French Execution budget system

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French Execution budget system

• From voted budget to executed budget
• Pierre Messali
• 04/03

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Some budget principlesFive major rules with.
major exceptions

• Unity all budget appropriations must be gathered
  in a single budget document. No extra-budget
  funds (but in fact, the budget law is made of
  many differents types of budget accounts, so
  unity outside, but diversity inside)
• Universality receipts must not be contracted
  with expenditures (no exception in France but
  used in francophone countries)
• Non-assignment of receipts receipts must not be
  assigned to some expenditures (but in fact, many
  processes alllow this affectation such as  fonds
  de concours  and  Budgets annexes  or
   comptes spéciaux du trésor )
• Annuality appropriations are availa-ble during
  only one fiscal year (but in fact unspent funds
  can be carried over un-der certain conditions and
  capital expenditu-res are voted in a multi-year
  perspective)
• Specialization appropriations must be
  specialized by nature, destina-tion or service
  (but in fact some chapters are non-specialized
  and very often chapters are globalized)

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• Annuality appropriations are available during
  only one fiscal year (but in fact unspent funds
  can be carried over under certain conditions and,
  above all, capital expenditures are voted in a
  multi-year perspective , AP and CP)
• Specialization appropriations must be
  specia-lized by nature, destination or service
  (but in fact some chapters are non-specialized
  and more frequently chapters are globalized)

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Once the budget is voted, what next ?

• Appropriations must be made available for
  spending.
• It seems very simple. Actually, it is far from
  simple

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Making appropriations availables at spending
ministries

• First, appropriations must be notified officially
  to spending ministries by Ministry of Finances
  (replace the draft-budget bill by the budget
  bill, decree for appropriations, possible source
  of conflicts)
• Next, spending ministries must make
  appro-priations avalaible to the right unit,
  within their ministry. This may be difficult.
• (find the rigth ordonnateur)
• At central level normally easy
• At local level could be uneasy

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Why so many budgets are so long to start ?

• Are some people  sleeping  in spending
  ministries for being so long ?
• Be careful to fiscal year (june to july) August
  is full holiday, September is return of holiday,
  so nothing happens before October (it is not
  insignifiant)
• Ministries are fully charged for ending the
  previous fiscal year (extended budget period)
• Expenditures have simply not been programmed
  before (weve got appropriations, but we dont
  know what to do this is not insignifiant,
  notably for HPIC expenditures)
• Because many appropriations are not really
  affected when budget is formulated and passed
  (well see later)
• Are the appropriations stamped on the
  classification (central or local expenditure) ?
• Who is competent at local level for managing the
  funds (local or central ordonnateur)?

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• Are appropriations uneasy to distribute at local
  level?
• What is the local level , knowing that we treat
  of State budget funds?
• Why this matter is problematic in francophone
  system?
• What is the role of the ministry in distributing
  appro-priations to local representants?

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What is this thing called  déconcentration  ?

• State budget gathered funds belonging to State
  and planned to be spent
• At central level
• At local level déconcentré
• No confusion with subnational funds spent at
  local level décentralisé (no State funds)

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• State appropriations are spent
• at central level by an  ordonnateur principal 
• at deconcentrated level by an  ordonnateur
  secondaire , but not always (be careful)
• Central ordonnateurs  dominate  numerous local
  ordonnateurs
• by sending them appropriations they decide
  themselves ( délégations de crédits )
• by controlling, more or less, what they are
  doing and what they are spending ( délégations
  de compétences )

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• Difficulties between primary and secondary
  ordonnateurs are not surprising
• a primary ordonnateur in a ministry has numerous
  secondary ordonnateurs in regions or provinces
  requesting for more funds priritozation is
  uneasy and time-consuming
• choosing between them without any global view or
  perspective of action of the ministry for the
  year to come is difficult
• choosing between them witout any view of the
  profile of previous year, if the reporting is not
  of good quality, is difficult
• choosing without any rules indicating exactly
  what is the competency of the central level and
  what is the competency of the local level is
  difficult, indeed (who will practically mana-ge
  operations financed by appropriations ?)
• choosing when the classification of the budget
  does not mention the level of use of
  appropriations is difficult (is this opération of
  central or deconcentrated level ?)

