## _howtonote1604 - Annex 1 covers in more detail the procedures to

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### Purpose and scope
- Annex 1 covers in more detail the procedures to perform bank reconciliations by country authorities.
- Annex 2 identifies the common sources of the main line items of a fiscal table.
- Annex 3 presents two country examples (Malawi and Nicaragua) of reconciliation of fiscal and financing data.

### Why reconciliation is important
- Ensuring that the use of public funds is accurately reported is a high priority for governments and donors, as well as for the IMF in its surveillance and program monitoring.
- Comprehensive fiscal reporting in line with international standards such as the IMF Fiscal Transparency Code and Government Finance Statistics Manual (GFSM) provides reasonable assurance about a government’s fiscal position and its integrity.
- Before fiscal reports are issued, checks should be made to ensure that the data are reliable, consistent, accurate, and complete.
- Fiscal data provided by authorities for program monitoring and surveillance are sometimes characterized by significant and persistent discrepancies, which can indicate:
  - underlying weaknesses in the public financial management (PFM) system of the country;
  - problems with the integrity of financial data and processes;
  - need for deeper investigation of possible causes.
- Illustration of discrepancy magnitudes in a sample of countries by region over 2010−13:
  - Statistical discrepancy in most countries in all regions was in the range of 0.2−0.6 percent of GDP.
  - Above-/below-the-line discrepancies were relatively high in Africa, Middle East and Central Asia, and Western Hemisphere; small in Asia and Pacific and Europe over 2010−13.
  - Above-/below-the-line discrepancy in AFR jumped in 2013 primarily due to the addition of the Tanzania discrepancy.
  - Stock−flow discrepancies were a problem across all regions over 2010−13, with relatively higher levels in AFR, WHD, and MCD.
- Reconciliations have identified cases where:
  - bank reconciliation should have detected substantial unauthorized leakage of public funds (example: Malawi and Uganda),
  - reconciliation of financing requirements with changes in outstanding loans could have revealed debt contracted outside the government accounting system (example: Guinea).

### Understanding reconciliation
- Reconciliation is a process of comparing two or more sets of related records from different sources to ensure consistency.
- When differences arise (usually in balances), they should be explained and justified, and adjustments and corrections made in accounting records as required.
- Timely and frequent reconciliation of data is fundamental for data reliability.
- MDAs and their accounting and treasury units should routinely conduct basic reconciliations to ensure financial information is accurate, complete, and consistent.
- In a cash-based accounting system every financial transaction should have a counterpart entry in financial assets or liabilities, allowing verification of fiscal reporting against independent data sources (most commonly bank account data).
- In a sound PFM system, fiscal documentation should demonstrate reconciliation of internally generated reports with externally generated figures to verify budget balance accuracy.

### Key reconciliations to ensure internal consistency, accuracy, and reliability
- Reconciliation of bank accounts with cash accounts:
  - Compares banks’ records (bank statements) with the government general ledger (cash accounts).
  - Ensures public sector entities’ records and bank records are complete and correct.
  - Annex 1 reviews bank reconciliation in more detail; multiplicity of bank accounts complicates this; a Treasury Single Account (TSA) system simplifies it.
- Reconciliation and clearance of suspense, advance, and similar below-the-line accounts:
  - Suspense and advance accounts can result in significant discrepancies between fiscal operations and financing data.
  - Regular clearance and reconciliation are essential for proper classification and recording.
- Reconciliation of payables recorded in government financial systems and receivables registered by external suppliers:
  - Important to check with main providers (large construction companies, public utilities) whether all invoices are recorded in the accounting system.
  - Accumulation of expenditure arrears may indicate obligations not fully recorded in FMIS.
- Reconciliation of stock and flow of government debt:
  - Reconciles the flow of net incurrence of debt liabilities to the change in the stock of government debt.
  - Differences—stock−flow discrepancies—occur for a range of reasons and should be identified in a reconciliation statement.
  - Related reconciliation links reported gross public debt to counterpart holders of this debt to verify accuracy.
- Reconciliation of government fiscal data (above-the-line) with financing data (below-the-line):
  - Differences between net claims reported by government sector and financial sector should be investigated and resolved or minimized.
- Complementarity:
  - Bank reconciliation and regular clearance of suspense/advance accounts facilitate reconciling government fiscal data with financial sector data.
- Frequency and timeliness:
  - Bank reconciliations should be prepared on a timely basis at the end of a period (day, week, month, quarter, or year).
  - Frequency depends on level of activity, risk of error, accounting capacity, and automation.
  - In sophisticated FMIS systems, identification of discrepancies can be automated to a large extent; however unreconciled items must be investigated and resolved.

### Reasons for discrepancies between fiscal and financial data
- Discrepancies can stem from technical/methodological issues, weak PFM systems, or circumvention of legal obligations and PFM systems.
- Technical or methodological reasons:
  - Inconsistent institutional coverage:
    - Institutional coverage of general/central government budget and financial data can differ for legal or practical reasons.
    - Example: autonomous institutions (universities, hospitals) may be covered in net claims but not included in budget.
    - Government units having bank accounts in multiple financial institutions, some not included in monetary statistics, can cause differences.
  - Different bases of accounting:
    - Use of cash, accrual, or mixed bases leads to timing differences in recording.
    - Timing of tax revenue recording may differ (issuance of tax demands, deposit with revenue-collecting banks, remittance to central bank).
    - Use of a complementary period (keeping accounts open for one or two months in following year) may result in discrepancies.
  - Classification and coverage of financial instruments:
    - Instruments may be classified differently across data sets (e.g., a loan reported as an equity investment).
- Weaknesses in PFM systems:
  - FMIS/automated accounting systems may not fully meet data requirements for a fiscal table, causing divergent sources and weak data quality and timeliness.
  - Lack/delays in bank reconciliation can result in errors and omissions not detected in a timely manner; ideally this reconciliation should be performed daily.

### Practical notes and supporting material
- Table 1 lists main fiscal and financial reports and other key documents prepared in Commonwealth, Francophone, and Latin American countries useful for overall reconciliation (examples include Budget documentation, Budget execution reports, Appropriation accounts, Government debt reports, Financial statements, Fiscal operations table, Trial balance).
- Annex 1 provides a bank reconciliation template referenced for stock−flow adjustments and reconciliation statements.

### Use of suspense, advance, trust, and other such accounts (Annex 1)
- Use of suspense, advance, trust, and other such accounts may include off-budget spending or delayed recording of spending in accounts; the use of such accounts also undermines the credibility of fiscal data and transparency. 11
- If such accounts are not reconciled and cleared in a timely manner, transactions are then not recorded in the fiscal data, while they are included in the financing data (see Box 1). 11
- Many countries using the cash accounting system also have suspense or “such other accounts” where they record some outstanding liabilities. Such accounts may include financial assets such as advances, imprest accounts, and financial liabilities such as deposits retained from contractors and some expenditure arrears.
- Use of accounts such as suspense, advance, and trust accounts are not transparent and may result in off-budget spending if not adequately monitored.
- These problems arise where accounting/financial management information systems are inadequate for conducting expenditure advances/payments; when payments are not timely regularized and posted to appropriate expenditure heads in financial accounts they are not included in the fiscal data.

