Technical Assistance Report-Drafting the Public Finance Management Regulations

This Technical Assistance Report proposes draft regulations to address issues in the provisions of the Public Finance Management Bill 2012. The draft regulations propose a virement regime which serves to protect the composition of the budget, in particular prevention of virement between development and recurrent spending which will be particularly important in light of the new fiscal environment. It is also proposed to further strengthen the expenditure controls through a requirement to regularize excess expenditures through the contingencies fund and requiring reporting of outstanding payments.


This Technical Assistance Report proposes draft regulations to address issues in the provisions of the Public Finance Management Bill 2012. The draft regulations propose a virement regime which serves to protect the composition of the budget, in particular prevention of virement between development and recurrent spending which will be particularly important in light of the new fiscal environment. It is also proposed to further strengthen the expenditure controls through a requirement to regularize excess expenditures through the contingencies fund and requiring reporting of outstanding payments.

I. Legal Framework

A. Existing Legal Framework

1. The draft Public Finance Management Bill (PFM Bill or bill) is at the latter stages of approval by parliament. After a lengthy process of consultation lasting more than two years, signs are that the bill may soon be passed by parliament. The current bill will replace the existing Budget Act 2001(BA) and the Public Finance and Accountability Act 2003 (PFAA). The bill introduces stronger provisions for fiscal policy making, fiscal responsibility, medium-term budget planning, and controls around execution of the budget, the accountability cycle and independence of internal audit. Important provisions have been added to provide a framework for management of expected petroleum revenues.2

2. The broader PFM legal framework encompasses a range of other primary laws, some of which will be amended by the Public Financial Management Act (PFMA). The Constitution includes some basic provisions for the budget process and local government finance, and the draft PFM Bill needs to be consistent with these provisions. In addition, there are other primary laws which support the implementation of the PFMA, such as the Local Government Act, 1997 (LGA), the Public Procurement and Disposal of Public Assets Act, 2003, the National Audit Act, 2008 (NAA), the Bank of Uganda Act, 2000 (BoUA), Public Universities and other Tertiary Institutions Act 2001, the Companies (Government and Public Bodies Participation) Act 2001, and laws on individual funds and entities. The PFMA includes amendments to some of these laws, in order to accommodate them within the new legal framework. For example, the BoUA will be amended in order to tighten the ceiling and control over the BoU’s credit to the government. The NAA will also be amended to shorten the timeframe for completion of audit from 9 months to 6 months after the end of a financial year.

3. The drafting of the PFMA and its regulations, can build on the current Constitutional provisions by supplementing controls to address weaknesses in them. For example, Article 156(2) (b) of the Constitution explicitly permits retroactive authorization of overspending through submission of the supplementary estimates. In addition, Article 154(3) of the Constitution requires obtaining grant of credits by the Auditor-General before the Minister issues warrants, although this grant of credits process does not necessarily fit in the institutional responsibilities envisaged under the PFMA. However, amendments to the finance chapter of the Constitution need to be made in conjunction with a comprehensive constitutional review which may take several years. Under these circumstances, the PFMA and its regulations would need to build on the current constitutional provisions by supplementing controls to address weaknesses in them.

4. The current PFM Bill includes significant weaknesses and gaps in some aspects. These were highlighted by a FAD technical assistance mission March 2014 including in the provisions of the PFM Bill relating to Treasury Single Account (TSA) and cash management, accounting standards and chart of accounts, and audit follow-up processes. Since the legislative process for the PFM Bill is already in an advanced stage, these issues in the PFM Bill, to the extent possible, need to be addressed through its regulations. In addition, the PFM Bill generally focuses on high level principles and requirements, and its implementation will require further development of processes and criteria relating to the macroeconomic and fiscal policy-making, budget preparation and execution, provisions for guarantees, and accounting and reporting.

5. The operationalization of the PFMA may also require further amendments to some other primary laws. In particular, the requirements of the budget documentation and financial reporting under the PFMA will call for common budget and accounting process over the general government and public enterprises, but the laws on individual funds and entities set out different financial years and budget and accounting processes for them. In addition, the PFMA includes provisions for public debt management, including the development of medium-term debt management strategies and the approval by the Ministry of Finance, Planning and Economic Development (MoFPED) of borrowing by local governments as well as extra-budgetary entities, but their implementation may require review of, for example, the LGA that currently allows borrowing by local government councils up to 25% of own revenues with the approval of the Ministry of Local Government (MoLG). There may also be some room for improvements to the LGA in respect of the budget and accounting process, in order to support MoFPED’s financial oversight responsibilities required under the PFMA and its regulations.

6. The development of Public Private Partnership Act (PPP Act) may also have implications for the implementation of PFMA. The PPP Act, which was passed by parliament in July 2014, has detailed provisions on contracting and implementation processes and establishes the institutional arrangements for evaluation and implementation of Public Private Partnership (PPP) projects, including establishment of the PPP Unit within MoFPED.3 In order to ensure that PPP projects are subject to the MoFPED’s project evaluation and fiscal risk assessment conducted under the PFMA, MoFPED’s guidelines would need to be developed under the regulations for the PFMA to prescribe PPP project evaluation process and establish coordination mechanisms between the MoFPED and the PPP Unit.


Recommendation 1.1: MoFPED should review the LGA, the PPP Act and the laws on various entities and funds in light of their consistency with the PFMA and its regulations and prepare a work plan to make amendments to these laws.

B. Existing Regulatory Framework

7. Preparation of the regulations for the PFMA has been initiated so that the PFMA can be implemented soon after it is enacted. The technical assistance mission from FAD in March 2014 had provided an outline and structure for the regulations. The mission also highlighted main issues to be contained in the regulations in particular for addressing the weaknesses and gaps in the bill.