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Can we solve this headache of  
déconcentration ?Two main examples and one
counter-example

• Example of France (very advanced system of PFM)
• defining by decree rules of competencies for
  investments between central and local levels (who
  makes what?)
• registering within the current budget
  classification (chapters or articles) what comes
  under local competency and registering the
  appropriations at a very early stage
• regionalizing the budget in advance and let the
  Governor make the allocations at local level
  (choose the rigth ordonnateur)
• allocations of appropriations are made under the
  month

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• Example of Madagascar (not very advanced system)
• No rules of competencies (no decrees)
• Building a budget classification very accurate
  and detailed
• Inserting in the budget classification the code
  of the local ordonnateur for each appropriation
  very simple, very ingenious
• the result is that allocation of appropriations
  lasts 15 days at the very beginning of the fiscal
  year
• Be careful this does not mean that once the
  appropriation is allocated to the rigth
  ordonnateur, he will implement the budget quickly
  and easily. But it is no longer a problem of
  allocation, but a problem of implementation
• The drawback of this classification is that the
  budget takes up around 1500 pages

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• Counter-example of Morocco (advanced system)
• No rules of competencies (no decree)
• Very global classification, notably for current
  budget
• No mention of deconcentrated destination on
  appro-priations
• No mention of the ordonnateur
• Results  délégations de crédits  are made
  very often months later the start of fiscal year,
  depending the ministry
• things go rather well when there is a global
  action plan
• or a road-map guiding the action of the ministry
• things are worse when there is no such documents
  (everything remains to do)

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What have we learned from the very beginning of
the process of budget execution?

• lack of reporting is a real factor of that makes
  allocation more difficult lack of visibility
  behind
• lack of programming is a key factor of future
  difficulties for allocating appropriations once
  voted lack of visibility ahead
• the typically francophone problem of
  déconcentration is a possible, but not
  inevitable, factor of complexity (we know the
  technical solutions). Complexity of
  déconcentration is not linked to the level of the
  PFM system (see Madagascar)

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So, now voted approriations are available in
spending ministries and in the hands of the rigth
ordonnateurs. What next ?
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Sorry, but voted appropriations do not represent
all available means in the hands of the
ordonnateurs.

• The volume of total available means is the only
  one which allows to assess the profile of the
  executed budget regarding the initial budget
• This volume can be largely monitored by ministry
  of finances

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Voted appropriations.Whats more, whats
less( flags actions that are monitorable or
adjustable easily by government)

• More ()
• Unspent funds of previous year carried over
• Non-legislative supplementary funds (emergency
  funds, estimative funds,  fonds de concours ,
  various tranfers and virements between chapters
  )
• Legislative supplements (additive fiscal law )

• Less (-)
• Cancelled funds (non-legislative or legislative)
  
• Transfers virements

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How assessing the profile of the budget execution
on these basis

• Measuring the gap bewteen initial budget
  appropriations and total available budget means ?
  If it is too large, there is probably a problem
  of monitoring, yet almost all supplement means
  are adjustable by MOF.
• Assessing the compliance of all adjustments with
  the budget rules ( by-law   loi-organique ).
  Especially, verify that ceilings of transfers and
  virements are obeyed.
• Assessing the degree of transparency of all
  these adjustments (normally, all acts modifying
  the budget must be disclosed publicly)
• Keep in mind that theses various movements are
  planned to ensure a balance between indispensable
  flexibility of budget management and necessary
  respect of the legislative authoriza-tion

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The example of the French budget total means
(euros billions)
FY 1999 2000 2001
Voted appropria-tions 264.2 262.9 276.2
Carry over () 11.2 12.8 14.7
Fonds de concours () 6.9 6.1 4.6
Additive budget law (net -) 1.2 1.9 -3.1
Estimative funds Total Means 1.8 285.3 (8) -1.2 272.5 (3,7) -2.1 290.3 (5,1)
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Some quick comments

