TRICKS OF T RADE OR ACCOUNTING AND BUDGETING RELATIONSHIP Ivana Jakir-Bajo

TRICKS OF TRADE

OR

ACCOUNTING AND BUDGETING RELATIONSHIP

Ivana Jakir-Bajo

Bucharest, 9-10 April, 2008

GOVERNMENT OF THE REPUBLIC OF CROATIAMinistry of Finance

Ministry of Finance

THEORY OF BUDGETING AND ACCOUNTING RELATIONSHIP

Fiscal systems or processes that involve planning, allocating and disbursing of monetary resources

Interrelationship and the need for coordination

Budgeting is regarded more in terms of planning and enacting a fiscal plan

– dependent on past year’s accounting and current year’s expenditures/revenues

Accounting focuses on recording, classifying and interpreting the financial transactions

– dependent on the budgeting of expenditure authorizations (appropriations) being enacted by the legislative branch

Ministry of Finance

Up to 2002 - no linkage between accounting and budgeting

Cash basis accounting

Financial statements have not been used

Semi-annual and annual reports on the state budget execution were the only valid statements

Invoices kept in drawers until they are paid

Large stock of arrears

HISTORY OF DEVELOPMENT OF BUDGETING AND ACCOUNTING RELATIONSHIP IN CROATIA

Ministry of Finance

From 2002 - new budget accounting concept

Based on a modified accrual accounting principle:

revenues are recognized in the reporting period in which they are received, provided that they are measurable

expenditures are recognized when they incur in the reporting period, regardless of whether they are actually paid

depreciation of non-financial long-term assets – not recognized as an expense; recorded as an adjustment of the value of assets in the balance sheet

ACCOUNTING TODAY

Ministry of Finance

CLASS - 0 NONFINANCIAL ASSETS

CLASS - 1 FINANCIAL ASSETS

CLASS - 2 LIABILITIES

CLASS - 3 EXPENSES

CLASS - 4 TRANSACTIONS ON NONFINANCIAL ASSETS (e.g. acquisition) - outflows

CLASS - 5TRANSACTION ON FINANCIAL ASSETS AND LIABILITIES (e.g. repayment ofthe loans) - outflows

CLASS - 6 REVENUES

CLASS - 7 TRANSACTIONS ON NONFINANCIAL ASSETS (e.g. sales) - inflows

CLASS - 8TRANSACTIONS ON FINANCIAL ASSETS (e.g. receivement of the loans, issuedbonds) - inflows

CLASS - 9 EQUITY

BU

DG

ET

PR

EP

AR

AT

ION

AN

D E

XE

CU

TIO

N

CROATIAN GENERAL LEDGER

Ministry of Finance

CLASSIFICATIONS SYSTEM

ECONOMIC FUNCTIONAL ORGANIZATIONAL PROGRAM

GENERAL LEDGER

CLASS

0123456789

1-GENERAL PUBLICSERVICES2-DEFENSE3-PUBLIC ORDER ANDSAFETY4-ECONOMIC AFFAIRS5-ENVIRONMENTALPROTECTION6-HOUSING ANDCOMMUNITYAMENITIES7-HEALTH8-RECREATION,CULTURE ANDRELIGION9-EDUCATION10-SOC. PROTECTION

1- LINE MINISTRY

2- LINE MINISTRY agency budget user

41- line ministry42- line ministry

MAIN FINANCIALREPORTS

Reports on spendings under each classification

BU

DG

ET

EX

EC

UT

ION

antismoking

program safe trafic program islands

revitalisationprogram

...etc.

Ministry of Finance

BUDGETING TODAY

Still on cash basis

Uses information from accounting and financial reports

No carry-over procedure for invoices falling due for payment in the subsequent fiscal year

Possibilities for budget users (linked to the TSA) to carry-over their earmarked revenues, donations, grants

The semi-annual and annual reports on the state budget execution – the only reports submitted to the Government and to the Parliament

Ministry of Finance

RECONCILIATION?

Budget users are still confused:

– Why the data from the financial statements is not comparable with the data from the budget execution reports?

– Should these be reconciled?

Simple example:

In 2008 an invoice was received for a good which has been delivered in that fiscal year.

Invoice has not been paid in 2008, but in the next fiscal year.

In the general ledger both the expense and the liability should be recorded in 2008.

This expense/appropriation will be budgeted in 2009.

Ministry of Finance

PROBLEM IS ALWAYS IN ACCOUNTING OR PROBLEM IS NEVER IN ACCOUNTING

GUARANTEES

Accounting treatment – memorandum item – each guarantee must be separately recorded and tracked

Budgeting - based on the activated guarantees estimated amount of payments – treated as a transaction on financial liabilities (repayment of loan)

LOANS

- Accounting treatment – double entry accrual accounting system required – keep debt stock for balance sheet purpose

-Budgeting – important future payments schedule and drawings – requires an accounting system in place but good debt management as well

FINANCIAL LEASING

PPP’s

Ministry of Finance

MANAGING COMMITMENTS AND LIABILITIES

Liability categories: (1) accounts payable; (2) other accrued liabilities; (3) debt outstanding

Role of accounting and reporting

A need to manage payables and take into account unfunded liabilities and contingent liabilities in the budget

Important for cash-flow planning and forecasting

Commitment control

Good technical support is becoming a precondition for the successful management of commitments and liabilities

Ministry of Finance

CURRENT INFORMATION SYSTEM OVERVIEW

I

Current information system overview

Budget users State Treasury

Existing infrastructure

FMIS(SAP-R3)

SAP SEM-BWBusiness Warehouse

Internal network

Budget user with SAP FMIS

FMIS #2

Budget user with SAP console and FMIS #1

FMIS #1 SAP con.

Budget user with SAP console and FMIS #n

FMIS #2 SAP con.

Invoice

Reservation

Budget plan

Ministry of Finance

EDEG PROJECT

I

EDEG – Electronic Document Exchange Gateway


Master Data Management

System

XML/EDI SAP Electronic

Data Interchange

EDEG(available on Internet via secure protocols)


FMIS(SAP-R3)


Budget user with proprietary SAP FMIS

FMIS #2


FMIS #1 SAP con.


FMIS #2 SAP con.

Electronic document #2



Ministry of Finance

FMIS REFERENCE MODEL PROJECT

I

Budget users FMIS reference model


Budget user with compliant FMIS #1

FMIS #1


System


Data Interchange



FMIS #2

Budget user with compliant FMIS #n

FMIS #n


FMIS(SAP-R3)


Invoice electronic document

Budget data electronic document

Commitment electronic document

Ministry of Finance

FUTURE INFORMATION SYSTEM OVERVIEW

I

Future information system overview



FMIS #1


System


Data Interchange



FMIS #2

Budget user with compliant FMIS #n

FMIS #n


FMIS(SAP-R3)


Invoice electronic document

Budget data electronic document

Commitment electronic document

TRICKS OF T RADE OR ACCOUNTING AND BUDGETING RELATIONSHIP Ivana Jakir-Bajo

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