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adopted in the House, it is deemed to have been a vote in favour of a joint resolution setting the statutory limit at the level specified in the budget resolution. The joint resolution is transmitted to the Senate for further action, where it may be amended. Once it passes both houses, it is sent to the President for his signature. In 2003, such debt-limit legislation was enacted, increasing the debt limit to $7.4 trillion.

4.2.8. Promulgation, veto and publication of the adopted budget

Promulgation and publication of the budgetary laws adopted by the Congress is made as the President signs the appropriations, tax and other spending bills. The President has two options when presented with bills. He may either sign the bill in its entirety or veto it in its entirety. If he vetoes the bill, the Congress may override the veto by a two-thirds majority in each house. The President has no authority to delete particular spending items from bills while permitting the remainder of the bill to remain (no line-item veto).

4.2.9. Supplementary budgets (rectifying laws)

At any time during the year, the President may submit to Congress proposals for supplementary appropriations that are deemed necessary because of laws enacted after the submission of the budget or that are in the public interest. The President must include the reasons for the proposed changes and explain why the proposed appropriations were not included in the budget (Title 31, s. 1107). For example, in 2003, two supplementary appropriations acts were passed, in March and in October, largely to finance the war and occupation in Iraq and ongoing military involvement in Afghanistan.

4.3. Budget execution

Part of the legal framework for governing whether an agency implements the enacted appropriations according to the intent of Congress is provided in the Anti-deficiency Act, now embodied in Title 31. This law contains provisions incorporated into appropriations laws over the years relating to matters such as prohibited activities, the apportionment system, and budgetary reserves. These provisions continue to play a pivotal role in the execution of the federal budget. The CFOA and the GPRA are key laws aiming at improving performance and effectiveness.

4.3.1. Apportionment of expenditure authority

Once the appropriations are enacted, funds are not available to agencies until the OMB releases budgetary resources to departments and agencies by an apportionment process, outlined in Title 31 (ss. 1501-1558). This law

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requires appropriations to be apportioned by periods within the fiscal year or among categories (s. 1512). Generally apportionments by time period are done in quarterly instalments. An apportionment may be divided and subdivided administratively (into allotments and sub-allotments respectively) within the limits of the apportionment (s. 1514). An appropriation should be apportioned in writing no later than the later of the following (s. 1513):

●For the legislative and judicial branches, 30 days before the beginning of the fiscal year or 30 days after the date of enactment of the law by which the appropriation is made available.

●For departments and agencies, 40 days before the beginning of the fiscal year or 15 days after the date of enactment of the law by which the appropriation is made available.

4.3.2. Cancellation of budget authority and other in-year expenditure controls

The Impoundment Control Act of 1974 requires the President to inform Congress whenever an executive branch officer intends to defer spending or not to spend the funds at all. The act defines a deferral as withholding or delaying the obligations or expenditures of budget authority. Under the act, whenever the President proposes to defer any budget authority, he is required to transmit a report to the Congress of the amounts, the programme and account affected, the estimated fiscal and programme impact, and the length of time the funds are to be deferred. The President may not defer funds beyond the end of the fiscal year nor for a duration that would cause the budget authority to lapse or prevent the agency from spending the money prudently (s. 1013). Deferral is only permissible to provide for contingencies, to achieve savings made possible by or through changes in requirements or greater efficiency of operations, or as specifically provided by law. The President may not use the deferral power to change budgetary policies.19

The act (s. 1102) also specifies rules on a rescission – the cancellation of budget authority. Unlike the deferral of budget authority that occurs unless Congress acts to disapprove the deferral, rescission occurs only if Congress enacts the rescission. The President may propose a rescission by submitting a message to Congress specifying the amount to be rescinded, the reasons, accounts and programmes involved, and the estimated budgetary and programme impacts. After receiving the message, Congress has 45 days during which it may consider a bill rescinding all, part, or none of the funds. If Congress does not rescind the budget resources by the end of the 45-day period, the President must make the funds available to meet the obligation (s. 1017). The act authorises the Comptroller General to review each impoundment message and notify Congress concerning the accuracy of the

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information, the legal status of the impoundment, and the probable impacts (s. 1014). He/she may compel the release of any impounded funds.

