Understanding and Reforming Public Expenditure Management class=

Understanding and Reforming Public Expenditure Management

Expenditure management refers to the process of planning, budgeting, executing, and monitoring an organization’s spending. In governments this is usually known as public expenditure management, and is different to practices in the private sector. This is because governments often have unique needs, such as budget and commitment controls, which go beyond traditional private sector accounts payable processes, and require additional management.

Effective public expenditure management is important because it ensures that public funds are used efficiently, transparently, and in line with government policies and objectives. Sound public financial management (PFM), of which expenditure control is a critical part, plays a vital role in the development and stability of nations, and in the health and wellbeing of a country’s citizens.

The Case for Public Expenditure Management Reform

It is clear then that governments should have effective public expenditure management as a priority to contribute to overall fiscal performance. However, the road to achieving this can be complex. Multiple stakeholders, tight budgets and limited technical resources within the organization can be barriers to reforming processes and operating models. 

When faced with these barriers, it can be helpful to reinforce the case for reforming public expenditure management. The key benefits to reform are:

Increased Transparency and Accountability

Many governments face challenges in ensuring transparency and accountability in their spending. Knowing how much has been spent, on what, when, and how much is left within the budget can be hindered by inadequate reporting mechanisms, complex procedures, and limited access to financial data. In turn, this prevents effective decision-making and opens up the potential for corruption and mismanagement. 

Transparent public expenditure management fosters trust between governments and citizens. By ensuring that spending decisions are recorded accurately and in a way that the public can access, it becomes easier to detect and prevent corruption, thereby enhancing accountability and trust in government.

Complex Financial Data Management

Managing complex expenditure data is a significant pain point for government officials. Traditional, paper-based processes make it difficult to maintain accurate records, analyze data, and generate timely budget reports. This complexity often leads to errors, inefficiencies, and delays in payment to suppliers, clouding the picture of the financial resources left to invest.

Reforming the ways in which data is collated, managed, reviewed and outturned provides the opportunity for improvement, and reduces the pain experienced. In particular, moving from paper-based expenditure processes to a technical solution with approval requirements and easy-to-use reporting functionality ensures compliance with organizational policies related to spending, frees up time for finance professionals and makes decision-making easier.

Efficient Resource Allocation, Effective People

Government commitments to fiscal transparency and reform may be hindered by limited resources and tight budgets. Within this environment, it may be tempting to delay reform of expenditure management practices, however the return on investment from reform can be significant and have a very positive operational impact.

At economy level, effective budgeting and expenditure control generates optimum return from the resources available. This leads to better public service delivery, infrastructure development, and social welfare programs.

Within government finance teams, tight budgets and limited numbers of staff can also prove difficult. Investing resources in an expenditure reform project may be perceived as an unhelpful, additional pressure while also meeting day-to-day business needs. However, finance leaders need to ensure that their expenditure management processes and tools are efficient so that employees are not wasting time and effort unnecessarily. Outdated processes and a lack of technical proficiency in employees can slow expenditure management down, impacting the team and the overall government operation. Reforming government expenditure management systems, supported by comprehensive training to build morale and assure technical skill, can alleviate these challenges.

How to Reform Public Expenditure Management

Reforming public expenditure management within a government is not a quick fix. To be successful, this type of improvement program requires careful planning, stakeholder engagement, and the adoption of modern solutions. 

Here are some key guidelines for reforming how government spending is managed:

Plan Tactics Aligned with Strategic Objectives

The reform process should be grounded in government policy objectives. This allows prioritization over other helpful, but not necessarily critical, activities. 

A clear strategy should be developed, which establishes objectives and performance indicators, and defines the roles and responsibilities of key stakeholders. 

Commit to Visible Leadership and Stakeholder Engagement

Reforming something as important as public expenditure management requires strong leadership and active involvement of stakeholders. The reasons for reform, as noted above, need to be shared clearly and regularly by those leading the reform project, from the initial planning stages right through to completion.

Regular engagement with key decision-makers, influencers and users will build joint understanding of requirements and challenges, foster collaboration, and remove barriers to change. Working in this way during the implementation means that new expenditure management processes are more likely to be successful once they are in day-to-day use.

