EXCEL PROFESSIONAL INSTITUTE LECTURE 6 BUDGETS AND BUDGETING IN THE PUBLIC SECTOR

EXCEL PROFESSIONAL INSTITUTE LECTURE 6 BUDGETS AND BUDGETING IN THE PUBLIC SECTOR

A. The Context of Public Financial Management & Accounting 10 MARKS Differences and similarities between the public sector entities and the private sector entities. Differences and similarities between public sector accounting and private sector accounting Objectives of the public sector accounting compared with objectives of Private Sector Accounting systems. Users of public sector financial statements and their information needs. The concept of New Public Management in the public sector. B. Accounting Concepts and Bases in the Public Sector 10 MARKS Different basis of accounting in the public sector such as: cash basis, modified cash basis, accrual basis, and modified accrual basis. Key features of each of the bases of accounting. Advantages and disadvantages of each of the bases of accounting in the public sector. Basis for recognition and measurement of assets and liabilities in the public sector. Some public sector accounting concepts: fund accounting, commitment accounting, and appropriation/vote accounting (Total: 20 marks)

A. Legal & Regulatory Framework for Public Financial Management: The 1992 Constitution of Ghana, the Financial Administration Act (FAA), The Financial Administration Regulation [FAR] 10 MARKS Key public financial management and accounting issues in the 1992 Constitution of Ghana. Duties of the Minister of Finance and the Controller and Accountant-General Public Funds and its constituents. Process of payments into the Consolidated Funds. Process of appropriation of public money. Modalities for making payments out of the Consolidated Fund. Dealing with balance of appropriation is dealt with. Process of investing public moneys in securities. Loans and advances from the Consolidated Fund are regulated. Process of preparing Government s Estimates of Revenue and Expenditure. Process of regulating collection and custody of tax and non-tax revenue. Process of acquisition, keeping, issuing and accounting for Government Stores. Preparation of financial statements for Public Funds and Consolidated funds with reference to basis of accounts, classification of accounts, frequency of reporting, content of the financial statements and format of presentation. Basis of audit of the Consolidated Fund Accounts and other Public Funds accounts. Accounting systems prescribed for Statutory Corporations and Other Public boards. B. Public Procurement: The Public Procurement Act 10 MARKS Governing structure of the Procurement Board. Procurement structures in the Public Procurement Act. Procurement rules in the Public Procurement Act. Methods of procurement in the Public Procurement Act. Tendering procedures with particular reference to invitation of tenders, submission of tenders and evaluation and comparison of tenders. Methods and procedures to engage the services of consultants. Review procedures under the Public Procurement Act. Procedure for disposal of stores, plant and provisions. (Total: 20 marks)

A. Budgets and Budgeting in the Public Sector 10 MARKS Budget and budgeting in the public sector context. Objectives of budgeting. Format and contents of the public sector budget. Processes in the budget cycle: budget formulation, budget authorization, budget approval, budget execution, and reporting, monitoring & evaluation. Alternative approaches to budgeting in the public sector such as: incremental budgeting, zero-based budgeting, programme budgeting, output/outcome budgeting, and hybrid approaches to budgeting. Concept of virement and outline the circumstances under which it is allowed. Public expenditure survey and outline its features and objectives. Medium Term Expenditure Framework (MTEF) and long term development plans. Budget outturn reports based on IPSAS 24: Presentation of Budget Information in Financial Statements. Budgeting as a tool for public accountability. Advantages of budgeting in the public sector. Relationship between Government policy and the annual budget. Limitations of budgeting. B. Revenue Management and Expenditure Control 10 MARKS Sources of revenue for the different forms of public sector organisations such as: central government, local government, State Owned Enterprises and NGO s. Objectives of taxation within the context of the public sector. Different types of taxes and their characteristics. Internal controls over revenue Tools for expenditure control Government Chart of Accounts. Features and general principles of Government Chart of Accounts proposed by 2001and 2011 Government Finance Statistics Manuals Ghana Integrated Financial Management Information Systems [GIFMIS] (Total: 20 marks)

A. Overview of International Public Sector Accounting Standards (IPSAS) 10 MARKS Nature, Scope and Objectives of IPSAS The Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities General outline of IPSASs [Contents, Application and Disclosures] B. Financial Reporting for Central and Local Government and NGOs 10 MARKS Features of the general Government Sector. Features of the local government system and decentralization process. Financial statements for MDAs and MMDAs on Cash Basis IPSAS. Financial statements for MDAs and MMDs on Accrual Basis IPSAS (IPSAS 1, 2, 3, 4, 14, 18, 22, 24). Consolidated financial statements for whole of Government (IPSAS 6, 7, 8, 20). Financial statements of NGOs (Total: 20 marks)

