Finansdepartementet
Svensk-ryska samarbetsprogrammet
Министерство финансов Швеции
Шведско-российский проект сотрудничества
A note on budget and accounts
classifications
Allan Gustafsson, Ph.D.
February 2002
1. INTRODUCTION ............................................................................................................................. 3
2. THE PRINCIPLES OF BUDGET AND ACCOUNTS CLASSIFICATIONS............................. 3
2.1 PURPOSES....................................................................................................................................... 4
2.2 ACTORS/USERS .............................................................................................................................. 5
2.2.1 International organisations and other governments............................................................. 5
2.2.2 The public.............................................................................................................................. 6
2.2.3 Parliament............................................................................................................................. 6
2.2.4 The audit institutions............................................................................................................. 7
2.2.5 The Executive ........................................................................................................................ 7
2.2.6 Government agencies ............................................................................................................ 7
2.3 CLASSIFICATIONS........................................................................................................................... 7
2.3.1 Territorial and level-of-government...................................................................................... 7
2.3.2 Institutional ........................................................................................................................... 8
2.3.3 Programmatic........................................................................................................................ 8
2.3.4 Functional ............................................................................................................................. 8
2.3.5 Economic............................................................................................................................... 9
2.3.6 Other complementary classifications .................................................................................. 10
2.3.6.1 Counter-party ...............................................................................................................................10
2.3.6.2 Transaction/non-transaction .........................................................................................................10
2.3.6.3 Output...........................................................................................................................................11
2.3.6.4 Cash vs. in kind ............................................................................................................................11
2.4 LEVEL OF DETAIL ......................................................................................................................... 11
2.5 SUMMARY BY ACTOR/USER CATEGORY ...................................................................................... 11
2.6 IMPLEMENTATION OF CLASSIFICATIONS....................................................................................... 12
2.6.1 The impact of computer technology .................................................................................... 12
2.6.1.1 Unidimensional versus multidimensional classifications ............................................................12
2.6.1.2 Direct versus indirect classifications............................................................................................13
2.6.1.3 Compulsory classifications versus translations............................................................................14
2.6.2 Considerations when deciding on the classifications structure .......................................... 14
2.6.3 Example............................................................................................................................... 14
2.6.3.1 Classification structure.................................................................................................................14
2.6.3.2 Purpose and level of detail of the classifications .........................................................................16
3. CONSEQUENCES OF THE RECOMMENDATIONS OF THE NEW GFS MANUAL ........ 17
2
1. Introduction
In April 2001, a delegation of officials from the Federal Treasury at the Ministry of
Finance of the Russian Federation made a study visit to Sweden to look at the
methods and systems used to collect, process and present standardised statistics on
the Finances of the Government.
Amongst issues of interest to the delegation were:
•
•
•
•
•
•
•
The existence of sub-units within different government agencies responsible for
the compilation of statistical information on the Government Finances; number
of staff, functions an responsibilities;
The connection between the budget classification and the statistical classification
of the Government Finance Statistics Manual of the IMF;
The methodology used to translate the information in the accounts to finance
statistics including standards for this translation;
A coherent methodology for financial statistics in a concrete country developed
by specialists in this country;
An analytical system for statistics on the public debt;
The use of statistical data for short-term planning and as a basis for operational
decisions in the state administration;
The role of Government Finance Statistics for management and policy in the tax
and budget areas.
This paper is a follow-up to that visit and its purpose is two-fold:
1. To elaborate further on the principles of budget and accounts classifications, and;
2. To discuss the implications of the very recently published, new Government
Finance Statistics Manual prepared by the IMF.
2. The principles of budget and accounts classifications
The discussion of the first issue will take as its starting point three statements:
“Classifications have different purposes and different actors/users have different
needs!”
“No single classification or even a limited set of classifications can serve all
purposes and meet all needs!”; and
“Not every classification needs to be applied to every element of the government’s
finances!”
Rather, the classifications and the level of detail should be determined by:
•
The purpose of the information, and, within the different purposes
•
The specific needs of the different actors/users.
