February 2009 prem 4 Africa Region
Public Expenditure Execution
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Public Expenditure ExecutionToday, the budgetary and financial registration is performed on SIGOF, which contains the economic classification of expenditure, NIF of the beneficiaries, and banking data for payments and retentions. The budget in SIGOF already includes subtraction of 10 percent of the initial allocation on all line items (headings).33 There are six phases in the expenditure stream: (i) release of a requisition by the concerned ministry; (ii) validation of the requisition by the DGCP - this operation, which consists of checking the availability of the appropriations, is called cabimento; (iii) return of a copy of the cabimento to the technical ministry for order of work or supply; (iv) realization of the amount due by the DGCP (liquidação) - this consists of calculating the amount due and certifying the effectiveness of the expenditure; (v) release of an order to pay by the DGCP cobrança; and (vi) payment is made by DGT. Decentralization of budget execution started in 2007 with the transfer of the cabimento and liquidation phases to the line ministries. Once decentralization is complete, line ministries will be in charge of all phases of execution, with the exception of payment, which will continue to be the responsibility of DGT.34 The government has systematically built up arrears in the past, due in part to the ability of making individual cabimentação. The public administration does not adopt cabimentação as an estimated value of expenditure for the whole fiscal year. Cabimentação is always individual for each expenditure incurred at a given moment. In the instance of an electricity bill, the expenditure (cabimentação) applies to each monthly bill, not to the estimated value of that expenditure for the entire fiscal year. This method is not recommended because it generates the risk of a public entity assuming higher commitments than the allocation for the fiscal year. If civil servants do not become aware that the allocation was insufficient until the end of the fiscal year, Treasury will be under pressure to make payments that it had not accounted for. This is the reason that in the past the central government built up arrears so consistently. In the 2008 budget, a rule was adopted to not make commitments after November to prevent pressures toward the end of the fiscal year (Cape Verde’s fiscal year is the same as the calendar year). Treasury ManagementThe basic rules of the Treasury payment system are included in Law 10 of 1996. In this law replaced the rules dating back to colonial times (Regulamento da Fazenda Pública) (1901). Law 10 established the rules and procedures to be adopted in financial planning, treasury management, accounting of state revenues and expenditures, budgetary control and management, and payment methods. The DGT is the administrative unit that manages the Treasury. DGT is responsible for financial planning and payment execution, and centralizing all the operations of payment, as well as all revenue collected and its respective accounting.35 DGT also is responsible for preparing the annual Treasury plan, which contains cash flow in the main categories of recurrent and capital expenditure. DGT determines the gross funding requirements and plans the issuing of Treasury bills and bonds, as well as available funds. Even though Decree-Law 29/1998 determines the centralization of available funds in the government account, in practice such centralization applies only to Treasury resources. The “sovereign structures” and autonomous institutes still maintain balances in commercial bank accounts. Furthermore, most grants also are still kept in specific bank accounts outside of government control.36 At the moment, the big challenge for the government is to close these commercial bank accounts and transfer their balances and future financial transactions to the g Central Bank account. As it stands, DGT can have a cash-flow shortage while other government entities have available funds in commercial accounts. The DGT has all that is necessary for the effective control of resources (legislation and IT system) but the accounting and treasury management modules need to be incorporated into SIGOF. Because these modules have not yet been incorporated, specific accounts for earmarked revenues (these with specific objectives) are opened in the Central Bank. There also is a special account in the Central Bank that accepts foreign currency in which project funds are deposited, making it difficult for DGT to follow up on all entries and exits related to each project. This problem will be solved with the creation of the accounting module in SIGOF. As a temporary measure, subaccounts of the special account could be opened, enabling transactions of each project to be individualized.37 The basis for centralizing cash resources is being established, and the government should do it continuously. A first step is to centralize the resources of autonomous entities and sovereign structures in a Single Treasury Account (mother account), subdivided into specific subaccounts. This step would enable the government to have the overall position of the availabilities. Meanwhile, the effective control of the financial resources of the different administrative structures will be achieved only by implementing the Single Treasury Account in SIGOF. Doing so would