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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1). Effective Budget Delegation Day 2 February 09, 2010. 1. Feb-9-2010 Day 2: Content of Session 2. FINANCIAL CONTROL. ADB Grant 0133-CAM: Component 1. 2. 2. FINANCIAL CONTROL CONTENT.

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ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1)

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  1. ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Effective Budget Delegation Day 2 February 09, 2010 1

  2. Feb-9-2010 Day 2: Content of Session 2 FINANCIAL CONTROL ADB Grant 0133-CAM: Component 1 2 2

  3. FINANCIAL CONTROL CONTENT Approval of Commitments Payment Orders and Sub-decree Provisional Commitments Budget Transfer BookKeeping Financial Controller Advisory Roles Internal Control ADB Grant 0133-CAM: Component 1 3 3

  4. 1-Approval of Commitments Commitments: Legal Commitment: is the act by the government where it recognizes or creates an obligation whereby expenditure will be incurred Financial Commitment: Authorizing Officer requests funds under the budget item – Financial Controller then has to approve ADB Grant 0133-CAM: Component 1 4 4

  5. 1-Approval of Commitments Commitments: No public expenditure can be committed, implemented or charged to the State's budget or to a Treasury special account (or to an adjunct budget) directly by senior authorizing officers or authorizing officers – even by delegation. ADB Grant 0133-CAM: Component 1 5 5

  6. 1-Approval of Commitments Commitments: (Continue) Authorizing officers have to make a commitment proposal in writing, to which the approval stamp of the Financial Control shall be duly affixed, payment cannot take place until the proposal has been sent back to the authorizing officer. (Article 3 of Decree 81) ADB Grant 0133-CAM: Component 1 6 6

  7. 1-Approval of Commitments Commitments: (Continue) The financial controller shall examine the propriety of the expenditure proposed and this check shall concern the following elements: ADB Grant 0133-CAM: Component 1 7 7

  8. 1-Approval of Commitments Commitments: (Continue) • Purpose of the expenditure • Budget item to which the expenditure is to be charged pursuant to the regulation enacted by the MEF in terms of expenditure classification, and according to the allocation of budget appropriations 8 8

  9. 1-Approval of Commitments Commitments: (Continue) • Accuracy of the expenditure estimate • Availability of appropriations. • Implementation of financial provisions, laws, as well as decrees and regulations in force. • Compliance of the expenditure with budget preparatory work. (Article 3 and 4 of Decree 81) ADB Grant 0133-CAM: Component 1 9 9

  10. 1-Approval of Commitments Commitments: (Continue) • Responsibility • The Financial Controller shall deliver its opinion within 4 working days; on expiration of the time limit set, the opinion shall be considered as granted without consultation and the expenditure shall be declared enforceable ADB Grant 0133-CAM: Component 1 10 10

  11. 1-Approval of Commitments Commitments: (Continue) • Responsibility (continue) • The Financial Controller may ask for any further explanation, information or justification that it deems necessary; in this case, the deadline shall be suspended until the elements required are provided ADB Grant 0133-CAM: Component 1 11 11

  12. 1-Approval of Commitments Commitments: (Continue) • Responsibility (continue) • There can be no side-stepping of the withholding of approval by the Financial Controller within the statutory time limit, except upon decision from the Ministry of Economy and Finance ADB Grant 0133-CAM: Component 1 12 12

  13. 1-Approval of Commitments Commitments: (Continue) • Responsibility (continue) • This approval shall be directly granted by the Minister of Economy and Finance for expenditures exceeding a threshold that has been set by Order (Article 7 and 10 of Sub-decree 81) ADB Grant 0133-CAM: Component 1 13 13

  14. 1-Approval of Commitments Commitments: (Continue) • Calculation of Deadlines • When a deadline is set in clear days, the day considered as the day initiating the period shall not be included in the calculation; if the Financial Controller has received a commitment proposal on a Monday, the period shall be calculated from Tuesday and shall end on Friday. ADB Grant 0133-CAM: Component 1 14 14

  15. 1-Approval of Commitments Commitments: (Continue) • Calculation of Deadlines (continue) • The required procedure (commitment by tacit agreement) can be performed from the following day; [holidays (Saturdays, Sundays and public holidays) are not counted] in this example, the tacit agreement comes into force on Tuesday. ADB Grant 0133-CAM: Component 1 15 15

  16. 1-Approval of Commitments Commitments: (Continue) • Calculation of Deadlines (continue) • When the deadline is not in clear days, the required procedure (tacit agreement) is dated from the expiration day of the deadline, i.e. Friday in this case. ADB Grant 0133-CAM: Component 1 16 16

