An Overview of Public Sector Financial Management

Framework
Constitution of Islamic Republic of Pakistan Rules of Business, Government of Punjab Chart of Accounts New Accounting Model (NAM) Other relevant acts, rules, procedures notified for financial management Circulars / instructions issued from time to time

Functions Assigned to Finance Department

Some of the important functions assigned to the
Finance Department under Rules of Business 1974 are: a) Preparation, approval and management of Provincial Budget both upstream and downstream budgeting b) Supervision and control of provincial finances c) Examination and advice on matters affecting the finances of the province directly or indirectly d) Creation of new posts e) Examination of Schedule of New Expenditure f) Other functions ancillary to the functions listed above

Organizational Setup / Functional Distribution of the Department

Budget Wing
 Budget  Resource  Inspectorate of Treasures  LFA  Monitoring

Expenditure Wings
 Economic Services  Social Services  Local Government Finance

Regulation Wing

Important Definitions
Budget
Statement of estimated receipt and expenditure of the government for a particular period

Annual Budget Statement

1) The Provincial Government shall, in respect of every financial year, cause to be laid before the Provincial Assembly a statement of the estimated receipts and expenditure of the Provincial Government for that year, in this Chapter referred to as the Annual Budget Statement

(Contd)

2) The Annual Budget Statement shall show in summarized form separately:a) the sums required to meet the expenditure described by the Constitution as expenditure charged upon the Provincial Consolidated Fund; and b) the sums required to meet other expenditure proposed to be made from the Provincial Consolidated Fund; and shall distinguish expenditure on revenue account from other expenditure
Article 120 of the Constitution

(Contd)

Provincial Consolidated Fund and Public Account

1) All revenues received by the Provincial Government, all loans raised by that government, and all monies received by it in repayment of any loan, shall form part of a Consolidated Fund, to be known as provincial consolidated fund. 2) All other monies; a) Received by or on behalf of the Provincial Government b) received by or deposited with the High Court or any other Court established under the authority of the province shall be credited to the Public Account
Article 118 of the Constitution

(Contd)

Schedule of Authorized Expenditure The scheduled prepared after the approval by the Assembly of the Annual Budget Statement and Supplementary Budget Statement in respect of a financial year duly authenticated by the Chief Minister Supplementary Grant For a financial year means an amount provided in addition to the original grant or appropriation approved by the Assembly Surrender An amount included in the budget which is taken back and is not available for spending in that financial year

(Contd)

Charged Expenditure Such items of expenditure which may be discussed by the Assembly but are not subject to the vote of the Provincial Legislature Voted Expenditure Expenditure that is submitted for the vote of the Assembly

(Contd)

Management of Public Fund The custody of the Provincial Consolidated Fund, the payment of moneys into that Fund, the withdrawal of moneys there from, the custody of other moneys received by or on behalf of the Provincial Government, their payment into, and withdrawal from, the Public Account of the Province, and all matters connected with or ancillary to the matters aforesaid, shall be regulated by Act of the Provincial Assembly or, until provision in that behalf is so made, by rules made by the Governor.

Article 119 of the Constitution

Financing Sources
Resources

General Revenue Receipts

Capital Receipts

Public Accounts

Federal Transfers Federal Divisible Pool Income Tax, General Sales Tax, Export Duties, Federal Excise Duties, others Straight Transfers Development Surcharge/ excise duty hydroelectricity profits Federal Grants

Provincial Own Receipts

(Contd..)
Resources

General Revenue Receipt Provincial Own Receipts

Non Tax Receipts

Tax Receipts

Income from Properties & Enterprises, Civil Administration, Law & Order Community Service, Social Services, Misc. Receipts Others

Direct Taxes: Property Tax, Land Revenue, Agriculture Income Tax, Professional Tax

Indirect Taxes: Motor Vehicle Tax, Stamp Duty, GST on Services

(Contd..)