8. The current Public Finance and Accountability Regulations, 2003 (PFAR) need to be redrafted to operationalize new provisions introduced by the PFMA and support recent PFM reform measures. The current PFAR focuses on detailed operational clauses on cash-handling, accounting and recording, fixed assets and store management and is silent on or has only few provisions for the rest of the PFM issues, such as the macroeconomic and fiscal policymaking, budget preparation process, public debt management, financial reporting, and oversight of subsectors and public enterprises. In addition, the PFAR includes provisions which overlap or are not in line with the new PFMA in respect of the institutional responsibilities, in-year adjustments and Contingencies Fund, and commitment controls. Furthermore, the PFAR has not been amended since 2005, and several provisions of the PFAR are yet to be updated to support recently-reformed practices such as the budget execution and accounting through the IFMS, cash management based on the TSA, payments by electronic fund transfers, and strategic planning through the Output Based Budgeting process. Therefore, the new regulations for the PFMA would need to redraft the current PFAR by filling its gaps, eliminating its overlap and inconsistency with the new PFM Bill, and updating detailed operational clauses.

9. The Local Government (Financial and Accounting) Regulations, 2007 (LGFAR) need to be revised in line with the PFMA and its regulations. The current LGFAR, which is made under the LGA, includes detailed provisions for budget preparation and execution, banking arrangements, and accounting and audit, but these provisions assign the oversight responsibilities to MoLG, rather than MoFPED, and do not take into account new provisions to be introduced by the PFMA or its regulations, such as the macroeconomic and fiscal policymaking process, new budget calendars, commitment reporting, banking arrangements and cash management, project management, and in-year and end-year reporting. As a result, the current LGFAR would have some inconsistencies with the PFMA and its regulations and cannot support the operationalization of PFMA. Since the budgetary and financial management of local governments is primarily governed by the LGFAR, rather than the PFMA or its regulations, the amendments to the LGFAR as well as the LGA would be necessary for ensuring that local government finance is overseen by the MoFPED and linked to fiscal policymaking and budget processes at the central government level.

10. There are several instructions which need to be revised in line with the PFMA and its regulations. For example, the Treasury Accounting Instructions issued in (2004) and Financial Reporting Guide will need to include detailed requirements to implement the PFRA’s operational clauses on cash-handling, accounting and recording, financial reporting and fixed assets and store management and would need to be restructured and revised. In addition, the budget call circulars/budget instructions would need to be amended in order to ensure their consistency with the new budget calendar under the PFMA and enhance the medium-term budgetary framework. Furthermore, the Internal Audit and Inspection Manual may also need to be revised in line with the internal audit provisions under the PFMA and the envisaged separation of the internal audit and inspection functions at MoFPED.


Recommendation 1.2: MoFPED should review the LGFAR in light of the PFMA and its regulations and prepare a work plan to make amendments to the LGFAR in order to make it consistent with the PFMA and its regulations and establish MoFPED’s oversight powers for budgetary and financial management of local governments.

Recommendation 1.3: MoFPED should review the Treasury Accounting Instructions, Budget Instructions and Internal Audit and Inspection Manual and prepare necessary amendments to them, in tandem with development of the regulations for PFMA.

C. Drafting Approach and Structure

11. The previous technical assistance mission recommended structuring the regulations in line with the PFMA. In light of the previous mission’s recommendation, the draft regulations of the present mission has the same chapters as in the PFM Bill; in addition it includes a new chapter on the oversight of subsectors and public enterprises which is distributed over several sections under the PFM Bill. Box 1 provides an overview of the structure of the draft regulations.

12. The choice of forms of implementing legislation for the PFMA need to take into account the hierarchies in legislation. Broadly speaking, the hierarchy in Uganda consists of the following levels: (i) the Constitution; (ii) primary laws, including the PFMA; (iii) regulations; and (iv) instructions. A regulation is generally applicable both inside and outside the public service and any conflict with the primary law can be reviewed by the courts. In the case of PFMA, the Minister is empowered to make regulations after review by the Ministry of Justice and Constitutional Affairs (Attorney-General’s Office). They are sent to Cabinet for information and come into force on their publication in the Gazette.4 In contrast, instructions are applicable for public officers and non-compliance attracts disciplinary sanctions under the Uganda Public Service Standing Orders, 20105, but instructions are not applicable outside the public service and courts do not review any conflict with the laws or regulations. Other forms of instruments, such as guidelines and manuals, do not have any legal effect.

Uganda: Structure of the Mission’s Draft Regulations

Part I – Preliminary: including definitions of categories of entities which are to be further listed by name in Schedules of the Regulations.

Part II – Macroeconomic and fiscal policies: including a process to define and amend the fiscal policy objectives under the Charter of Fiscal Responsibility in accordance with the convergence criteria under the EAMU, monitoring and correction processes for deviation from the fiscal policy objectives, and basic requirements relating to macroeconomic and fiscal forecasts.

Part III – Budget preparation, approval, and management: including the budget preparation process under the new budget calendar, the budget structure and unit of appropriations, expenditure limits, commitment controls and reporting, supplementary estimates, virement rules, complementary period, excess expenditure, and Contingencies Fund.

Part IV – Cash, asset, and liability management: including cash flow planning and reporting, cash management committee, establishment and requirements of TSA, the medium-term debt management strategy, restrictions on guarantees to private sector entities, register of guarantees and loans, agreements with the BoU on TSA, payment functions, and debt management, project appraisal guidelines, and restrictions on projects implemented by NGOs.

Part V – Accounting and auditing: including specification of GAAP in accordance with internationally accepted accounting standards, charts of accounts, mid-year and annual financial statements and their consolidation, internal audit functions and audit committees, Treasury Memorandum and audit follow-up process.

Part VI – Petroleum revenue management: including definitions of petroleum revenue in a Schedule, the objectives and legal nature of the Fund, forecasts and ceilings under the NBFP, the Petroleum Revenue Holding Account to be within the TSA, the contents of the investment policy, and the independence of the BoU in operational management.

Part VII – Oversight of subsectors and public enterprises: conditions on establishment of new entities, review of needs of existing entities, restrictions on borrowing, budgeting and reporting requirements, and financial corrective actions.

Part VIII – Miscellaneous: including corrective actions against a vote, offences, and revocation.

