Liberia – Duke University ProgramLegal Framework for PFM

Duncan LastPublic Financial Management Division

March 4, 2011

OUTLINE OF PRESENTATION

I. Features of the PFM legal framework

II. Typical timetable of an Integrated PFM System

III. Liberia’s PFM Law

IV. Discussion

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I. Features of the PFM legal framework: Main Elements of the PFM System

Macro-Fiscal Policy

BudgetingAccounting & Audit

Treasury Management

Roles, Responsibilities

& Oversight

I. Features of the PFM legal framework: Key documents

• An integrated PFM Law– Key principles, processes and deadlines– Coverage, roles and responsibilities

• Subsidiary/specialized laws– Procurement, external audit

• Regulations– Detailed processes and responsibilities

• Instructions/manuals …– Specialized guidance for practitioners

• Sanctions and penal code4

I. Features of the PFM legal framework: Outline of an Integrated PFM Law

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a. Principles/rules: Stability, sustainability, responsibilityb. Content & presentation of fiscal strategyc. Reporting of fiscal performanced. Enforcement & escape clause

a. Principles: Comprehensiveness, annuality, specificityb. Calendar for budget preparation & approvalc. Budget policy statement & budget documentsd. Unit of appropriation and virement & carryover rulese. In year reporting, contingency reserve, supplementary & excess votea. Principles: Unity, efficiency, timelinessb. Treasury Single Account, banking arrangements & cash managementc. Authority to commit & spend public fundsd. Borrowing, guarantees, lending, on-lending & sale of assets

a. Principles: Transparency, integrity, accountabilityb. Coverage, standards & timetable for production of accountsc. External audit & timetable for production of audit reportsd. Scrutiny, timetable for completion of scrutiny & follow-up

Main Parts Key Sectionsa. Cabinet Secretary/Finance & Principal Secretary/Treasuryb. Accountant General, Accounting Officers, County Treasurers, Rev. Collectorsc. Internal Auditor General, Internal Auditors, Audit Committeesd. Auditor General & Controller of the Budgete. Parliament, Parliamentary Budget Office, County Assemblies

II. Macro-Fiscal Policy

III. Budgeting

IV. Treasury Management

V. Accounting & Audit

I. Roles & Responsibilities

VI. Special Provisions

a. Local governmentsb. SAGAs, AGAs, EBFs and fund accountsc. State- & local government-owned enterprisesd. Other investments and PPPsa. Sanctions & penaltiesb. Transitional arrangements & laws to repeal

VII. Sanctions & Transition

I. Features of the PFM legal framework: “Good Practice” in Macro-Fiscal Frameworks

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Medium-term Fiscal Strategy

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Principles of fiscal managementFiscal rule (numerical / procedural)Escape clause

3-5 Year macroeconomic forecast3-5 Year fiscal forecastFiscal risk analysisMedium-term fiscal target

3-Year expenditure ceiling3-Year ministerial allocationsContingency & planning marginsPerformance indicators/targets

Updated 3-5 Year MTFS & MTEFExplanation of changes from MTFS/MTEFDetailed annual appropriations

Element Content

Medium-term Expenditure Framework

Annual Budget

Timing

Permanent

FY - 6 mo

FY - 6 mo

Budget Orientation Debate

FY - 5 mo

FY - 3 mo

Scrutinize macro forecastVote MT fiscal targetVote expenditure ceiling

Fiscal Council

Fiscal Rule or FRL

I. Features of the PFM legal framework: Formulating and regulating the budget

- For completing the annual performance review of the budget- For issuing the MTEF and budget preparation circulars- For submission of budget documents to Cabinet and the Legislature- For Parliament to adopt the budget

- Fiscal policy/strategy documents- Estimates of revenue and expenditure- Annexes to the budget- Appropriation bill

- When and how often these can be done- In-year responses to changed circumstances (e.g. higher revenues)

- Limiting appropriation virements that can be done by the executive- Regulating levels of authority within virement limits- Allowing for a contingency reserve to cover shortfalls