4.3.3. Emergency spending, excess spending and contingency funds

Title 31 provides the legal basis for emergency spending and contingency funds. In apportioning or re-apportioning an appropriation, a reserve fund may be established only as specifically provided by law (Chapter 15, s. 1512), i.e. to provide for contingencies or to achieve savings made possible by greater efficiency of operations. An established reserve fund may be changed if necessary to carry out the scope and objectives of the appropriation concerned, and be reported to Congress as provided in the Impoundment Control Act of 1974.

4.3.4. Transfer and virement of appropriations within the year

The executive has very limited discretion to change any line item of the approved budget: Congress is quite specific when it adopts the appropriations acts. Transfers between the 1 000 or so accounts require congressional approval. In rare cases, Congress has granted transfer authority to certain entities. For example, the Department of Defence may transfer up to 10% from one account to another, within the Department. Transfers between programmes within an account (reprogramming) take place. Congress generally writes into appropriations acts the rules for reprogramming, which is allowed only up to small amounts. These are often as low as a few hundred thousand dollars (Blöndal et al., 2003). Congress requires reports of re-programmings.

4.3.5. Cash planning and management of government assets and debt

Title 31 specifies the legal foundations for treasury functions by the Department of Treasury (Chapter 3). Under this authority, one of the Treasury’s main responsibilities is to manage the public finances of the government. It keeps public money, and endorses warrants for receipts for money deposited in the Treasury (s. 3301). The Financial Management Service (FMS), established under the Treasury, is the primary disburser of payments on behalf of federal agencies (for example, payments to businesses for goods and services provided to the federal government, benefit payments paid by the Social Security Administration, federal income tax refunds). The FMS also prepares daily cash plans for federal government receipts and payments (Title 31, Chapter 3).

The management of public debt is governed by Title 31. With the approval of the President, the Secretary of the Treasury may borrow amounts necessary for expenditures authorised by law, may issue government bonds for the amounts borrowed, and may buy, redeem, and make refunds (s. 3111). The

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Secretary may issue bonds to the public and to government accounts at any annual interest rate and prescribe conditions (s. 3121). On or before 1st June of each year, the Secretary of the Treasury is required to submit a report to the Ways and Means Committee of the House of Representatives and to the Committee on Finance of the Senate, on the Treasury’s public debt activities and the operations of the Federal Financing Bank (s. 3130).

4.3.6. Internal audit

In the 1990s, Congress adopted several laws to strengthen internal control and audit, including the CFOA, the Government Management Reform Act (GMRA) 1994, the Federal Financial Management Improvement Act (FFMIA) 1996, as well as the GPRA. These laws are in addition to the FMFIA, which recognised that strong internal controls and accounting systems help ensure the proper use of funds and resources, compliance with statues and regulations, and protects federal programmes against fraud, waste, abuse, and mismanagement. The CFOA is the main act governing internal audit. It requires a chief financial officer to provide reports on the results of its investigations to both the agency head and to Congress. The Act also requires auditable financial statements to be prepared by all agencies using federal accounting standards. The FFMIA highlights the need for adequate financial systems. Moreover, the IGA established an Office of Inspectors General in each agency as an independent oversight office with the aim of strengthening oversight of controls by agencies.

4.4. Government accounting and fiscal reporting

4.4.1. The accounting framework

Title 31 requires that the Comptroller General prescribes the accounting principles, standards, and requirements that heads of each executive agency observe (Chapter 35). Before prescribing the principles, standards, and requirements, the Comptroller General is required to consult with the Secretary of the Treasury and the President on accounting, financial reporting, and budgetary needs (s. 3511). Accordingly, the Comptroller General, the Secretary, and the Director of the OMB conduct a continuous programme for improving accounting and financial reporting in the government, and in 1990, they jointly established the Federal Accounting Standards Advisory Board to recommend comprehensive accounting principles specific to the federal government.

