Local Public Financial Management

290 Pages·2007·1.41 MB·English

by  World Bank Group

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LOCAL PUBLIC
FINANCIAL
MANAGEMENT
Introduction to the Public Sector Governance and Accountability Series
Anwar Shah,Series Editor
A well-functioning public sector that delivers quality public services consistent with citizen pref-
erences and that fosters private market-led growth while managing fiscal resources prudently is
considered critical to the World Bank’s mission ofpoverty alleviation and the achievement of
the Millennium Development Goals.This important new series aims to advance those objec-
tives by disseminating conceptual guidance and lessons from practices and by facilitating
learning from one another’s experiences on ideas and practices that promote responsive(by
matching public services with citizens’preferences),responsible(through efficiency and equity
in service provision without undue fiscal and social risk),and accountable(to citizens for all
actions) public governance in developing countries.
This series represents a response to several independent evaluations in recent years that
have argued that development practitioners and policy makers dealing with public sector
reforms in developing countries and,indeed,anyone with a concern for effective public gov-
ernance could benefit from a synthesis ofnewer perspectives on public sector reforms.This
series distills current wisdom and presents tools of analysis for improving the efficiency,
equity,and efficacy ofthe public sector.Leading public policy experts and practitioners have
contributed to this series.
The first 14 volumes in this series, listed below, are concerned with public sector
accountability for prudent fiscal management;efficiency,equity,and integrity in public service
provision; safeguards for the protection of the poor, women, minorities, and other dis-
advantaged groups;ways ofstrengthening institutional arrangements for voice,choice,and
exit;means ofensuring public financial accountability for integrity and results;methods of
evaluating public sector programs,fiscal federalism,and local finances;international practices
in local governance;and a framework for responsive and accountable governance.
Fiscal Management Budgeting and Budgetary Institutions
Public Services Delivery Local Budgeting
Public Expenditure Analysis Local Public Financial Management
Local Governance in Industrial Countries Performance Accountability and
Combating Corruption
Local Governance in Developing
Countries Tools for Public Sector Evaluations
Intergovernmental Fiscal Transfers: Macrofederalism and Local Finances
Principles and Practice Citizen-Centered Governance
Participatory Budgeting
PUBLIC SECTOR
GOVERNANCE AND
ACCOUNTABILITY SERIES
LOCAL PUBLIC
FINANCIAL
MANAGEMENT
Edited by ANWAR SHAH
THE WORLD BANK
Washington,D.C.
©2007 The International Bank for Reconstruction and Development / The World Bank
1818 H Street,NW
Washington,DC 20433
Telephone:[phone]
Internet:www.worldbank.org
E-mail:[email protected]
All rights reserved
1 2 3 4 10 09 08 07
This volume is a product ofthe staffofthe International Bank for Reconstruction and
Development / The World Bank.The findings,interpretations,and conclusions expressed
in this volume do not necessarily reflect the views ofthe Executive Directors ofThe World
Bank or the governments they represent.
The World Bank does not guarantee the accuracy ofthe data included in this work.
The boundaries,colors,denominations,and other information shown on any map in this
work do not imply any judgement on the part ofThe World Bank concerning the legal
status ofany territory or the endorsement or acceptance ofsuch boundaries.
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addressed to the Office ofthe Publisher,The World Bank,1818 H Street,NW,Washington,
DC 20433,USA;fax:[phone];e-mail:[email protected].
ISBN-10:0-8213-6937-7
ISBN-13:978-0-8213-6937-1
eISBN-10:0-8213-6938-5
eISBN-13:978-0-8213-6938-8
DOI:10.1596/978-0-8213-6937-1
Library ofCongress Cataloging-in-Publication Data