A. Accountability and Value for Money in the Public Sector 10 MARKS B. Accounting for Public Private Partnerships 10 MARKS The concept of public accountability. Mechanisms for ensuring public accountability. Mechanisms for ensuring value for money in the public sector. Corporate governance principles for governing public sector entities. Roles of the following structures in ensuring public accountability: Department of the Controller & Accountant General, Internal Audit Agency, Auditor General Department, Public Accounts Committee of Parliament, Finance Committee of Parliament Public Private Partnerships (PPP). Different types of PPP arrangements. Uses of Public Private Partnerships. IPSAS 13 and 32 and accounting for PPPs. (Total: 20 marks

The concept of public sector budgeting Features of Public Sector Budgeting Purpose of Public Sector Budgeting Types of budgets in the public sector Central Government Budgeting Local Government Budgeting Public Sector Budgetary Control Responsibilities of the Minister Responsibilities of Chief Director Duties of a Principal Spending Officer Budget Office [PFMA Sect10] Central Government Budgeting [Sect 20-37- PFMA] The Annual Budget PRESENTATION OF BUDGET IN FINANCIAL STATEMENTS

The Government Budget is an important tool for implementation of policy decisions to achieve social, economic and political objective The preparation and implementation of government budgeting is governed by a body of laws, regulations and administrative procedures format, timing, procedures, allocation of formal powers and rights in the budget cycle or process governed by laws It is a short term reflection of government's plan for, the future as outlined in the national policy for that year. As an accounting document, it seeks to allocate resources between competitive activities.

Public Sector budget is prepared to cover a period of time usually a year or two depending on the policies and programmes of the government. Used to be annual till MTEF was introduced. (three year rolling) Public Sector budget may be prepared in parts based on sector or programmes. Circumstances such as change in government may also lead to split of the government budget for a year. Public sector budget may be supplemented by review-budget Driven by public interest rather than profit motive

It highlights Government's policies and programme and make it known to the public Public sector budget is a useful guide for the allocation of available resources. As a means of accountability for the moneys appropriated to other government units,

Approaches to Budgeting

This is a budgeting approach where the previous year budget (or actuals) is adjusted to allow for changes in future conditions. Resources are allocated based on previous years' budget rather than on any rational allocation based on the policy or planning process. Previous year actual is baseline Advantages of Incremental Budget It is a reasonable procedure if current operations are effective, efficient and economical It is also appropriate for budgeting for costs such as staff salaries which may be estimated on the basis of current salaries plus allowance for inflation. Line items can easily be monitored and controlled. Disadvantages of Incremental Budget This approach can lead to inefficiencies in the previous year's budget being rolled forward. Into the next year's budget. There is the tendency to constraint new high priority activities.

This is a budgeting approach where budget estimates are made for line revenue and expenditure items for various periods. Budgeted spending is specified in terms of the inputs that are bought which are linked to the department with less attention being paid to the activities to be undertaken or the objective of the department. Budgeting approach is to list all line expenditure items showing the amount allocated to each line

Advantages of line Item Budget It encourages the continuity of projects since uncompleted projects is likely to be included in the following year budget. In line item budgeting, resources are allocated to heads and subheads. In effect, budget controllers are able to monitor the performance of the budget. Budget preparation becomes easier since it applies incremental changes on line items to estimate the budget for the budget year. Demerits of line item Budget The relationship between input and performance is not clearly defined since budget is lined to departments rather than the programmes. It express minimal information regarding purpose or an explicit object within the organization

Budgeting approach where funds are allocated to departments based on their measurable output or result rather than their expenditure lines. Public expenditure is expressed in terms of functions or projects to be undertaken, highlighting the cost involved (Focus on purpose for which funds are requested.) Budgeted costs are compared with the expected benefit to determine whether it worth undertaking the function/project before funds are allocated. Features of performance Budget Classification of budgets in terms of functions and activities. Measurement of work done or output provided, by each activity Allows direct comparison between projects cost with their anticipated benefit or goal. Monitoring of actual cost and performance against the budgeted results or expectations.

A budgeting technique which requires that all activities are reevaluated each time budget is prepared so that each activity can justify its consumption of the economic resources available before being included in the budget. Each activity is treated as though it was being undertaken for the first time and is required to justify its inclusion in the budget in terms of the benefit expected to be derived from its adoption.

1. Defining and formulating decision units within the organisation. (unit is a programme of work, area of activities or a project that need to be carried out to achieve an objective and can be evaluated individually-could be grouped as a decision packs) 2. Each decision package is evaluated and ranked by decreasing benefit (Cost benefit analysis) to select those with greatest benefit 3. Resources are then allocated to decision package(s) based on the funds available and the rankings of the packages after which the package is implemented. The implemented package is then monitored and evaluated-relative to the goals.

1. It is possible to identify and remove inefficient or obsolete operations 2. It focuses attention on the need to obtain value for money from the consumption of organizational resources. 3. Helps create an organizational environment where changes are accepted. 4. Result in a more efficient allocation of resources to activities and programmes.