13. The regulations for PFMA have to focus on high-level principles and maintain flexibility in accommodating practices which are evolving. Since the regulations provide for the key requirements and processes necessary for operationalizing the PFMA, frequent amendment to it run the risk of weakening the reform measures. The regulations should therefore not include requirements which need to be reviewed and revised regularly and can be effectively handled by policy papers or instructions. In addition, the regulations should not be overloaded with detailed operational clauses as they may require frequent adjustments. To this end, such detailed operation clauses should be dealt through treasury instructions or guidelines as they can be adjusted in a timely fashion to accommodate operational demands in practice.

14. In order to strike a balance between operationalization of the PFMA and flexibility in practices, the drafting of regulations should focus on the key areas necessary for clarifying, operationalizing, and filling gaps in, the PFMA. The draft regulations follow this approach and aim to incorporate clear provisions in areas where the bill has weaknesses. These areas include:

  • Categories of entities and their coverage,

  • In-year adjustments and Contingencies Fund,

  • Commitment controls,

  • Provisions for guarantees, and

  • Petroleum revenue management.

15. In areas where practices are expected to evolve, high-level principles are provided. Many of these areas have not been subject to regulation in the past, for example, macro-economic and fiscal policy-making, cash management, and TSA. Such high-level principles are, nonetheless, important to provide legal-backing to, and facilitate, envisaged reform measures.


Recommendation 1.4: MoFPED should draft the regulations for the PFMA by incorporating clear and adequate provisions to address weaknesses in the bill and providing for the high-level principles applicable to new practices under the PFMA.

Recommendation 1.5: MoFPED should consider which operational clauses under the current PFAR can be moved to instructions or guidelines, in order not to overload the regulations for the PFMA.

II. Overview of the Draft Regulations

A. Macroeconomic and Fiscal Policies

16. Regulations governing macro-economic and fiscal policy making are new in Uganda. Uganda has committed, in the bill, to specifying its fiscal objectives through a Charter of Fiscal Responsibility (CFR) which will act as an anchor for fiscal policy, and will have particular importance when petroleum revenues begin to flow into the country. As discussed in the previous section, the regulations developed in this area should provide sufficient detail to guide officials in implementing the law, but need not specify detailed policy or procedures which may change more frequently.

17. Further work is required to finalize the CFR. The March report proposed a structure and suggested both primary and supplementary targets for the CFR. In discussions during the mission it was agreed that further work would be undertaken to assess those proposals and determine any future assistance that may be required to finalize the document and calibrate appropriate targets.

18. The bill currently provides for the CFR to be approved by parliament which will have an impact on its content and structure. Other countries with similar Charters keep the content simple, with two or three key fiscal targets—usually related to an appropriately defined ceiling on deficit and public debt, with clearly defined escape mechanisms to be used in exceptional circumstances and the associated procedures. These key targets can be supplemented by additional targets, which are not as binding or subject to the requirements for correction in the same way as the primary measurable fiscal objectives. Approval by parliament of the fiscal charter is not uncommon—this is the procedure in the UK, it does mean, however that changes to the targets will require parliamentary approval, which has happened once since the charter was approved in the UK in 2011.6 Excess details in the Charter or inclusion of the detailed assumptions in the regulations could require frequent revisions by parliament for approval of the Charter, or frequent amendment of the regulations, reducing the credibility of the legal framework in both cases.

19. The regulations specify the content for reporting to parliament any deviation from the fiscal objectives and details of proposed remedial fiscal policy measures. Such a report should be prepared and presented to parliament one month after the government is advised by the Minister through a fiscal performance report that a deviation from the fiscal principles and objectives is likely, including options for policy adjustments in the next budget. The draft regulations specify the minimum contents of the report.

20. Reporting against the targets in the CFR will be through the National Budget Framework Paper (NBFP) and half yearly and annual fiscal performance reports. The draft regulations presented in Appendix II reflect those requirements.

In sum, the draft regulations require:

  • That primary targets linked to the fiscal objectives in the bill are specified in relation to ceilings on the fiscal balance (including non-oil fiscal balance, once oil revenues begin to flow) and public debt;

  • That the fiscal policy objectives do not contravene the protocol on monetary union;

  • Procedures for amendments to fiscal objectives;

  • The coverage of the NBFP as general government (as defined by international standards);

  • That fiscal risks are reported and the contents of the fiscal risk statement; and

  • Performance and pre-and post-election reports.


Recommendation 2.1: Directorate of Economic Affairs should review the draft regulations and identify any gaps or areas where further detail is required;

Recommendation 2.2: Review the draft CFR proposed during the March 2014 mission and develop a strategy for finalizing the CFR.

B. Budget Preparation, Approval, and Management

21. There is little in the way of formal regulations that support the budget preparation part of the PFM cycle, which was covered by the BA. The MTEF and budget preparation process are currently regulated by instructions of the MoFPED. The budget execution process is partially covered by the PFAR, supported by instructions and manuals, such as the IFMS manual. The development of comprehensive regulations for these processes therefore serves as an opportunity to embed some of the good practices adopted over the past decade, to strengthen controls over the budget execution process and to avoid the persistent problems associated with in-year budget variations that have plagued Uganda in recent years.

Medium-Term Expenditure Framework, and budget preparation and approval

22. The bill requires a much earlier start to the budget preparation process with significant implications for the annual budget cycle. Indicative ceilings will need to be prepared much earlier than under the current budget calendar in order to provide Accounting Officers in the ministries with a meaningful basis to prepare budget framework papers by November 15th and preparation of the NBFP by the end of December of the preceding financial year. An indicative timeline is suggested in Box 2.

Uganda: Budget Preparation Process–Steps and Indicative Timeline

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Required by the bill

23. There is scope and opportunity for rationalization of the documents presented to parliament and for specifying those which require approval. In reviewing the timeframe for the budget preparation process, the recent recommendations by AFRITAC East to rationalize the budget documents by combining the ministerial policy statements with the annual budget estimates, would help to streamline the process and reduce duplication in the information provided to parliament.7 The bill also requires that the work plans, procurement plans, recruitment plans and cash flow projections are presented to parliament as part of the policy statements. It is not practically feasible for parliament to approve detailed work plans, as these are operational documents that relate to items that change during the year and would need to be regularly updated. The regulations therefore clarify that the plans are submitted to parliament for information to support their decision making in approving the annual appropriation for the vote.