### Definitions and operational guidance (Annex 1)
- Advances (avances du trésor):
  - Can cover amounts such as payments to vendors under public procurement contracts as well as travel advances and petty cash (also called operational imprest).
  - Clearance of advances for public procurement contracts needs to comply with contractual arrangements.
  - Clearance of travel advances and operational imprests need to follow national accounting regulations.
  - All possible efforts should be made to clear advances and imprests before the close of the fiscal year, and any balances left in these accounts should be properly reflected in the fiscal table and carried forward to the following year.
- Suspense account (compte d’imputation/d’affectation provisoire):
  - Temporarily classifies any transaction for which there is uncertainty about the correct account in which to record it.
  - Operated to reflect receipts and payments which cannot be booked immediately to the final head of account/expenditure/revenue code due to lack of or incorrect information or other reasons.
  - Typically used because the proper accounting code for the payment or receipt is not known; or for an expenditure that is recoverable (e.g., travel costs, which are recoverable from the beneficiary).
  - Suspense accounts can be necessary in certain circumstances, but their use should be kept to a minimum.
  - Transactions in suspense accounts should be regularly cleared so they don’t accumulate and present a distorted picture of government finances and fiscal data.
  - All suspense accounts should be reviewed at the end of every month and monthly financial statements should include the balances in these accounts.
  - Fiscal data should include balances of suspense accounts. 1
- Intermediate accounts (comptes spéciaux):
  - Used to transfer budgetary allocations to spending units or off-budget entities that have not necessarily spent the entire amounts during the fiscal year.
  - Transfers not fully spent can result in an overestimation of the deficit that is not matched by drawdowns of the government’s deposits.
  - Debit balances would form part of expenditures and credit balances would be included under the other revenues category until their true nature is known and adjusted in the appropriate accounts. 1

### Risks, misreporting, and circumvention (Annex 1)
- Payment arrears may be unreported in the fiscal operations data and are often reflected only in financing data.
  - Arrears can be related to the expenditure side (e.g., invoices issued but not paid in time), or revenues when refunds on value-added or other taxes are not returned to taxpayers.
- Discrepancies can also result from intentional circumvention of control and reporting mechanisms.
  - In the context of weak transparency, poor controls, and insufficient accountability frameworks, reporting mechanisms can be circumvented by not fully disclosing extra-budgetary operations, accumulated payment arrears, assumption of contingent liabilities—especially non-performing loans—and guarantees that have been called.
  - All such activities and operations, if correctly reported, would be deficit-increasing. However, reporting these only in the financial data would contribute to discrepancies between the fiscal operations and the financial data.
- Examples of circumvention include:
  - Conducting activities off budget or failing to report quasi-fiscal activities. 12
    - Quasi-fiscal activities are fiscal operations conducted through transactions undertaken by the central bank or state-owned entities to achieve government policy goals. These operations include interest rate subsidies and support for enterprises in financial distress.
  - Poor recording of the assumption of government guarantees when called. 12
  - Misclassification or non-recording of non-bank borrowing by the government (e.g., borrowing from pension funds or other public entities).

### Institutional coverage of the fiscal table (Annex 1)
- Budgetary central government:
  - The fiscal table will record only budgetary operations of the central government that could be narrowly defined and may not include, for example, autonomous agencies, extra-budgetary funds, the judiciary, or the legislature.
  - The coverage of net credit to government should be consistent.
- Central government:
  - Covers all budgetary and extra-budgetary entities and/or social security funds. In the Francophone area, this would include, for example, hospitals and universities.
  - Transfers among these entities should be eliminated in the consolidation to avoid double counting.
- General government:
  - Covers all central government and subnational governments (SNGs, which may include regions, states, provinces, municipalities).
  - Transfers to SNGs should be eliminated in the consolidation to avoid double counting; there may also be intra-SNG transfers, which are not netted out.
- Public sector:
  - Covers all general government and financial and nonfinancial public corporations and state-owned enterprises SOEs.
  - SOEs may be commercially run and largely produce and sell market products and services, unlike government units, which are primarily involved in the nonmarket production.
  - SOEs could be largely funded by sales of goods and service and own borrowing.
  - Transfers and other transactions among the general government entities and SOEs should be eliminated in consolidation to avoid double counting.

### Fiscal data presentation and consistency
- Fiscal data have to be consistent, complete, and accurate.
- For IMF surveillance and program monitoring in member countries, fiscal data are presented in the “Statement of Government Operations” (GFSM 2001) or “Government Fiscal Operations” (GFSM 1986).
- The fiscal table has two parts:
  - (1) fiscal operations data (referred to as above-the-line) comprising revenue (tax revenue, social contributions, grants, and other revenue) less expenses and net acquisition of nonfinancial assets that result in net lending or borrowing, and
  - (2) financing data or transactions relating to financial assets and liabilities (referred to as below-the-line).
- The financial data comprise external and domestic financing.
- While a number of countries and IMF area department teams have started to present consistent with GFSM 2001 and 2014 standards, a large number of staff reports is still based on GFSM 1986.

### Fiscal table purpose and key integrity threshold
- The fiscal table is usually compiled by the ministry of finance using data provided by various departments.
- Checking the integrity of data in the fiscal table provides reasonable assurance of a reliable and accurate picture of government fiscal operations.
- Net lending/borrowing needs to match with the value of financing; discrepancies between the two need to be reported, investigated, and resolved.
- Errors and omissions may result in unavoidable discrepancies between the overall balance and its financing; however the size of such a discrepancy should be small and consistent over time, ideally less than 0.3 percent of GDP.
- A large discrepancy raises concerns for the quality and accuracy of fiscal data and a potential financial integrity issue.

### Stock–flow reconciliation and public debt checks
- In normal circumstances (leaving aside any valuation changes), the stock of government debt should increase by approximately the amount of net new liabilities. Example given:
  - If the government runs a budget deficit of $10 million, which it finances by issuing $10 million of bonds, the stock of government debt should increase by $10 million, all else being equal.
- Differences between the flow of net liabilities and the change in the stock of government debt are known as stock−flow adjustments and should be presented in a reconciliation table.
- Possible causes of stock−flow differences include:
  - Valuation changes due to variations in exchange rates on external debt and interest rate variations that change market value of debt (common practice is to report debt at face value).
  - Discrete actions not properly recorded, such as writing off public debt or reclassifying private sector debt as general government debt (which should be recorded above-the-line as a subsidy or transfer and below-the-line as an increase in debt).
- Cross-checks of debt data:
  - Compare reported gross public debt with public-sector debt holdings reported as assets by banks, pension funds, and investors.
  - Compare debt values with monetary survey and balance of payments data prepared by central banks and statistics agencies.
  - Cross-check against individual entity balance sheets when necessary.
- Gaps can occur when:
  - The definition of debt is not uniform.
  - The boundary of reported general government debt extends beyond that of the debt management office.
  - Valuation methods differ (government reports at face value while counterparties report at market value).

### Integrity checks and reconciliation procedures (steps for technical assistance teams)
- Primary responsibility to investigate and resolve differences rests with country authorities; country mission teams may assist initially and should alert FAD or STA if authorities take no action.
- Suggested steps and checks:
  - Identify sources of fiscal data and assess their reliability. Fiscal data should be drawn from relevant and reliable sources like the general ledger of the accounting system (FMIS) and related automated systems (payroll, debt, budget, accounting statements, central bank statistics, etc.).
  - Review institutional coverage and ensure consistency between fiscal operations and financial data sets. Financing data coverage (from bank accounts) could be ascertained from central bank data and other depository institutions.
  - Confirm reconciliation of bank accounts. Important verification steps for authorities include:
    - Conduct a census and compile a list of all bank accounts operated by MDAs with the central bank, public banks, private banks, and other depository institutions, and agree on the frequency and timing of the reconciliation.
    - If reconciliation is not completed, establish quarterly reconciliation initially, moving to monthly; in countries with automated FMIS, reconciliation should be performed weekly or even daily.
    - Prepare a monthly report on bank reconciliation indicating the month of reconciliation completed for each bank account, the balance in each account and the balance in the accounting system, discrepancies, reasons for the discrepancies, explanations for each difference and measures taken to address the difference.
    - Ensure quality of reconciliation—consider how cash and bank accounts have been adjusted for unreconciled items; investigate items that have remained unreconciled for more than three months and review remedial measures taken.
    - Report on delays in completing reconciliation and clearance of items for senior management attention.
    - Conduct periodic internal audit reviews of the reconciliation process, bank reconciliation statements, and clearance of unreconciled items and report on the progress of reconciliation.
  - Confirm reconciliation and clearance of suspense, advance, and intermediate accounts. Important steps:
    - Compile a list of “suspense, advance, intermediate, and other such accounts” with their purpose, rules of operation, clearance, and closure.
    - Prepare a monthly report on progress of reconciliation and clearance indicating the month of reconciliation and clearance completed for each such account; list delays for senior management attention.
    - Conduct internal audit review of the reconciliation and clearance process and prepare a quarterly audit report on progress.
    - Include in country mission tasks a check on existence of regular reconciliation reports, resolution of discrepancies, and audit; ensure below-the-line accounts are reconciled in a timely manner and unreconciled discrepancies resolved.
    - Ensure adjustments are made to fiscal operations data to incorporate balances of accounts such as suspense and advance accounts under appropriate heads.

