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Executive
The executive has responsibility for the management of financial resources. This includes planning, directing and controlling operations and reporting on financial administration.
The Public
The public has an interest in ensuring that public money is accounted for and spent wisely. Citizens rarely have direct access to public sector financial records except in the form of published government accounts. In practice these are seldom read by the general public, but citizens are, or should be kept informed about them by means of the press and national political debate.
International and Bilateral Aid Agencies
Although these agencies are not part of the formal constitutional arrangements for public sector financial management, in many developing countries they are de facto stakeholders. They provide funding in the form of grants or loans for a large proportion of public sector projects in many countries in the world.
Examples of international bodies include the International Monetary Fund (IMF), the World Bank, the United National Development Programme (UNDP), and regional development banks such as the African Development Bank or the Asian Development Bank. The British Government’s Department for International Development (DFID), United States Agency for International Development (USAID), Norwegian Agency for Development Cooperation (NORAD), and the Danish international aid agency (DANIDA) are all examples of bilateral donors. Each has its own rules for financial reporting on the projects it funds, and the recipient country will be expected to follow these rules. The records this generates are often kept separately from the government’s other financial records, and their treatment may not be consistent with the government’s financial instructions. This can fragment the financial management system, with information in several locations.
While all public sector organisations create and maintain financial records, certain core institutions have key roles to play in the operation of financial systems and management of the records they generate. The core agencies are described below.
Central Bank
The central bank is responsible for maintaining the country’s monetary policy, issuing bank notes, regulating and supporting the country’s principal systems for clearing and settling payments and acting as fiscal agent for federal government debt.
In countries where the civil service accounting system has deteriorated, policy makers will rely on records of cash balances in the central bank. They provide a crude but accurate picture of how much has been spent and how much money the government has received from taxation and other sources. The records of the central bank are highly sensitive and are often managed entirely separately from other public sector financial records.
The ministry or department in charge of finance and economic planning plays a major role in translating the political objectives of the government into financial policies and workable instructions to departments and budgetary units.
The finance ministry is responsible for overall management and control of public expenditure, government debt, fiscal policy and long-term financial planning. It is also responsible for deciding what resources are necessary and how to distribute the resources. This brings the ministry close to the political sphere. In countries that operate planned economy models of economic development, the ministry in charge of planning, such as a National Development Planning Commission, may also contribute to planning the preparation of the budget and its execution.
The finance ministry’s treasury function comprises two activities:
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setting policy
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physically handling funds.
For historical reasons, in many former British colonies the institution of the Treasury was abolished and replaced with a Department (later Ministry) of Finance responsible for policy and an Accountant General’s Department responsible for the physical handling of funds.
In other countries that are part of the British administrative tradition, the Exchequer system, as it is known, often continues to operate. Responsibility for managing money is decentralised to ministries and departments, but they are ultimately are answerable to the Permanent Secretary to the Treasury. The Treasury brings together and co ordinates the data which is produced by each individual produced by each individual ministry or department. Each ministry must work within the confines of the appropriate government regulations and must produce accounts which, when submitted to the Permanent Secretary to the Treasury, provide data for the preparation of the final government published accounts.
Accountant General
Some countries operate a centralised system of accounting controlled by an Accountant General. The Accountant General, as the government’s principal accounting officer and adviser on accounting policy, is responsible for regulating the receipt and disbursement of funds. He or she is responsible for overseeing accounting policies and procedures and for introducing changes as appropriate. The Accountant General will normally be responsible for controlling any centralised accounting system used by the civil service. If the accounting system is computerised, the operation will often be in the hands of an IT unit run from within the Accountant General’s department. Typically, there will be a separate payroll unit to handle the payment of civil servants. This payroll function is often computerised.
Supreme Audit Institution
In many countries the supreme audit institution is the Auditor General’s department or a National Audit Office. The supreme audit institution is responsible for examining, evaluating and reporting independently on the ministries and departments on the collection, expenditure and management of public funds and resources.
The supreme audit institution is also responsible for ‘value for money’ audits. Value for money audits examine the economy, efficiency and effectiveness with which an organisation has used its resources in discharging its functions.
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Economy involves minimising cost (spending less).
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Efficiency involves maximising output for a given input or minimising input for a given output (spending well).
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Effectiveness involves ensuring the results achieve the objectives, goals or intended effects (spending wisely).
While auditing has traditionally been about financial management and performance, there is a growing tendency to expand the role to include monitoring the performance of particular programmes or functions. External auditors are becoming involved in performance auditing for a range of government activities, involving reporting on how activities or programmes are carried out and what systems and controls are in place for monitoring and reporting. Auditors are thus increasingly interested in issues such as corporate governance of public sector bodies, ethical management, risk management and accountability.
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