Question

TOPIC: MANAGEMENT ACCOUNTING IN PUBLIC SECTOR

Explain the rational for the administrative changes in budget examination and review from yearly basis to once in every two years basis

Answer 1

Budget iplanning iand ipreparation iare i(or ishould ibe) iat ithe iheart iof igood ipublic iexpenditure imanagement.

· efficient idelivery iof ipublic iservices i(productive iefficiency); iand

· minimization iof ithe ifinancial icosts iof ibudgetary imanagement i(i.e., iefficient ibudget iexecution iand icash iand idebt imanagement ipractices).

Budget ipreparation iis ithe iprincipal imechanism ifor iachieving iitems i(1) iand i(2); iitem i(3) itypically ifeatures ias ian ielement iof ibudget ipreparation ionly iin iindustrial icountries, iwhile iitem i(4) iis iessentially ian iissue iin ibudget iexecution iand icash imanagement i(see iSections i4 iand i5). iMoreover, ino isystem iof ibudget iexecution ior icash iplanning i(the isubjects iof iSections i4 iand i5) ican ido imore ithan imitigate ithe iproblems icaused iby ipoor iquality ior iunrealistic ibudget ipreparation.

Budget ipreparation iis ia iprocess iwith idesignated iorganizations iand iindividuals ihaving idefined iresponsibilities ithat imust ibe icarried iout iwithin ia igiven itimetable i(see iFigure i1 iin iSection i1 ifor ia itypical itime iline). iThis iprocess iis inormally iestablished iand icontrolled iby ia ilegal iand iregulatory iframework. iWhile igenerally isharing ibroadly icommon iprocedures, ibudget ipreparation i(and iexecution) isystems ido iexhibit idifferences idepending ion itheir ihistoric iorigin. iGiven ithe icommon iheritage iof imany icountries, iit iis ipossible ito iidentify ifour imain ipatterns--francophone, iLatin iAmerican, i(British) iCommonwealth, iand itransition ieconomies.

To iunderstand ithe ibudget ipreparation iprocess iin ia igiven icountry, iit iis iimportant ito:

· assess ithe ibasic isoundness iby ijudging ithe ibudget ipreparation isystem iagainst icertain iinternationally iaccepted istandards ior i"budget iprinciples";

· know iwhere ito ifind ithe irules igoverning ithe ibudget ipreparation iprocess; iand

· from ithose irules, iidentify iwho ihas ithe iresponsibility ifor iwhat ielements iof ithe ibudget ipreparation iprocess.

Who iis iresponsible ifor ithe iplanning iandpreparation iof ithe ibudget?

The iresponsibility ifor ipreparing ithe ibudget iusually ilies iwith ithe iministry iof ifinance iwith iinput ifrom ithe iline iministries iand isome ismaller ispending iagencies. iThis iexercise iis inormally icontrolled iby ia icentral ibudget idepartment ilocated iin ithe iministry iof ifinance, ior isometimes iin ia iseparate ibudget iministry.

iIn isuch icases, ithe icapital ibudget imay ibe iprepared iby ia iplanning ior idevelopment iministry i(or ieven iat ia ihigher ilevel iin ithe iprime iminister's ior ipresident's ioffice), iwhile ithe idebt iservice icosts iare iassessed i(and ipaid) iby ianother ientity. iOthers ihave ia isay ion iexpenditure icommitments, iand isome iare ialso iin icharge iof imonitoring ibudget iexecution. iIt iis itherefore iimportant ito iknow ithe iprecise iresponsibilities iof ithe ibudget idepartment. iIt iis iparticularly iuseful ito iknow iif ithe ibudget idepartment iis iresponsible ifor isupplying ipartial ior icomplete idata ion ibudget ipreparation, iexpenditure icommitments, iand ifull ibudget iexecution idata.

basic isteps iin ibudget ipreparation isystems

1. The ifirst istep iin ibudget ipreparation ishould ibe ithe idetermination iof ia imacroeconomic iframework ifor ithe ibudget iyear i(and iideally iat ileast ithe inext itwo iyears). iThis iallows ithe ibudget idepartment iwithin ithe iministry iof ifinance ito idetermine ithe iglobal ilevel iof iexpenditure ithat ican ibe iafforded iwithout iadverse imacroeconomic iimplications, igiven iexpected irevenues iand ithe ilevel iof ideficit ithat ican ibe isafely ifinanced.

2. The isecond istep ishould ibe ithe iallocation iof ithis iglobal itotal iamong iline iministries, ileaving iroom ifor ireserves i(a iseparate iplanning iand ia icontingency ireserve ias iexplained ibelow) ito ibe imanaged iby ithe iministry iof ifinance.

3. The inext istep ishould ibe ifor ithe ibudget idepartment ito iprepare ia ibudget icircular ito igive iinstructions ito iline iministries, iwith ithe iindicative iaggregate ispending iceiling ifor ieach iministry, ion ihow ito iprepare itheir iestimates iin ia iway ithat iwill ibe iconsistent iwith imacro iobjectives. iThis icircular iwill iinclude iinformation ion ithe ieconomic iassumptions ito ibe iadopted ion iwage ilevels, ithe iexchange irate iand iprice ilevels i(and ipreferably idifferentiated iprice ilevels ifor idifferent ieconomic icategories iof igoods iand iservices).

4. Step ifour iis ithe isubmission iof ibids iby iline iministries ito ithe ibudget idepartment. iOnce ireceived ithere ineeds ito ibe ian ieffective i"challenge" icapacity iwithin ithe ibudget idepartment ito itest ithe icosting iof iexisting iand iany inew ipolicy iproposals.

5. The inext istep icomprises ithe inegotiations, iusually iat iofficial iand ithen ibilateral ior icollective iministerial ilevel, ileading ifinally ito iagreement.

6. Finally, istep isix iis iCabinet iendorsement iof ithe iproposals ifor iinclusion iin ithe ibudget ithat iwill igo ito iparliament.

While ithe iprinciples ishould ibe ibroadly ifamiliar iin imost iministries iof ifinance i(and iwould ieven ibe iconsidered iout iof idate iin ithose iindustrial icountries iwith ithe imost iadvanced ibudgeting isystems), iactual ipractices imay ifall ia ilong iway ishort. iFor iexample, iin itoo imany icountries ithe ibudget idepartment idoes inot iprepare ia imacro iframework, inor ieven ia ifirst ioutline iof ithe ibudget, ilet ialone iindicative iceilings iby iline iministry, ibefore isending iout ithe ibudget icircular.