24. The bill is currently silent on the structure of the appropriation, which should be defined in the regulations. Currently the appropriation breaks down expenditure into development and recurrent by each vote. The current draft regulations reflect this, however the government has been moving progressively to a more performance focused budget with the introduction of vote functions and programs. The Ministry could consider changing the appropriation structure to reflect current and future reform intentions.

Budget management

25. The virement provisions in the bill are further clarified in the regulations. Virement provisions provide the rules and levels of responsibility for reallocating budget provision during the year and are crucial for maintaining budget discipline and the composition of the budget as intended when voted by parliament. The virement rules proposed in the draft regulations prevent reallocation:

  • From development expenditure to recurrent expenditure. This is particularly important to avoid under-execution of development (capital) expenditure by compensation or by, overspending on recurrent expenditure. If development expenditure is not protected, there is a risk that oil inflows which are meant to be targeted on capital investments end-up fueling unsustainable increases in current expenditure. Such transfers may also undermine the overall fiscal and expenditure policy objectives.

  • To increase or decrease wages and other personnel expenditures. Virements to wages, particularly those resulting in increase in work force establishment that will entail additional future costs, should be prevented. Even those not resulting in work force increases may produce wrong incentives, and reduce incentives to budget accurately for personnel costs. Budget entities may tend to deliberately under or over-budget for personnel expenditures in order to keep the overall provisions within the ceilings, with the expectation that additional funds for salaries will be provided or savings can be spent on other recurrent items.

  • To increase or decrease grants or transfers to an entity or person or to introduce new grants or transfers. Protects provisions for transfer payments, particularly those for subnational governments and transfers and subventions to agencies.

26. Additional virement restrictions will be required to protect provisions for items that are persistently overspent, e.g., utilities or other “consumptive items.” One way of protecting such provisions is to restrict virements from these budget lines. Similarly, preventing virements for certain items, such as foreign travel, hospitality expenditures, or allowances that need tighter controlling should be considered.

27. Cash limits should be renamed expenditure limits to reflect the intent of the current cash management reforms. With the gradual move to more comprehensive cash management through the TSA, the focus should be on a gradual move to controlling at the commitment stage, rather than the payments stage through cash ceilings. This would imply that the current cash ceiling under the cash rationing regime, would become a commitment ceiling. In the longer term, and once the budget becomes more credible the expenditure limits would be an annual ceiling based on the appropriation. Cash limits would then be an internal cash management tool, used by the cash managers to control cash at the payment stage. Reflecting this, the regulations provide for expenditure limits and allow the Minister to apply discretion in the time horizon for the limits.

28. An existing problem with the commitment control system in Uganda relates to the inability to record commitments against future quarters and years. This is a particular problem with service contracts and investment projects, which leads to Accounting Officers failing to either enter into commitments or register them in the system if the budget release is insufficient. The regulations require all Accounting Officers to register commitments and issue purchase orders with a unique reference number, this may require IFMS system changes and development of manual systems for non-IFMS sites.

29. The common practice in Uganda has been to define and report expenditure arrears only at the end of the financial year. There is currently no explicit requirement in the regulations to report payments outstanding during the financial year. The draft regulations define arrears in line with the current definition in Uganda, it also includes a definition of outstanding payments and a reporting requirement for all outstanding payments by age, both in-year and at year end. Good practice suggests that reporting of outstanding payments, whether registered on the IFMS or not, should be reported at least quarterly during the year, for monitoring and cash management purposes and to inform expenditure limits.

30. The laws provide for carry-over of budget authority (revote) to prevent the problem of inefficient year-end spending and to overcome the problems associated with late budget releases.8 Experience of other countries suggests that the opportunity to carry over budget authority can result in abuse and budget gaming. The regulations should therefore restrict revote proposals to:

  • Development and investment projects over a threshold prescribed by the Minister in any financial year;

  • Where funds have already been contractually committed, which should be demonstrated by Accounting Officers in applying for the revote;

  • For a limited period and up to a limit of say 5 percent, at the discretion of the Minister, of overall development appropriation. The opportunity to carry forward appropriations could lead to a significant accumulation of unspent carry-over balances over time. This introduces a risk that total expenditure for an individual year substantially exceeds the initial annual budget. Since the government has made a commitment to comply with a fiscal target, ceilings on the fiscal balance and public debt, the possibility of carried-over balances turning into actual expenditure has to be taken to account when planning the budget; and

  • Upon prior approval of the MoFPED.

31. The law does not define multi-year commitments, but requires reporting to parliament as part of the budget documents. In practice, many types of commitments can be considered multi-year, including salaries, depending on civil service rules, rents, and investment projects and all of these should not require parliamentary approval. The regulations clarify the reporting requirements on multi-year commitments by providing for:

  • A definition of multi-year commitments;

  • Restricts reporting of multi-year commitments to development projects;

  • Minimum requirements for reporting multi-year commitments to parliament, within a threshold determined by the Minister; and,

  • The recording of multiyear commitments.

32. The bill also allows for a complementary period of one month after the end of the financial year to make payments against unpaid commitments. The timing of the complementary period, vis-à-vis the revote warrant and the respective information requirements will need to be clearly identified and monitored, to ensure that funds revoted for commitments have not been paid within the complementary period. The time allowed between the end of July and the end of August specified for the revote warrant is only one month, and given that parliament will also need time to consider the revote, this may provide challenges for the MoFPED in preparation of the relevant documents for parliament and ensuring that the provisions are not abused.

33. Finally, the regulations seek to control any excess expenditures of a vote to be authorized through a supplementary estimate using the Contingencies Fund. This provision is designed to close the loophole which currently exists in the law and the Constitution, which enables Accounting Officers to overspend, and regularize that spending through a supplementary estimate. Since the total amount of the contingencies fund is limited to three and a half percent of the budget of the previous year, this requirement limits the amount of allowable excess expenditures.


