Posted by Dominique Bouley
In budget law there is an original instrument for executing the budget by working around the annual framework while observing the principle of budget annuality. It takes various forms with different name1: complementary day, complementary period, complementary lag. This instrument may or may not have repercussions on cash flow. While this regulation in France dates back almost 200 years, and was clear and precise, it has been observed that its usage in those countries that use the public finance rules of French-speaking countries derived from French legislation has become less controlled and that the concept of complementary period has changed in scope and importance in the context of budget execution.
The origin of the complementary period is linked to the principle of budget annuality
It is appropriate here to define the principle of budget annuality: As an act of looking ahead subject to authorization, the budget estimated in value terms must be drawn up for each year, for one year, and be executed within that period.2 This principle is of long standing, appearing in England in the 17th century before being reformulated under the French Revolution, and has not subsequently been called into question. Of course, there have been new approaches in order to work around the annual framework, and these may take different forms: multi-year commitment authorizations, a medium-term budget framework, or multi-year orientations defined by program laws (constitutional law of July 23, 2008). However, Articles 1 and 6 of the LOLF [Organic Law on Budget Laws] set forth the following principle: The budget laws determine, for a single fiscal year, the nature, amount, and allocation of the resources and expenditures of the State; the fiscal year covers one calendar year; the budget describes, for one year, all the budgetary revenue and expenditure of the State.
In consequence, the revenue and expenditure forecasts, and above all the authorizations, are valid for only one year, or only one calendar year in the case of France. But what happens for budget execution itself? An expenditure authorized under one fiscal year can be completed within a timeframe that stretches beyond that reference year, and in such a case cannot be listed other than in an accounting statement for a period other than the fiscal year in question. This obviously poses a problem when the time comes to render accounts on budget execution for a given fiscal year, to the extent that the final phase of the budget authorization entailing an encashment or disbursement may be recorded under a calendar year other than that fiscal year.
This raises a question: When does the budget year end, and what operations can appropriately be associated with it?
There are two possible answers:
- Under the fiscal year arrangement,3 the budget year includes the rights acquired4 and services rendered under the budget for that year, regardless of when they were carried out.
- Under the management year arrangement,5 the budget includes the rights acquired and completed services performed during the year in question, regardless of the budget with which they are associated.
The first formula is extensive, the second restrictive. One is tantamount to closing out the budget belatedly and postponing the rendering of accounts; the other may give rise to some confusion, in that the operations carried out during one year may concern a number of other budget years.
The practices followed in these areas to cope with these problems have:
Tempered the fiscal year system by limiting the period for taking operations into account after which the fiscal year is closed out. Last year, this date was May 31.6
Eased the rigor of the management year system by a short complementary period ending on January 20, making it possible to complete ongoing operations. This is the system put in place in France by the decree of November 14, 1955, implementing the management year system. This was made possible by a reorganization of data centralization as well as by limiting commitment periods.
Definition of the complementary period and the complementary day
The complementary period corresponds to the lag allowed for completing the revenue and expenditure operations of a given budget year which are being executed at the end of the calendar year.
The complementary day is a notional day that extends the calendar year for purposes of completing complementary operations for winding up the fiscal year but is treated for accounting purposes as belonging to that calendar year.
In practice, the most widely used generic term at present is “complementary period,” which covers both cash operations and budget settlement operations.
Current status of legislation and regulations on the complementary period in the area of legislation and regulations based on the public finance rules of the French system
In France: Article 28 of the French organic law of 2001 provides for the establishment of a complementary period that may not exceed 20 days: Under conditions established by Council of State decree, budgetary revenue and expenditure may be recorded on the books during a period complementing the calendar year, which period may not exceed twenty days in length. In addition, once an amended budget is promulgated during the final month of the calendar year, the revenue and expenditure operations for which it provides may be executed during said complementary period.7
Article 1 of the decree of May 4, 2007 implementing Article 28 of the 2001 organic law stipulates: the payment orders and payment authorizations issued between October 1 and December 31 of the year which could not be taken into account as of the latter date are taken into account under the budget of the year just ended during the period complementing the calendar year mentioned in Article 28 of the organic law of August 1, 2001.8, 9, and 10
This new regulation from 2007 shows that in fact, except for adjustment operations, the complementary period is extremely limited for budgetary operations, with the exception of implementing the amending laws adopted in December.