1. Can be time consuming for management especially where decision packages are larger. 2. Requires management skills in decision analysis to construct decision package which may not be available 3. The organisation information system may not be adequate to provide the informational needs of the budgetary process. 4. May focus on short term benefit leading to the rejecting of viable projects but benefit may be realized in the long term

System which identifies alternative policies, presents the implications of their adoption and provides for the efficient control of those policies chosen. It express budget in terms of programmes (functional groups of activities with a common objective) and output from the resources injected into these programmes. Focus in the reason for embarking on the group of activities.

1. Identify the goals and objectives of the organisation. 2. Define the programmes necessary to achieve the specified goals and objectives 3. Plan and analyse the programmes(develop, analyse, compare alternatives) 4. Development of the appropriate measures of performance for the programmes 5. Programming and Budgeting; the agreed package of "programmes" complete with resource requirements and expected results are expressed in the form of "programmed budgets" based on which resource is allocated. 6. Performance of the programme is then monitored and evaluated

This is a budgeting technique which identify a series of programmes and the associated activities (with a single strategic purpose) within the organisation and formulate the budget in terms of the programmes and then links the budgeted expenditure to clearly determined results. For the purpose of management and control, the programme may be broken down into sub-programme and activities. The performance of each programme is measured in terms of its outcomes (extent to which its sub- programs have contributed to the attainment of the strategic objective) & outputs (the goods and services provided under the programme which can be measured in terms of quantity, quality and timeliness) and Cost.

Policy delivery: links resource allocations to functions and its strategic policy objectives. Costing: allow for the identification of necessary inputs to produce the core operations and projects required in order to contribute to strategic objectives Performance: allows measurement of the impact of government in meeting strategic objectives; the effectiveness and efficiency the services produced under the programme; and the overall cost of addressing the objective.

The Minister of Finance is mandated by law to develop a budgetary system throughout the public sector. Recently the government have moved away from Activity Based Budgeting to Programme Based budgeting system for many reasons. Required: i) Distinguish between Activity Based Budgeting and Programme Based Budgeting. (4 marks) ii) Explain FOUR advantages that Programme Based Budgeting has over the Activity Based Budgeting (8 marks)

a) ictivity Based Budgeting Vs Programme Based Budgeting The following are the differences between ABB and PBB 1. ABB links resources allocation to the activities required to be undertaken in order to achieve a desired output but PBB assigns resources to measurable result to be achieved. 2. ABB emphasis the relationship between activities and cost thereby producing much detail on overheads whereas PPB focus on the linkage between programme funding level and expected result of the programme. 3. ABB produces detail information on cost on each activity thereby making control cumbersome but PPB aggregates cost information at programme level rather than activity level. 4. ABB provides full costs of programmes and services which are more transparent and available for planning, budgeting and decision making whereas PPB consolidates the cost information thereby limiting transparency and available of full cost information for planning, budgeting and decision making B ii) Advantages of PBB over ABB (2 marks each for any 2 differences explained = 4 marks) 1. It provides a framework for measuring the performance of the MDA expenditure programmes. 2. It enables effective management of resources to achieve government outcomes or objectives since the emphasis is on programmes attainment rather than a mere performance of activities 3. It promotes process accountability and transparency that enables the public to judge the fiscal stewardship of the managers. 4. It provides a specific linkage between resources allocation and strategic policy objectives of the MDAs. That is, it establishes closer link between resources allocated and what has been done with it. 5. It makes budget evaluation and control much focus and conclusive. It becomes very easy to measure which programme outcomes are achieved and those that are not. (2 marks each for any 4 points explained = 8 marks)

Balanced Budget - A budget for which expected receipts are equal to expected expenditure, Thus, the total cash inflows are expected to equate the total cash out flows Surplus Budget - A Budget for which total receipts are more than total payments. A Deficit Budget -A budget for which current receipts are less than current expenditure - That is to say, total estimated revenue is not sufficient to meet total planned expenditure. A deficit budget may be prepared under the following circumstances; 1. Period of major economic depression (reduction in business activities) 2. Political pressures (especially during elections) Wars and Conflicts.

Central Government Budgeting The overall responsibility of preparing and implementing the national budget rest on the President of Ghana. This responsibility is delegated to the Minister of Finance in accordance with Regulation 149 of the Financial Administrative Regulation who has the responsibility for planning, determination, and allocation of resource, preparation, publication, implementation, evaluation and controlling the national budget.

The constitution Public Financial Management Act 2016 Financial Administration Act (2003) Finance Act & Appropriation Act (each year to authorize funds to be released for spending) Other supporting laws, procedures and regulations such as the Audit Service Act, 2000 (Act 584), the Bank of Ghana Law 2002 (Act 612), and tax laws (IRS, CEPS & VAT Acts), Public Procurement Act 2008 exist to complement the general provisions. The Standing Orders of Parliament (Order no. 138-150) are also an important guide to the budget process especially with regard to legislative approval.

In accordance with the Financial Administrative Regulation, every Head of government department is required to set up a budget committee. The Committee shall be made up of the following; Head of Department who shall be the Chairperson Head of Budget management center or cost center (A Budget Management Centre is a unit responsible for budget formulation, implementation, monitoring and evaluation). Budget Officer, who shall be the secretary to the committee.