3
2.1 Purposes
Information on the public sector economy serves two primary purposes:
•
•
Control, and;
Analysis.
There are two aspects to control:
•
control in the sense of setting constraints for the public sector economy, and
•
control in the sense of verifying that the economy public sector economy has
been managed in compliance with existing legislation, regulations and budget
constraints established by Parliament and the Executive.
Traditionally, and still so in many countries including Russia, one and only one set of
classifications has had to serve both purposes. With modern computer technology
this is no longer necessary.
Generally speaking, the need for information for analytical purposes goes far beyond
what is necessary and/or desirable from a control perspective. More dimensions are
relevant and interesting and the desirable level of detail much higher than what it is
for controlling, in terms of constraining, the public economy.
It may, for example, be important for the management of an agency to know how
much has been spent on office supplies but it is hardly anything that Parliament
ought to constrain.
How Parliament and the Executive choose to constrain the public sector economy, is
a reflection of its general management philosophy. Traditionally the focus has been
on inputs, i.e. what resources were used in provision of government services.
Consequently budget constraints were set for more or less detailed categories of
expenditure: salaries, medicines, food stuffs, stipends etc.
In recent years, the emphasis in many countries have shifted from inputs to outputs
and budget constraints are, instead, set for entire programs or institutions on the basis
of the outputs that these are to achieve. In Sweden, for example, budget constraints,
or to use its mirror-image term, appropriations, are set for entire institutions or for
specific purposes. No constraints are set on the economic composition of inputs.
Information on the latter, and quite detailed such information, can nevertheless be
extracted from the accounts by and for those needing that information.
From an output perspective it may not be interesting who is actually producing the
output as long as it is done efficiently. From an accountability perspective it is,
however, necessary to know which institution or even which individual is
responsible for a specific activity and/or input. Thus while not interesting from an
ex-ante perspective it is in an ex-post control perspective.
Another point to make is that the budget and the budget constraints are not the one
and same thing and that the classifications used to present them must not necessarily
be the same.
4
Budget constraints apply to the expense or expenditure1 side of the budget while a
budget is a comprehensive presentation of the expected outcome of the public sector
economy in the following year(s).
In terms of classifications and detail this means that:
Classification used for budget constraints may be fairly aggregate and apply to
programs, territorial aggregates, institutions, broad expenditure categories or a
combination of any two, three or four of these categories.
A budget is, to begin with, broader in scope in that it also presents the revenue side,
preferably including revenues that accrue directly to the different institutions and that
they are free to use. If the budget is expressed in accruals terms, it also contains
information on the expected stocks of assets and liabilities at the beginning and end
of the budget year. The budget may also be presented in additional dimensions, i.e.
classified in terms other than those used for the budget constraints. Expenditure, for
example, could be presented according to the GFS functional classification and with
a greater level of detail as regards its economic composition. Revenue could be
broken by source, by type and by territorial providence.
The accounts are generally even more detailed, particularly as regards the economic
composition of expenses/expenditure. Programmes may, for lower level management
purposes be broken down into projects and institutions may be divided into a number
of cost centres.
2.2 Actors/Users
One can identify at least five major actors/users or categories of actors/users of
information on the public sector economy:
•
•
•
•
•
•
International organisations and other governments
The public
Parliament
The auditing institutions
The executive
Government agencies
To some extent the needs of these different actor/user categories overlap but to a
large degree they do not.
2.2.1 International organisations and other governments
International organisations and other governments are primarily interested in
information on the economic and functional composition of the public sector, by
itself and as a component of the national economy. The Government Finance
Statistics Manual and the System of National Accounts have been produced with this
objective in order to facilitate comparisons between countries.
1
Expense is the term used in accrual–based accounts, while the term expenditure is used in cash- or
modified-cash-based accounts.
