified in the Budget Classification for the purpose of budget accounting;
Reform of the accounting system must go hand in hand with the design of the BEFR prior to FMIS implementation;
Accounting rules must be prepared in relation with the BEFR and with BE entities;
Budget Entities that require a subsidiary ledger must be identified;
Budget Entities that require a transit account must be identified.
Budget Control Procedures and Audit
Budget control procedures must be fully revised as part of the BERF
design.
Budget control procedures are especially affected by management
autonomy of programs
A rigid separation between managers and accountants becomes more
difficult to maintain (French system: Ordonateur/Comptable);
Transfers of funds must leave an audit trail;
Training of auditors must be part of the BEFR implementation plan.
THANKS
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