By Anand Goolsarran
Introduction
A budget is a financial plan that drives the operations of any organisation. It facilitates making things happen as opposed to allowing things to happen. It is a financial monitoring tool to facilitate comparison between planned performance and actual performance. Variances are identified, and corrective action is taken to bring actual performance in line with planned performance or, where this is not possible, to amend the plan.
Budgeting in Government
In contrast to budgeting in the private sector which focuses mainly on return on investment, government budgeting hinges on rendering a service. It is the quality, efficiency and effectiveness of that service that are of utmost importance. Government budgeting has the advantage of strict control over expenditure since expenditure is approved by line items. However, a number of disadvantages can be identified:
* Tendency is towards an incremental approach rather than based on strong justification of programmes and activities;
* Focus is mainly on inputs rather than outputs, outcomes and impacts;
* Greater spending rather than saving is encouraged since resources provided are dependent on previous year’s spending; and
* Tendency is towards acceleration of expenditure of expenditure towards the close of the financial year to exhaust approved allocations, including keeping the books of account open well beyond the end of the accounting period, thereby resulting in a distortion of expenditure.
Constitution Requirements
Estimates of revenues and expenditure are to be presented to the National Assembly within 90 days of commencement of financial year. Once approved, an Appropriation Bill is introduced to provide for issues from the Consolidated Fund. There is provision for a supplementary estimate during execution of the budget, if the original amount is insufficient, or a need arises for which no provision had been made.
The Minister of Finance is authorised to make withdrawals from the Consolidated Fund for up to four months pending the passing of the Appropriation Act. Where Parliament is dissolved before any provision or sufficient provision is made, the Minister can make withdrawals from the Consolidated Fund up to three months. In both cases, a statement of expenditure so authorised is submitted to the National Assembly as soon as practicable for approval.
In addition, the Minister can make advances from the Contingencies Fund (a sub-fund of the Consolidated Fund) if there is an urgent need for which no other provisions exists. Once advances are made, a supplementary estimate is submitted to the National Assembly as soon as practicable to replenish the amounts advanced from the Contingencies Fund.
Fiscal Management and Accountability (FMA) Act
The Minister of Finance establishes the timetable for budget preparation six months in advance through issuance of a budget circular to budget agencies. Budget submissions are approved by concerned Ministers before they are forwarded to the Minister.
Once approved, appropriations may only be varied across programmes within a budget agency. However, appropriations for capital expenditure cannot be used to meet current expenditure. In addition, a variation for any programme cannot exceed 10 per cent of the appropriation for that programme.
The Minister has the responsibility to include all changes to appropriation up to the end of the tenth month in an appropriation amendment Bill not later than the eleventh month, and any variation of an appropriation is to be authorised by a supplementary appropriation Act.
The Minister is also to provide reasons for proposed variations and indicate impact on the original financial plan. No more than five supplementary appropriation Bills are allowed in any fiscal year, except for grave national emergency in which case a separate Bill is introduced.
Periodic draw-downs during the year by budget agencies are to be agreed by the Minister and cannot be varied with his approval. In addition, Heads of budget agencies are to ensure adequate internal control to ensure allocation limits are not exceeded. No contract for good/services is to be entered into unless there is a sufficient unencumbered balance of appropriation available. All appropriations lapse at the end of the fiscal year and any unspent funds are to be returned to the Consolidated Fund.
The Use of the Contingencies Fund
Under the sole control of the Minister, and with no delegation of authority, the Contingencies Fund can only be used to meet urgent, unforeseen and unavoidable expenditure for which: (a) no provision or insufficient provision exists; (b) no reallocation is possible; or (c) expenditure cannot be postponed without injury to the public interest. The total amount drawn must not exceed two per cent of the previous year’s approved revised annual estimates. The Minister is to report at the next sitting of the National Assembly for the purpose of approving a supplementary estimate to replenish the Fund.
Reporting requirements
The Minister presents a mid-year report to the National Assembly on execution of the budget within 60 days of the end of the first half-year, and prospects for the remainder of the year. In addition, within four months of the close of the financial year, a number of financial statements comprising the public accounts are prepared and submitted to the Auditor General. These include:
* Expenditure from Consolidated Fund compared with Estimates;
* Appropriation and revenue accounts of budget agencies; and
* End of year budget outcome and reconciliation report with detailed explanation of variances. Statistical detail must be consistent with that of the related Appropriation Act.
The Auditor General audits the public accounts and submits his report to the Speaker of the National Assembly. The Public Accounts Committee (PAC) examines the audited public accounts and the Auditor General’s report, and issues its own report of findings and recommendations. The Government then issues a Treasury Memorandum setting out what actions it has taken or proposes to take in relation to the PAC’s report, thereby completing the accountability cycle.