Key dates in the Calendar

Budget Documents

Supplementary Budgets

Virements and Contingencies

Structure of the budget

Regulating in-year spending

- Regulating ability to commit through allotments- Annual Work, Procurement and Cash Flow plans- Commitment control- Appropriation control- Mid-year reviews – scope, purpose, and implications for

budget/appropriations- Annual budget performance reviews

Budget Reviews

- Budget classifications – chart of accounts- Comprehensiveness – inclusion of all revenues and donor funds- Unit of appropriation

I. Features of the PFM legal framework: “Good Practice” in treasury management

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Objective: To facilitate the efficient execution of the budget

Timely availability of resources

Result: Credible Budget, Value for Money, Effective Service Delivery

• Annual cash flow plans based on line ministry work plans and procurement plans, aligned to achievable revenue inflows

• In-year rolling cash flow plans with daily projections for next month, aligned with macro-economic and fiscal conditions

• Minimized idle cash and optimized borrowing

Harmonized cash & debt management

• Annual deficit borrowing optimized against annual cash flow plans and market conditions

• In-year liquidity borrowing and short-term investments of surplus cash aligned with cash flow plans

• Mix of instruments for optimal liquidity management

Robust budget execution

• Comprehensive commitment control system which informs on future spending and reserves funds

• Timely recording of invoices and standard payment terms• Banking arrangements that support treasury control of cash• Adequate and timely information on budget execution

through

supported by

I. Features of the PFM legal framework: Oversight of Borrowing and Guarantees

• Regulating borrowing– Suitability of terms and conditions– Limits on borrowing and guarantees:

• annual limits, borrowing for capital purposes only

– In-year Liquidity borrowing• Procedures

– Approval process:• Central government, local government, SOEs

– Forecasting debt• Sustainability

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I. Features of the PFM legal framework: Universal Principles in Accounting and Audit

• Fiscal Transparency– Timeliness of reports– Comprehensiveness of Coverage– Access to published information

• Compliance to standards– Credibility and integrity

• Accountability– Subject to public scrutiny

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I. Features of the PFM legal framework: The reporting entities

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General Government

Public Sector

National Government

County Governments

Public Corporations

Financial Corporations

Non-Financial State Owned Enterprises

MDA1

MDA2

MDAn

County Owned

Enterprises

I. Features of the PFM legal framework: Comprehensiveness of Reports

Reporting Entities• Accounting Offices (MDAs)

– Revenue and expenditures– Assets & liabilities– Outputs

• Consolidated “whole of national government”

• County governments• Aggregated “whole of

general government”• State/County owned

enterprises– Financial corporations – Non-financial corporations

Transactions & Balances• Recurrent revenues and

expenditures• Classified expenditures• Funding inflows/outflows• Donor transactions • Financial assets & liabilities• Fixed assets• Contingent liabilities• Special Funds• Off-Budget transactions

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I. Features of the PFM legal framework: Fiscal relations with county governments

• Common PFM system and procedures for all governments

• Additional fiscal relations to be regulated– Integrating counties within the common national

policy framework– Managing the share of resources between levels

of government– Controlling sub-national borrowing– Reporting and consolidation– Temporary financial arrangements in case of

problems within a county13

I. Features of the PFM legal framework: Regulating Agencies and Funds

• PFM legal framework to apply to them• However, some degree of autonomy• Harmonized fiscal years• Reporting to both MoF and parent

ministry• Performance contracting• Regular review of relevance of

institution to current policy• No borrowing

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I. Features of the PFM legal framework: SOEs – Degree of influenceIntegration into fiscal management

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Monitoring Control

Contingent liabilities in Fiscal Risk Statements

Inclusion in Fiscal

Statistics

Controls on investment &

borrowing

Inclusion in Fiscal Rules

Gains / losses included in Ministerial budgets

Most countries UK & NZ

I. Features of the PFM legal framework: Principles related to sanctions regime

The sanctions regime should provide for : Institutional (public agencies/entities) sanctions;

and Personal (public officials with specific public

financial management responsibilities) sanctions.The regime should set forth different categories of

sanctions: Administrative and disciplinary Civil Criminal Political

The regime should include a credible institutional framework for the enforcement of the applicable sanctions

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II. Typical timetable of an integrated PFM system

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MonthMacro Framework

& Budget PreparationBudget Exec.

