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4.2.9. Supplementary budgets (rectifying laws)

A supplementary budget has the force of law – a “rectifying” law (LOLF, Art. 1). Rectifying laws are the only way in which budget revenue estimates, spending appropriations and fiscal balance of the initial budget can be changed in a major way. They must show how the budget balance is being modified; the rectifying law authorises supplementary net borrowing by loans or other treasury operations. Rectifying laws are also prepared to ratify major modifications introduced by the executive using the advance appropriation (décret d’avance) instrument (LOLF, Art. 13 and 35). The LOLF does not limit the number of annual rectifying laws. Normally, at least one rectifying law is adopted each year and at times several more are enacted, especially when there is a change in the governing majority.31

4.2.10. Budgetary implications of other bills

When new laws or regulations are susceptible to alter revenues or expenditures, the consequences on the fiscal balance must be evaluated, with the changes authorised by Parliament in the next supplementary budget (LOLF, Art. 33).

4.3. Budget execution

4.3.1. Apportionment of expenditure authority

Appropriations are to be made available to ministries (LOLF, Art. 7-IV). The LOLF does not contain explicit clauses relating to how this budget authority will be apportioned during the course of the year. This is done by decree.

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

To prevent deterioration in the budget balance, especially if revenue shortfalls occur, the executive is authorised to cancel budget appropriations by decree, following a report by the Minister of Finance, up to a limit of 1.5% (LOLF, Art. 14). However, before the decree is published, relevant parliamentary committees must be informed. The law is unclear whether the 1.5% applies to total appropriations inclusive of those in budget annexes and special funds, or whether it applies only to the general budget (for discussion, see Arthuis, 2003, pp. 38-40).

In the LOLF, three stages of expenditure are distinguished: commitment (engagement), payment order issuance (ordonnancement) and payment (paiement). A law establishing centralised control of expenditure commitments was adopted in 1922.32 This 1922 law created a body of financial controllers under the exclusive authority of the Minister of Finance (Art. 2 of the 1922 law). A major task of financial controllers, who are placed in each spending ministry, is to

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exercise a priori control on most non-personnel expenditure commitments and ordonnancements, and on every appropriation that is delegated to non-central budget managers.33 Financial controllers are required to prepare an annual report on expenditure and revenue operations verified by them (Art. 7 of the 1922 law). This text is being modified, to refocus financial control on the control of budget execution and to limit a priori control to particular cases.

Most State expenditure programmes are legally-binding maximum amounts authorised for spending. In contrast, for social security spending, the LOLFSS does not establish binding limits or require rectifying social security financing laws to change policies to prevent overspending. Only indicative limits on spending of the social security organisations are required in annual laws for financing social security. For health spending under ONDAM (Objectif national des dépenses d’assurance maladie) a global amount is established. However, the government is not required by law to prepare a detailed report outlining choices and priorities to ensure that this objective is met. The Senate proposed amendments to the LOLFSS in 2001 to address some of the expenditure control weaknesses of the 1996 LOLFSS, but there was not enough political support to adopt into law the recommended changes (see www.senat.fr/leg/pp100-268.html).

4.3.3. Emergency spending, excess spending and contingency funds

For “ordinary” emergencies, the executive may increase certain budget appropriations by decree (décret d’avance), provided the budget balance is unaffected and after notifying the two parliamentary budget committees (who can object within a seven-day limit) (Art. 13). In such situations, excess tax revenues may be used or other budget appropriations are cancelled. The cumulative amount of new appropriations is limited to 1% of total appropriations approved in the annual budget. Prior to the issuance of any such decree, the Council of Ministers must first receive the opinion of the Council of State and must be ratified by Parliament in the next rectifying budget law.

In particularly urgent situations and where the national interest is at stake, the executive may increase Parliament’s appropriations by decree (décret d’avance) even if it means that the budget deficit target will deteriorate (Art. 13). In such situations, the government decree is issued after the receiving the opinion of the Council of State; parliamentary ratification must be asked for immediately.

Annual budget laws contain an unallocated amount for natural disasters or other unforeseeable expenditures, including for salary-related measures whose details are not known when the budget is adopted (LOLF, Art. 7). These authorisations are later implemented by decree, following a report by the Minister of Finance and allocation by programme (Art. 11).

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4.3.4. Transfer and virement of appropriations within the year

The LOLF (Art. 12) distinguishes virement (swapping of budget authority for programmes within a ministry) from transfers (swapping of budget authority for programmes between ministries). Virement within a ministry is allowed, up to a limit of 2% of the amount authorised for a programme. Transfers of programmes serving the same purpose are allowed. Virement and transfers are authorised by decree, but only after the report of the Minister of Finance has been viewed by parliamentary committees.

4.3.5. Cash planning and management of government assets and debt

The LOLF does not specify principles or procedures for in-year management of government assets and liabilities. The focus in the law is on the resources available to the Treasury (a department of MINEFI) for cash management (Art. 25). These resources include the compulsory deposits of funds raised by local governments, various public establishments, and certain funds of governmentowned financial institutions (including the Caisse des dépôts et consignations, which manages a huge portfolio of public assets). These provisions reflect the centralised cash management of State funds.