Recommendation 2.3: Recast the budget calendar in accordance with the bill and the draft regulations.

Recommendation 2.4: Review the content of the budget documentation and consider merging the ministerial policy statements with the budget documents.

Recommendation 2.5: Develop a set of virement rules which maintain the composition of the budget as approved.

Recommendation 2.6: Require the date of the invoice and LPO to be recorded against all invoices and commitments and issuance of a unique number to all commitments.

Recommendation 2.7: Create a database of all existing and approved multi-year contracts and the amounts committed under each contract in the system. For the first budget include all existing multi-year commitments in the report to parliament for information above the threshold to be specified by the Minister.

Recommendation 2.8: Define the operational procedures for both the complementary period and the revote of expenditures.

C. Cash, Asset, and Liability Management

Cash management

34. The draft PFM Bill has basic provisions on the cash management function. The Secretary to Treasury (ST) is responsible for the cash management framework for government including local governments. The cash flow projections for the votes are a component of the Ministerial policy statement issued as part of the budget preparation process. Once the budget is approved, the ST is responsible for issue of the consolidated annual cash plan which forms the basis for both the release of funds by the Accountant General (AGD) and quarterly expenditure limits. The reporting requirement on expenditure commitments require the accounting officers to report quarterly indicating the actual and forecast commitment and cash position of the vote.

35. Currently the cash management function in Uganda is fragmented, evolving and at the stage of cash rationing rather than active cash management. The MoFPED has recognized that the cash management function is sub-optimally divided between different offices of MoFPED, a situation that the ministry plans to address through restructuring. Some improvements have been achieved through submission of quarterly cash flows, issuance of quarterly ceilings to MDAs and improved commitment controls through IFMS. However, there are reliability issues with cash plans that affect the cash releases to line ministries and their ability to commit funds, one reason for the accumulation of expenditure arrears.9

36. The new legal framework and the proposed restructuring of MoFPED provide an opportunity to enhance and deepen the institutional framework for cash management. The proposed creation of a separate Directorate of Cash and Debt Management in MoFPED would provide an appropriate institutional set-up for cash management.10 In addition, the accompanying regulations should formalize the cash management function in line with the PFM Bill and clearly define the roles and responsibilities of accounting officers and MoFPED; establish procedures and clarify the requirements for production of annual cash flow plans and their updating; and extend coverage of the requirement for production of cash flow plans to all votes, extra-budgetary entities and special funds. The institutionalization of cash flow planning is a crucial step towards the envisaged move towards more active cash management.

37. The draft regulations strengthen and enable the recent developments and the planned move to active cash management. The regulations require the ST to establish a Cash Management Committee for better coordination of the cash management function in government. It also provides for investment of idle cash balances in the TSA and require the ST in consultation with the Bank of Uganda (BoU) to develop an investment policy which classifies allowable investments with due regard to risk.

Banking arrangements

38. The draft PFM Bill provisions on banking arrangements include provisions which outline the role of the ST and Accountant General in oversight of the banking arrangements. The ST is responsible for providing the framework for the conduct of banking activities. It also provides Accountant General with the responsibility for authorizing the opening and closing of bank accounts and determining the terms and conditions of their management. In addition the bill provides for the BoU to be the depository of cash for recurrent and development operations of the votes.

39. The recent improvements in developing a TSA are not adequately reflected in the proposed PFM Bill. The MoFPED has made significant progress in implementing TSA with central government vote bank accounts being managed through IFMS and maintained at the BoU.11 These include the revision of bank account structure to include a Uganda Consolidated Fund Account with decentralized zero-balanced Vote sub-accounts and provisions for daily sweeping. These have been implemented with enhanced IFMS functionalities, improved interfaces with modern payment (EFT) and settlement systems (RTGS). MoFPED plans to extend the TSA to include projects, donor and extra-budgetary funds in a phased manner.

40. International experience in extending, sustaining and deriving the full benefit of a TSA suggests the requirement of a sound legal and institutional framework.12 Authorities have raised concerns about the Constitutional provisions on Consolidated Fund and its relationship with TSA as provided for in the draft regulations. Article 153(1) and (2) of the Constitution provide for a Consolidated Fund which is separate from other Funds established for a specific purpose under an Act of parliament. A comprehensive TSA that gives a consolidated view of all government cash resources and enables aggregate control over government cash balances, something that MoFPED is aiming at, requires that TSA arrangements cover the Uganda Consolidated Fund, other public funds, including the Petroleum Funds, all extra-budgetary entities and externally financed projects.13

41. The regulations accordingly define the architecture, scope and coverage of TSA and enable and further specify the frequency of sweeping into the TSA. The progressive extension in coverage of TSA as planned by MoFPED should be reflected in the regulations along with appropriate transitional arrangements by enabling the Minister to determine the date of commencement of the regulations after which all central government votes, externally financed projects and extra-budgetary entities should be included in the TSA. The current MOU between MoFPED and BoU (2008) should be reviewed and revised to reflect the changes in the banking arrangements and provide for a service level agreement (SLA) for further extension of TSA, payment systems and establishment of an active cash management function in the government.

Borrowing and guarantees

42. A key fiscal principle specified in the draft bill is maintenance of prudent and sustainable levels of debt. It also, in line with the Constitution, establishes the general principle assigning responsibility to the Minister of Finance for contracting all government debt and for issuing government guarantees, subject to parliamentary approval. It requires the Minister of Finance to report annually to the parliament on government debt, guarantees and other financial liabilities. The current management of debt in Uganda is fragmented between the AGD, budget (Aid Liaison Department) and BoU. Furthermore, there is no established mechanism for monitoring of guarantees.

43. The draft regulations strengthen the provisions on borrowing and guarantees provided in the draft bill. They provide for a monitoring mechanism for guarantees and loans through provisions for overseeing, recording, controlling and reporting requirements on loans and guarantees. Appendix I provides a sample of a typical work plan for establishing a database for recording and monitoring guarantees. The regulations also elaborate the criteria for assessment of guarantee proposals and impose a separate ceiling for guarantees issued to the private sector entities within the overall ceiling for guarantees approved by the parliament and provide for formal procedures and published guidelines for appraisal of all projects regardless of the source of financing. The regulations link the preparation and presentation of medium-term debt strategy to the budget process and fiscal responsibility principles.


