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Functions and organizational responsibilities in the Ministry of ---

By Charlie Smith,2014-08-07 14:36
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Functions and organizational responsibilities in the Ministry of ---

    iFunctions and organizational responsibilities in the Ministry of Finance

    Functions Clusters of Issues to be considered

    departments/

    responsibilities

    Core

    Macro-fiscal ; Macroeconomic ; An issue here is the extent to which monetary policy is carried out by an independent coordination and fiscal policy Central Bank. Even the most independent Central Banks require a government-and policy issues developed framework (e.g. inflation targets, whether to take into account real-sector

    activity). Implications: MoF needs to build a capacity for macroeconomic analysis and ; International policymaking, not only to hold its own against the Central Bank but also in relation to economics bilateral and multilateral donors.

    ; Another issue is the relationship of the Ministry of Finance with other ministries that may

    undertake forecasting, such as a Ministry of Economy or Planning. A general trend has

    been the incorporation of planning into the budget process through medium-term

    frameworks. Having multiple organizations developing forecasts for their purposes may

    not be bad, as it may improve the quality of the forecast used to develop the annual

    budget.

    Budgeting ; Budget ; The key point here is that operational and investment expenditure are effectively Function preparation integrated through the budget cycle. Implications: MoF needs a dedicated group to

    coordinate budget management and it needs sectoral groups that deal with policy, ; Sectoral management and estimates issues on an integrated basis for each sector. expenditure

    policy ; In countries pursuing decentralization it is essential that there be a financial framework

    within which this occurs one which minimizes risks to fiscal stability, avoids soft ; Monitoring of budgets and matches as far as possible authority (e.g. to make policy and spend money) expenditures and responsibility (e.g. to raise revenue). Implications: MoF must build capacity to link ; Microeconomic fiscal, political and incentive issues for intergovernmental relations policy

    ; Management of

    intergovernment

    al financial

    relations

Treasury ; Accounting ; The structure of a treasury is perhaps the area of greatest consensus. The Treasury should Functions not determine “what gets paid” when there is a shortage of funds. This is more a ; Supervision of responsibility of the budget coordination group and sector oversight groups, based on the budget priorities of government. Good practice is to have in place public rules for prioritizing execution payments, with Treasury simply executing those rules. Cash management might include ; Cash and debt executing government policy on contingent liabilities and managing them. (Policy is management associated with SOE oversight.) ; Financial reporting and

    asset

    management

    ; Civil service

    pensions

    Management ; Policy for taxes, ; There is a strong case to move towards a separation of the revenue policy (for all taxes, of customs and including tariffs) and administration. Government excise, and ; Both tax and customs administrations should be organized along functional lines. Revenue other tax Customs should have all relevant functions, including customs valuation. The revenue. establishment of a single revenue administration agency should be approached cautiously

    ; Tax and and when adequate human and information resources are available, but in the short-run

    customs the flow of information across the tax and customs administration is critical to the

    administration. successful operation of both.

     ; It is important that non-tax revenue not be treated as a stand-alone unit but is integrated

    with the relevant sector work.

    Accompanying responsibilities

    Financial ; Regulation of ; Political oversight of financial markets is often with the MoF, but the actual regulator Sector financial may be the central bank or a separate agency. Business sector regulation is usually Regulation markets and the separate from financial market regulation.

    business sector ; Although arguably financial market regulation is not a core public finance function, it is

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    undertaken by the MoF in many smaller countries by default

    ; Establishing private sector accounting and auditing standards is an essential aspect of

    regulating financial markets, and in more developed countries is undertaken by standards

    boards outside the MoF.

    Aid ; Aid ; This is a key issue for countries dependent on foreign aid. There is a very strong case for management mobilization a single entity managing aid and that that entity should be MoF. The strongest argument

    is the need to incorporate this source of revenue in the budget and, particularly, to subject ; Guarantees activities being funded to the same rigorous scrutiny that other activities funded from ; Donor desks domestic sources should be subjected to during budget formulation. The aid management

    entity should function to facilitate, not obstruct, and avoid interference in ministries‟

    budget proposals or project selection. (Schiavo-Campo and Tommasi: 1999). The

    sectoral groups within the Expenditure Group in MoF should ensure that consideration of

    aid-funded projects is within a broad sector strategy at the ministry level.

    Personnel ; Recruitment ; The case for including government-wide personnel management in the MoF revolves management around the fact that personnel costs usually account for the largest share of the budget. ; Performance The case against including personnel management in MoF is that it will almost certainly ; Promotion lead to an emphasis on the cost side, at the expense of management issues. While there ; Remuneration are examples of countries where personnel management is located with the budget ; Payroll agency (Canada, Ireland), there are many more examples of countries where it is located ; Personnel in a separate central agency. Two key points here are that (i) Government should not be Management held hostage to a personnel agency being able to approve new staffing without Information consideration of the budget constraint financial availabilities should drive staffing, not Systems the other way around - and (ii) pay policy, because of both its macro and budgetary

    implications, should probably be the responsibility of MoF (budgeting function). If

    centralized, the payroll system should be located in the Treasury. It is essential that the

    payroll and personnel management records are fully reconciled.

    Procurement ; Policy ; There is a case for centralizing procurement in a country, relating to economies of scale

    and to concerns about corruption. However, this must be balanced by the considerable ; Regulation evidence that devolution of (most) procurement to line ministries is more likely to lead to ; Central tender better value for money. Such devolution must be supported by a hard budget constraint, board sector strategies and effective audit. A separate agency, e.g. in the central administration

    department, is often found in transition and developing countries.

    Oversight of ; Policy ; There is a good case for having a unit responsible for policy in relation to SOEs within State Owned MoF but the day-to-day interaction between MoF and individual SOEs (either through ; Guidelines Enterprises, their parent ministry or directly) on issues to do with capital injections, subsidies and ; Capital Extra-dividends should be undertaken by the relevant sector group in Government Expenditure. injections budgetary Policy on guarantees and other contingent liabilities may reside here as well (execution of ; Operating funds the policy might be with Treasury). subsidies

    Internal ; Policy, ; There is a case for an internal audit unit to be established in MOF. Such a unit should Audit guidelines and provide support to and possibly even regulate internal audit at the line ministry and

    regulations agency level. In favor of this approach is that if MoF does not do this it will be unlikely

    to have sufficient authority based in any other central agency. It is also the case that ; Operations internal audit is concerned with organizational systems and operations and many of these

    relate to the management of financial resources. Extending the mandate of a central

    internal audit unit to manage or undertake internal audit activities has the advantage of

    consistency of approach; of targeting scarce resources on substantial risk areas; and of

    keeping line ministries on their toes. Against this, such an approach could weaken

    accountability at the line ministry level and undermines the authority of ministry heads.

    National ; Regional ; Agreements with neighboring countries and fiscal implications of regional agreements, economy cooperation and bilateral investment agreements

    ; Investment ; The scope of this function depends critically on the existence or not of a separate

    treaties and planning agency or ministry.

    agreements ; Policy is an important MoF function, but implementation should generally be the

    ; Capital responsibility of a separate agency (under MoF oversight, or if independent, following

    investment and very clear rules for reporting and accounting (gross), audit, transfer of balances to

    developmental treasury)

    plans

    ; Privatization

    policy

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i Adapted from „Organizational Responsibilities in the Ministry of Finance,‟ Reforming Fiscal and Economic Management in Afghanistan.

The World Bank, 2004.

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