### Recommendations for country teams and program design
- The integrity of fiscal data is vital for IMF programs and surveillance. Country authorities must ensure fiscal operations and financial data provided to IMF mission teams are accurate and reliable and, where materially different, explain reasons and measures being taken to resolve issues.
- Documentation on the size and reasons for discrepancies and measures taken to resolve them should be provided to mission teams.
- If the above-/below-the-line discrepancy is relatively high (say, more than 0.3 percent of GDP) and persists during and at the end of fiscal years, an IMF-supported program could include measures to conduct reconciliation of fiscal and financing data and reduce the level of discrepancy.
- Country teams, FAD, and STA staff need to collaborate to provide technical assistance to authorities to resolve discrepancies and address issues.
- Country teams should consult FAD and STA technical assistance reports (including Fiscal Transparency Evaluation and PEFA reports) and STA ROSCs to identify previously flagged issues.
- Common issues of concern to look for:
  - A large number of bank accounts in the central bank as well as in commercial banks.
  - Lack of/delays in reconciliation of entities’ bank accounts with discrepancies remaining unresolved.
  - Failure to report on or clear suspense, advance, and other such accounts.
  - Issues with FMIS and other PFM systems not covering all budgetary operations.
  - Limited coverage of fiscal reports.
- Program and Technical Memorandum of Understanding design:
  - Specify quantitative performance criteria and indicative targets clearly to avoid misunderstandings in data reporting.
  - Draft TMU in detail to be comprehensive and minimize loopholes; define data reconciliations, precise institutional coverage, bases of recording and valuation, and any other adjustments to reported data.
  - The fiscal data/table should be accompanied by a statement/note explaining the specific source used for major categories of revenues, expenditures, and financing data, and provide possible reasons for discrepancies and how these could be resolved.
  - There should be a clear agreement between Fund staff and the authorities on the types of official source data reports supporting the fiscal data. Bridge tables from source data to a staff report (fiscal table) presentation might be useful where major differences exist.
  - Provide a table listing adjustments (checks float, revenue collections in transit, payment arrears, unreconciled items in bank reconciliation, operation of below-the-line accounts, etc.) to resolve discrepancies.
  - Off-budget operations or misclassification of below-the-line deficit-increasing activities should be included in the measurement of the fiscal deficit.
  - Prepare a statement reconciling the fiscal balance (fiscal operations data) with the financial data and ensure adjustments are clearly reflected.

### Illustrative reconciliation materials (selected)
- Comparative structure points between GFSM 2001 and GFSM 1986 presentations preserved from source:
  - Revenue and grants (A); Expense (B); Net/Gross operating balance (A) − (B) = (C); Net acquisition of nonfinancial assets (D); Net lending/borrowing (C) − (D) = (E).
  - Transactions in financial assets and liabilities = (−E) = (F) − (G).
  - Net acquisition of financial assets (F): Domestic, Foreign.
  - Net incurrence of liabilities (G): Domestic, Foreign.
- Reconciliation Statement of Fiscal Balance with Net Financing (specimen structure preserved):
  - Overall balance (fiscal table) XXX | Net financing XXX
  - – Cash/Revenue in transit XXX | + /– Errors/Omissions in bank records XXX
  - + Checks in float XXX | + /– Other adjustments XXX
  - + /– Other adjustments XXX
  - Reconciled fiscal balance XXX | Reconciled net financing XXX

### Annex 1: Bank reconciliation — purpose, advantages, and common causes of differences
- Bank reconciliation definition and steps:
  - Reconcile the balance shown in the bank statement with the cash balance as per the general ledger at the same date.
  - Steps: (1) compare both data sets and assess whether balances are the same; (2) if not, identify reasons for the difference; (3) adjust the discrepancies when possible; (4) prepare a reconciliation report explaining any differences that remain.
  - Example: For reconciliation for the month of March 2016, use bank statement balance as at March 31, 2016 and general ledger cash account balance as at March 31, 2016.
- Main advantages of bank reconciliation:
  - May uncover differences that need further investigation.
  - Help safeguard cash by detecting errors by the bank and/or the ministries or departments when recording transactions.
  - Create stronger internal controls and enhance accountability for cash assets.
  - Ensure account balances are accurate and reflect the true financial position of MDAs, facilitating more informed decisions.
- Typical reasons for differences between bank statement and general ledger:
  - Items recorded in the general ledger cash account but not on the bank statement (e.g., checks issued but not yet cleared/paid by the bank — check float; deposits in transit).
  - Items on the bank statement but not in the general ledger cash account (e.g., bank interest/charges; direct debits/standing orders; wire transfers; dishonored checks).
  - General ledger errors or bank account errors (e.g., transactions recorded in an incorrect account; transposed figures; transaction not recorded or posted twice).
- Automation and operational constraints:
  - Bank reconciliation process is usually automated as part of FMIS; however format differences between bank statement data and general ledger can make reconciliation difficult and many countries still perform reconciliation manually with significant delays.
  - Two major issues contributing to reconciliation delays:
    - A large number of government bank accounts creates substantial reconciliation workloads.
    - Accounts operating outside the treasury and the FMIS are frequently not reconciled at all; dependency on checks creates reconciling workload.
  - Moving to a Treasury Single Account for government and an electronic payment system would reduce the extent of reconciliation problems.

### Reconciliation template (Annex Table 1.1 — Illustration: Bank Account)
- Section 1 — Adjust cash account in general ledger (For items on the bank statement but not in the general ledger cash account)
  - Balance per cash account in general ledger
  - Adjustments to cash account (based on bank statement): Add: Bank interest; Add: Credit/Electronic transfers; Subtract: Bank charges; Subtract: Direct debits; Subtract: Dishonored checks; Add/Subtract: Errors
  - Adjusted cash account in general ledger X
- Section 2 — Adjust balance on bank statement (For items recorded in general ledger cash account but not on bank statement)
  - Balance per bank statement
  - Adjustments to bank statement balance (based on accounting records): Add: Deposits in transit; Subtract: Checks issued, but have not cleared bank (checks float); Add/Subtract: Bank errors
  - Adjusted balance per bank statement Y
- Section 3 — Compare adjusted balances
  - Adjusted cash account in general ledger X
  - Adjusted balance per bank statement Y
  - Difference Z
  - Reconciling items: Item a—short description; Item b—short description
  - Total reconciling items (= difference) Z
- Signatures: Prepared: _________ Reviewed: _________ Approved: _________

### Operational guidance and control findings (Annex Table 1.1)
- Bank accounts and cash reconciliations should be performed at least monthly to ensure accuracy and accountability for all cash transactions.
- Internal control recommendation: Someone other than the person responsible for completing monthly bank reconciliations should monitor account balances and statements to ensure more independent and effective internal control.
- Observed operational issues:
  - Accounts operating outside the treasury and the FMIS are frequently not reconciled at all.
  - Dependency on checks as the payment method creates a large volume of work for reconciliation.
  - Moving to a Treasury Single Account for government and an electronic payment system would reduce the extent of reconciliation problems.