Local public financial management / edited by Anwar Shah.
p.cm.
Includes bibliographical references and index.
ISBN-13:978-0-8213-6937-1
ISBN-10:0-8213-6937-7
ISBN-10:0-8213-6938-5 (electronic)
1.Local finance.2.Finance,Public.I.Shah,Anwar.
HJ9105.L616 2007
355.4’215—dc22
2006101269
Contents
Foreword xi
Preface xiii
Acknowledgments xv
Contributors xvii
Abbreviations and Acronyms xxi
Overview 1
Anwar Shah
CHAPTER
1
Financial Accounting and Reporting 7
Rowan Jones
Traditional Functions ofFinancial Accounting
and Reporting 9
Accounting Bases 13
Expanding Traditional Functions 19
Financial Reporting Standards 29
Summary 30
Notes 31
References and Other Resources 32
v
vi Contents
2
Local Government Cash Management 33
M.Corinne Larson
Collections 34
Funds Concentration 41
Disbursements 45
Banking Relationships 48
Cash Flow Forecasting 50
Investing 55
Conclusion 65
Notes 68
References and Other Resources 68
3 Local Government Procurement and Safeguards
against Corruption 69
Clifford P.McCue and Eric W.Prier
Overview ofPublic Procurement 70
Government Systems and the Potential for Corruption
at the Local Level 76
The Procurement Process as a Safeguard against Corruption 79
Ethics and Professionalism 97
Conclusion 101
Notes 103
References and Other Resources 103
4
Local Debt Management 109
Gerald J.Miller and W.Bartley Hildreth
How Do Local Governments Use Debt? 112
When Do Local Governments Use Debt? 116
How Do Local Governments Assess Debt Affordability? 121
What Forms ofDebt Do Local Governments Use? 137
How Do Local Governments Issue Debt? 143
How Do Local Governments Manage Existing Debt? 149
Conclusion 151
References and Other Resources 152
Contents vii
5 Local Government Internal Controls to Ensure
Efficiency and Integrity 157
Jesse Hughes
Corruption and Money Laundering 157
Objectives and Scope ofInternal Controls 159
COSO Framework on Risk Management 165
International Federation ofAccountants Standards
Applicable to the Private and Public Sectors 171
Institute ofInternal Auditors Standards Applicable to
the Private and Public Sectors 173
International Organization ofSupreme Audit Institutions
Identification ofOrganization Need for Internal
Controls in the Public Sector 175
INTOSAI Framework 178
Public Internal Financial Control 180
Best Practices in Control and Management Systems for
European Union Membership (SIGMA Baselines) 181
Relevance and Feasibility ofInternal Controls for Local
Governments in Developing Countries 181
Organizing to Implement Internal Controls 187
Notes 190
References and Other Resources 190
6
Internal Control and Audit at Local Levels 193
Mustafa Baltaci and Serdar Yilmaz
The Need for Improving Accountability in Decentralization 195
Contemporary Internal Controls 198
Internal Audit:A Key Module in Control Systems 204
Conclusion 208
Annex 6A.1:Internal Control and Audit in Local Governments
across the World 209
Annex 6A.2:Establishing Effective Internal Control in Local
Governments 212
Annex 6A.3:Starting from Scratch:Building an Audit Unit
in Local Government 216
Annex 6A.4:Basic Elements ofInternal Audit 218
viii Contents
Annex 6A.5:Importance ofRisk Management 221
Notes 222
References and Other Resources 223
7 External Auditing and Performance Evaluation, with
Special Emphasis on Detecting Corruption 227
Aad Bac
What Makes Auditing in the Government Area Special? 228
The Object ofAudit 231
The Scope ofthe Audit 232
The Users ofAudits 247
The Auditor 247
The Auditee 249
The Audit 250
The Auditor’s Reporting 253
References and Other Resources 254
Index 255
BOX
6.1 Three Types ofAudit 206
FIGURES
1.1 Year-End Budget Report 12
1.2 Operating Statement under Cash Accounting
Based on Line Items 14
1.3 Statement ofPayments under Cash Accounting Detailing
Operating and Capital Payments 15
1.4 Accrual-Based Statement ofFinancial Position 22
1.5 Accrual-Based Operating Statement 23
1.6 Accrual-Based Statement ofChanges in Net Assets 24
1.7 Cash Flow Statement under the Direct Method 25
2.1 Cash Management Cycle 35
2.2 Account Structure and Flow ofFunds 43
4.1 Matrix ofSources ofSubnational Government Capital
Investment Financing 119