enable DGT to individually control the financial balances of all of the entities, thus creating the conditions to eliminate all of their commercial bank accounts or the subaccounts kept in the Central Bank. A common concern associated with the Single Treasury Account is the fear that “combining” funds will reduce transparency and the individual control of the returns of each of the deposits. In fact, as it often is said, “money bears no stamp,” meaning that resources available in a bank account are part of a single balance sheet. The fear that with a single account movements of money will not monitorable is unfounded. It is possible to run a parallel control that follows up on the origin of each deposit, as well as any transaction carried out in the Single Treasury Account. SIGOF can achieve this through accounting records. Therefore, after the introduction of the accounting module in SIGOF, the origin of the resources, their transactions, the breakdown of the daily balances by funding source, and the units responsible for these transactions can be accessible not only by the central government but also by the autonomous institutes and sovereign bodies. In this model, transactions made through SIGOF will enable identification of the beneficiary of each deposit and the party responsible for each payment. When a specific government entity needs to verify its own institutional balance, it will have access to it through SIGOF and not through the Central Bank account holding the entire government balance. This process should occur concomitantly with the upgrading of the existent payment system mechanisms. The Central Bank should be capable of monitoring the account holding the commercial banks’ reserves and the Single Treasury Account through an IT system, which is not the case at the moment. In addition, access to the Central Bank system should be made available to DGT, so that it can monitor transactions in the single Central Bank account. A fundamental principle of Treasury management is that revenues and expenditures be transacted through the banking system, strictly following the principle of cash unity. The opening of bank accounts for government resources should be restricted, unless under exceptional circumstances, and require MFAP approval. To this end, the legal documents must prohibit public institutions’ transactions of resources in commercial bank accounts outside the Single Treasury Account. However, given the long process to implement the Single Treasury Account in SIGOF, some exceptions should be permitted. These comprise the accounts of the government structures located in areas that have no technical resources to use SIGOF, the accounts in foreign currency (in commercial banks outside the country), and the accounts aimed at responding to special circumstances, to be regulated by the Treasury. Recommendations:The government should implement the model of the Single Treasury Account. For this to happen, it will be necessary to: Prioritize inclusion of the accounting module in SIGOF. Map and transfer the balances of all government entities, including institutions and sovereign structures, enabling the control of resource availability without loss of autonomy for the institutions, which may implement their expenditures, in all stages, through SIGOF. Publish legislation prohibiting transactions of resources outside the Single Treasury Account, except in cases in which the specific operational characteristics do not allow them to be conducted through the Single Treasury Account system. In such cases, the resources may be deposited, according to MFAP criteria in banks designated by the government. Provide the Central Bank with an IT system that will enable DGT to monitor transactions in the Single Treasury Account in the Central Bank, mainly for financial reconciliation. Create mechanisms for electronic transfer of large amounts, allowing transfers of resources between the DGT and the banks. PaymentsManagement of payments is centralized at DGT38 because the principle of a Single Treasury Account is not yet in place in SIGOF. As a result, and given the scarce resources, DGT ends up being involved in the operational activities of expenditure execution. Once the principle of a Single Treasury Account is set up, decentralization of the payment can be implemented, leaving DGT with the sole responsibility of financial planning: matching credits and debits. DGT would be responsible for establishing the withdrawal limits for line ministries, which would issue payment orders against the Single Treasury Account. This procedure can be done in SIGOF, which will contain all the data needed to credit the beneficiary’s account once the financial amount is made available by the DGT for the period. Thus, the payment order will work as an electronic check. SIGOF should be prepared to adopt several payment order modalities, generated according to the need of each manager and the payment modality selected. Depending on the level of integration of the financial system, withdrawals from the Single Treasury Account can be made at different times according to the various payment modalities that currently exist in the Treasury. Payment orders, once issued and authorized by the Disbursement Officer and Financial Comptroller, must be grouped by the end of the day into different files consistent with the banking institutions responsible for the payments. Once the banking institution has the files