The legislation and regulations of WAEMU and the Republic of Cameroon
To better address the problem of the complementary period, in the countries using legislation and regulations of French origin, the examples of the WAEMU member states, which have shared community directives in the public finance area dating from 1997 and 1998, and that of Cameroon, which adopted a new law on the financial system in December 2007, are discussed below.
For the WAEMU Member States,11 while Directive 05/97 on budget laws in the West African Economic and Monetary Union does not clearly mention a complementary period or day, it de facto replicates the French ordinance of 1959. Articles 17 and 46 make no reference to adjustment periods. Mention is made, of course, of adjustment operations, but with no clarification as regards possible lags.
Article 17: The budget is made up of all the accounts which describe for one calendar year all the resources and all the expenditures of the State.
Article 46: Revenues are taken into account under the budget of the year during which they are encashed by a government accounting officer. Expenditures are taken into account under the budget of the year during which the payment authorizations or orders are signed by the signatory accounting officers; they must be paid against the appropriations for the same year, regardless of the date of the claim. A decree adopted on the basis of a report of the minister responsible for finance shall set the implementation modalities for the above principles, as well as the conditions under which exceptions may be made to them, in particular as regards adjustment operations.
Directive No. 6 /97 laying down the general regulations on government accounting makes reference only it its Articles 88 and 94 to the timeframe for budget execution operations.
Article 88: The accounts of the State are drawn up each year by the minister responsible for finance.
Article 94: The accounts are maintained by year. The accounts for a year include:
All operations associated with the budget for the year in question, up to the closing date for that budget in accordance with the rules of the State itself of other public agencies: all cash flow operations and the operations referred to in Article 81 above carried out during the year, as well as adjustment operations.
Only Directive 5/98 handing down the State chart of accounts makes clear reference, in its Article 8, to the existence of a two-month complementary accounting period.
Article 8: The chart of accounts used in the WAEMU Member States is that of the operating year, plus a two-month complementary period.
On December 26, 2007, the Republic of Cameroon adopted the law on the financial system, Article 60 of which provides for a two-month complementary accounting period for purposes of regularization of operations.
Current status of the complementary period
The complementary period in France is quite limited, as it currently is less than a month long, and the accounts from the budget year of one year are closed out and submitted before end-January of the following year. Indeed, the complementary period has only a limited influence on the closure of the accounts. For example, the statement of accounts for fiscal 2005 was closed out on Friday, January 20, 2006, and presented to civil society at the minister’s press conference of January 24, 2006.
The status of complementary period implementation varies from one country to the next in WAEMU. One constant finding does emerge, however, namely that these countries use, despite legal provisions, a complementary budget period which more often than not exceeds two months in length, accompanied by a complementary accounting period which, in this case includes the settlement of budgetary operations, takes into account the budgetary operations in the complementary period, and adds to this the length of the adjustment period, as a result of which the complementary period for a given budget may stretch out to six months if not more. Indeed, the current status seems not to represent any change in usages under a so-called fiscal year system prior to the 1955 period, with a time limitation for operations, in the event the month of May or June of the following year.
The existence of a complementary period longer than one month poses serious problems in respect of proper and transparent budget execution.
These problems are:
- Management at one and the same time of two different budget years;
- Monitoring of two different sets of operating accounts;
- Delays in closing out accounts, and the absence of a comprehensive starting balance for the new year;
- Unpredictable cash flow management; and
- Relationships between these operations and another tool used in the context of exceptions to the principle of budget annuality, the carry-over of appropriations.
1. The existence of the complementary day results in budget units having to manage two fiscal years at the same time. This means that, if budget execution is processed by computer, the software system must manage two different budget years in the same period. In reality, in many countries the system in place is not capable of doing this, leading to two outcomes:
- The new fiscal year cannot function until the previous fiscal year has been closed, delaying implementation of the new budget by just as long, with repercussions on the future complementary period;
- To address this problem, budgetary operations for the new fiscal year are treated like cash operations12 that should be adjusted later on, which often is not the case.