• total means never exceed 10 of initial
  appropriations the average is around 5.
• the room of manoeuver is mainly made by additive
  law (notably by cancellation of funds)
• all theses mouvements are strictly compliant
  with constitu-tionnal bylaw and largely
  disclosed for transparency.
• make no confusion this figures measure the
  amount of total available means and not the
  amount of the spending as it will be executed
  later

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So now, the ministries get all their budget
means. And, finally, the real spending is ready
to startBut, usually in french matters, things
are going better than we feared, but worse than
we hopedSo now, the spending needs to be
monitored.
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The role of monitoring is to ensure that total
available budget means will fit with a certain
ceiling of spending in order to obey the initial
budget result, also depending of the result of
tax recovery.This is the main role of the
Budget Directorate. And its not an easy role.
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Three main methods of monitoring

• Cancellation of appropriations (France)
• Quotas of commitments (francophone systems)
• Cash-rationing (  nigthmare  systems )

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• Cancellation of appropriations
• appropriations are first frozen with large
  advertisement
• appropriations are later cancelled in an
  additive bill or simply by decree
• acts of freezing and cancellation are totally
  transparent and disclosed
• the sooner, the better for the management
• Its a very clear process and so simple
• of course, ministries complain about theses kind
  of policy and Parliament toobut, above all, the
  result is efficient and transparent.
• Quotas of commitments
• appropriations remain unchanged
• marge of commitment is reduced (many methods)
• So the real spending is reduced
• no transparency (who decides what operations are
  reduced or cancelled ? Is the Parliament
  associated to this policy?)
• be careful a new budget is frequently issued in
  execution
• the monitoring is very difficult to manage

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• Cash rationing
• the spending is made as far as the cash is
  available (allotments)
• the one who owes the cash in his hands is the
  key-actor in this game
• it means that the accountant, who knows about
  the cash available, must give the ordonnateur
  the quota acceptable for spending
• but such a system is not adapted to the french
  system, because the accountant and the
  ordonnateur are independant, so they are not used
  to cooperating
• the awfull results of such a system are
• Corruption who makes the choice of expenditures
  to be paid ?
• Arrears because of a lack of coordination,
  expenditures are made by the ordonnateur but not
  paid by the accountant (because no cash)

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Some examples of monitoring

• Most francophone african countries mix quotas of
  commitments at central level and cash rationing
  at local level (Cameroon, Guinée, ..). The
  result is not much good
• Be careful some african countries dont have
  any problem of cash-rationing because their
  treasury is abundant (ex Benin, pre-sence of
  numerous donors)
• Madagascar has quotas of commitments but without
  transpa-rency
• Cambodia has a system of cash-rationing with
  corruption, inefficiency, etc
• Argentina has a very sophisticated system of
  quotas of com-mitments but, at the end of the
  day, non-transparent (in fact, a new budget is
  issued in execution by the eminent role of the
  Budget directorate)

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Can we have a preference ?

• Two criteria simplicity and transparency
• No question the most simple and logical
  solution is cancellation of appropriations (what
  has been given is taken back)
• Yet, no francophone country applies this system.
  Why?
• Because it leads to transparency
• Because it requires an efficient system of
  re-allocation of appropriations.
• Two things really missing in theses countries

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Now, the budget cooking is done.Whats about the
cooking of the spending itself ? What is this
so-called french specificity of the spending
system?( circuit de la dépense )
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Sorry, but the french system is not as specific
as it seems to be
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Four steps and three actors
wb229929
wb229929
Ordonnateur Contrôleur Comptable
Engagement commitment -
Liquidation service delivery - -
Ordonnancement payment order () -
Paiement payment - -

• Sign indicates which duty each actor fullfils
• color red indicates the french specificity

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Some comments

• The four steps of expense are common to almost
  all systems, for follo-wing a logical and
  cautious way
• -commitment act by which the State commits
  itself for buying a good or a service and for
  booking a budget fund (orders, procurement
  matters, ..)
• -service delivery when the service is done and
  the amount is known
• -payment order when the order to pay is issued
  (no return possible)
• -payment when the payment is effectively made
• The french specificities are based on the
  existence of a controller and of a separate
  accountant from the ordonnateur
• - the controller controls the regularity of the
  commitment (sometimes the payment order) and has
  the power to refuse his visa to the commitment,
  if not compliant with the rules
• - the accountant is in charge of payment but hes
  also deemed to control the regularity of the
  whole process by the ordonnateur (if something
  wrong, he will refuse the payment)

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Indeed, thats a lot of controls !