Recommendation 2.9: Establish the Cash Management Committee to coordinate cash planning and management.

Recommendation 2.10: Regulations establish clear responsibility and timelines for delivery of annual cash plans and in-year rolling plans to update the annual cash flows and MoFPED deadlines for approving and notifying consolidated cash flow plans, quarterly budget releases.

Recommendation 2.11: Develop investment policy for optimizing returns from idle cash balances.

Recommendation 2.12: Define and formalize the structure and coverage of TSA along with appropriate transitional arrangements.

Recommendation 2.13: Update the existing MOU with the BoU to reflect the operation of TSA and investment of idle funds.

Recommendation 2.14: Enhance the oversight of Accountant General by enabling management of all government bank accounts within and outside the TSA.

Recommendation 2.15: Formalize the establishment of the Directorate of Cash and Debt Management with clear terms of reference and decision on staffing of the new positions with officials of right skills and experience.

Recommendation 2.16: Prescribe criteria for assessment of guarantees and establish monitoring mechanisms for guarantees and loans.

Recommendation 2.17: Require the preparation and presentation of a medium-term debt strategy as part of the annual budget documents.

D. Accounting and Audit


44. The draft PFM Bill significantly enhances accountability and transparency by expanding the coverage and timeliness of financial statements. It defines the duties of the accounting officers, Accountant General and ST and holds them responsible for preparation of in-year and annual financial reports, their consolidation and publication as per prescribed timelines. The bill provides for bi-annual reporting to the parliament on implementation of the budget and requires the presentation of audited financial statements to parliament within six months following the end of the financial year to which they refer.

45. Accounting and reporting in Uganda have been enhanced since 2003 through implementation of IFMS and introduction of a unified chart of accounts (COA). Uganda issued a substantially revised COA in March 2011, which has since been implemented in all budgetary central governments, all local governments and some extra-budgetary units and is broadly aligned with GFSM 2001. MoFPED prepares a detailed six-monthly report on budget execution and a number of schedules that supplement the cash basis statement and enhance the value of financial statements. The draft PFM Bill addresses the weaknesses in the coverage and comprehensiveness of financial statements, delays in finalization of annual accounts, quality and frequency of in-year budget execution reports.14 The detailed regulations enhance the quality of accounts and ability of users to ascertain fiscal risks by requiring entities to report on budget execution, performance, commitments, and contingent liabilities. It further clarifies the reporting requirements by specifying who submits the reports and to whom, by when and the publication requirements.

46. The draft PFM Regulations clarify and institutionalize the accounting and financial reporting framework to enhance transparency in use and management of public funds. The requirement for production of financial reports in case of public entities rests with the accounting officers of votes. However, the definition of accounting officers is not wide enough to cover various institutions within the public sector. The regulations clarify this by including Accounting Officers of extra-budgetary entities and public enterprises.

47. The proposed regulations also establish the Accountant General’s standard setting, monitoring and oversight role in respect of extra-budgetary entities and public enterprises. The reporting requirements for production of in-year and annual budget execution and financial reports by Accounting Officers of public entities and Accountant General have been explicitly expressed in the regulations specifying the nature and frequency of such reports. This will improve the institutional coverage of the accounting and financial reporting function that has been dealt in more detail later in the report.

48. An explicit requirement for application of international standards would improve the credibility of financial statements. The challenges associated with management of oil revenues place an increased demand on integrity and timeliness of accounting and financial information. The bill requires accounting standards to be approved by the Accountant General with reference to accounting practices and procedures recognized by the Institute of Public Accountant of Uganda. A clear reference to international standards will ensure better disclosure and enhance the credibility of financial and accounting statements and will also be in conformity with convergence criteria under the EAMU protocol. Accordingly, the responsibility for issuing instructions on the preparation of financial statements in accordance with international accounting standards has been assigned to the Accountant General in the financial regulations.

Internal audit

49. The draft PFM Bill enhances the independence of the internal audit function in government. The bill places responsibility on the ST to ensure that the internal audit function of each vote and public corporation is appropriate to the needs of each organization and conforms to internationally recognized standards in respect of its status and procedures. In addition, Accounting Officers are responsible for putting in place an effective system of risk management, internal control and internal audit in their respective jurisdictions. The amendments proposed by parliament provides for a general internal audit committee for MoFPED in addition to audit committees for each vote and includes a set of principles to guide their establishment and independent operation. It also provides for an Internal Auditor General in the MoFPED, reporting to the ST and responsible for oversight of the internal audit practice in government.

50. The regulations should reflect the scope of internal audit and clarify the operational independence of the internal audit function. The provision for one internal auditor for each vote may not be sufficient for institutionalizing internal audit as an effective function. The draft bill while providing for the General Internal Audit Committee (as proposed by parliament) and Audit Committees does not clarify their relationship with the internal audit units in MoFPED and MDAs and their role in reviewing and following up on recommendations of Auditor General and parliamentary committees. MoFPED is proposing the establishment of a separate Directorate of Internal Audit, headed by Internal Auditor General which provides an opportunity to clarify these new institutional roles that are being created along with their operational and functional relationships.

Treasury memorandum

51. The Treasury Memorandum in Uganda is an important accountability instrument for follow-up on the implementation of audit recommendations. The Constitution requires the parliament to debate, consider the report and take appropriate action within six months of receiving the Auditor General’s report. Though these reports have been submitted to the parliament within the prescribed time period, there have been delays and backlogs in the consideration of this report by the Public Accounts Committee (PAC) as these reports are considered vote-by vote by the PAC.15 As a result, the Treasury Memorandum which is a report by the MoFPED detailing actions taken on the recommendations of parliament arising out of the report of the Auditor General is also delayed, limiting the effectiveness of the exercise. The draft bill requires the Treasury Memorandum to be prepared vote-by vote, by the ST and presented by the Minister within six months from the date parliament considers the report of the Auditor General.