Resources

Capital Receipts

Current Loans From: Federal Governments Bond, CDLS

Loans from multinational donor agencies for development purpose

Expenditure Classification
Expenditure

Provincial Consolidated Fund

Public Account

District

Provincial

Current Salary Pension Non Salary

Development Revenue Capital

Salary

Non Salary

Construction Cost

(Contd..)

Expenditure

Public Account

PLAs

Assignment Account

Revenue Deposits

Land Acquisition

GP Fund, GI, BF

Securities

Issues / References Processed with Finance Department

Creation of new posts Sanction of funds through supplementary grant both in respect of development / non development budget Sanction / authorization for cases relating to financial assistance Examination / approval of Schedule of New Expenditure Re-appropriation of funds

(Contd)

Issuance / authentication of Administrative approval Clearance of posts of development projects approved by DDSC / PDWP Advance drawl of funds Ex-post facto expenditure sanction / regularization of

Time barred claims relating to TA / medical bills Re-imbursement of medical charges Other issues involving financial implications

Budgetary Process
1. 2. 3. 4. 5. Preparation / Examination / Consolidation Approval / Authorization Execution / Implementation Reporting and monitoring Feedback / Review

Classification of Expenditure
Current Expenditure These include appropriations for the payments related to employees related expense, operational expenditure, purchase of goods and services for current consumption or for benefits expected to terminate within the fiscal year. Examples:  Personnel emoluments;  Medical benefits;  Special allowances;  Travel;  Utilities;  Rental of property, supplies and materials, maintenance of property, maintenance of vehicles, operating expenses, retirement benefits, interest on loans, etc.

(Contd)

Development Expenditure Capital These include appropriations for the acquisition of goods and services, the benefits of which extend beyond the fiscal year and which add value to the existing assets or result in creation of new assets. Examples:
 Acquisition of land and buildings;  Construction of Roads;  Rehabilitation or opening of new Canals;  Land improvements, buildings and structures, plants, etc.

(Contd)

Revenue The development expenditure incurred on account of establishment charges or procurement of goods & services etc for implementation of ADP scheme is classified under Development Revenue Expenditure

New Accounting Model

Salient Features

Modified cash basis of accounting A step towards double entry accounting Commitment accounting Recording of fixed asset New Chart of Accounts (CoA)

Chart of Accounts
The New Chart of Accounts (CoA) was introduced in Punjab from FY 2005-06, by replacing the CoC, comprising the following five elements:1. Entity 2. Function 3. Object 4. Fund 5. Project

Entity Element
The entity means the organizational structure or unit which creates a transaction. The organizational highest level is Government & lowest level is Drawing & Disbursing Officer (DDO)/ Collecting Officer (CO)

Function Element
The economic function, relating to the
provision of a particular service, activity or Government program.

The function code is directly related to IMF

public sector reporting requirements

(Contd)

The Function Element is further divided into following components;  Major Function  Minor Function  Detailed Function  Sub-Detailed Function  Programme

Chart of Accounts- Functions

Major Description 01 02 03 04 05 06 07 08 09 10 General Public Service Public Order and Safety Affairs Defense Affairs Economic Affairs Environment Protection Housing and Community Amenities Health Recreation, Culture and Religion Education Affairs and Services Social Protection

Function Element - Example

An example of the Function Element in terms of the actual code is shown as under;
Major Function Minor Function Detail Function Sub Detail Function 01 015 0152 015202 General Public Services General Services Planning Services Population Planning Administration

Object Element
The economic classification, describing the item of expenditure, receipt, asset or liability in known as Object Code. Each accounting classification is further sub-divided into a hierarchy, down to the level of detailed object head.