Embrace Technology and Innovation

Outdated expenditure management processes are resource-intensive, prone to human error, and open to unintentional mismanagement or intentional fraud. Leveraging technology to automate and streamline financial management processes helps to mitigate these risks, and enhances transparency and accuracy. 

Using a government-specific expenditure management tool, configured to your organization’s needs, makes operating in a transparent and effective way easier. Configurable and adaptable systems, such as the FreeBalance Accountability SuiteTM, also allow for future changes in how spending is managed. This means that you can future-proof your finance operations; as fiscal management evolves, your technical solution can evolve with it.

Thoroughly Monitor Progress Through Implementation

A smooth transition from existing processes to new, improved systems relies on implementing earlier plans diligently, paying close attention to detail and collaborating effectively across teams and disciplines.

Ongoing communication and monitoring is key throughout implementation and this is a particularly resource-intensive time. Continuously monitoring the implementation of reforms and evaluating their effectiveness against agreed key performance indicators will keep the program on track and identify bottlenecks, and make necessary adjustments.

Following established implementation methodologies can help to minimize risk through implementation and ensure new systems are successfully embedded into the organization.

Build Capacity Through Robust Training

Implementing a technical solution as part of public expenditure management reform will significantly improve transparency around spending, reduce manual processes and manage the risk of fraud.

However a new expenditure management system needs to be used by experienced and skilled employees.  Investing in building the technical capacity of government officials will make sure that the system can deliver results now and in the future. 

Users of the new system need to be thoroughly trained and supported on an ongoing basis. Providing ongoing professional development opportunities for employees and system users ensures they keep up to date on sector developments and innovations. Embedding a culture of continuous learning and skill development, through consistent team-level training, also allows the organization to adapt to changing financial management practices and technologies.

How FreeBalance Can Help Governments Reform Public Expenditure Management?

FreeBalance has 40 years’ experience in PFM and supporting governments with expenditure management. Our experts understand the challenges faced by government officials and provide user-friendly, scalable, and easy-to-implement solutions that align with your needs. 

Public Expenditure Management Tools

There are a wide range of resource planning systems on the market, but only the FreeBalance Accountability SuiteTM is designed specifically with public sector users (and public expenditure management) in mind. Our web-based financial management system is designed to enhance transparency, efficiency, and accountability in managing public finances. The system includes public expenditure management functionality designed specifically for government, which goes beyond standard enterprise resource planning functionality. 

One of the core pillars of the FreeBalance Accountability SuiteTM is (PEM) Public Expenditure Management. This includes:

  • Budget and commitment controls, ensuring all expenditures are approved by employees at the appropriate seniority level and do not exceed agreed budget or allocations set in the system
  • Purchasing methods configuration which manages a range of purchasing types such as local purchase orders, petty cash, open contracts, standing offers and special contracts to make sure that all types of purchase can be effectively tracked
  • Vendor management tools including vendor authorization, certifications and ratings
  • Social benefits functionality which provides assurance that government pensions, health care, employment insurance and welfare payments are effectively managed
  • Purchase cycle tools which accurately manage the general purchase cycle including purchase requisitions, purchase orders, goods receipt and goods returned, to ensure a comprehensive view of all purchases
  • Procurement functionality which provides in-depth information on government procurement including competitive tenders, tender evaluation, vendor disputes and contract management
  • Grant management, allowing oversight of government grants, loans and contributions to individuals, educational institutions, NGOs and businesses
  • Intergovernmental transfer tools, which ensure quick and easy transfer payments between governments.

Implementation and Sustainability Support

As established above, technology is only part of the puzzle in public expenditure management reform. Successfully implementing expenditure management reform and sustaining it in the long term relies on robust change management approaches, capacity building, and ongoing support.

FreeBalance uses a proprietary ISO-9001:2015 certified, agile implementation methodology called A-i3+qM™. FreeBalance customers benefit from government-specific software implementation, customization and product development. 

FreeBalance’s long standing experience in supporting governments with public financial management reform enables us to share best practices from around the world, and our FreeBalance Academy training team and suite of public financial management courses ensure that public officials have all the information they need to leverage all of benefits of the FreeBalance Accountability SuiteTM.

Find out more

Download more information on FreeBalance’s Public Expenditure Management tools, or read more about our proprietary agile implementation methodology, on our website.