The following are the responsibilities of the budget committee; Review and formulation of the strategic plan of the department based on the policies of the government. Review of department's revenue collecting activities. Allocation of resources based on objectives, output and activities. Coordination and consolidation of budget Monitor and evaluate budget performance Report in accordance with the Financial Administrative Regulations.

Review and formulation of the strategic plan of the department based on the policies of the government. Review of department's revenue collecting activities. Allocation of resources based on objectives, output and activities. Coordination and consolidation of budget Monitor and evaluate budget performance Report in accordance with the Financial Administrative Regulations.

This is the use of government spending and taxation to influence the economy. They are mainly to turn the economy around by, putting the economy on a path that will lead to sound economic development. It generally focused on improving revenue generation (through taxation) and enhance the efficiency of public expenditure Objectives of Fiscal Policy 1. To maintain a high level of economic stabilization of the economy. 2. To redistribute income and wealth of the nation with the aim of reducing the level of inequalities among the people in the country. 3. To ensure stabilization of the country's currency against other international currencies 4. To ensure a fair distribution of resources 5. A means of raising revenue to support the numerous activities of the government.

Taxation: Taxes can be used as a means of encouraging foreign investors to set up businesses in Ghana by charging relatively lower rate in corporation tax on their profits. Subsidies: is a form of financial aid or support extended to an economic entity (business or individual) may serve as encouragement to boost their production. The Budget: Budget as an instrument can be used to allocate resources in such a way to create or maintain high employment or to promote improvement in the condition of life of the citizens

Original budget: is the initial authorised budget for the budget period. Approved budget: means the expenditure authority derived from laws, appropriation bills, government ordinances, and other decisions related to the anticipated revenue or receipts for the budgetary period. Annual budget: means an approved budget for one year. It does not include published forward estimates or projections for periods beyond the budget period. Appropriation: is an authorization granted by a legislative body (parliament) to allocate funds for purposes specified by the legislature or similar authority. Budgetary basis: means the accrual, cash, or other basis of accounting adopted in the budget that has been approved by the legislative body. Comparable basis: means the actual amounts presented on the same accounting basis, same classification basis, for the same entities, and for the same period as the approved budget. Final budget: is the original budget, adjusted for all reserves, carry-over amounts, transfers, allocations, supplemental appropriations, and other authorized legislative or similar authority changes applicable to the budget period. Multi-year budget: is an approved budget for more than one year. It does not include published forward estimates or projections for periods beyond the budget period.

Central Government Budgeting Process (the Budget Cycle) Formulation Stage Authorization & Approval Implementation Audit & evaluation

Formulation Stage Issue of Policy Paper: A policy paper or a budget framework paper is developed by the Central Budget Agency under the Ministry of Finance not later than eight months before the end of each financial year and submitted to the Cabinet outlining the draft preliminary constraints for the next budget period. It is draft in consultation with the government planning department to enable the budget to reflect either the nation's development plan or the development budget if that is the alternative.

Cabinet Provisional Discussion: The cabinet takes provisional discussions on the total amount of expenditures, on major tax changes and new taxes policies. Cabinet decisions are then communicated to the Central Budget Agency.

Issue of Budget Circular/Call for Estimate: The Central Budget Agency then, not later than six months before the end of each financial year, issues_ guidelines for the spending organization to follow in making their spending plan and request. Circular details: 1. Timetable for the preparation and submission of the government's macroeconomic policy statement and budget estimates 2. Commentary of the past economic conditions. 3. Projected growth rate in the various sectors and the GDP as a whole. 4. Highlights on some macroeconomic variables such as inflation, investments, interest rates, money supply etc 5. Specification of sectorial and ministerial constraints within which heads of departments will prepare their budget submissions

Issue of Budget Instructions: Additional guidelines and directives by the Minister to direct the Head of Department on how to carry out the budget preparation. It details; 1. Form of budgetary documents and statement; 2. Classification of budgetary transaction; 3. Information to be submitted in support of budgetary proposal: 4. Costing of activities; 5. Procedure to be followed by budget committee in preparing, implementing the budget.

Revenue Budget: This is a budget showing all revenues expected to be earned government Ministry, Department and Agencies (MDAs) during the budget period. These revenues are known as consolidated fund revenue and are to be paid into the Consolidated Fund. Tax Revenue (Direct and Indirect taxes): Projections are usually by the Ghana Revenue Authority and submitted to the Ministry Finance for review. Non-Tax Revenue (Court fines, Birth and Death Registration dividend, rent income etc.): projected by the MD Grants, Assistance in the form of Cash or otherwise given to Government to support the budget. Loans (Domestic and External)

Identify all activities that already generate revenue Identify all activities that have the potential to generate revenue Estimate the frequency of these activities and calculate the revenue arising from these activities Produce a monthly forecast identifying when revenue are projected to take place Expenditure Budget: a budget showing all expenditure expected to be incurred by government MDAs during the budget period.