  17. 1-Approval of Commitments Commitments: (Continue) • Calculation of Deadlines (continue) • Deadline can also be set in calendar days (all days are counted) or in working days [Saturdays, Sundays and public holidays are not counted]. ADB Grant 0133-CAM: Component 1 17 17

  18. 1-Approval of Commitments Commitments: (Continue) • PFMRP contribution • To enable a smooth transition of the commitments procedure and indeed for payments in general MEF have deployed accountants to the line ministries – this has helped the process enormously however it replies heavily on the personal relationship between the appointed officer and the line ministry staff. ADB Grant 0133-CAM: Component 1 18 18

  19. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation 2.2. Advance payment account 2.3. Block commitments 2.4. Provisional commitments ADB Grant 0133-CAM: Component 1 19 19

  20. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation Appropriation allocation in the main budget areas is voted by National Assembly as specified in the finance law. Once the finance law has been voted and ratified by the senate it is to be promulgated by a Royal Kram sign by His Majesty the King of Cambodia ADB Grant 0133-CAM: Component 1 20 20

  21. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation The detailed breakdown of the Appropriation allocation in the budget is the responsibility of the government within a framework of budget allocation and sub-decrees. ADB Grant 0133-CAM: Component 1 21 21

  22. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • In 2007 the PFMRP introduced new codes: • Classification by economic nature • Classification by activity centers • Classification by programs ADB Grant 0133-CAM: Component 1 22 22

  23. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Economic Classifications: • Chapter 60: Purchase • Chapter 61: External charges for services • Chapter 62: Other external charges for services ADB Grant 0133-CAM: Component 1 23 23

  24. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Economic Classifications: • Chapter 64: Personnel expenses • Chapter 65: Capital subsidy & social welfare • Chapter 63: Taxes and duties ADB Grant 0133-CAM: Component 1 24 24

  25. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Modifications: the government must be able to react to inevitable uncertainties and event… • Transfers from one ministry or similar public entity to another requires an amendment to the budget law ADB Grant 0133-CAM: Component 1 25 25

  26. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Modifications: the government must be able to react to inevitable uncertainties and event… • However, transfers from one ministry or similar public entity to another as a result of government or administrative restructuring only requires a sub-decree from the Prime Minister or recommendation of the Minister of MEF ADB Grant 0133-CAM: Component 1 26 26

  27. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Modifications: the government must be able to react to inevitable uncertainties and event… • Transfers from Chapter to another with he budget of one ministry or within a public entity to another only requires a decree signed by its ministry of head ADB Grant 0133-CAM: Component 1 27 27

  28. 2-Payment Orders and Sub-Decree 2.1. Allocation of budget appropriation • Modifications: the government must be able to react to inevitable uncertainties and event… • Cannot convert provision for capital expenditure into current operating expenses ADB Grant 0133-CAM: Component 1 28 28

  29. 2-Payment Orders and Sub-Decree 2.2 (Article 57 of Decree 82) • A decree on Advance Payment beyond budgetary allotments can be approved at council of ministers level on the recommendation of the Minister MEF – usually where there is a natural disaster or imperative need or national interest. • However, advance payment accounts constitute an infringement of the principle of prior commitment on which Cambodia’s budget is based. ADB Grant 0133-CAM: Component 1 29 29

  30. 2-Payment Orders and Sub-Decree 2.3 Provisional appropriations • Block Commitments (covers recurrent expenditures) • Wages and allowances • Rents • Operating funds for public administration entities • Public debt • Contributions to international organizations • Force account ADB Grant 0133-CAM: Component 1 30 30

  31. 2-Payment Orders and Sub-Decree 2.4 Provisional appropriations • Provisional Commitments (requests by authorizing officers) • Expenditures for material & administrative Management • Expense reimbursement • Public intervention expenditures in the economic, social and cultural fields ¼ budget may be committed once without supporting documentation! ADB Grant 0133-CAM: Component 1 31 31

  32. 3-Provisional Commitments Provisional appropriations • Article 17 of the Law 93-01 December 28, 1993 • Reserve funds are not allocated to any ministries – only MEF • Provisional appropriations are provided for those expenditures that cannot be accurately identified during the budget preparation ADB Grant 0133-CAM: Component 1 32 32

  33. 4-Budget Transfer "Requests for transfer within budget subheadings or payments charged to contingent expenditure chapters shall be approved by Financial Control, prior to their examination by the departments of the Ministry of Economy and Finance ... " (Article 24 of Decree 81) ADB Grant 0133-CAM: Component 1 33 33