Chart of Accounts Objects

Expenditure
A01 A02 A03 A04 A05 A06 A07 A08 A09 A10 A11 A12 A13 A14 Employee Related Expenses Project Pre-investment Analysis Operating Expenses Employees Retirement Benefits Grants, Subsidies and Write off of loans/Advances/Others Transfers Interest Payment Loans and Advances Expenditure on Acquiring of Physical Assets Principal Repayments of Loans Investments Civil Works Repairs and Maintenance Suspense and Clearing

(Contd)

Tax-Receipts B01 B02 B03 C01 C02 C03 E01 E02 E03 Direct Taxes Indirect Taxes Other Indirect Taxes Income from Property and Enterprise Receipts from Civil Administration and Other Functions Miscellaneous Receipts Recoveries of Investment Recoveries of Loans and Advances Debt

Non-Tax Receipts

Capital Receipts

(Contd)

Assets F01 F02 F03 F04 F05 G01 G02 G03 G04 G05 G06 Cash and Bank Balances Receivables Physical Assets Investments Other Assets Current Liabilities Loans Deferred Liabilities Other Liabilities Control Accounts Trust Account-Fund

Liabilities

(Contd)

G07 G08 G09 G10 G11 G12 G13 G14 Equities H01

Trust Account-Post Office Trust Account-Railways Trust Account-T&T Trust Account-Other Special Deposit Investment Special Deposit Fund Special Deposit Grant Mint Account Equities

Object Element Example

Accounting Element Major Object Minor Object Detailed Object A Expenditure A01-Employee related expenses A011 -Pay A01101- Basic Pay of Officers

Chart of Accounts Fund Element

Fund Fund could be either Consolidated or Public Account (C & P) Source This indicates the source of Fund from where the expenditure is being met. This could be Capital or Revenue, denoted by 1or 2 Sub Fund This indicates whether the expenditure is voted / charged. This also indicates whether the expenditure is Current, Development or Capital in nature

Fund Element
The pool of money from which budgetary allocation is made (e.g. Consolidated Fund), and is further sub-divided into grants (in the case of Consolidated Fund) or Public Account detailed heads.

Chart of Accounts Fund Element

The Fund Element is further divided into following sub-components; Fund Source - denoted by alpha character - denoted by one numeric character

Sub-Fund - denoted by one numeric character Grant No - denoted by three numeric character

Chart of Accounts Fund Element

C Consolidated Fund Capital Revenue Voted Current Expenditure Voted Development Expenditure Voted Capital Expenditure Charged Current Expenditure Charged Development Expenditure Charged Capital Expenditure P Public Account

Chart of Accounts (Provincial Fund Element)

Fund Source Sub Fund C Consolidated Fund 1 Capital 2 Revenue 1 Voted current expenditure 2 Voted development expenditure 3 Voted capital expenditure 4 Charged current expenditure 5 Charged development expenditure 6 Charged capital expenditure 018 Agriculture

Grant Number

Grant No. PC21018- Agriculture

Grant Number
Grant is indicated by 3 numeric characters for Provincial Government and 2 numeric characters for District Governments

Grant Numbers for Current Expenditure

PC21001-Opium PC21002-Land Revenue PC21003-Provincial Excise PC21004-Stamps PC21005-Forests PC21006-Registration PC21007-Charges on Account of Motor Vehicles Acts PC21008-Other Taxes and Duties PC21009-Irrigation and Land Reclamation PC21010-General Administration PC24010-General Administration

Grant Number for Development Revenue Expenditure

The entire provision shown on Revenue Account is accounted for, under the appropriate minor/detailed function under the Grant No. PC22036 - Development. This grant is common for all departments

Grant Number for Development Capital Expenditure

Capital expenditure is, accommodated under the relevant minor/detailed functions under the following grants: PC12037-Irrigation Works. PC12038-Agricultural Improvement and Research. PC12039-Industrial Development. PC12040-Town Development. PC12041-Roads and Bridges. PC12042-Government Buildings. PC12043- Loans to Municipalities.

Project Element
Project will be indicated by 4 Numeric characters, allotted to each Development Project. The project element enables transactions to be aggregated and reported at a project level. Each project will have a unique project number

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