1. Government macro-economic framework, government resources and priorities and any ceiling approved by cabinet. 2. Strategic plan which includes a definition of department's mission, goal, objectives, output and activities. 3. Cost and prioritize the activities of the department taking into consideration the resource ceiling 4. Preparation of cash forecast identifying when expenditure outflow is projected to take place

Authorization and Approval Stage :This occurs at the departmental level and at the Ministerial level where as approval occurs at the cabinet and at the parliament. Examination of Budget Proposals: At the budget agency, budget examiners examine the estimate for agreement or queries. The examination is to ensure that estimates presented by spending organization are within the ceiling as stated in the budget circular and that they are genuine requests. The agency may demand any information that is required for the proper discharge of the Minister's responsibilities from a department and the information shall be promptly and correctly given

Budget Hearing: to review strategic plans and estimates of the departments concerned in order to ensure that these plans and estimates are in accordance with the Government's macro-economic policy framework & order adjustments where necessary. Cabinet Approval: When agreement is reached with all the sector organizations, the budget office present recommendations to the Minister of Finance who also consider them finally and places them before cabinet for cabinet consideration and approval. An organization may appeal to cabinet where it disagrees Central Budget Agency as regard their estimates for consideration. The cabinet considers and agrees on final expenditure levels and if possible any needed tax changes

The Minister of Finance normally submit the estimates (Budget Proposals) to Parliament within a reasonable period before the end of the current fiscal year. [Finance Bills for the revenue budget and Appropriation Bills for expenditure budget Revenue Collection: Finance Bill is passed by the legislature into Finance Acts to enable the revenue organizations to have the authority to start with the collection of the tax and other non-tax revenue usually, under a certificate of Urgency. New rates or charges become effective from the date specified in the amending enactment or any other instrument authorizing the change

Examination and Approval of expenditure estimates: The Legislature considers the budget proposals, examining them and may accept them, make changes or even reject them if necessary through relevant sub committees. Parliament then sits as Appropriation Committee and passes the Appropriation Act to authorize the spending of approved estimates for various organizations

Provisional Appropriation Act: Where estimates are not approved before the first working day of the financial year, the President, by Provisional Warrant and with approval of Parliament, authorizes the withdrawal 'from the Consolidated Fund of moneys of an amount not exceeding one-quarter of the amount included in the draft estimates for the purpose of meeting expenditure on Government programmes up to three months after the start of the budget period. Release of funds to meet expenditure The Minister for Finance through the Director of Budget issues a General Warrant for Compensation (Salaries and related expense) and Specific Warrants for Goods, Services and Investment Activities to the Controller and Accountant General with cash ceiling instructions & provisional appropriation warrant expires

The Controller and Accountant General then issues spending unit warrants to Heads of the spending organisations for the various expenditure items & instructs bank of Ghana transfer funds from the Treasury Main Account to the Sub- Consolidated Fund Accounts at the various Treasuries nationwide for MDAs to access. The head of the spending organisation then lodge their Spending Unit Warrants with their respective Treasuries at the National, Regional and District Levels by applying for release of fund, now done electronically. The spending organisation then process their expenditure transactions and access funds at their respective Treasuries.

Examination of accounting records through auditing, to check legitimacy, appropriateness in accordance with the law & standard accounting practices.

Supplementary Budget :Budget prepared by the finance minister during the year where it has become evident that the monies made available by the appropriation act is insufficient or need to release money for purpose for which no monies have been appropriated. This will have to be done under the authority of the president & laid before Parliament for approval.

1Content of Supplementary Budget; A statement of any increase or decrease of revenue and expenditure estimated for the financial year; Comments of the sector minister on the revised estimates; Comments of the minister of finance; Statement of supplementary estimates required for planned activities Event that may lead to preparation of supplementary budget; Insufficient funds for existing activities Introduction of new public interest activities Increased activity costs that could not be foreseen when the annual estimates were presented

Parliament approves them & communicates to the Controller and Accountant-General, the Auditor-General and the department concerned. Such Communication is known as Notification of Revised Estimates. Prohibited Uses of Supplementary Budget Vary the normal course of payment to avoid causing an excess on any item of expenditure or to avoid lapse of funds Make payments in advance for goods or services to be delivered in the subsequent financial year. Place funds on deposit, with a service provider or any other agency to avoid the consequences of lapse of funds

Local Government Budgeting The local government (Metropolitan, Municipal and District Assemblies) is required to prepare and present budget to the parliament for approval through the Ministry of Local Government and Rural Development and Ministry of Finance Legal Framework of Local Government Budgeting in Ghana The Local Government Act 1993 (Act 462), National Development Planning Systems Act 1994 and District Assembly Common Fund Act 1993 (Act 455). Other laws includes the Financial Administration Act 2003 (Act 654), Financial Administration Regulations 2004, Public Procurement Act, 2003 (Act 663) Local Government Service Act, 2003 (Act 656), Internal Audit Agency Act, 2003 (Act 658),