### Annex 2 — Main sources of fiscal data in the central government (summary)
- Revenue
  - Tax revenue: Sources include general ledger/trial balance (revenue accounts), subsidiary ledgers, revenue bank accounts; primary reporting units: Tax and customs departments/accounting and treasury department.
    - Note: Where revenue authorities or collecting banks’ records are used, collections might not have been remitted to the central bank (Treasury Single Account/revenue accounts constituting part of the financing data) leading to cash-in-transit; adjustments required for revenue collections in transit.
  - Other revenues (non-tax): Sources include general ledger/trial balance (non-tax revenue accounts), subsidiary ledgers, non-tax revenue bank accounts; reporting units: Accounting and treasury department.
    - Note: Commercial banks sometimes collect non-tax revenues; if central bank accounts are not used as source, adjustments for collections in transit are necessary.
  - Grants: Budget support grants—central bank; Project grants—treasury (general ledger/trial balance), central bank, donors; reporting units: Budget department/accounting and treasury department/Donors—debt department.
    - Note: Project grants require ensuring that data reflect actual disbursements by international institutions and bilateral donors; adjustments may be needed for differences.
- Expense
  - Compensation of employees: Sources include payroll records, general ledger (salary checks issued), salary disbursements by banks electronically; reporting units: Budget department/accounting and treasury department.
    - Note: Where salaries are paid by checks there may be a check float and fiscal data would require adjustment; the check float is reflected in reconciliation statement of bank accounts used for salary checks.
  - Use of goods and services and other expense: Sources include budget execution reports/releases, general ledger/trial balance; reporting units: Budget department/accounting and treasury department.
    - Note: Timing and stage of recording (commitment, accrual, payment order, payment) vary by country; depending on source for expenditure data, adjustments may be needed to resolve differences.
  - Capital expenditure: Sources include budget execution reports, accounting and treasury (general ledger/trial balance) for domestically financed capital expenditures, donors’ disbursements statements for externally financed; reporting units: Budget department/accounting and treasury department, donors—debt department.
    - Note: Foreign financed and domestically financed capital expenditure require reconciliation with external grants and loans and project bank accounts at commercial and central banks.

### Annex 3 — Country case studies: key findings and recommended actions
- Malawi (case study findings)
  - Discrepancy characteristics:
    - Quarterly discrepancies were sizable and varied between 1.7 percent and −1.7 percent of GDP, with positive (negative) meaning that expenditures, and thus the deficit calculated from above-the-line, was greater than financing.
    - Discrepancies are generally quite substantial for quarterly data but often reduced for annual data after reconciliation of funding provisions, cash payments, and checks still in circulation.
  - Main contributing factors identified by the 2015 IMF mission:
    - Differences in coverage: Financing data supported by the RBM have wider coverage than revenue and expenditure data compiled by the MoF — the most significant cause.
    - The recording of expenditures: MoF sometimes uses funding data provided by the budget division (recording budgetary allocations/transfers) rather than actual spending data recorded in FMIS, creating timing discrepancies.
    - The recording of tax revenue reported by the Malawi Revenue Authority (MRA): MRA reports taxes collected in cash or checks; some checks collected may not be cashed yet and therefore not reflected in government bank accounts (relatively small effect).
  - TA mission recommendations (selected):
    - RBM should require commercial banks to make a distinction between deposits and borrowings by the budgetary central government, other units of central government, and local governments as an amendment to its reporting requirements.
    - The economic affairs department within the ministry of finance should work with the accountant general department to define reporting formats that would suit the fiscal table, and enable FMIS data to be used for compiling expenditures.
    - On revenues, MoF should either (1) change the definition of revenues to only recognize taxes that have been paid into the relevant account or (2) record the difference between amount received and taxes collected in another account.
  - Status: The economic affairs department has escalated efforts to understand and minimize discrepancies in quarterly fiscal data and to ensure continuous reconciliation and strengthened expenditure controls.

- Nicaragua (case study findings)
  - Discrepancy characteristics:
    - Large discrepancies between the overall balance compiled by the ministry of finance and public credit (MHCP) and the financing data provided by the Central Bank of Nicaragua (BCN).
    - Discrepancies varied during 2010−14, reaching up to 1.7 percent of GDP.
    - Using below-the-line net debt methodology showed a discrepancy of 1.7 percent and 1.2 percent of GDP for 2013 and 2014, respectively; after adjustments the discrepancy was reduced to 0.4 percent of GDP in 2013, and almost eliminated in 2014.
  - Main identified sources and amounts of discrepancies (Annex Table 3.1 — exact figures preserved):
    - Intermediate external loans to public entities signed between the loaner and the ministry of finance and public credit: Not recorded and included in the fiscal data, understating the deficit by 0.7 percent of GDP for 2013 and 2014.
      - Recommendation: Record transactions above-the-line as a capital transfer.
    - Contracts and agreements between public entities and the government to capitalize the entity to cover losses: Transaction not registered above-the-line; Expenditure understated by 0.4 percent of GDP for 2013 and 2014.
      - Recommendation: Record transactions above-the-line as current/capital transfer based on their nature.
    - Bonds issued as indemnity to citizens where no cash was received by bonds issue: Transaction not recorded above-the-line, resulting in discrepancies of 0.1 percent and 0.2 percent of GDP for 2013 and 2014, respectively.
      - Recommendation: Record the transactions above-the-line as a capital/social transfer.
    - Existence of floating checks: Different timing of issuing and cashing checks produced temporary differences between above- and below-the-line records. This amounted to 0.2 percent of GDP.
      - Recommendation: Replace the process of check payments with electronic transfers.
  - Other sources of discrepancies and recommendations (Annex Table 3.2 — summary):
    - Difference in institutional coverage of fiscal and monetary data: Main reason for discrepancy; recommendation: Increase the institutional coverage of the fiscal balance above-the-line.
    - Extensive use of revolving funds (advance accounts): Timing differences above and below the line; recommendation: Reduce gradually the amount and earmarking of revolving funds.
    - Application of different exchange rates to some transactions between central bank and MHCP: recommendation: Add to BCN reports additional tables including the foreign currency debt and applied exchange rate.
    - Limited scope and coverage of the Treasury Single Account (TSA): Weakens compilation of payments made through accounts outside the TSA; recommendation: Extend the coverage of the TSA at least to the central government.
    - Earmarking of expenditures and revenues: Constitutional/legal earmarks lead to some reclassification limiting budgetary space; recommendation: Calculate and disclose the weight of the earmarks over the expenditures and revenues.
    - Basis of accounting: mix of cash and accruals between BCN and MHCP: recommendation: Make more frequent reconciliations and get a Memorandum of Understanding between MHCP and BCN to exchange clear information regularly.
    - Inconsistency between the data used by MHCP and BCN on stock of deposits: recommendation: Make more frequent reconciliations and get a Memorandum of Understanding between MHCP and BCN to exchange information.
  - Implementation: Authorities have initiated measures with TA and a short-term expert; plan to publish below-the-line information quarterly and monitor monthly.

*Source: How to Check Integrity of Fiscal Data (How-to notes), Fiscal Affairs Department, International Monetary Fund | November 2016*

### Annex 1 covers in more detail the procedures to

### _howtonote1604 - Annex 1 covers in more detail the procedures to

### Purpose and scope
- Annex 1 covers in more detail the procedures to perform bank reconciliations by country authorities.
- Annex 2 identifies the common sources of the main line items of a fiscal table.
- Annex 3 presents two country examples (Malawi and Nicaragua) of reconciliation of fiscal and financing data.