52. The draft bill shortens the time period for submission of the Auditor General’s report from nine months to six months after the end of the financial year, which is in line with good practice. The response by the government to parliament however is often delayed due to long backlogs in the parliamentary debates on reports. The draft regulations should provide a timeline for the parliament to consider and approve PAC recommendations within twelve months of year end, or on a lapse of time basis and for issue of Treasury Memorandum.


Recommendation 2.18: Clarify the role of Accounting Officers to cover various institutions within or outside the votes that are public entities.

Recommendation 2.19: Specify the nature, frequency and publication requirement for in-year and annual financial reports and elaborate the roles of Accounting Officers and Accountant General in this regard.

Recommendation 2.20: Specify international accounting standards.

Recommendation 2.21: Enhance the internal audit function in the regulations by clearly defining the standard setting, professional development and quality assurance role of the proposed Directorate of Internal Audit with respect to the internal audit function in MDAs.

Recommendation 2.22: Clarify norms for establishment of internal audit units in MDAs with clear reporting lines, administratively to the Accounting Officers and functionally to the Audit Committees.

Recommendation 2.23: Prescribe the accountability framework for the General Internal Audit Committee and the Audit Committees and clarify their relationship with the Directorate of Internal Audit and respective Internal Audit Units in MDAs.

Recommendation 2.24: Provide a stipulated period within which if the parliament has not issued a negative response to the PAC recommendations, the Treasury Memorandum should be issued to implement PAC recommendations on the basis of deemed acceptance.

E. Petroleum Revenue Management

53. The regulations drafted in the mission are designed to address any gaps or inconsistencies in the law and are in line with good practices in management of resource funds in other countries. The March mission reviewed the provisions in the draft law for petroleum revenue management and expressed concerns around the governance arrangements, the definitions of the objective of the Fund and specification of revenues payable into it, and the auditing and reporting requirements.

54. The provisions of the bill require further enhancement through regulations to remove any potential ambiguities. The bill envisages a Petroleum Fund comprised of a holding account into which all Petroleum Funds will be paid and an investment account in which funds for investment will be held. The bill specifies that withdrawals from the holding account can only be to the Consolidated Fund or investment account through warrant by the Minister. It appoints the BoU as operational manager of the fund, in accordance with the investment policy approved by the Minister and developed on advice of an investment advisory committee, comprised of suitably qualified individuals appointed by the Minister.

55. The regulations further reinforce the governance arrangements over the petroleum investment funds. This is achieved through: (i) restricting the Minister in instructing the BoU on managing the Petroleum Funds to two formal channels, the investment policy and the annual plan; (ii) forbidding the bank governor and staff from receiving instructions from any other person or channel; and (iii) providing legal protection for the BoU, as recommended by the Santiago principles and in line with legal frameworks in other resource rich countries. These provisions should also be enforced through a formal agreement with the BoU.

56. The regulations provide more detailed rules for the operations of the two accounts specified in the bill. These rules include the following:

Petroleum Fund:

  • Define the objectives of the Petroleum Fund;

  • Appoint the ST as the Accounting Officer for the Fund;

  • Specify the purpose and composition of the Fund and clarifies the status of assets held by the National Oil Company;

  • Require all deposits to be made on a gross basis; and

  • Define the rules for deposits and withdrawals into and out of the fund with reference to the fiscal target in the Charter of fiscal responsibility and annual limit on withdrawal from the Petroleum Fund.

For the holding account:

  • Require a bank account to be opened with the BoU and included within the TSA;

  • Require cash flow plans to be produced for the fund and withdrawals to the Consolidated Fund or to the investment account only in accordance with the cash flow plan and by ministerial warrant.

For the investment account:

  • Specifies the assets of the fund that will be accounted for in the investment account.

  • Requires the Minister to:

    • i. Issue an investment policy and oversee its implementation. The regulations restrict investments, including a more specific prohibition on certain types of asset [to be defined]. They further specify the minimum contents of the investment policy;

    • ii. Review performance through regular reports and specifies the reporting framework, and submit annual plans and reports to parliament; and

    • iii. Appoint suitably qualified members of the investment advisory committee.

BoU as operational manager of the investment account:

  • Specifies the responsibilities of the BoU as operational manager of the account, in line with the investment policy, including:

  • Enables the appointment and oversight by the BoU of the investment manager and custodian of the fund, using direct procurement methods under the PPDA;

  • Development of risk management, compliance, internal audit policies, and codes of conduct;

  • Maintenance of records and submission of annual plans and reports to the Minister and publication of the reports.

  • Requires an agreement between the Minister and the governor which specifies the respective roles and responsibilities; and

  • Reinforces the independence of the BoU through prohibiting instructions to the BoU from any person or entity unless through the formal channels of the investment policy and the annual plan.


Recommendation 2.25: Appoint the investment advisory committee, including recruitment of qualified members and advisors;

Recommendation 2.26: Develop an investment policy for the Petroleum Fund;

Recommendation 2.27: Develop a draft agreement with the BoU on management of the Petroleum Fund; and

Recommendation 2.28: Develop detailed regulations for collection and deposit of revenue through the Uganda Revenue Authority and royalty sharing arrangements with local government.

F. Oversight of Subsectors and Public Enterprises

57. As highlighted in the March FAD report, the institutional coverage of the draft PFM Bill is unclear both in terms of oversight and reporting requirements.16 The intent of the bill to expand the oversight by parliament and the MoFPED is clear, the problem is that the coverage is not clearly articulated in its application, definition and individual clauses. This applies to the different functional aspects of budget preparation, cash management, banking arrangements and financial reporting. The category of entities to which the bill and its provisions apply has not been appropriately defined. Though the bill seeks to enforce oversight of MoFPED by detailing the reporting requirements of government entities and includes a transitional provision for harmonizing their reporting periods, lack of clarity in coverage could hinder implementation of these provisions.