4.3.6. Internal audit

The LOLF does not mention internal audit or internal control. For expenditure control, the MINEFI – through a body of financial controllers – exercises a priori control on expenditure commitments. An internal audit unit also exists in the Public Accounting Directorate of the MINEFI. In spending ministries, internal inspection units do not carry out all the functions of an internal audit body. Several audit activities are carried out by the Inspectorate of Finances (Inspection générale des finances, IGF), a specialised body within the MINEFI, which is attached to the minister. The IGF fulfils an internal audit role within the executive branch as a whole. Decrees, not a law, specify: the IGF’s inspection powers with respect to public accountants and authorising officers (ordonnateurs); and the special rules for inspectors. IGF reports are sometimes released to the public, following ministerial decision.

4.4. Government accounting and fiscal reporting

4.4.1. The accounting framework

A distinction is made between budget accounting (for revenues and expenditures) and general accounting for all financial transactions (LOLF, Art. 27). All accounts must be “regular and accurate, giving a faithful account of the State’s balances and financial situation”. Budget accounting includes a complementary period of 20 days for receiving revenues or making payment after the end of the year (Art. 28). One new feature of the LOLF is that an

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accrual basis of accounting of the State’s transactions is introduced (Art. 30). Accrual accounting is not required to be introduced for activities governed by the LOLFSS. In particular, there is no legal obligation to record future liabilities of the public pension schemes.

The new accounting basis is to be indistinguishable from private sector accounting except for specificities of the State. Accounting norms are required to be formulated by a committee composed of both public and private sector accounting experts, and after review by parliamentary committees (Art. 30). This requirement was fulfilled in 2004 with the issuance of new accounting standards based on 13 principles used in the private sector (MINEFI, 2004c). Although the Court of Accounts is not required by the LOLF to play a role in developing new accounting norms, in practice it participates in working groups set up for this purpose. Also, since any changes in accounting conventions must be annexed to the annual Budget Execution Law (see section 4.4.4) (Art. 54-7), the Court of Accounts can comment on any changes made to the accounting system.

The 1962 Public Accounting Decree is considered to be a fundamental legal document.34 The decree specifies that ministers are the principal authorising officers (ordonnateurs) responsible for executing revenues and expenditures (in pre-payment stages). The decree establishes general principles for public accounting, both for the State and for national public establishments. The principle of the incompatibility of the functions of ordonnateurs and comptables is specified. Public accountants must use double-entry accounting, based on a chart of accounts elaborated by the MINEFI. This decree does not (yet) refer to accrual accounting, nor to the alignment, to the fullest extent possible, of public sector accounting principles with those used by the private sector. The LOLF states that arrangements for government accounting and the personal responsibility of public accountants may be included in annual budget laws (Art. 34-II.7f).

4.4.2. Government banking arrangements

The Bank of France (the central bank) is required by the Monetary and Financial Code to provide banking or other services that the State may ask of it, provided these are specified in protocols and that services are remunerated to cover costs. The Treasury department of the MINEFI is specifically mentioned as being able to hold bank accounts at the Bank of France (Monetary and Financial Code, Art. L 141-8). The LOLF does not specify explicitly that a single treasury account is established at the central bank. However, since 1857, a single treasury bank account has been established at the Bank of France. All government transactions pass through this account, including those relating to budget annexes, special treasury accounts, and transactions with public entities obliged to deposit funds at the Treasury. The LOLF is also silent on whether

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spending ministries can open bank accounts. In practice, banking and accounting services for spending ministries are provided exclusively by the Treasury: it would be inconceivable for ministries to retain funds in their own accounts.

4.4.3. In-year reporting to Parliament

The LOLF and the LOLFSS are devoted to the financial and non-financial reporting obligations that are used for the parliamentary debates on, the State budget and the social security financing law respectively. Extensive and comprehensive reporting is required (this is one of the innovations of the LOLF relative to the 1959 Ordonnance).

Second quarter35 – reports for the pre-budget debate. The government presents a report on the evolution of the national economy and on the outlook for public finances, including the major orientations of its economic and budgetary policy, taking into account France’s European commitments (LOLF, Art. 48). This report can lead to a debate in the National Assembly and the Senate. The government must also present annual performance reports (see next section) before 1st June (LOLF, Art. 46). The Court of Accounts is also required to present a preliminary report on budget execution.

October – submission of the budget to Parliament. The draft budget law for the following year, accompanied by several documents that are required by Articles 50-51 of the LOLF – such as the report on the economic, social and budgetary situation and forecasts (for at least the next four years) – are submitted at the latest by the first Tuesday of October (Art. 39). Some annexes can be presented after this deadline, but must be distributed at least five days before the examination by the National Assembly of the revenues or the authorisations.

Other months. The LOLF does not require regular (e.g. monthly) in-year budget execution reports and/or financial accounts to be transmitted to Parliament and the public. Nonetheless, the MINEFI issues monthly – both in the Journal Officiel and on its Internet site – a detailed summary of budget execution and of treasury and debt operations.

The LOLF specifies that an economic and budget report is needed to accompany every supplementary budget law proposal (Art. 53). Budget execution information is required by the 1922 Law on Controlling Expenditure Commitments, as modified in 2002, but this is confined to monthly reports on expenditure commitments (not cash spending). These reports are submitted to the two houses of Parliament. The same law requires expenditure commitments of the previous year to be provided to Parliament by 30 April.