### Why reconciliation is important
- Ensuring that the use of public funds is accurately reported is a high priority for governments and donors, as well as for the IMF in its surveillance and program monitoring.
- Comprehensive fiscal reporting in line with international standards such as the IMF Fiscal Transparency Code and Government Finance Statistics Manual (GFSM) provides reasonable assurance about a government’s fiscal position and its integrity.
- Before fiscal reports are issued, checks should be made to ensure that the data are reliable, consistent, accurate, and complete.
- Fiscal data provided by authorities for program monitoring and surveillance are sometimes characterized by significant and persistent discrepancies, which can indicate:
  - underlying weaknesses in the public financial management (PFM) system of the country;
  - problems with the integrity of financial data and processes;
  - need for deeper investigation of possible causes.
- Illustration of discrepancy magnitudes in a sample of countries by region over 2010−13:
  - Statistical discrepancy in most countries in all regions was in the range of 0.2−0.6 percent of GDP.
  - Above-/below-the-line discrepancies were relatively high in Africa, Middle East and Central Asia, and Western Hemisphere; small in Asia and Pacific and Europe over 2010−13.
  - Above-/below-the-line discrepancy in AFR jumped in 2013 primarily due to the addition of the Tanzania discrepancy.
  - Stock−flow discrepancies were a problem across all regions over 2010−13, with relatively higher levels in AFR, WHD, and MCD.
- Reconciliations have identified cases where:
  - bank reconciliation should have detected substantial unauthorized leakage of public funds (example: Malawi and Uganda),
  - reconciliation of financing requirements with changes in outstanding loans could have revealed debt contracted outside the government accounting system (example: Guinea).

### Understanding reconciliation
- Reconciliation is a process of comparing two or more sets of related records from different sources to ensure consistency.
- When differences arise (usually in balances), they should be explained and justified, and adjustments and corrections made in accounting records as required.
- Timely and frequent reconciliation of data is fundamental for data reliability.
- MDAs and their accounting and treasury units should routinely conduct basic reconciliations to ensure financial information is accurate, complete, and consistent.
- In a cash-based accounting system every financial transaction should have a counterpart entry in financial assets or liabilities, allowing verification of fiscal reporting against independent data sources (most commonly bank account data).
- In a sound PFM system, fiscal documentation should demonstrate reconciliation of internally generated reports with externally generated figures to verify budget balance accuracy.

### Key reconciliations to ensure internal consistency, accuracy, and reliability
- Reconciliation of bank accounts with cash accounts:
  - Compares banks’ records (bank statements) with the government general ledger (cash accounts).
  - Ensures public sector entities’ records and bank records are complete and correct.
  - Annex 1 reviews bank reconciliation in more detail; multiplicity of bank accounts complicates this; a Treasury Single Account (TSA) system simplifies it.
- Reconciliation and clearance of suspense, advance, and similar below-the-line accounts:
  - Suspense and advance accounts can result in significant discrepancies between fiscal operations and financing data.
  - Regular clearance and reconciliation are essential for proper classification and recording.
- Reconciliation of payables recorded in government financial systems and receivables registered by external suppliers:
  - Important to check with main providers (large construction companies, public utilities) whether all invoices are recorded in the accounting system.
  - Accumulation of expenditure arrears may indicate obligations not fully recorded in FMIS.
- Reconciliation of stock and flow of government debt:
  - Reconciles the flow of net incurrence of debt liabilities to the change in the stock of government debt.
  - Differences—stock−flow discrepancies—occur for a range of reasons and should be identified in a reconciliation statement.
  - Related reconciliation links reported gross public debt to counterpart holders of this debt to verify accuracy.
- Reconciliation of government fiscal data (above-the-line) with financing data (below-the-line):
  - Differences between net claims reported by government sector and financial sector should be investigated and resolved or minimized.
- Complementarity:
  - Bank reconciliation and regular clearance of suspense/advance accounts facilitate reconciling government fiscal data with financial sector data.
- Frequency and timeliness:
  - Bank reconciliations should be prepared on a timely basis at the end of a period (day, week, month, quarter, or year).
  - Frequency depends on level of activity, risk of error, accounting capacity, and automation.
  - In sophisticated FMIS systems, identification of discrepancies can be automated to a large extent; however unreconciled items must be investigated and resolved.

### Reasons for discrepancies between fiscal and financial data
- Discrepancies can stem from technical/methodological issues, weak PFM systems, or circumvention of legal obligations and PFM systems.
- Technical or methodological reasons:
  - Inconsistent institutional coverage:
    - Institutional coverage of general/central government budget and financial data can differ for legal or practical reasons.
    - Example: autonomous institutions (universities, hospitals) may be covered in net claims but not included in budget.
    - Government units having bank accounts in multiple financial institutions, some not included in monetary statistics, can cause differences.
  - Different bases of accounting:
    - Use of cash, accrual, or mixed bases leads to timing differences in recording.
    - Timing of tax revenue recording may differ (issuance of tax demands, deposit with revenue-collecting banks, remittance to central bank).
    - Use of a complementary period (keeping accounts open for one or two months in following year) may result in discrepancies.
  - Classification and coverage of financial instruments:
    - Instruments may be classified differently across data sets (e.g., a loan reported as an equity investment).
- Weaknesses in PFM systems:
  - FMIS/automated accounting systems may not fully meet data requirements for a fiscal table, causing divergent sources and weak data quality and timeliness.
  - Lack/delays in bank reconciliation can result in errors and omissions not detected in a timely manner; ideally this reconciliation should be performed daily.

### Practical notes and supporting material
- Table 1 lists main fiscal and financial reports and other key documents prepared in Commonwealth, Francophone, and Latin American countries useful for overall reconciliation (examples include Budget documentation, Budget execution reports, Appropriation accounts, Government debt reports, Financial statements, Fiscal operations table, Trial balance).
- Annex 1 provides a bank reconciliation template referenced for stock−flow adjustments and reconciliation statements.

*Source: How to Check Integrity of Fiscal Data (How-to notes), Fiscal Affairs Department, International Monetary Fund | November 2016*

### Annex 1.

### Annex 1.

### Use of suspense, advance, trust, and other such accounts
- Use of suspense, advance, trust, and other such accounts may include off-budget spending or delayed recording of spending in accounts; the use of such accounts also undermines the credibility of fiscal data and transparency. 11
- If such accounts are not reconciled and cleared in a timely manner, transactions are then not recorded in the fiscal data, while they are included in the financing data (see Box 1). 11
- Many countries using the cash accounting system also have suspense or “such other accounts” where they record some outstanding liabilities. Such accounts may include financial assets such as advances, imprest accounts, and financial liabilities such as deposits retained from contractors and some expenditure arrears.
- Use of accounts such as suspense, advance, and trust accounts are not transparent and may result in off-budget spending if not adequately monitored.
- These problems arise where accounting/financial management information systems are inadequate for conducting expenditure advances/payments; when payments are not timely regularized and posted to appropriate expenditure heads in financial accounts they are not included in the fiscal data.

### Definitions and operational guidance
- Advances (avances du trésor):
  - Can cover amounts such as payments to vendors under public procurement contracts as well as travel advances and petty cash (also called operational imprest).
  - Clearance of advances for public procurement contracts needs to comply with contractual arrangements.
  - Clearance of travel advances and operational imprests need to follow national accounting regulations.
  - All possible efforts should be made to clear advances and imprests before the close of the fiscal year, and any balances left in these accounts should be properly reflected in the fiscal table and carried forward to the following year.
- Suspense account (compte d’imputation/d’affectation provisoire):
  - Temporarily classifies any transaction for which there is uncertainty about the correct account in which to record it.
  - Operated to reflect receipts and payments which cannot be booked immediately to the final head of account/expenditure/revenue code due to lack of or incorrect information or other reasons.
  - Typically used because the proper accounting code for the payment or receipt is not known; or for an expenditure that is recoverable (e.g., travel costs, which are recoverable from the beneficiary).
  - Suspense accounts can be necessary in certain circumstances, but their use should be kept to a minimum.
  - Transactions in suspense accounts should be regularly cleared so they don’t accumulate and present a distorted picture of government finances and fiscal data.
  - All suspense accounts should be reviewed at the end of every month and monthly financial statements should include the balances in these accounts.
  - Fiscal data should include balances of suspense accounts. 1
- Intermediate accounts (comptes spéciaux):
  - Used to transfer budgetary allocations to spending units or off-budget entities that have not necessarily spent the entire amounts during the fiscal year.
  - Transfers not fully spent can result in an overestimation of the deficit that is not matched by drawdowns of the government’s deposits.
  - Debit balances would form part of expenditures and credit balances would be included under the other revenues category until their true nature is known and adjusted in the appropriate accounts. 1

