October 8, 2009Doug Hadden
Dimitar Radev and Pokar Khemani
IMF Fiscal Affairs Department
THe IMF Fiscal Affairs Department has published a Technical Note by Dimitar Radev and Pokar Khemani about commitment controls in public financial management. The Technical Note makes a strong case for the implementation of strong commitment controls in government. The authors point out that commitment controls enable achieving “The three major objectives of a public financial management system (PFM) are: (1) fiscal discipline (expenditure control); (2) allocation of resources consistent with policy priorities (strategic allocation of resources); and, (3) prudent management of the government’s financial resources(economy, efficiency, and effectiveness)”.
Commitment Accounting distinguishes public from private sector accounting. The authors provide a good definition of commitments and build a strong case for effective commitment controls. They link reform of public financial management with strengthening commitment control mechanisms.
It is not clear if the Technical Note is advocating the concept that commitment controls can augment cash controls or can be used for cash controls. The Technical Note does not address the issue of when commitments are registered. Most governments register a commitment at the point in which a purchase order is issued. Some governments use a two-stage commitment process where there is a pre-encumbrance when a purchasing or hiring cycle begins.
The Technical Note describes the use of multiple controls such as yearly and period controls. It does not explicitely describe the use of aggregate controls. The mechanism of central and decentralized commitment control is well described. The authors recognize the need for strong virement controls.
The authors provide a useful observation about computerized systems. “A computerized Financial Management Information System (FMIS) can substantially improve the operations of a commitment control system. The FMIS functionality should include a well designed commitment control system. Further, the FMIS needs to require an accurate and timely recording of all commitments and expenditures by the treasury and spending agencies, without which it can not serve as an effective tool of expenditure control.”
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