Composite Budget: is an aggregation of projected revenues and expenditures, the annual development plans and programmes of all the Departments and institutions of the MMDAs Objectives of Composite Budgeting system 1. To ensure that the policies and programmes of the Assembly are implemented in an integrated manner using the budget as the tool. 2. To ensure cost effectiveness in the planning and implementation of district programmes by reducing duplication of activities. 3. To determine the total inflow and outflow of resources of the Assembly. 4. To adopt a unified approach for district and national budgeting system, i.e. a uniform system of monitoring, evaluation and reporting system

District Budget Committee Composite budget at the local government is mainly coordinated by the Assembly's budget committee & made up of; 1. The Coordinating Director as the chairperson 2. The head of all cost centers 3. The head of district departments 4. The head of Finance, head of procurement and head of district planning & coordinating unit 5. The district budget officer

Procedure for preparing Composite budget at the Local Government Planning: by the District Planning Coordinating Unit, the Development Planning subcommittee and the Budget Committee to set up priorities & set ceilings based on priorities and involves; Formulate and review Annual Action Plans from the Medium Term Development Plan. Formulate two outer year annual action plans and review outer year revenue and expenditure projections in previous District Medium Term Budget Review current and past year revenue performance Review fees charged in consultations with ratepayers Estimate revenues to determine how much will be available to be spent Organize departmental hearings to determine ceilings for all departments

Preparation: Issue of budget Guidelines: District Chief Executive issuing a Budget Estimate Memo to all departmental heads and sub-district structures guideline for preparation of budget estimate & includes as issued by the Ministry of Finance which highlights the financial policies and relevant economic information such as the inflation rate, exchange rate, and budget ceilings. Departmental hearings by the committee: The Committee discuss and review the departments' policies and programmes to ensure that they are consistent with the overall goal of the Assembly as contained in the Medium Term Development Plan Preparation and Submission of Budget Proposals: The Heads of departments of the Assembly then prepare their draft budgets based on the ceilings given to them and submit to the Budget Committee as inputs into the Composite Budget. Preparation of Draft Estimates (Consolidation): The projected revenue and expenditure estimates of the various departments of the Assembly is then consolidated by the Budget Committee to prepare the draft Composite Budget of the Assembly.

Approval: Review by Finance and Administration Sub-Committee & report to executive committee. Review by Executive Committee & refer to the Regional Coordinating Council through management of assembly Consideration by Regional Coordinating Council to ensure compliance with standards, scope, guidelines, consistency with national policies and programmes as well as budget ceilings, then returned to Executive committee through management of assembly Final review by Executive Committee to discuss the comments from RCC, revise the budget where necessary and submit the final draft to the General Assembly. Approval by General Assembly Submission of Budget to the Ministry of Finance through the Regional Coordinating Council and the Ministry of Local Government and Rural Development (MLGRD).

Implementation: Upon approval of the budget, the Budget Committee prepare a Procurement Plan (subject to the approval of Entity Tender Committee) All departments then prepare and submit to the Budget committee of the Assembly a detailed work and cash plans indicating specific activities to be undertaken in each quarter of the year, with accompanied cash requirements to facilitate the implementation of their budget Based on the cash projections, the Budget Committee determines quarterly cash ceilings for the various departments in line with the consolidated work and cash plans. Funds are released to the Assemblies for the implementation of their programmes under the following accounts classification: Compensation of Employees, Goods and services and Assets.

For compensation of employees, General Warrants is issued by Ministry of Finance to Controller and Accountant General Department monthly to cover it. For goods and services: specific warrants is issued by Ministry of Finance to Controller and Accountant General Department upon request from the Ministry of Local Government and Rural Development DCE/DCD then refer the request to the DBO The DBO prepare a warrant and forward it to the DCE/DCD for approval after checking budget provision, cash ceiling, & documentation The approved warrant is them forwarded to the Finance Office for the preparation of payment vouchers and supporting documents, then forwarded to internal audit for pre-audit.

Assets: The Head of Department apply for a commencement warrant to procure goods, works and services through the Management of the Assembly. DCE/DCD then refer the request to the DBO The DBO prepare a warrant and commit the assembly to value of assets by issuing commencement warrant after checking budget provision, cash ceiling, & documentation, award of contract letter, bill of quantities, The approved warrant is them forwarded to the Finance Officer for the preparation of payment vouchers and supporting documents, then forwarded to internal audit for pre-audit. The Internal Auditor pre-audit these payment voucher together with the supporting document and then returned them to the Finance Office for final payment to the beneficiary department.