### Risks, misreporting, and circumvention
- Payment arrears may be unreported in the fiscal operations data and are often reflected only in financing data.
  - Arrears can be related to the expenditure side (e.g., invoices issued but not paid in time), or revenues when refunds on value-added or other taxes are not returned to taxpayers.
- Discrepancies can also result from intentional circumvention of control and reporting mechanisms.
  - In the context of weak transparency, poor controls, and insufficient accountability frameworks, reporting mechanisms can be circumvented by not fully disclosing extra-budgetary operations, accumulated payment arrears, assumption of contingent liabilities—especially non-performing loans—and guarantees that have been called.
  - All such activities and operations, if correctly reported, would be deficit-increasing. However, reporting these only in the financial data would contribute to discrepancies between the fiscal operations and the financial data.
- Examples of circumvention include:
  - Conducting activities off budget or failing to report quasi-fiscal activities. 12
    - Quasi-fiscal activities are fiscal operations conducted through transactions undertaken by the central bank or state-owned entities to achieve government policy goals. These operations include interest rate subsidies and support for enterprises in financial distress.
  - Poor recording of the assumption of government guarantees when called. 12
  - Misclassification or non-recording of non-bank borrowing by the government (e.g., borrowing from pension funds or other public entities).

### Institutional coverage of the fiscal table (Table 2: Types of Institutional Coverage of the Fiscal Table)
- Budgetary central government:
  - The fiscal table will record only budgetary operations of the central government that could be narrowly defined and may not include, for example, autonomous agencies, extra-budgetary funds, the judiciary, or the legislature.
  - The coverage of net credit to government should be consistent.
- Central government:
  - Covers all budgetary and extra-budgetary entities and/or social security funds. In the Francophone area, this would include, for example, hospitals and universities.
  - Transfers among these entities should be eliminated in the consolidation to avoid double counting.
- General government:
  - Covers all central government and subnational governments (SNGs, which may include regions, states, provinces, municipalities).
  - Transfers to SNGs should be eliminated in the consolidation to avoid double counting; there may also be intra-SNG transfers, which are not netted out.
- Public sector:
  - Covers all general government and financial and nonfinancial public corporations and state-owned enterprises SOEs.
  - SOEs may be commercially run and largely produce and sell market products and services, unlike government units, which are primarily involved in the nonmarket production.
  - SOEs could be largely funded by sales of goods and service and own borrowing.
  - Transfers and other transactions among the general government entities and SOEs should be eliminated in consolidation to avoid double counting.

### Fiscal data presentation and consistency
- Fiscal data have to be consistent, complete, and accurate.
- For IMF surveillance and program monitoring in member countries, fiscal data are presented in the “Statement of Government Operations” (GFSM 2001) or “Government Fiscal Operations” (GFSM 1986).
- The fiscal table has two parts:
  - (1) fiscal operations data (referred to as above-the-line) comprising revenue (tax revenue, social contributions, grants, and other revenue) less expenses and net acquisition of nonfinancial assets that result in net lending or borrowing, and
  - (2) financing data or transactions relating to financial assets and liabilities (referred to as below-the-line).
- The financial data comprise external and domestic financing.
- While a number of countries and IMF area department teams have started to present consistent with GFSM 2001 and 2014 standards, a large number of staff reports is still based on GFSM

*Annex 1. _howtonote1604 - Annex 1.*

### 1986. Table 3 presents a broad comparison between

### _howtonote1604 - 1986. Table 3 presents a broad comparison between

### Fiscal table purpose and key integrity threshold
- The fiscal table is usually compiled by the ministry of finance using data provided by various departments.
- Checking the integrity of data in the fiscal table provides reasonable assurance of a reliable and accurate picture of government fiscal operations.
- Net lending/borrowing needs to match with the value of financing; discrepancies between the two need to be reported, investigated, and resolved.
- Errors and omissions may result in unavoidable discrepancies between the overall balance and its financing; however the size of such a discrepancy should be small and consistent over time, ideally less than 0.3 percent of GDP.
- A large discrepancy raises concerns for the quality and accuracy of fiscal data and a potential financial integrity issue.

### Stock–flow reconciliation and public debt checks
- In normal circumstances (leaving aside any valuation changes), the stock of government debt should increase by approximately the amount of net new liabilities. Example given:
  - If the government runs a budget deficit of $10 million, which it finances by issuing $10 million of bonds, the stock of government debt should increase by $10 million, all else being equal.
- Differences between the flow of net liabilities and the change in the stock of government debt are known as stock−flow adjustments and should be presented in a reconciliation table.
- Possible causes of stock−flow differences include:
  - Valuation changes due to variations in exchange rates on external debt and interest rate variations that change market value of debt (common practice is to report debt at face value).
  - Discrete actions not properly recorded, such as writing off public debt or reclassifying private sector debt as general government debt (which should be recorded above-the-line as a subsidy or transfer and below-the-line as an increase in debt).
- Cross-checks of debt data:
  - Compare reported gross public debt with public-sector debt holdings reported as assets by banks, pension funds, and investors.
  - Compare debt values with monetary survey and balance of payments data prepared by central banks and statistics agencies.
  - Cross-check against individual entity balance sheets when necessary.
- Gaps can occur when:
  - The definition of debt is not uniform.
  - The boundary of reported general government debt extends beyond that of the debt management office.
  - Valuation methods differ (government reports at face value while counterparties report at market value).

### Integrity checks and reconciliation procedures (steps for technical assistance teams)
- Primary responsibility to investigate and resolve differences rests with country authorities; country mission teams may assist initially and should alert FAD or STA if authorities take no action.
- Suggested steps and checks:
  - Identify sources of fiscal data and assess their reliability. Fiscal data should be drawn from relevant and reliable sources like the general ledger of the accounting system (FMIS) and related automated systems (payroll, debt, budget, accounting statements, central bank statistics, etc.).
  - Review institutional coverage and ensure consistency between fiscal operations and financial data sets. Financing data coverage (from bank accounts) could be ascertained from central bank data and other depository institutions.
  - Confirm reconciliation of bank accounts. Important verification steps for authorities include:
    - Conduct a census and compile a list of all bank accounts operated by MDAs with the central bank, public banks, private banks, and other depository institutions, and agree on the frequency and timing of the reconciliation.
    - If reconciliation is not completed, establish quarterly reconciliation initially, moving to monthly; in countries with automated FMIS, reconciliation should be performed weekly or even daily.
    - Prepare a monthly report on bank reconciliation indicating the month of reconciliation completed for each bank account, the balance in each account and the balance in the accounting system, discrepancies, reasons for the discrepancies, explanations for each difference and measures taken to address the difference.
    - Ensure quality of reconciliation—consider how cash and bank accounts have been adjusted for unreconciled items; investigate items that have remained unreconciled for more than three months and review remedial measures taken.
    - Report on delays in completing reconciliation and clearance of items for senior management attention.
    - Conduct periodic internal audit reviews of the reconciliation process, bank reconciliation statements, and clearance of unreconciled items and report on the progress of reconciliation.
  - Confirm reconciliation and clearance of suspense, advance, and intermediate accounts. Important steps:
    - Compile a list of “suspense, advance, intermediate, and other such accounts” with their purpose, rules of operation, clearance, and closure.
    - Prepare a monthly report on progress of reconciliation and clearance indicating the month of reconciliation and clearance completed for each such account; list delays for senior management attention.
    - Conduct internal audit review of the reconciliation and clearance process and prepare a quarterly audit report on progress.
    - Include in country mission tasks a check on existence of regular reconciliation reports, resolution of discrepancies, and audit; ensure below-the-line accounts are reconciled in a timely manner and unreconciled discrepancies resolved.
    - Ensure adjustments are made to fiscal operations data to incorporate balances of accounts such as suspense and advance accounts under appropriate heads.

