Posted by Maximilien Queyranne
The French Audit Office recently published a report on the status of the implementation of the organic budget law (LOLF) of August 1, 2001, ten years after its promulgation and five years after its full entry into force on January 1, 2006.
The LOLF introduced in France the key principles of the “new public management” adopted in many OECD countries, including the use of program budgets, the granting of greater financial autonomy to managers, and a transition to accrual-basis accounting. This article, which is not intended as a summary of that very complete report highlights certain lessons that may be of use to countries that have also decided on and undertaken a “budget-based government reform.”
The LOLF led to advances in many areas in France:
- financial information was substantially clarified and enhanced within the framework of the initial budget laws, and, in the case of government accounts, became more reliable;
- budgeting techniques became more professional, with budgeting from the first euro allowing for greater knowledge of the determinants of public expenditure;
- managers enjoy greater visibility, thanks to the disappearance of the practices of freezing and cancelling appropriations;
- the reduction in the volume of estimated appropriations and appropriations carried over also had positive effects on management.
However, this progress cannot mask the difficulties that were encountered in implementing the LOLF and that prevented the achievement of its initial objectives of reforming government and strengthening Parliament’s budgetary role.
With regard to budgeting, the program budgets approach was not fully implemented. France preferred to retain the administrative organization that existed before the LOLF, rather than modify the organizational charts and responsibilities of the ministries, to better reflect public policies. This pragmatic choice, vindicated in the early years of the reform, should be gradually reassessed in the context of three-year program budget reviews. Moreover, comparing the budgets of the departments in a single program should lead to their being organized and managed in common, instead of their simply being juxtaposed.
Accuracy is still deficient, owing to the understatement of certain expenses (financing of foreign military operations, assistance for the purchase of eco-friendly vehicles, etc.) and the wage bill, as well as persistent recourse to extrabudgetary tools (earmarked taxes, numerous earmarked accounts, poorly understood public-private partnerships).
As for budget execution, the managerial latitude given to administrative managers with a view to improving their performance remains limited. Even though their administrative authority is recognized because they are quite often directors, program managers struggle to assert themselves with the general secretaries of the ministries, who supervise the ministries’ supporting directorates, and with the financial affairs directorates, which are emerging as the entities that the finance minister prefers to deal with. The supervision of nongovernment entities responsible for implementing public policies could be strengthened by enhancing the professionalism of that function within the ministries and by signing performance contracts more narrowly aligned with the objectives set out in the program budgets. Internal control is still not sufficiently established within the ministries to permit easing up on a priori financial control. Management choices are still limited, owing to the lack of sufficient appropriations to permit asymmetrical fungibility (transfer of staff appropriations to investment or operating expenses), and because of the excessive earmarking of appropriations at the decentralized level and the limited involvement of program managers in tax expenditure, which comes under the authority of the finance ministry. Delays in modernizing the country’s information systems have prevented managers from making use of the freedoms they have been given.
In the area of accounting, managers have not accepted accrual accounting as a tool for decision-making, owing to the lack of support and training needed to more closely link management and accounting, as private enterprises do. Cost analysis accounting is intended essentially for reporting to Parliament, which prevents its use in the operational environment.
In conclusion, the success of the second-generation reforms depends on an organized strategy, action plan, and series of changes, as well as a clearly identified pilot. In particular, these reforms require:
- a dedicated project team that defines the rules, methods, and information systems necessary for implementation of the reforms and that is capable of heading interministerial projects;
- in addition to a policy of providing training in the new budgeting and accounting techniques, the development of a policy of increasing the awareness of all civil servants; and
- committed participation by Parliament in the implementation of the reform, and a constructive dialogue between the producer of accounts and the external auditor, as part of the process of establishing accrual-basis accounting.
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