and after the transfer of resources by the Treasury, the bank will credit the beneficiary within the agreed period. In specific situations, payment by the Treasury can be made directly to the beneficiary through integration with the Central Bank system. Payment orders not authorized by the end of the day by the Disbursement Officer and Financial Comptroller will be canceled before the files are consolidated. SIGOF will perform transactions and control the single account. Because the Treasury does not have an agency, for payment orders to reach the final beneficiaries, it must continue to use the accredited banking institutions. In this model, after being debited from the Single Treasury Account, the financial resources corresponding to the payment orders issued each day will be credited to the beneficiary banking institutions early the following day. As a general rule, government payments should follow four steps (figure 3.2): Registration of creditor and its banking address. Issue of payment order in “D,” after the regular liquidação. Transfer of information from the treasury to the financial agent (3a); financial resources (3b) corresponding to the payment orders issued the day after the payment orders have been issued (D+1). Reception of credit by the beneficiary in the period established. To prevent public resources from being incorrectly credited, the validation of the beneficiary’s bank account data should occur in real time, concomitant with its registration. If the validation cannot be implemented in real time, a normative rule by the Central Bank should make it mandatory for the banking institutions to verify (NIF) whether the beneficiaries of the credits are the owners of the bank accounts. If they are not, the bank will return the funds to the Single Treasury Account according to the conditions in the normative rule, providing the number of the payment order that is to be canceled. Only after the creditor and its banking address have been registered can the manager issue the payment order. Furthermore, the issuance of the payment order in SIGOF does not guarantee that the creditor will receive the funds, because it is mandatory to have the signatures and authorizations of two people from the line ministries (Disbursement Officer and Financial Comptroller). The ideal model would be one in which SIGOF has been programmed to certify electronically that the authorization has been issued by the authorized agent. If the electronic authorization mechanism is not adopted, it is recommended that to wind up the payment process, the Payment Orders List from the unit be printed and the signatures from the responsible persons be collected and delivered to the appropriate branch for supervision (in this case, a branch for each banking institution). To not delay issuing payments, it is advisable to appoint alternates. Figure 3.5: Disbursements - Payment orders 
Source: Albuquerque and others, Gestão das Finanças Públicas (2006). The system should include the option of Intra-SIGOF payments whenever one government unit must make a payment to another government unit that also is part of SIGOF. The government unit that requests the service will undertake the cabimentação and, after receiving the invoice from the service provider, make its liquidação. The commitment will be paid through an Intra-SIGOF payment order; only an accountancy registry is made, with no transaction in the Single Treasury Account of the Central Bank, only the account recording in both government units. Given the proposed models for the transfer of revenue collection and expenditure execution, Treasury participation in the clearinghouse should be re-evaluated. According to international best practice, creation of clearinghouses in a payment system is intended to reduce the liquidity risk of participants. Such risk is unlikely to affect the Treasury because Treasury programming will ensure a sufficient positive balance in the account. In addition, the liquidation and collection processes do not take long (approximately two days). This length of time should not give rise to a large balance problem for the Treasury. As the government usually operates with large amounts, the direct transfer to the Treasury account at the time of revenue collection and direct transfer of payments reduce not only the cost to the Treasury but also systemic risk. Recommendations:Replace checks with electronic payment orders in SIGOF, with generation of files for each beneficiary banking institution. After elimination of checks and direct transfer of the collection, the Treasury can stop participating in the clearinghouse. Directory: curated curated -> Concept stage curated -> Concept stage curated -> Republic of Côte d'Ivoire Urbanization Review curated -> Report No: aus11011 Central America curated -> Report No. 94474-pk fiscal Disaster Risk Assessment Options for Consideration curated -> Environmental and Social Management Framework for the Costa Rica Telecommunications Sector Modernization Project curated -> Environment Impact Assessment For Jiangxi Shangrao Sanqingshan Airport Beijing Guohuantiandi Environmental Technology Development Center. Ltd. Oct. 2012 Content curated -> Growth through Innovation An Industrial Strategy for Shanghai By Shahid Yusuf Kaoru Nabeshima April 22nd, 2009 curated -> Report No: 70178. People's Republic of China Download 3.98 Mb. Share with your friends:
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