5
Information on the economics of the public sector organised on the basis of the
principles and the economic classification of the GFS allow an analysis of a set of
very broad macro-fiscal aggregates. It also allows an analysis, at a somewhat greater
level of detail, of the economic composition of the revenues and expenses as well as
its stocks of assets and liabilities of the government.
The functional classification serves to analyse the expenses/expenditure from the
point of view of the socio-economic purpose of the activities in which the resources
have been consumed.
2.2.2 The public
The need for information on the public sector economy is, in general terms,
determined by the political process in which Parliament, with its parties, the media
and the public at large are a part. In a democracy the demand for information can be
very broad and can be summarised in the term: transparency.
Generally speaking the public wants to be able to form an opinion on whether the
resources are applied effectively and efficiently i.e. for purposes that improve
welfare of the society in the best possible way and at the lowest cost given a certain
desired output.
There is no allocation of resources that is objectively the most effective and efficient
one. The point is that the information on the public sector economy shall be
structured in a way that allows the public, directly or indirectly through media to
arrive at an informed opinion that can serve as a basis for a constructive political
discourse.
In addition the information on the composition of the economy of the public sector,
the public, through Parliament and through an independent auditing function, will
want to be able to hold public institutions and individuals accountable for the
activities carried out by the public sector.
Generally speaking, the public’s need for information is the broadest and the least
well defined and easy access to the information is as important as the structure of the
information.
2.2.3 Parliament
Parliament’s general need for information on the economy of the public sector in
broad terms coincide with that of the public in general, being as it is the
representative of the people.
In addition, Parliament has the specific role of setting the parameters for the public
sector by deciding on the budget constraints, of actively following-up on the
execution of the budget in financial terms and on what has been achieved.
For these different roles it needs information structured in different ways and at
different levels of detail.
6
2.2.4 The audit institutions
The audit institutions shall ascertain whether the public sector economy has been
managed in compliance with existing legislation, regulations and budget constraints
established by Parliament and the Executive. For this it needs access to detailed
accounts information structured primarily along economic lines. Audit institutions
engaging in performance audit i.e. audits attempting to assess effectiveness and
efficiency, also need information structured along programmatic and/or functional
lines and information on output and impact resulting from the government activities.
(The latter type of information is not discussed further here)
2.2.5 The Executive
The Executive, in the meaning the central policy making institution such as the
Ministry of Finance, Treasury etc. needs the financial information structured in
basically the same way as the Parliament albeit, possibly at a greater level of detail
plus information on outputs and outcomes (impact).
2.2.6 Government agencies
The information needs of individual agencies are more limited in terms of coverage –
they are basically and mostly interested in what concerns their particular agency –
but they often want to be able to manage their activities in other dimensions and/or at
a level of detail that goes beyond what is interesting to the Executive as defined
above.
The management of an agency may, for example, be interested in following the costs
for different types of internal cost centres: projects, activities, products or services
etc. information that is of limited relevance to the superior authorities.
2.3 Classifications
The discussion above was carried out in rather general terms mostly to point to the
fact that information needs are diverse and that, if they are to be satisfied there is a
need for at range of complementary classifications of the elements of the public
sector finances.
The primary potential classifications are:
•
•
•
•
•
•
Territorial
Level-of-government
Institutional
Programmatic
Economic
Functional
Each one will be discussed in turn.
2.3.1 Territorial and level-of-government
In the context of the Russian Federation, the territorial classification and the level-ofgovernment classifications are necessary for constitutional reasons and for the
7
obvious need to be able to analyse the flow of resources (and the distribution of
assets) in geographic terms.
2.3.2 Institutional
The institutional classification is obviously also necessary and fairly straight forward.
It necessarily applies to all economic events, revenue, expenses/expenditure, and, if
the accounts are accrual-based, to assets and liabilities. For presentational and
analytical purposes, institutions are normally grouped in a hierarchical structure
according to the lines of command.