• French system is built on the principle of
  separation of powers (actors) but not on the
  principle of separation of duties (steps of the
  expense)
• if different persons interevene on the chain of
  expense, each one will control each other and
  this will prevent misuse of public funds
• if, at the end of the chain, the one who
  definitely pays (the accoun-tant) is responsible
  on his own money, it will be one more assurance
• In France, the system works well and, in fact,
  the controller is closely implicated in the chain
  of the expense meanwhile the accountant is
  focused on logistical problems of payment and
  accounting and reporting.
• In francophone developing countries, this system
  has not avoided corruption but probably limits
  it. Yet, in some coun-tries highly corrupted, it
  migth increase corruption because each step of
  control is becoming highly valuable.

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Some adaptations of this system in francophone
developing countries

• Traps to avoid
• Create a unit of control of service delivery
  (service fait)
• ex Cameroon
• Put two different persons for commitment and
  payment order
• Ex Madagascar
• Believe that the control of ordon-nancements will
  improve the control Ex Madagascar
• Attach the Control to the Presiden-cy and not to
  the MOF
• Believe, on principle, that repla-cing Control
  ex ante by ex post control will improve things
• Believe, on principle, that Control is
  responsible for long delays of spending

• Ideas to consider
• Define the list of documents to be produced at
  each stage of expense for better design the role
  of each actor
• Think about a system of shared responsibilities
  between the three actors and not the sole
  accountant
• Issue manuals of processes for the ordonnateurs.
  Simplify some visas.
• Simplify the circuit and make the ordonnateur
  fully responsible of the three steps in which he
  intervenes
• Move the Controller near the ordonnateur
• Reinforce the Controller at local level for funds
   déconcentrés 
• Make the Controller fully respon-sible for
  reporting of commitments

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What looks like a french circuit of expense ?

• A good or a bad system of payment? It de-pends
  only on the professionalism of accoun-tants and
  the equipment of the system
• Nothing in the french configuration of payment
  is specific enough for improving or deteriorating
  the system of payment itself.
• No cause of delay is specific to the system
  (some system are very quick, some very long)
• No specific cause of reliability in the payment
  itself is attached to the french system
• A three-heads monster ?
• Three actors in the chain of expense means three
  networks
• Network of ordonnateur from commitment to
  payment order
• Network of controller for commitments
• Network of accountant for payment order
  received and payment
• Three independants actors leads to difficulties
  of communication
• Each actor must book opérations in financial
  statements
• Ordonnateur payment orders issued
  (ordonnancements)
• Controller commitments (engagements visés)
• Accountants payment orders received and payments
  made
• Each book needs to be re-conciled with others
  (ex payment orders issued by ordonnateur need to
  be reconciled with accountantones)
• Is it possible for an Accountant to trust the
  books of an ordonnateur if the Accountant is
  responsible on its own money?

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• The system of reporting a three-heads monster ?
• Three actors in the chain of expense means three
  networks
• Network of ordonnateur from commitment to
  payment order
• Network of controller for commitments
• Network of accountant for payment order
  received and payment
• Three independants actors with difficulties of
  communication
• Each actor must book operations in financial
  statements
• Ordonnateur payment orders issued
  (ordonnancements)
• Controller commitments (engagements visés)
• Accountants payment orders received and payments
  made
• Each book needs to be re-conciled with others
• Three very different actors
• Can the accountant trust the statements of an
  ordonnateur?
• Excahnge of statements is manual at each stage
  (by floppy)