58. A clear articulation in the regulations of the institutional coverage in the legal framework would enhance the accountability framework for public financial management. The general government sector in Uganda comprises three sub-sectors – budgetary central government, extra-budgetary units, and local government – and given the differences in their nature the PFM legal framework would regulate these entities differently. The regulations should thus define the categories of various entities in the public sector and clarify their oversight and reporting requirements. The draft bill in its provisions refers to ten different overlapping categories which are difficult to categorize in terms of GFSM 2001.

Table 2.

Uganda: Proposed Government Financial Statistics Manual 2001 Classification of Entities in the Bill

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59. The Ministry has already started the task of classifying public sector entities. MoFPED, Uganda Bureau of Statistics and the BoU with technical assistance from the IMF are in the process of producing an institutional table based on GFSM 2001 that could be adopted and used as a standard for the whole government of Uganda. This exercise is planned to be completed by December 2014 and would be consistent with improvements of fiscal data requirements associated with the convergence criteria under the EAMU protocol that currently envisages eventual public sector reporting. The proposed regulations in Appendix II address the institutional coverage issue through a schedule of class of entities clarifying which clauses apply to which class. The regulations should consider transitional provisions for progressively expanding the coverage of the provision of the PFM Bill and its accompanying regulations.


60. The new transparency and accountability requirements of the PFM Bill must be supported by a strong sanctions regime to ensure its effectiveness and compliance. The current sanctions in the bill are limited to individual sanctions and surcharges for recovery of losses and do not include provisions for institutional sanctions or financial misconduct.

61. Good practice suggests that a comprehensive and coherent sanction regime should:

  • Hold individuals and institutions accountable for compliance with the PFM laws and regulations governing management of public funds while drawing a right balance between individual and institutional sanctions;

  • Specify the types of actions or omissions that will be considered misconduct, infringement or offences under the PFM legal framework;

  • Specify the nature of sanctions; administrative, disciplinary, civil and criminal depending on the degree of action or omission.17

  • Provide mechanisms for the enforcement of sanctions by specifying the authority responsible for enforcing and procedures for determining the type of office and the corresponding sanctions to be applied.

62. The draft regulations provide for conditions that attract financial corrective action, and further work is required to develop them. The associated sanctions should clarify the role of officials responsible for enforcing them in line with the Public Service Commission Act, criminal codes and other relevant acts.


Recommendation 2.29: Define categories of various entities in the public sector in accordance with GFSM 2001 and include a schedule listing entities along with timing of their coverage by the provision of the regulations.

Recommendations 2.30: Provide in the regulations further provisions towards a comprehensive sanction regime covering both public officials and entities in the public sector, with appropriate enforcement mechanisms.

III. Finalizing the Regulations and Implementing the Law

63. Further work is required to finalize and produce a full draft of the regulations and broader PFM legal framework. In addition to the laws discussed in Chapter I of this report, detailed regulations will need to be drafted or updated for a number of clauses, new instruments will be required to provide detailed guidance on new procedures, systems may need to be changed and new procedures introduced in a phased manner. This section discusses the actions required to finalize the completion of the regulations and operationalize the law.

Finalizing the regulations

64. A cross-ministry coordination mechanism for finalization of the regulations should ensure consistency of provisions across the parts of the regulations. Ideally, the MoFPED should establish an oversight committee chaired by the ST or DST to direct the work, with senior MoFPED staff and a representative of the Auditor General as an observer. The committee should receive regular progress reports, resolve issues and make key decisions on issues escalated to it. Simultaneously, within MoFPED, a small technical team could be detached from current duties and assigned to reviewing and drafting the regulations on a full time basis with technical assistance support as needed. The drafting process should adopt a consultative approach and should be finalized in a systematic and time bound manner. A suggested roadmap for finalizing the regulations is presented in Table 3 below.18

Table 3.

Uganda: Suggested Roadmap for Finalizing the Public Financial Management Regulations

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65. Operational clauses provided for in the existing PFAR were not drafted during the mission, further technical assistance may be required to assist in completing the drafting. As discussed in Chapter I, decisions will be required as to whether regulations are required for all of these provisions, or whether they could be better placed in instructions or manuals. The drafting work will involve updating these clauses to reflect the changes, such as IFMS and OBB implementation and should be completed by the technical team, with technical assistance from AFRITAC East, if required. Table 4 provides a summary of these clauses.

Table 4.

Uganda: Sections of Proposed Public Finance and Accountability Regulations to be Drafted by the Ministry of Finance, Planning, and Economic Development

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Transitional arrangements

66. Implementation of the law and its regulations will require transitional arrangements as some new provisions require operational and legal changes and other reforms prior to their full implementation.19 The regulations should include a list of those new provisions that will come into effect at a date later than the new regulations. The drafting team should identify all those new provisions along with an agreed permitted lag in implementation. Transitional provisions in the regulations could relate to:

  • Fiscal forecasts covering general government

  • Consolidated budgets of the central government

  • Application of the chart of accounts for extra-budgetary entities

  • Expanded coverage of the TSA

  • Harmonization of financial years in case of state enterprise and public corporation

  • Monitoring and reporting requirements for extra-budgetary units, public funds, public enterprises and local governments where these have implications for their financial management systems

  • Production of half-yearly and annual consolidated financial statements

  • Change in the schedule of completion of audit by the Auditor General

  • Publication of audited financial statements

  • Investment Account of the Petroleum Fund until such time as petroleum revenues are large enough to afford the operational costs of investments

67. Finally, the full implementation of the new legal framework will require widespread dissemination and capacity building efforts to ensure a full understanding by relevant actors at all levels and across the government. The recently launched Uganda PFM reform strategy (2014–2018)20 should include activities to support implementation of the new PFM legal framework. The new legal framework places additional accounting and reporting requirements across entities in the government and would need to be supported by systems changes through extension of IFMS and enforcement of other commitment controls. This task should not be underestimated and is likely to place a heavy responsibility on the staff of the MoFPED, who themselves will be adjusting to the new Act and regulations. In addition, implementation will also require the preparation of guidelines and manuals laying down the detailed procedures to be followed in the areas of cash management, implementation of TSA and asset management. The support needed to implement the changes the new law will bring should be considered a priority within the PFM reform program.