  34. 5-Bookkeeping Financial positions have to be drawn up each month for each Authorizing Officer against expenditure commitments This is the responsibility of the Financial Controller It is reconciled with the Treasury departments ADB Grant 0133-CAM: Component 1 34 34

  35. 6-Financial Controller Advisory Role The Financial Controller is required to give, as far as finance is concerned, an opinion with grounds stated on draft laws, royal decrees and sub-decrees of the Council of Ministers, orders, contracts or regulatory decisions with financial implications." (Article 28 of Decree 81) ADB Grant 0133-CAM: Component 1 35 35

  36. 6-Financial Controller Advisory Role The Financial Controller shall take part in budget preparation work and in drawing up of the State's budget settlement law." (Article 23 of Decree 81) ADB Grant 0133-CAM: Component 1 36 36

  37. 6-Financial Controller Advisory Role • The Financial Controller shall draw up an annual overall report on the budget of the last completed financial year, showing: • the outcomes of audit operations and the proposals for improvement of budget implementation. • This report shall be submitted MEF March 31 of the year following that for which it is drawn up." (Article 29 of Decree 81) ADB Grant 0133-CAM: Component 1 37 37

  38. 6-Financial Controller Advisory Role The Financial Controller should advise authorizing officers about the financial implications of choices and decisions in the light of financial and general laws and regulations. ADB Grant 0133-CAM: Component 1 38 38

  39. 7-Internal Control Principal: Management (Authorizing Officer) is responsible for maintaining and reviewing the control structures on a regular basis to ensure that all key controls are operating effectively and are appropriate. ADB Grant 0133-CAM: Component 1 39 39

  40. 7-Internal Control 13 Elements of internal control: • Competent Staff • Segregation of Duties • Major duty segregations should be differentiated to: • Authorize transactions; • Execute the transaction; • Record the transaction; ADB Grant 0133-CAM: Component 1 40 40

  41. 7-Internal Control 13 Elements of internal control: • Segregation of Duties (Continued) • The functions in relation to goods/services shall be appropriately segregated as: • Ordering • Receiving • Accounting for • Paying for • Persons reconciling the Bank Account are different to the persons making or approving payments. ADB Grant 0133-CAM: Component 1 41 41

  42. 7-Internal Control 13 Elements of internal control: Separation of accountability from custodianship Sufficient records Physical protection of assets ADB Grant 0133-CAM: Component 1 42 42

  43. 7-Internal Control 13 Elements of internal control: • Assignment of Authority and Responsibility • Integrity and prudence dictate the need for an appropriate division of responsibility whereby the work of one employee independently checks the work of another. ADB Grant 0133-CAM: Component 1 43 43

  44. 7-Internal Control 13 Elements of internal control: • Assignment of Authority and Responsibility • Responsibility for looking after cash, inventories, fixed assets, and other assets is delegated. Using accounting and other controls, independent check shall be imposed on those who have custodial responsibilities. ADB Grant 0133-CAM: Component 1 44 44

  45. 7-Internal Control 13 Elements of internal control: • Assignment of Authority and Responsibility • Each higher level of the organization shall be responsible for monitoring or evaluating the activities of its subordinates. • There shall be a hierarchy of approvals for payments and procurement and clear lines of reporting; • Approval signatory must be a different person to the preparer; • Employees take regular vacations and other employees then prepare their work. ADB Grant 0133-CAM: Component 1 45 45

  46. 7-Internal Control 13 Elements of internal control: Principle of Financial Delegation Internal and External Audit * Review of Internal Controls Accounting Policies ADB Grant 0133-CAM: Component 1 46 46

  47. 7-Internal Control 13 Elements of internal control: Accounting Records Accounting Vouchers Accounting System ADB Grant 0133-CAM: Component 1 47 47

  48. 7-Internal Control Audit: Inspectorate General of Finance Technical Inspection Departments Internal auditing departments National Audit Authority Parliament ADB Grant 0133-CAM: Component 1 48 48

  49. 7-Internal Control Audit: • Inspectorate General of Finance • Decree No 4 January 20, 2000 • The IGF is the first competent authority regarding all accounting officers, MEF’s officers and authorizing officers in all ministries, agencies, provinces and municipalities ADB Grant 0133-CAM: Component 1 49 49

  50. 7-Internal Control Audit: • Technical Inspection Departments • Each ministry has a TID which controls the functioning of its services ADB Grant 0133-CAM: Component 1 50 50

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