Monitoring and Evaluation: Monitoring and confirming that the budget was executed appropriately, evaluating progress towards achieving policy objectives, identifying lessons learned and also ensuring compliance with internal control systems in the Assembly. Budget monitoring and evaluation is usually carried out by the Internal Auditors, External Auditors. Monitoring and evaluation involves the following activities; Vouching and verification of documents and asset Preparation and review of financial reports Inspection of books and accounts

The Budget Department of a Ministry, Department and Agency (MDA) has received the following inputs from the cost centres for the 2015 budget year. (GH ) Construction Works New Projects 289,199.28 Information and Documentation 250,877.16 Depreciation of Assets 450,000.00 Miscellaneous General Expenditure 180,000.00 Property Purchases 366,874.28 Staff Allowances 50,315.60 Research Activities 243,596.45 Charges and Fees 17,752.62 Repairs and Maintenance 32,294.05 Rehabilitation Expenses 661,506.00 Special Services 24,327.00 Travel and Transport 270,789.35 Printing and Publication 151,924.25 Materials and Consumables 193,236.81 General Cleaning 450,000.71 Utilities 650,000.81 Salaries for Established Post 783,594.00 Staff Overtime 871,900.00 Advertisement and Media 170,000.74 Out-of-Station Allowances 131,114.85 Insurance 74,943.28 For the 2015 fiscal year, the Ministry has projected to generate an amount of GH 3,036,230.57 from Internally Generated Funds. The law in 2015 allowed the MDA to retain all internally generated funds and use it to finance their budget expenditure. Required: As a member of the MDA s budget committee; i) Prepare the MDAs annual Budget using the current chart of accounts for public sector and submit to the Ministry of Finance as their proposed budget for the 2015 fiscal year; (8 marks) ii) Calculate the amount of budgetary subvention support required from the Ministry of Finance for the 2015 fiscal year. (2 marks)

COMPENSATION Salaries for Established Post Staff Overtime 783,594.00 Staff allowances 871,900.00 Out-of-Station Allowances 50,315.60 Total Compensation Budget 131,114.85 1,836,924.45 GOODS AND SERVICES Utilities 650,000.81 Advertisement and Media 170,000.74 Insurance 74,943.28 Information and Documentation 250,877.16 Depreciation of Assets 450,000.00 Miscellaneous General Expenditure 180,000.00 Calculation of subvention required for the 2015 fiscal year: (GH ) Total Expenditure Required 6,239,303.96 Less: Internally Generated Funds (IGF) 3,036,230.57 Research activities 243,596.45 Charges and Fees 7,752.62 Special Services 24,327.00 Travel and Transport 270,789.35 Printing and Publication 151,924.25 Materials and Consumables 193,236.81 General Cleaning 450,000.71 Total Goods and Services 3,052,505.90 Total Subvention Required 3,203,073.39 NON FINANCIAL ASSETS Repairs and Maintenance 32,294.05 Rehabilitation Expenses 661,506.00 Property Purchases 366, 874.28 Construction Works New Projects 289,199.28 Total Non-Financial Assets 1,349,873.61 GRAND TOTAL EXPENDITURE BUDGET 6,239,303.96

a) KTM Regional Hospital, is a public referral hospital under Ghana Health Services established in 1980. The hospital is a subvented organisation that finances its operations from Internally Generated Revenues (IGR) and government subventions. In order to forecast for the first quarter of 2017, you are provided with the following information on revenues and expenditure projections of the Hospital for the fourth quarter of 2016 and first quarter of 2017. Months 2016/2017 IGR GH 000 Subvention GH 000 Donations GH 000 Nonestablished post GH 000 Goods and services GH 000 Nonfinancial assets GH 000 Other expenditure GH 000 October 2,000 8,000 200 300 700 1,200 120 November 2,400-310 740-240 December 2,500-100 400 900 1,000 125 January 3,000 10,000 500 600 800-130 February 3,200-700 820 1,600 150 March 3,400-900 800 840-290

Additional useful information for the forecasting exercise. 1) The cash and bank balance of the Hospital as at December 2016 was a deficit of GH 500,000. 2) The breakdown of the IGR is as follows: National Health Insurance Customers constitute 60% of the IGR, who are expected to pay their claims two months after service has been rendered. Corporate customers constitute 20% of the IGR. They are granted one-month credit term. Cash Customers constitute remaining 20% of the IGR. 3) The experience shows that the government subvention for each quarter is actually released in two equal instalments in the second and third month of that quarter respectively. 4) The donations are from creditable partners so they are always received on time. However, the donation for March 2017 amounting to GH 900,000 will be received 40% in cash and 60% in kind. 5) Non-established post refers to wages and salaries paid to casual workers and those on contract appointment. They are paid in the month in which they are incurred. 6) Goods and service will be paid for as follows: 40% in the month it was incurred and 60% one month in arrears. 7) Non-financial assets bought are paid for in FOUR equal instalments, starting from the month in which the asset was bought. Consumption of fixed capital is to be charged at 20% annually. 8) Other expenses are paid for as and when incurred. Required: i) Prepare a cash forecast for the Hospital for the first quarter of 2017, showing the forecast for each month and that of the quarter as a whole. (12 marks

END OF LECTURE 6

Public Sector Budgetary Control Budgetary controls are measures put in place to ensure that resources available to spending organizations are utilized according to approved plans and programmes. Budgetary control therefore involves the following process. Establish budget or target of performance. Monitor and record the actual performance. Compare actual performance with that budgeted. Calculate and analyze difference (variance) and investigate the reasons for the differences. Undertake corrective actions by either revising the budget or controlling actual performance in line with budget.