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• A single-head monster is still a monster
• Many claim that an Integrated Financial
  management system is the only solution for
  facilitating reporting
• the chain will be unified and each actor will
  work on its own  window  in order to avoid
  problems of reconciliation
• the making of accounting statements will be
  facilitated
• the reporting would be made faster
• Such a system is not obvious
• very expensive (setup and maintenance)
• requires a stable and reliable system of circuit
  of expense.
• some experiences are not really conclusive
  (Benin SIGFIP)
• France itself still doesnt have this
  integration
• do not believe miraculous solutions or
  technological drunkenesses
• The most important action should be to enhance
  and institutionnalize the role of each actor
  (what is precisely their role ?) and to ensure
  communication between them.

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• In any case, there are a lot of little monsters
  beside the main system, notably in Africa.
• The main process of expenditure (4 steps, 3
  actors, network of expense, ..) is generally not
  the most used
• many execeptional processes are applied and
  would continue to be used even in the framework
  of an integrated system (ex Benin)
• be very cautious and supsicious with processes
  as
• -régies davances (60 of expense in Benin)
• -paiement sans ordonancement
• -paiement sur réquisistion
• -fonds spéciaux
• So as, if the IFMS is not exactly adapted to the
  French system of the expenditure, it is
  definitely not adapted to the African system, as
  long as some elementary rules of accountability
  have not been accepted.

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Is this monster responsible for accumulation of
arrears ?

• Three major types of arrears
• Case 1 expense is commited but the payment
  order is not issued. The ac-countant is not
  aware of this expense. At the end of the year,
  the fund, with which the commitment has been
  made, is cancelled and the commitment needs to be
  re-made next year. It could be an arrear.
• Case 2 expense is ordered to the accountant but
  the accountant cannot pay it (lack of cash). It
  is an arrear.
• Case 3 expense is commited and ordered by a
  fictive ordonnateur (when I switch on the ligth,
  I create an expense without any prior
  commitment). Its also an arrear.
• What kind of arrears is created by the
  francophone system?
• Case 1 not at all (if invoice not sent, payment
  order cannot be issued)
• Case 2 yes, separation ordonnateur/accountant
  can be favorable factor
• Case 3 no, it happens everywhere (system of
  quotas pre-paid)

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Now, spending is over and reporting is issued.
What next ?It is necesary, for more
transparency, to close the exercice by issuing
financial bills which allow to compare the
initial budget and the executed budget
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Two legislative acts at the end of the year

• Additive budget bill
• Additive budget bill updates the initial law in
  receipts and outlays
• It asks for opening new appropriations
• It ensures cancellations of funds
• It give many informations about the management of
  teh budget during the year
• It issues an updated result
• It brings globally more transaprency in public
  finances
• The later, the better oversigth

• Loi de règlement
• It closes definitely the budget (receipts,
  outlays)
• It is joined with a report of Cour des Comptes
• It is the only document which give exactly th
  eprofile of the execution
• It gives two fundamental informations about
  budget management of appropria-tions and spending
  itself
• It shows very clearly possible irregularities in
  management and spending.
• The sooner, the better oversigth

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Are these two indispensable legislative acts
issued in francophone countries? Unfortunately
Not.

• The practise of additive bills is unknown in
  Africa and Magrheb
• it is a sign of lack of transparency
• but it is also motivated by a fear for the
  aggregate fiscal discipline (viewed as a mean to
  open more funds, notably vis-a-vis the
  Presidence)
• it explains why cancellations of funds are not
  used for the monitoring
• some countries (Madagascar) issue such a bill,
  but to early in the year
• The lack of the Loi de règlement is the worst
  point
• Many countries issue regularly such documents
  but there are wrong because the reporting is not
  correct (Cameroon, Benin, )
• Some countries issue very acurate documents but
  3 or 4 years after teh battle, so there become
  unuseful (Morocco)
• Other do not issue any document

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The weakness of a francophone public management
system is proportional to its capacity to issuing
a reliable  loi de règlement .The ex post
control function is higlly depending on this
capacity.
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END