2.3.3 Programmatic
The use of a programmatic classification is optional and the choice is a reflection of
the Government’s management philosophy. A programmatic classification only
makes sense in a situation where the management is really focused on the outputs
and the outcomes – rather than on the inputs. On the other hand, if the Executive and
Parliament does not have the information base that allows them to shift the focus
from inputs to outputs and outcomes, such a shift will never happen. It should,
however, be remembered that financial information alone is not sufficient. There is
also a need for a flow of structured information on the actual outputs and outcomes.
How to structure the latter information, how to achieve an efficient flow of it and, not
the least, how to create processes in which this information is actually put to good
use is a much more complex task than designing and setting up an efficient
accounting system.
Programmatic classifications normally only pertain to expenses/expenditure although
one could conceive of attaching a programmatic classification to taxes if and when
they have objectives other than or beyond simply ensuring the financing of public
expenditure. Taxes on alcohol and on energy are examples of such taxes.
2.3.4 Functional
By functional classification is normally presumed the standardised functional
classification prepared by the UN although, in principle, that needs not necessarily be
so. Functional classifications only pertain to expenses/expenditure.
An interesting issue is the relationship between programmatic, functional and
institutional classifications.
In terms of purpose there are obvious parallels between programmatic and functional
classifications. Both serve to relate, in some sense, inputs to outputs and outcomes.
In conceptual terms there is a slight difference in the sense that a functional
classification merely relates expenses/expenditure to activities while a programmatic
classification, in principle, should be related to objectives in terms of what outputs
and/or outcomes are to be achieved. In practice it is, however, difficult to create an
immediate such relationship and the practical link has to be to activities.
Given that, one may consider letting the functional classification serve the role of a
programmatic classification in the management and the political processes. I.e. the
expense/expenditure budget is presented to Parliament according to the functional
8
classification and the budget constraints are established in the same dimension. The
question is whether the standard functional classification as defined by UN is
detailed enough for management purposes, i.e. for the needs of the Executive and the
executing agencies. One possibility would be to break down the standard functional
classification further in order to meet the latter needs.
Another alternative is to have a distinct and separate programmatic classification and
then link the functional classification to the lowest level entity in the programmatic
hierarchy. In the latter case the functional classification serves a subordinate role and
is used merely for analytical purposes and for satisfying the international demand for
information on the public sector economy.
A third alternative may be to define programmes within institutions, set budget
constraints for the latter and then, for presentational purposes attach a functional
classification to the latter.
A fourth and simpler, in all senses of the word, alternative is to not have any
programmatic classification at all. Thus the budget is presented on the basis of the
institutional classification and budget constraints are set on the same basis. If a
functional grouping of expenditure is deemed necessary for no other reason than for
meeting statistical requirements, it is achieved by assigning a functional code to
every institution on the basis of its major activity.
No country has, yet, followed the first route. The second route is what has been
proposed for the future system of financial management for the central government
of Sweden. The UK has chosen the third alternative while the present set-up in
Sweden is a hybrid of the second and the fourth approach.
2.3.5 Economic
The economic classification is used to indicate the economic nature of a transaction
and, if the accounts is based on Generally Accepted Accounting Practice2 (GAAP),
of assets and liabilities and of any event, other than transaction, that changes the
value of these assets and liabilities.
In GAAP-based accounting, the economic classification is called chart-of-accounts.
A chart-of-accounts provides the core classification of commercial accounting and of
public accrual-based accounting. The new GFS economic classification is also, in a
sense, a chart-of-accounts as it is based on GAAP principles and follows the basic
structure of standard chart-of-accounts.
In cash-based systems, the economic classification merely indicates the economic
nature of payments.
2
The main elements of GAAP is double-entry book-keeping and a recording of any event that results
in the “creation, transformation, ex-change, transfer, or extinction of economic value”. The standards
for GAAP-based accounting are, at the international level, set by the International Federation of
Accountants (IFAC).
9
2.3.6 Other complementary classifications
While the above five classification are primary in the sense that they either apply to
all economic events and states (the territorial, institutional and economic
classifications), or to all expenses/expenditure (the programmatic and functional
classifications) there exist a set of other complementary classifications that are
relevant to only a smaller subset of all economic events or states.