### Recommendations for country teams and program design
- The integrity of fiscal data is vital for IMF programs and surveillance. Country authorities must ensure fiscal operations and financial data provided to IMF mission teams are accurate and reliable and, where materially different, explain reasons and measures being taken to resolve issues.
- Documentation on the size and reasons for discrepancies and measures taken to resolve them should be provided to mission teams.
- If the above-/below-the-line discrepancy is relatively high (say, more than 0.3 percent of GDP) and persists during and at the end of fiscal years, an IMF-supported program could include measures to conduct reconciliation of fiscal and financing data and reduce the level of discrepancy.
- Country teams, FAD, and STA staff need to collaborate to provide technical assistance to authorities to resolve discrepancies and address issues.
- Country teams should consult FAD and STA technical assistance reports (including Fiscal Transparency Evaluation and PEFA reports) and STA ROSCs to identify previously flagged issues.
- Common issues of concern to look for:
  - A large number of bank accounts in the central bank as well as in commercial banks.
  - Lack of/delays in reconciliation of entities’ bank accounts with discrepancies remaining unresolved.
  - Failure to report on or clear suspense, advance, and other such accounts.
  - Issues with FMIS and other PFM systems not covering all budgetary operations.
  - Limited coverage of fiscal reports.
- Program and Technical Memorandum of Understanding design:
  - Specify quantitative performance criteria and indicative targets clearly to avoid misunderstandings in data reporting.
  - Draft TMU in detail to be comprehensive and minimize loopholes; define data reconciliations, precise institutional coverage, bases of recording and valuation, and any other adjustments to reported data.
  - The fiscal data/table should be accompanied by a statement/note explaining the specific source used for major categories of revenues, expenditures, and financing data, and provide possible reasons for discrepancies and how these could be resolved.
  - There should be a clear agreement between Fund staff and the authorities on the types of official source data reports supporting the fiscal data. Bridge tables from source data to a staff report (fiscal table) presentation might be useful where major differences exist.
  - Provide a table listing adjustments (checks float, revenue collections in transit, payment arrears, unreconciled items in bank reconciliation, operation of below-the-line accounts, etc.) to resolve discrepancies.
  - Off-budget operations or misclassification of below-the-line deficit-increasing activities should be included in the measurement of the fiscal deficit.
  - Prepare a statement reconciling the fiscal balance (fiscal operations data) with the financial data and ensure adjustments are clearly reflected.

### Illustrative reconciliation materials (as presented in the source)
- Table 3. Comparative Table of GFSM 2001 and GFSM 1986 Presentations (selected entries preserved from source):
  - Statement of Government Operations (GFSM 2001) — Government Fiscal Operations (GFSM 1986)
  - Revenue (A)
    - • Taxes
    - • Social contributions
    - • Grants
    - • Other revenue
    - Total revenue and grants (A)
      - • Tax revenue
      - • Non-tax revenue
      - • Grants
  - Expense (B)
    - • Compensation of employees
    - • Use of goods and services
    - • Consumption of fixed capital
    - • Interest
    - • Subsidies
    - • Social benefits
    - • Other
    - Expenditure and net lending (B)
      - • Wages and salaries
      - • Goods and services
      - • Transfers
      - • Subsidies
      - • Interest payments
      - • Capital expenditure
      - • Net lending
  - Net/Gross operating balance (A) − (B) = (C)
  - Net acquisition of nonfinancial assets (D)
  - Net lending/borrowing (C) − (D) = (E)
  - Overall balance (A) − (B) = C
  - Transactions in financial assets and liabilities = (−E) = (F) − (G)
  - Net financing = (−C) = (D) + (E) + (F)
  - Net acquisition of financial assets (F)
    - • Domestic
    - • Foreign
  - Net incurrence of liabilities (G)
    - • Domestic
    - • Foreign
  - Net domestic financing (D)
    - • Bank
    - • Non-bank
  - Net external financing (E)
    - • Loans
    - • Amortization
  - Privatization receipts (F)
- Table 4. Reconciliation Statement of Fiscal Balance with Net Financing (specimen structure preserved):
  - Fiscal data (above the line) | Net financing (below the line)
  - Overall balance (fiscal table) XXX | Net financing XXX
  - – Cash/Revenue in transit XXX | + /– Errors/Omissions in bank records XXX
  - + Checks in float XXX | + /– Other adjustments XXX
  - + /– Other adjustments XXX
  - Reconciled fiscal balance XXX | Reconciled net financing XXX

### Annex 1: Bank reconciliation — purpose, advantages, and common causes of differences
- Bank reconciliation definition and steps:
  - Reconcile the balance shown in the bank statement with the cash balance as per the general ledger at the same date.
  - Steps: (1) compare both data sets and assess whether balances are the same; (2) if not, identify reasons for the difference; (3) adjust the discrepancies when possible; (4) prepare a reconciliation report explaining any differences that remain.
  - Example: For reconciliation for the month of March 2016, use bank statement balance as at March 31, 2016 and general ledger cash account balance as at March 31, 2016.
- Main advantages of bank reconciliation:
  - May uncover differences that need further investigation.
  - Help safeguard cash by detecting errors by the bank and/or the ministries or departments when recording transactions.
  - Create stronger internal controls and enhance accountability for cash assets.
  - Ensure account balances are accurate and reflect the true financial position of MDAs, facilitating more informed decisions.
- Typical reasons for differences between bank statement and general ledger:
  - Items recorded in the general ledger cash account but not on the bank statement (e.g., checks issued but not yet cleared/paid by the bank — check float; deposits in transit).
  - Items on the bank statement but not in the general ledger cash account (e.g., bank interest/charges; direct debits/standing orders; wire transfers; dishonored checks).
  - General ledger errors or bank account errors (e.g., transactions recorded in an incorrect account; transposed figures; transaction not recorded or posted twice).
- Automation and operational constraints:
  - Bank reconciliation process is usually automated as part of FMIS; however format differences between bank statement data and general ledger can make reconciliation difficult and many countries still perform reconciliation manually with significant delays.
  - Two major issues contributing to reconciliation delays:
    - A large number of government bank accounts creates substantial reconciliation workloads.
    - ...(text continues in source on account proliferation and workload)

*Source: IMF Fiscal Affairs Department How-to Notes, November 2016*

### Annex Table 1.1. Illustration: Bank Account

### Annex Table 1.1. Illustration: Bank Account

### Reconciliation template (Structure and items)
- Purpose: Reconciliation Template (Should accompany bank statement)
- Section 1 — Adjust cash account in general ledger (For items on the bank statement but not in the general ledger cash account)
  - Balance per cash account in general ledger
  - Adjustments to cash account (based on bank statement):
    - Add: Bank interest
    - Add: Credit/Electronic transfers
    - Subtract: Bank charges
    - Subtract: Direct debits
    - Subtract: Dishonored checks
    - Add/Subtract: Errors
  - Adjusted cash account in general ledger X
- Section 2 — Adjust balance on bank statement (For items recorded in general ledger cash account but not on bank statement)
  - Balance per bank statement
  - Adjustments to bank statement balance (based on accounting records):
    - Add: Deposits in transit
    - Subtract: Checks issued, but have not cleared bank (checks float)
    - Add/Subtract: Bank errors
  - Adjusted balance per bank statement Y
- Section 3 — Compare adjusted balances
  - Adjusted cash account in general ledger X
  - Adjusted balance per bank statement Y
  - Difference Z
  - Reconciling items
    - Item a—short description
    - Item b—short description
  - Total reconciling items (= difference) Z
- Signatures: Prepared: _________ Reviewed: _________ Approved: _________

### Operational guidance and control findings
- Bank accounts and cash reconciliations should be performed at least monthly to ensure accuracy and accountability for all cash transactions.
- Internal control recommendation: Someone other than the person responsible for completing monthly bank reconciliations should monitor account balances and statements to ensure more independent and effective internal control.
- Observed operational issues:
  - Accounts operating outside the treasury and the FMIS are frequently not reconciled at all.
  - Dependency on checks as the payment method creates a large volume of work for reconciliation.
  - Moving to a Treasury Single Account for government and an electronic payment system would reduce the extent of reconciliation problems.

