TABLE 2.4: Budget allocations by economic classification

2.3. Legal and regulatory arrangements for PFM

The report lists and summarizes the laws and regulations that determine the structure and guide the operation of the PFM system. Typically, the starting point is the country’s constitution. It explains the distinction between the different branches of government (legislative, executive, judicial), the legal basis for different layers of government (central, state, municipalities, etc.) and other organizational structures such as extrabudgetary units and public corporations. It describes the degree of integration or fragmentation of legislation covering different aspects of PFM such as budget management, revenue mobilization, investment and debt management, procurement, accounting, external oversight, etc. It also highlights important country–specific provisions. A brief description of recent changes made to the legal framework is included, if relevant.

A subsection should describe the legal and regulatory arrangements for the internal control system. According to international standards87 , internal control is an integral process designed to address risks and provide reasonable assurance that, in pursuit of the entity’s mission, the following general objectives are being achieved: (i) executing orderly, ethical, economical, efficient, and effective operations; (ii) fulfilling accountability obligations; (iii) complying with applicable laws and regulations; and (iv) safeguarding resources against loss, misuse and damage. To achieve those general objectives, the internal control system should consist of five interrelated components: a control environment, risk assessment, control activities, information and communication, and monitoring. This integrated approach is designed for public entities to establish effective controls customized to their objectives and risks. It also provides a basis on which internal control can be described and evaluated. The description of the policies and the legal and regulatory arrangements for internal control in this subsection should be presented in relation to each of those five components.

This description should be complemented in section 2.4 with information about the institutional structure supporting the implementation of the internal control system. An overall indication of the effectiveness of the internal control framework is given in section 4.2. That section draws on both this subsection and the control activities included in the performance indicator assessments. Thus, subsections 2.3 and 2.4 should describe the design of the internal control framework and section 4.2 should evaluate whether it operates so as to achieve the intended objectives.