Budget and financial management 2018-07-18T16:11:25+00:00

BUDGET AND FINANCIAL MANAGEMENT

Local governments, who have the competencies to effectively manage public finances, can better prioritize and allocate resources for social and economic needs.

On the contrary, corrupted, inefficient, or inadequate, public financial management may result in missed opportunities for growth and financial losses, reduced total investment and quality of infrastructure, underperformance of institutions, and a pervasive institutional corruption.

Poor planning practices that include failure to link policies, planning and budgeting, may contribute negatively to government performances and may foster corruptive behaviours on public financial management. In addition, many local governments still have weak or inadequate mechanisms for citizens to monitor government’s performances on the financial field. With a poor control over expenditures and public goods, local officials may be involved in frauds, thefts and embezzlement.

In this framework, meaningful public oversight and participation in the formation of budgetary programs, as well as, making audit reports available to the public, could be beneficial to effectively restrain corruptive behaviours.

Moreover, municipalities have to ensure, through all the stages of the budgetary processes, a reliable, transparent and comprehensive record of disbursements made, in order to promote accountability and identify irregularities.

INTEGRITY RISKS

An integrity risk assessment of budget and financial management and reporting, may identify some or all of the following integrity risk factors (the list is not limited):

  • Poor planning: Failure to link policy, planning and budgeting may contribute to poor budgeting outcomes. Inability to develop realistic forecasts may lead to non-transparent adjustments during budget execution. Inadequate funding of operations and maintenance may result in systems underperforming.

  • Poor expenditure control may be exploited to gain a personal benefit (officials purchasing goods through the system for private use).

  • Missing nexus between budget as formulated and budget as executed. Inadequate accounts management creates possibilities for diversion of public funds to private accounts. Poor cash management allows fraud and theft of resources.

  • Officials state inflated price regarding the value of a service to misappropriate cash. Officials do not record the transaction or full amount of the cash collected.

  • Officials make unauthorized modifications to payroll database records for personal benefit. Officials state incorrect input details in processing payroll (i.e. number of days worked and overtime, leaves taken.) Salaries are paid to fictitious employees and accounts („ghosts“ on the payroll).

  • Officials provide false information for the reimbursement of expenses. Officials make reimbursement claims based on improper bills. Improper verification of bills leads to excess payments.

RISK MANAGEMENT STRATEGIES

Following the risk assessment, the local government may consider the following risk management strategies as development points to include:

  • Allow enough time to systematically provide the local assembly with all the financial and accounting documents needed for an informed vote on the budget, as well as on the approval of accounts.

  • Further to national regulations, introduce and implement a clear and comprehensive regulatory and operational framework for budget and fiscal management. Mechanisms for budgeting and policy formulation should be explicitly designed to reinforce coordination and cohesion in decision-making. Ensure that budget planning is based on reliable information. The integrity of fiscal information should be made subject to public and independent scrutiny. Align procurement planning with budget formulation.

  • Train all relevant staff to ensure they are aware of their responsibilities and acquire the necessary competence. Build and strengthen capacities for effective participation of all relevant staff in the budget process in all its phases. Pay attention to providing adequate capacities of heads of units that need to formulate their projected budgets

  • Through all stages of the budget process (formulation, approval, implementation and evaluation), provide timely local community with full, transparent and comprehensive information on the past, current, and projected fiscal activity of local government, specifying fiscal policy objectives, the macroeconomic framework, the policy basis for the budget and identifiable major fiscal risks. Ensure budget data is classified and presented in a user-friendly and simple way that enables policy analysis and promotes accountability.

  • Ensure appropriate participation (involvement) of citizens, NGOs, and other local stakeholders in the formulation of expenditure programs. Actively promote an understanding of the budget process by individual citizens and NGOs.

  • Fiscal reporting should be timely, comprehensive, reliable, and identify deviations from the budget. Public financial documents cover budgets, in-year reports, mid-year reports, year-end reports and audit reports.

  • Ensure availability and implementation of clearly and comprehensively specified procedures for the execution and monitoring of approved expenditures. Introduce a system in which any new expenditure proposal over a certain threshold should be approved by the local assembly. Ensure that there are appropriate supervision, delegation and approval processes for accounts management.

  • Validate invoices with supporting documentation such as requisitions and purchase orders to help ensure that all payments are for legitimate goods and services.

  • Ensure that the financial management system systematically records all disbursements made, and allows them to be easily traced. Ensure regular, accurate capture and reconciliation of all transactions. Information on and lists of payments made over a certain specified threshold should be publicly available. A reliable system and adequate mechanism shall be set to trace budget expenditures at planned appropriate intervals (i.e. on a monthly basis) to allow better analysis of the budget implementation dynamics. Monitor and review by a finance committee, or equivalent, of the monthly financial performance, budgets and budget transfers, allocations, financing of projects and significant financial transactions to monitor accounts and identify anomalies.

  • Enhance external oversight over budget implementation by setting up a committee (local government representatives and independent external observers, such as NGO representatives), to monitor budget implementation on a regular basis (i.e. each semester). Organize public debates/ forums to inform citizens about budget implementation.

  • Adopt and implement a rigorous policy/procedure for tracking, receiving, securing, transferring and banking cash (including related authority and type of cash). Communicate it effectively. Provide adequate inception and continued training for officials involved.

  • Separate duties regarding cash handling collecting, depositing and reconciling – so that one individual does not have responsibility for all activities. Restrict the number of officials involved in cash transactions. Adopt a clear delegation procedure to ensure only authorized persons deal with cash.

  • Detail of the amount of cash required for each good/service. Obtain maximal visibility of this price list. Promote use of electronic transactions processes in order to minimise the use of currency.

  • Ensure all cash handling processes are adequately documented and authorized (i.e.. receipts for all payments received, including date/time of payment and amount). Ensure periodic check-ups, including mystery shoppers operations.

  • Introduce clear and comprehensive policy and procedures for payroll and disbursement of expenses and communicate them effectively (i.e. through intranet, internal meetings, instructions).

  • Ensure that only eligible officials have access to sensitive HR- and payroll-related information. Use access controls (passwords, routine verification procedures and authorisation). Where feasible, segregate functions to ensure that none has a complete control over any aspect of the payroll process.

  • Ensure mandatory advance approval by the supervisor for overtime and leave. Conduct unannounced spot checks by managers to verify attendance. Introduce a transparent and accountable system for the payment of monetary incentives.

  • Set clear instructions for claiming expenses (e.g. economy travel, accommodation, etc.). Adopt standardised rates on per diem paid.

  • Maintain adequate recordkeeping and reporting procedures to ensure that there are controls or systems to record and monitor all payroll transactions and all access to the payroll systems and actions taken are recorded.

GUIDE TO CORRUPTION-FREE LOCAL GOVERNMENT