& TreasuryAccounting, Audit, &

OversightNotes

June Cash & Work Plans Year End Circular Work, procurement, and cash plans before start of FY

July1st Qtr Budget Release

4th Qtr Exec ReportProcurement starts based on approved FY Budget

Aug Annual Budget Reviews 1½ months to Prepare Annual Reports

Sept MTEF Guidelines issuedAnnual Reports to

Auditor GeneralAccounting Officers reports at all levels (incl. Counties)

OctUpdate Strategic PlansBudget Outlook Paper

2nd Qtr Budget Release1st Qtr Exec Report

Consolidated Accounts to Auditor General

Comptroller General 1 month to Consolidate AccountsFY+1 budget outlook informed by FY-1 & FY 1st Qtr outturns

NovCounty Inputs to fiscal

strategy including MTEFCoordination with line ministries and national policy

Dec Sector/County Hearings Audited Accounts Audits of all entities as per Constitution/Law

JanMTEF Projections finalized &

included in Budget Policy Statement (BPS)

3rd Qtr Budget Release2nd Qtr Exec Report

Cabinet to adopt BPS end January

FebBudget Policy Statement to

ParliamentBudget Performance

Report on 1st Half of FYSupplementary budget if required, Parliament debates and adopts BPS for FY+1 by end Feb

MarBudget ceilings & circulars

issuedLegislatures review of

audited accounts

Firm ceilings for all budgets (incl. transfers to counties)Parliament and County Assemblies complete reviews of accounts of FY-1 – Budget debates are thus informed

AprEstimates to Parliament

County Budgets to County Assemblies

4th Qtr Budget Release3rd Qtr Exec Report

Estimates to Cabinet 1st half Apr, to Parliament 2nd half

May Treasury Memo Clear follow-up can be included in FY+1 budget execution

June Adoption of Budgets FY+1 Budget adopted before start FY

III. The Legal Framework in LiberiaThe PFM Act of 2009

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I. General Provisions S1-4)

II. Authorities and Responsibilities for Budget and Public Financial Management (S5-7)

III. Budget Preparation and Approval (S8-19)

IV. Budget Execution (S20-27)

V. Borrowing, Public Debt and Guarantees (28-32)

VI. Cash Management and Banking Arrangements (S33-34)

VII. Accounting and Reporting (S35-37)

VIII. Internal Control and Internal Audit (S38)

IX. Autonomous Agencies and Special Funds (S39-42)

X. Specific Provisions Relating State Owned Enterprises (43-46)

XI. Sanctions (S47) XII. Final and Transitional Provisions (S48-49)

III. The Legal Framework in LiberiaThe accompanying regulations

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PART A: General Rules for the Management of the Consolidated. Fund.

PART B: Public Funds and the Consolidated Fund.

PART C: authority and Responsibilities of Public Officer in Public Financial Management.

PART D The Budget Preparation and Approval Process.

PART E: Budget Execution.

PART F: Government borrowing, public debt and guarantees

PART G: Aid management framework and responsibilities of non-governmental organizations

PART H: Cash management and banking arrangements

PART I: Accounting and reporting

PART J: Internal control and internal audit

PART K: Monitoring and oversight

PART L: Autonomous agencies and special funds

PART M: State-owned enterprises

PART N: Offences and penalties.

PART O: Consolidated Fund Receipts

PART P: Consolidated Payments

PART Q: Imprest

PART R: Bank and cash transactions.

PART S: Custody and security of public funds

PART T: Personnel emoluments

PART U: Government stores and inventory

PART V: Asset custody and management

PART W: Losses

Part X: Transitional provisions and entry into force

24 parts and 329 regulations

III. The Legal Framework in LiberiaAreas of on-going focus

• Implementing the Law– For some areas, implementation expected over time -

MTEF, TSA, internal audit, coverage of SOEs…

• New institutional arrangements– Integrated accounting function

• Strengthening implementation in line ministries– Capacities in planning, budgeting, procurement,

internal audit, and accounting– Improved awareness of the legal framework– Ministry and agency level accounting manuals

• Challenges 20

IV. Discussion

What are your areas of concern within the legal framework?

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