Objectives of Budgetary Control To combine the ideas of all levels of management in the preparation of budgets. To co-ordinate all the activities of a business or organisation. To centralize control but decentralize responsibility to each manager. To act as a guide for management decision when unforeseeable conditions affect the budgets. To plan and control income and expenditure so that maximum benefit is achieved. To channel capital expenditure in the most profitable manner. To ensure that sufficient working capital or cash is available for the efficient operation of the organisation.

Revenue Control: the procedures set up to ensure the collection of revenues of governments is done through properly identified sources, the proper monitoring of such collections and ensuring that collected revenues are properly accounted Fund Control: concern with measures put down to ensure that, moneys paid into the various funds are used for the purpose for which it was intended for. Fund control of a government starts from the legislature. Parliament has to authorize the use of moneys

Expenditure Control: control system within the spending institutions which ensures that all the spending done within the organisations are done exactly for the purposes that were agreed. This is also known as Vote Control and is exercised by the vote controller. Cost control: This is the control measure to ensure that the total cost of any activity to an organisation is within the right valuation. Cash Control: Ensures that spending plans for a period are made by a department based on approved estimate. Cash forecast is expected here so as to avoid any overspending request that would lead to deficit.

Budgetary Control Responsibility of Head of Department Ensure that the actual spending of the department is in accordance with the budget, such that, the expenditure of the department do not exceed the expenditure estimate in the budget approved by parliament Inform the Sector Minister (or an appropriate authority) any circumstances that are likely to materially affect the budget result (either through revenue and expenditure or receipt and payment) as soon as possible. (Warning of budget variance). Arrange revenue and expenditure estimate as approved by parliament in accordance with Ghana Government Budget Classification or Chart of Accounts or other classification approved by the Minister of Finance in order to facilitate effective budgetary control.

Control Mechanisms in the Budget Cycle Legislative, regulatory & constitutional means processes to ensure control At Preparatory Stage Use of budget circulars: to provide guidelines on presentations, items to include, government priorities, Issue of preliminary ceilings: to limit amounts which can be spent on specific items Prior Parliamentary approval: for review of rates by revenue agencies, etc Budget Hearings: to discuss budget content & ensure they are justifiable. MTEF [Medium Term Expenditure Framework]: to ensure outstanding activities are rolled over to the next period & not abandoned.

Reference to approved budgets before issue of warrants Issue of Bank Transfer Advice [BTA] via BOG to control the flow of fund to public sector agencies Enhancing the features of btss with holograms, etc to prevent duplication of counterfeiting. Internal control mechanisms by the Controller & Accountant General s Department. Monthly reconciliation of warrants at the regional, district, treasuries to help identify errors, etc. Use of the laws & regulations eg procurement law, PFMA, Internal Audit Act, etc to guide accounting, reporting

Post Implementation Controls Cash Budgeting: A cash budget is prepared to show the expected cash receipt and payment during the budget period incorporating both revenue and capital items. It requires detail information about the timing of cash flows, of expected receipt and payment, etc. Provides information on anticipated cash shortage or surpluses and how long the surplus or shortage are expected to last. Cash budget provide management with information for short and medium term cash planning. To appraise and integrate the effect of operating budget on the organization cash resources.

Sections of the Cash Budget; Receipt Section Disbursement Section Cash excess/ Deficiency section

Responsibilities of the Minister The Minister is responsible for the policy and strategic matters related to the efficient operation of the public financial management system of the country subject to policy guidance from Cabinet. Prepare the annual and supplementary budget estimates and reports for submission to Parliament; Submit to Parliament for approval, the budget of covered entities as required under the Act or any other enactment to ensure compliance of the covered entities; Monitor and assess the implementation of the annual budget and ensure the implementation of the fiscal policy of Government account for public funds through a consolidated public account; Supervise the financial operations of a covered entity; Prepare Fiscal Strategy Document; Manage public funds; Coordinate and mobilize resources including financial assistance from development partners and integrate the resources into the planning, budgeting, reporting and accountability processes provided under the Act

Request a report or any other information from any covered entity or any other person receiving grants, advances, loans, guarantees or indemnities from the Government; In consultation with the Civil Service Council and with the approval of Cabinet, establish structures or units, within the Ministry necessary to enable the Minister discharge responsibilities under the Act; Acting on the advice of the Attorney- General and subject to the approval of Parliament, enter into and execute an agreement on behalf of the Government in relation to matters of a financial nature; and Give directives and instructions necessary for the implementation of the provisions of the Act. The Minister may delegate any of his responsibilities with respect to the budget to the Chief Director or to a senior public officer not below the rank of a Director within the Ministry but shall not be relieved of the ultimate responsibility for the performance of the delegated responsibility. Subject to any procurement laws, the Minister may hire or retain the services of professionals, consultants or experts, as the Minister considers necessary for the proper and effective performance of the functions of the Minister under the Act, on the terms and conditions to be agreed upon.