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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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 sub-sub-programs

◦ If, say, three-level hierarchy

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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 program-friendly

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Accounting accurately by program

Allocating expenditure on inputs to programs

A task for management accounting

Two aspects ◦ Direct costs

◦ Indirect costs

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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

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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?

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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

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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

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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

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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

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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

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