Different accounting standards are applied to financial statements and the budget of the federal government. Financial statements are produced based on a full accrual basis (OECD, 2003). The CFOA spearheaded this development. It requires that agency’s trust funds, revolving funds and

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commercial activities be covered by accrual financial statements. The GMRA extended the requirement for accrual-based financial statements to all activities of the agencies covered by the CFOA, and required that annual government-wide financial statements be prepared on an accrual basis starting with the fiscal year 1997-98.

The federal budget, however, is obligations-based, and budgetary accounting by OMB reports both on obligations incurred against budget authority and on cash payments and receipts (IMF, 2003). Most transactions are recorded on a cash basis. Accruals have been adopted for a few specific transactions such as interest on government debt held by the public, most charges to agencies for employee pension plans, and the cost of loan programmes (as provided in the Credit Reform Act 1990).

4.4.2. Government banking arrangements

Under federal statute, Federal Reserve Banks act as fiscal agents and depositaries as directed by the Secretary of the Treasury.20 These banks maintain the Treasury’s accounts and accept deposits of federal taxes and other federal agency receipts. Most federal revenues paid to the Treasury are first deposited by individuals and corporations into commercial banks, which promptly credit them to the accounts of the Treasury. Treasury, in turn, ensures that the moneys are transferred to its accounts in the Federal Reserve Banks. With the main exceptions of the Department of Defence and overseas embassies, all federal government financial transactions pass through the Treasury’s main account at the Federal Reserve Bank of New York.

4.4.3. In-year reporting to the legislature

The law (Title 31, s. 1106) requires the President to send a report to Congress updating the budget estimates before 16 July. The budget summary includes:

●For that fiscal year, substantial changes in estimates of expenditures (both obligations and cash) and receipts after submission of the budget and other information that the President decides it is advisable to provide to Congress.

●For the four fiscal years following the fiscal year for which the budget is submitted, information on estimated expenditures for programmes authorised to continue in future years or that are considered mandatory under the law.

●For future fiscal years, information on estimated expenditures of balances carried over from the current fiscal year.

These mid-year budget updates are prepared by the OMB. In August of each year, the CBO also prepares a mid term update, the budget and economic outlook, pursuant to the requirement in s. 202(e) of the CBA for the CBO to

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provide periodic updates to the Senate and House Budget Committees. CBO methodology and assumptions are used for this report.

Whenever congressional budget committees need budget information, the OMB, the Treasury, and federal government agencies are obliged to provide it, following the provisions of Title 31, s. 1113. As a matter of course, the federal government publishes comprehensive reports on budget implementation. For example, the Treasury Department publishes a monthly report on total revenue and expenses within three weeks after the end of each month. This report compares total cumulative monthly receipts and outlays with the same period of the previous year.

4.4.4. Annual accounts and reports

The CFOA and subsequent amendments provides the framework for financial reporting for federal agencies. Agencies are required to prepare several financial statements annually including a balance sheet, a statement of operations or net costs, and a reconciliation with budget information. Agencies must undergo an annual audit by an independent entity, which reviews both the statements as well as underlying internal controls, and renders an opinion on the statements and controls.

After considering these, Treasury prepares a set of financial statements for the entire federal government audited by the GAO. Title 31 requires that the Secretary of the Treasury, not later than 31 March, in co-ordination with the Director of the OMB, submits to the President and the Congress an annual audited financial statement for the preceding fiscal year, covering all accounts and associated activities of the executive branch [s. 331(e)(1)]. The financial statement reflects the overall financial position, including assets and liabilities, and results of operations of the executive branch, and is prepared in accordance with the form and content requirements set forth by the Director of OMB. Furthermore, the Comptroller General shall audit the financial statement [s. 331(e)(2)].

Accordingly, the Secretary of the Treasury has published consolidated financial statements for the past six years audited by the GAO. The Financial Report of the United States Government provides, on an accrual basis of accounting, a comprehensive view of the federal government’s finances. It states the government’s financial position and condition, its revenues and costs, assets and liabilities, and other obligations and commitments. It also discusses important issues and conditions that may significantly affect future operations. The consolidated financial report is generally published prior to 15 December, which is 75 days after year-end rather than the six months after year-end as required by statute (IMF, 2003).