The control of public money is crucial in ensuring the policies are people oriented and cost effective. Yet the financial control is a highly ambiguous and complex concept. Which are the important instruments, institutions, routine processes, and factors to influence the expenditure control?
A chapter from the book by Arigapudi Premchand explores this question by establishing a conceptual framework to analyse the multiple aspects of public expenditure control. It defines control as administrative interaction between public agencies to verify that the public gets value for the money. Financial public management is implemented through advance planning of policies, formulation of strategies, and allocation and utilisation of resources. It takes place in the public arena and is highly influenced by environmental factors. The most visible instrument of expenditure control is the annual budget formulation.
Public money management is immensely complex because of the need to pursue several objectives, e.g. macroeconomic stabilisation, financial discipline, effective budgeting, transparency, accountability, at the same time. There is no single system or instrument to meet the multiple dimensions of expenditure management.
Other conclusions from the study are that:
- Expenditure management involves policy controls, which monitor the aggregate outlay and performance; the process controls, i.e. release of funds, commitment and contract monitoring; regulatory tasks of setting the standards and efficiency controls to establish and monitor performance indicators.
- Control of public money is influenced by political factors, such as the nature of regime, level of public participation; economic, openness of the economy, level of state ownership; organisational, institutional framework; and core factors characterising the budget system of the country.
- The formulation of the annual budget is both culmination of annual fiscal policy and starting point for the formulation of a management strategy. It takes into account the implications of continuing and new policies and institutional capacity to implement them.
- Public expenditure is a major component of the overall fiscal policy. It evolves in a cycle which moves from prudence to profligacy to prudence. The facets of the cycle have an enormous impact on the shape of expenditure control.
- There is a considerable fragmentation in the exercise of control between various ministries and agencies.
- In most countries financial management systems are outdated, improvement efforts are ad hoc and infrequent.
Essential steps towards effective budgeting and expenditure management are:
- Policy formulation needs to be strengthened in order to recognise the financial implications of policies and to formulate a framework of priorities reflecting the objectives to be pursued by the government.
- The formulation of the annual budget should take into account the issues of government financial condition in the economic environment, aspects of governance and institutional capabilities to implement policies, and questions of democratic transparency and accountability.
- Expenditure control does not consist of one-size-fits-all approach and should be diversified to reflect the nature of each sector.
- Payment control should not be viewed as the most important steps of control because they only reflect the last stage of transaction and form a part of long chain in public expenditure processes.
- The operational control machinery should strike a fine balance between institutional centralisation and fragmentation. There are areas which lend themselves to be considered as highly centralised or fragmented.