2.3.6.1 Counter-party
A counter-party classification indicates who the party “at the other end” of the
transaction is: lender, borrower, seller, buyer, donor or receiver. “Who” may be an
institution, a category of enterprises or individuals.
A counter-party classification is relevant for several different types of economic
events such as lending and borrowing and the resulting financial assets and liabilities.
A counter-party classification is also relevant for incoming and outgoing transfers
such as external grants, transfers to other government institutions or subsidies of
private sector operations.
A counter-party classification is necessary for consolidation purposes if there are
important internal flows, i.e. between government institutions – in the form of cash
transfers, lending and borrowing, or the selling and buying of goods and services. If
consolidated accounts are to be produced for the government sector, all these internal
flows have to be eliminated, and that is difficult to do unless the counter-party of the
transactions is recorded together with the value of the transaction itself.
A counter-party classification is also necessary for the management of the internal
and external debt as well as for the management of assets in the form of shares in or
lending to private or public sector enterprises.
The counter-party, at individual level (institution or physical person) is an obligatory
piece of information in accounts-payable or accounts-receivable, standard subsystems of modern accounting systems.
2.3.6.2 Transaction/non-transaction
The new Government Finance Statistics Manual introduces a new distinction, that of
transactions and other economic flows. A transaction is an interaction between two
units by mutual agreement or an action within a unit that is analytically useful to treat
as a transaction.
An other economic flow is a change in the volume or value of an asset or liability that
does not result from a transaction. Other economic flows can be broken down into
volume changes and so called holding gains or losses. An example of the latter is the
depreciation of an asset.
10
2.3.6.3 Output
In order to provide data for the production of the national accounts, one can, in the
case when an institution is producing different types of output, conceive of
classifying this output in the terms used by the System of National Accounts, SNA.
2.3.6.4 Cash vs. in kind
If and when external assistance is important, it may be useful to distinguish between
assistance provided in cash and assistance provided in kind.
Generally speaking, the use of other classifications should be based on the concrete
information needs extant in a specific administration.
2.4 Level of detail
Not every actor/user needs information on the public sector economy at the same
level of detail.
In principle, Parliament should, upon the proposal of the Executive, establish
priorities at some appropriate aggregate level and it should follow-up execution at
that same level. This is not to say that parliamentarians should not have access to
detailed information, they should. It is more a question of designing the
classifications in such a way that they can be aggregated in a meaningful way, in a
way that provides the basis for, and stimulates discussions on global priorities, rather
than on marginal issues.
Line ministries focusing on a particular sector naturally needs more detailed
information, while the greatest need for detail is at the agency level.
Institutions responsible for financial audits need access to information at the
transaction level in order to verify the veracity of accounts and assign responsibility
for economic acts carried out. Institutions doing performance audits, on the other
hand, are more interested in aggregate information, classified and aggregated in ways
which facilitates the analysis of the effectiveness and the efficiency of the work
carried out by the Government in general or by a specific agency.
2.5 Summary by Actor/User category
The table below is an attempt at indicating what type of information in terms of
classification and level of detail is likely to be of primary interest to different
actors/users. It says nothing of how the basic data should be structured. That is
discussed in the next section.
The matrix is just an indication of how the information could be organised for
different actors/users when presented in printed form. With modern computer
technology, the format is of course much less constrained and the data can be crosstabulated and aggregated in any way you want. It can be presented in ad hoc reports,
on paper and on the screen, provided that the underlying structure of the information
supports it.