2. In the accounts area, the same problem is raised in that two accounting systems must be maintained. Transactions to take account of budgetary operations must be recorded in the accounting that has just ended, while those associated with cash movements must be recorded in the current management year. This results in:
- Overlapping between multiple sets of accounts, especially the accounts to be adjusted, as these are the ones that make it possible to record operations during the complementary period;
- More often than not, the existence of adjustment accounts that have not been balanced out, with disbursements not corresponding to the proper budget year;
- Cash operations that actually are budgetary operations, leading to lack of transparency in the content of the accounts.
3. In addition, extension of the period for recording the operations of a given year, corresponding to the complementary period, automatically leads to a longer period for managing the preceding fiscal year, resulting in delays in the production of the accounts for the previous fiscal year as well as the final balance sheet of accounts. The impact of such a situation is delayed determination of the starting balance for the current fiscal year. This means that most often, when no provisional starting balance has been prepared, some operations against suspense accounts, provisional accounts, or accounts to be adjusted at the start of the year may be erroneous for lack of knowledge about the definitive real situation.
4. This is compounded by negative effects on cash flow management. Cash flow management is effectively based on the budget forecasts for the new year, but the requirements for the complementary budgetary or accounting day are not taken into account. Payments are made in the first months of the year for the previous fiscal year, but there is no way to say that the residual cash amounts available as of December 31 are sufficient to meet the requirements. Accordingly, the complementary day may pose a dangerous risk to the capacity to finance the requirements of the new budget year. In some cases, this will make it necessary to prepare an amended budget law, requiring significant amounts of additional budgeting work that could have been avoided at the outset, and also calls the realism of the approved budget into question.
5. It has been found as well that for some operations, appropriation carry-overs were used to take the complementary period into account. This appears to be a lack of understanding of the nature of the complementary period as against carry-overs. These procedures share the characteristic that they represent exceptions to the principle of budget annuality, but the similarity ends there. The budget complementary period is intended to make use in the notional “current year” of budget appropriations that cannot be carried forward, while appropriation carry-overs make it possible to mitigate the slow pace of the expenditure process, most especially in the area of capital spending; however, these carry-overs are applied beginning January 1 of the following year for certain appropriations designated either in the corresponding organic budget law or the budget law for the year, and which have not been dealt with in the context of the complementary period.
In sum, the existence of a complementary period or day is an important source of a persistent lack of transparency in the financial management of government operations. It has an impact on the quality of budgetary and financial information, on the quality of accounting when the closure of accounts is delayed and has an impact on maintaining and auditing the accounts for the current year and on managing cash flow, which is becoming calamitous owing to the lack of control over information.
It is desirable for the complementary period to serve above all as a period for adjusting the data relating to budget and accounting execution for a fiscal year, but it should have no impact on cash flow. Modern management systems, if well mastered, should make it possible to achieve this objective in short order.
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1 See Jacques Magnet, Lexique de droit budgétaire et comptabilité publique Magnet (PUF).
2 See Jacques Autin, Cahiers de l’Institut International d’Administration publique (Dunod).
3 Count de Corvetto under the Restoration defended the fiscal year system, which was taken up by Minister Villèle, who set the system rule of a fiscal year limited to a complementary period of 9 months.
4 What is surprising, to say the least, is that the law of January 25, 1889, on the financial fiscal year makes referece to acquired rights and services performed, which is still occuring some 112 years later.
5 Baron Louis under the Restoration advocated this formula. (Count Corvetto, Baron Louis, and Count de Villèle are the re-founders of French budget law during the period 1818-1828).
6 See Article 67 of the financial decree of December 30, 1912.
7 This has not appreciably changed from the 1955 decree as regards this aspect, with the exception of the adoption of an amended budget law.
8 See Note NBB No. 355 (October 1-15, 2008). The reform of government accounting in France.
9 This poses a delicate issue: How is it effectively possible for authorized expenditures not to have been paid within the prescribed time, inasmuch as, with the transformation of the process, the invoicing unit is responsible for the payment authorization and the payment, making time lags very short if not nonexistent.
10 Moreover, Article 28 clarifies that expenditures are taken into account under the budget during which they are paid by signatory accounting officers. In this case, is it possible to have a complementary period that would be linked to financial operations, the date of which cannot be recorded notionally?
11 Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo.
12 This is often reflected in operations called cash advances, which in fact are prepayments.