### Annex 2 — Main sources of fiscal data in the central government (summary of sources and considerations)
- Revenue
  - Tax revenue: Sources include general ledger/trial balance (revenue accounts), subsidiary ledgers, revenue bank accounts; primary reporting units: Tax and customs departments/accounting and treasury department.
    - Note: Where revenue authorities or collecting banks’ records are used, collections might not have been remitted to the central bank (Treasury Single Account/revenue accounts constituting part of the financing data) leading to cash-in-transit; adjustments required for revenue collections in transit.
  - Other revenues (non-tax): Sources include general ledger/trial balance (non-tax revenue accounts), subsidiary ledgers, non-tax revenue bank accounts; reporting units: Accounting and treasury department.
    - Note: Commercial banks sometimes collect non-tax revenues; if central bank accounts are not used as source, adjustments for collections in transit are necessary.
  - Grants: Budget support grants—central bank; Project grants—treasury (general ledger/trial balance), central bank, donors; reporting units: Budget department/accounting and treasury department/Donors—debt department.
    - Note: Project grants require ensuring that data reflect actual disbursements by international institutions and bilateral donors; adjustments may be needed for differences.
- Expense
  - Compensation of employees: Sources include payroll records, general ledger (salary checks issued), salary disbursements by banks electronically; reporting units: Budget department/accounting and treasury department.
    - Note: Where salaries are paid by checks there may be a check float and fiscal data would require adjustment; the check float is reflected in reconciliation statement of bank accounts used for salary checks.
  - Use of goods and services and other expense: Sources include budget execution reports/releases, general ledger/trial balance; reporting units: Budget department/accounting and treasury department.
    - Note: Timing and stage of recording (commitment, accrual, payment order, payment) vary by country; depending on source for expenditure data, adjustments may be needed to resolve differences.
  - Capital expenditure: Sources include budget execution reports, accounting and treasury (general ledger/trial balance) for domestically financed capital expenditures, donors’ disbursements statements for externally financed; reporting units: Budget department/accounting and treasury department, donors—debt department.
    - Note: Foreign financed and domestically financed capital expenditure require reconciliation with external grants and loans and project bank accounts at commercial and central banks.

### Annex 3 — Country case studies: key findings and recommended actions

- Malawi (case study findings)
  - Discrepancy characteristics:
    - Quarterly discrepancies were sizable and varied between 1.7 percent and −1.7 percent of GDP, with positive (negative) meaning that expenditures, and thus the deficit calculated from above-the-line, was greater than financing.
    - Discrepancies are generally quite substantial for quarterly data but often reduced for annual data after reconciliation of funding provisions, cash payments, and checks still in circulation.
  - Main contributing factors identified by the 2015 IMF mission:
    - Differences in coverage: Financing data supported by the RBM have wider coverage than revenue and expenditure data compiled by the MoF — the most significant cause.
    - The recording of expenditures: MoF sometimes uses funding data provided by the budget division (recording budgetary allocations/transfers) rather than actual spending data recorded in FMIS, creating timing discrepancies.
    - The recording of tax revenue reported by the Malawi Revenue Authority (MRA): MRA reports taxes collected in cash or checks; some checks collected may not be cashed yet and therefore not reflected in government bank accounts (relatively small effect).
  - TA mission recommendations (selected):
    - RBM should require commercial banks to make a distinction between deposits and borrowings by the budgetary central government, other units of central government, and local governments as an amendment to its reporting requirements.
    - The economic affairs department within the ministry of finance should work with the accountant general department to define reporting formats that would suit the fiscal table, and enable FMIS data to be used for compiling expenditures.
    - On revenues, MoF should either (1) change the definition of revenues to only recognize taxes that have been paid into the relevant account or (2) record the difference between amount received and taxes collected in another account.
  - Status: The economic affairs department has escalated efforts to understand and minimize discrepancies in quarterly fiscal data and to ensure continuous reconciliation and strengthened expenditure controls.

- Nicaragua (case study findings)
  - Discrepancy characteristics:
    - Large discrepancies between the overall balance compiled by the ministry of finance and public credit (MHCP) and the financing data provided by the Central Bank of Nicaragua (BCN).
    - Discrepancies varied during 2010−14, reaching up to 1.7 percent of GDP.
    - Using below-the-line net debt methodology showed a discrepancy of 1.7 percent and 1.2 percent of GDP for 2013 and 2014, respectively; after adjustments the discrepancy was reduced to 0.4 percent of GDP in 2013, and almost eliminated in 2014.
  - Main identified sources and amounts of discrepancies (Annex Table 3.1 — exact figures preserved):
    - Intermediate external loans to public entities signed between the loaner and the ministry of finance and public credit: Not recorded and included in the fiscal data, understating the deficit by 0.7 percent of GDP for 2013 and 2014.
      - Recommendation: Record transactions above-the-line as a capital transfer.
    - Contracts and agreements between public entities and the government to capitalize the entity to cover losses: Transaction not registered above-the-line; Expenditure understated by 0.4 percent of GDP for 2013 and 2014.
      - Recommendation: Record transactions above-the-line as current/capital transfer based on their nature.
    - Bonds issued as indemnity to citizens where no cash was received by bonds issue: Transaction not recorded above-the-line, resulting in discrepancies of 0.1 percent and 0.2 percent of GDP for 2013 and 2014, respectively.
      - Recommendation: Record the transactions above-the-line as a capital/social transfer.
    - Existence of floating checks: Different timing of issuing and cashing checks produced temporary differences between above- and below-the-line records. This amounted to 0.2 percent of GDP.
      - Recommendation: Replace the process of check payments with electronic transfers.
  - Other sources of discrepancies and recommendations (Annex Table 3.2 — summary):
    - Difference in institutional coverage of fiscal and monetary data: Main reason for discrepancy; recommendation: Increase the institutional coverage of the fiscal balance above-the-line.
    - Extensive use of revolving funds (advance accounts): Timing differences above and below the line; recommendation: Reduce gradually the amount and earmarking of revolving funds.
    - Application of different exchange rates to some transactions between central bank and MHCP: recommendation: Add to BCN reports additional tables including the foreign currency debt and applied exchange rate.
    - Limited scope and coverage of the Treasury Single Account (TSA): Weakens compilation of payments made through accounts outside the TSA; recommendation: Extend the coverage of the TSA at least to the central government.
    - Earmarking of expenditures and revenues: Constitutional/legal earmarks lead to some reclassification limiting budgetary space; recommendation: Calculate and disclose the weight of the earmarks over the expenditures and revenues.
    - Basis of accounting: mix of cash and accruals between BCN and MHCP: recommendation: Make more frequent reconciliations and get a Memorandum of Understanding between MHCP and BCN to exchange clear information regularly.
    - Inconsistency between the data used by MHCP and BCN on stock of deposits: recommendation: Make more frequent reconciliations and get a Memorandum of Understanding between MHCP and BCN to exchange information.
  - Implementation: Authorities have initiated measures with TA and a short-term expert; plan to publish below-the-line information quarterly and monitor monthly.

*International Monetary Fund — Annex Table 1.1. Illustration: Bank Account (How-to notes).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/howtonotes/2016/_howtonote1604.pdf_