Table 2.1
Primary information needs by category
11
Territorial
Institutional
Programmatic
International
Public & Parliament
Aggregate
Aggregate
Aggregate
Functional
Economic
UN level of detail
Aggregate
Aggregate
Aggregate
Detailed
Financial audit
Detailed
Performance audit
Aggregate
Aggregate
Aggregate
Aggregate
Aggregate
Finance/Treasury
Semi-aggregate
Semi-aggregate
Semi-aggregate
Semi-aggregate
Semi-aggregate
Line ministries
Detailed
Detailed
Detailed
Detailed
Semi-aggregate
Agencies
Detailed
Detailed
2.6 Implementation of classifications
2.6.1 The impact of computer technology
In the days when budgeting and accounting were carried out using manual systems,
one single code string had to carry all the desired classification information. The
result was very long and unwieldy classification codes. This technical solution to the
classification problem was carried over to the first computerised accounting systems
and still lives on in many public sector implementations.
The present classification system of the Russian Federation, with its thousands of
classification codes, is a case in point.3
With the development of relational database technology, the classification problem
could and can be solved in a much more efficient manner. Instead of one single code
string to be attached to every budget line and every transaction record in the
accounts, classifications are treated as independent attributes attached directly or
indirectly to a budget value or a value in the accounts.
Furthermore, it is not necessary to attach the same attributes to every single record in
the database. Which attributes to attach is determined by the nature of the economic
event to be recorded.
2.6.1.1 Unidimensional versus multidimensional classifications
The basic principle of a modern classification system is that each classification
(attribute) should only reflect one single aspect of the recorded object (budget line,
transaction, etc.). Thus an economic classification, for example should reflect only
the economic nature of the event, nothing else.
In practice, chart-of-accounts are not always as “clean” as that. And introducing
another non-economic aspect may, in fact, be justified if an attribute only pertains to
3
”Federal Law on the Budget Classification of the Russian Federation.
12
a single or a limited number elements in the chart-of-accounts and there is a limited
number of alternatives of the other attribute. For example: if there is an economic
category Transfers to international organisations and there are only three
international organisations to which transfers are made. Then one could consider
having for example Transfers to the XX system, Transfers to the ZZZ and Transfers
to YYY. On the other hand, XX, ZZZ and YYY could be treated as three instances of
counter parties which, technically, would be a better solution.
2.6.1.2 Direct versus indirect classifications
Classifications can either be direct or indirect. A direct classification is an attribute
which is attached directly to a value object (budget line or an economic event record
in the accounts). The economic attribute is a direct classification because it has to be
attached directly to a value object.
An indirect classification is an attribute attached to another attribute which, in turn, is
attached to the value object.
In designing a classification system, there is sometimes the option of making a
classification direct or indirect. The functional classification, for example, can be
implemented as a direct or as an indirect classification. If the direct approach is
chosen, every single expense/expenditure object (budget line or account record) has
to have a functional attribute attached to it. If an indirect approach is chosen, the
functional attribute is attached to either the programmatic object or to the
institutional object. Albeit indirect, the functional attribute can be used to classify
expenses/expenditure although with somewhat less precision since it is done via
either the programmatic or the institutional classification.
The graph below depicts the two different classification approaches; where, in this
case, the functional classification is implemented as a direct and as an indirect
attribute respectively.
Figure 2.2. Direct and indirect attributes
Direct attributes
Direct attribute
Indirect attribute
Institutional
attribute
Functional
attribute
Institutional
attribute
Value
Object
Value
Object
Functional
attribute
13
2.6.1.3 Compulsory classifications versus translations
A classification system can be implemented as a single compulsory set-up of
classifications to be used at all levels and by every institution. Or institutions can be
allowed to design their own classification systems provided that they can report
according to classifications and formats determined and used by the central
authorities.
The latter solution has been chosen in some countries, including Sweden, for the
economic classification, i.e. the chart-of-accounts. A blue-print chart of may be
prepared by the central economic authorities but the individual institutions are free to
alter and/or expand it or to develop their own chart from scratch. The condition is,
however, that they are able to translate from their charts to the standard chart used
for consolidation by and at the centre. The argument for giving this freedom to the
individual institutions is that the undertakings of the government are so diverse that it
is difficult for one chart-of-accounts to satisfy the accounting needs of all
institutions.
A compromise approach would be to standardise the chart of accounts down to a
certain level of detail – in a hierarchical plan for example down to and including the
third digit -- but then allow the agencies to open up individual sub-accounts that are
only used for internal purposes. The latter approach is possible even if and when the
computerised budgeting and accounting system is implemented as a central system.
The same options and solutions would apply also to a programmatic classification
where an agency may desire a more detailed break-down – down to projects, subprojects and activities – than what is of interest to the central authorities.
2.6.2 Considerations when deciding on the classifications structure
The choice of a classification structure is and should always be based on an
assessment of the trade-off between, on the one hand, the usefulness of the
information that can be gained from different classifications and different
implementation approaches, and, on the other hand, the ease of recording and the
reliability of the recorded data. It is a well-known phenomenon that the more
complex the recording structure, the less reliable the data.
Care should therefor be taken not to burden the accountant with a multitude of
classifications to record for every single accounts transaction. One way of avoiding
this is to use indirect attributes whenever feasible. Another is to use, to the maximum
extent possible, the powers of the computer to automatically assign
attributes/classifications.
2.6.3 Example
2.6.3.1 Classification structure
The graph below illustrates the overall design of a possible classification system.
Direct attributes
Indirect attributes
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Institutional
attribute
Level of Gov’t
attribute
Territorial
attribute
Value
Object
Programmatic
attribute
Functional
attribute
Counter- party
attribute
Economic
attribute
Transaction
attribute
In this classification system there are eight classifications of which four are direct
attributes and four are implemented as indirect attributes. The direct attributes are
attached to a value object which may be a budget constraint, a budget value or a
value in the accounts.
Only two of the attributes are obligatory – the institutional attribute and the economic
attribute – in the sense that they have to be attached to every single value object.4
The institutional attribute can, however, at least in the accounts be attached
automatically. In a decentralised system, i.e. where the accounts are done on local
stand-alone systems, this is done when the accounting information is transferred to
the centre. In a centralised accounting system the institutional code would be
established at log-in and then automatically attached to every account record.
The level-of-government, the territorial, the functional and the “transaction”
attributes are implemented as indirect attributes. The level-of-government and the
territorial attributes are simply characteristics of each institution. It means that in the
database there are tables in the database where it is recorded to which level of
government a specific institution belongs and where it is located5. Likewise for the
functional classification: the functional classification is recorded for the lowest level
instance of the programmatic classification. In concrete terms: what is the function
of, say, a project.
The “transaction” attribute is a characteristic of the revenue and expense instances of
the economic attribute, or put in other terms, of the revenue and expense elements of
the chart-of-accounts. The payment of wages, for example, is a transaction while
depreciation is a holding loss
4
An exception would be if budget constraints are imposed on programmes and not on institutions.
A slight variation of or a complement to this would be to indicate where its activities are carried out;
at federal level, various regional levels or at local level.
5
15
The programmatic and the counter-party attributes are only attached for certain
instances of the economic attribute. The programmatic attribute is only attached to
the value object when the economic attribute pertains to an expense/expenditure.
Using plain language: it is only necessary to record a programme/project code when
we are recording an expense/expenditure. And, it only makes sense to record a
counter-party code for certain types of revenue, certain types of expenditure and for
certain types of assets and liabilities.
In order words, the economic classification “drives” the programmatic and the
counter-party classifications. In the graph this is symbolised by the dotted frames of
the latter boxes and the dotted arrows from the economic attribute to the latter two
attributes.
The table below indicates for which instances of the economic classification the
programmatic (presuming there is a programmatic structure) and the counter-party
classifications could/should to be recorded. The economic classification used is that
of the new GFS Manual. In the case of the counter-party attribute there are different
option as to what should be recorded in the General Ledger – i.e. in the core of the
financial management system (FMS) – and what should be recorded in sub-systems
such as accounts receivables and accounts payable and in the debt management
system.
In the table below it is presumed that the counter-party attribute for other revenue
and use of goods and services is reflected in the General Ledger only for internal
transactions, i.e. for sales and purchases between government institutions. For
transactions involving parties external to the government, that information is stored
only in the accounts payable and accounts receivables sub-systems of the FMS.
Table 2.3
Economic classification
Programme
attribute
Counter-party
attribute
Assets
Fixed assets
Inventories
Valuables
Non-produced assets
Financial assets
X
X
Liabilities
Revenue
Taxes
Social contributions
Grants
Other revenue
Expense
Compensation of employees
Use of goods and services
Interest
Subsidies
Grants
Social benefits
Other expenses
(X)
X
X
X
X
X
X
X
X
(X)
(X)
X
X
2.6.3.2 Purpose and level of detail of the classifications
The above classification system is expressed in generic terms i.e. a system that could
be applied to budget constraints, budget data and accounts data.
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However, the full set of attributes would/should probably only used in the accounts.
For the budget constraints, for example, only a subset of the classification would be
necessary. Specifically which classifications depends, as already pointed out, on the
government’s management philosophy. The traditional approach is to control inputs,
which implies expressing the budget constraints in terms of the economic and the
institutional classifications. At the other end of the spectrum, a government may limit
itself to controlling the provision of central funds to programmes – without
specifying for which inputs the funds are to be used. In this case, only one single
classification is used, the programmatic one.
The set of classifications used for the budget would approach that of the accounts.
The level of detail would, however, be much less, particularly as regards the
economic classification. It is probably not meaningful to present to Parliament the
economic break-down of the budget at a more detailed level than the one in table 2.3.
3. Consequences of the recommendations of the new GFS
manual
The entire discussion on classifications in section 2 of this paper has been carried out
with only fleeting reference to the basis of the accounts and the budget.
When modernising the financial management system of the Russian Federation,
including the classification system, it is not possible to eschew this issue, however.
The question has come even more to the fore with the new Government Finance
Statistics Manual, produced by the IMF and published in December of 2001. The
earlier version of the manual, published in 1986, was concerned with and based on
the recording of cash flows. This jibed poorly with the System of National Accounts,
SNA, which is based on accruals which means that it is designed to capture the value
of a nation’s assets and liabilities and the flows that change those values.
The concept of economic flow is more general and broader than payments. To quote
the new GFS manual: “Flows reflect the creation, transformation, exchange, transfer,
or extinction of economic value. They involve changes in the volume, composition,
or value of a unit’s assets, liabilities, and net worth. A flow can be a single event,
such as a cash payment for the purchase of goods, or the cumulative value of a set of
events occurring during an accounting period, such as the continuous accrual of
interest expense on a government bond.”
The new GFS system thus achieves a full integration of stocks and flows. All
Changes in the value of stocks can be fully explained by the flows.
This is not the place to elaborate on the principles established by the Manual. It is
done very pedagogically in the Manual itself and in a summary form in the Manual
synopsis. Both documents can be found at and downloaded from IMF’s web-site.
The precise address is: http://www.imf.org/external/pubs/ft/gfs/manual/index.htm
Suffice to say that the new GFS manual constitutes a giant leap forward in terms of
conceptual clarity. With it, all overarching statistical systems, the SNA, the GFS and
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the Monetary and Financial Statistics Manual have also, finally, been put on the same
basis.
To produce statistics on the public sector that meet the standards of the new manual
in practical terms requires that the public sector accounts also be produced on an
accruals basis. This is, at present, certainly not the case for the public sector in the
Russian Federation. In fact it is only the case for the public sector in a few countries,
Sweden being one of them.
On the other hand, it is true for the private sector world wide. Generally Accepted
Accounting Principles thus constitute a conceptual framework which is well
established, although not yet so in public administrations. There is, however, a very
clear trend for governments to move in this direction; several countries in Europe and
elsewhere are doing it. The switch-over is actively supported by the public
management programme (PUMA) of the OECD and the Public Sector Committee of
the International Federation of Accounts (IFAC).
The publication of the new GFS Manual reinforces this trend and makes it an issue
which will have to be dealt with by the authorities responsible for developing public
financial management in the Russian Federation.
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