Public Finance and Taxation Revision Kit

Full Access to these notes/Kit on Desktop/Laptop via https://desktop.someakenya.co.ke
Or through Our Mobile App

Click here to Install Our Mobile App and Download Current CPA Revision Kits and Revise using your Phone

TOPIC 1
INTRODUCTION TO PUBLIC FINANCIAL MANAGEMENT

 

QUESTION 1

April 2024 Question One B

Highlight FOUR documents that are prepared in the process of county government budget preparation clearly indicating their timelines as envisaged by the provisions of Public Financial Management Act. (4 marks)

ANSWER

Documents that are prepared in the process of county government budget preparation

1. County Fiscal Strategy Paper (CFSP): This document outlines the county’s budget priorities and resource envelope for the medium term. It is prepared by April 30th of the preceding financial year.
2. County Budget Review and Outlook Paper (CBROP): This paper reviews the county’s economic and fiscal performance and presents the county’s budget proposals for the upcoming financial year. The County Treasury prepares the CBROP by November 30th of the preceding financial year.
3. Budget Estimates (BE): These are detailed proposals for spending by each county department for the upcoming financial year. Sector Committees within the county government submit their Budget Estimates by October 31st of the preceding financial year.
4. County Assembly Budget Bill (CABB): This bill formalizes the county’s budget proposals and requires approval by the County Assembly by April 30th of the financial year.

QUESTION 2

December 2023 Question One B

The Cabinet Secretary for the National Treasury or the state officer responsible for finance in your country is mandated by law to manage the national budget process. One of the task is to issue circulars for setting guidelines to be followed to all government entities.

With reference to the above statement, highlight FOUR contents of such a circular.   (4 marks)

ANSWER

Contents of the circular issued by Cabinet Secretary

• A schedule for preparation of the budget indicating key dates by which various exercises are to be completed
• The procedures for the review and projection of revenues and expenditures
• Key policy areas and issues that are to be taken into consideration when preparing the budget
• Procedures setting out the manner in which members of the public shall participate in the budget process;
• The format in which budget information and documents shall be submitted; and
• Any other information that, in the opinion of the Cabinet Secretary, may assist the budget process.

QUESTION 3

August 2023 Question One B

The societal needs of most developing countries are mostly greater than the resources available to the government. The countries must therefore develop a public financial management framework to act as a tool for guiding formulation and implementation of public policies so as to improve the welfare of the citizens.

In relation to the above statement, outline FOUR principles of public financial management regulations that govern all aspects of public finance in your country.     (4 marks)

ANSWER

Principles of public financial management regulations that govern all aspects of public finance in Kenya

According to Article 201 of the Constitution of Kenya, The following principles shall guide all aspects of public finance in the Republic:-

(a) There shall be openness and accountability, including public participation in financial matters;

(b) The public finance system shall promote an equitable society, and in particular—

• The burden of taxation shall be shared fairly;
• Revenue raised nationally shall be shared equitably among national and county governments; and
• Expenditure shall promote the equitable development of the country, including by making special provision for marginalised groups and areas;

(c) The burdens and benefits of the use of resources and public borrowing shall be shared equitably between present and future generations;

(d) Public money shall be used in a prudent and responsible way; and

(e) Financial management shall be responsible, and fiscal reporting shall be clear.

QUESTION 4

April 2023 Question One C

Identify FIVE matters that are included in the budget estimates submitted to the County Assemblies by the County Executive Committee members for finance in respect of the budget for every financial year.                                                                           (5 marks)

 

ANSWER

Under Section 130(b) Public Financial Management Act 2012 the following matters are included in the budget estimates submitted to the County Assemblies by the County Executive Committee members for finance in respect of the budget for every financial year

1. A list of all county government entities that are to receive funds appropriated from the budget of the county government;
2. Estimates of revenue projected from the Equalisation Fund over the medium term;
3. All revenue allocations from the national government over the medium term, including conditional and unconditional grants;
4. All other estimated revenue by broad economic classification;
5. All estimated expenditure, by Vote, and by programme, clearly identifying both recurrent and development expenditures;
6. Information regarding loans made to the county government, including an estimate of principal, interest and other charges to be paid by that county government in the financial year in respect of those loans;

QUESTION 5

December 2022 Question One C

Outline SIX contents that should be included in development plan prepared by every county government as specified under Section 126 (1) of the Public Finance Management Act, 2012.                          (6 marks)

ANSWER

Contents that should be included in development plan prepared by every county government as specified under Section 126 (1) of the Public Finance Management Act, 2012

1. Strategic priorities for the medium term that reflect the county government’s priorities and plans
2. A description of how the county government is responding to changes in the financial and economic environment
3. Programmes to be delivered with details for each programme of:
   • The strategic priorities to which the programme will contribute;
   • The services or goods to be provided
   • Measurable indicators of performance where feasible and
4. The budget allocated to the programme
5. Payments to be made on behalf of the county government, including details of any grants, benefits and subsidies that are to be paid
6. A description of significant capital developments
7. A detailed description of proposals with respect to the development of physical, intellectual, human and other resources of the county, including measurable indicators where those are feasible
8. A summary budget in the format required by regulations; and

QUESTION 6

August 2022 Question One D

Outline the stages to be followed in the budget process for the national government in any financial year.                                                   (8 marks)

ANSWER

Stages to be followed in the budget process for the national government in any financial year

The budget process for the national government in any financial year shall comprise the following stages:

1. Integrated development planning process which shall include both long term and medium term planning
2. Planning and determining financial and economic policies and priorities at the national level over the medium term
3. Preparing overall estimates in the form of the Budget Policy Statement of national government revenues and expenditures
4. Adoption of Budget Policy Statement by Parliament as a basis for future deliberations
5. Preparing budget estimates for the national government
6. Submitting those estimates to the National Assembly for approval
7. Enacting the appropriation Bill and any other Bills required to implement the National government’s budgetary proposals
8. Implementing the approved budget
9. Evaluating and accounting for, the national government’s budgeted revenues and expenditures
10. Reviewing and reporting on those budgeted revenues and expenditures every three months.

 

QUESTION 7

April 2022 Question Two A

With reference to public finance management, distinguish between “planning” and “budgeting”.                                                    (4 marks)

 

ANSWER

Distinction between “planning” and “budgeting” with reference to public finance management

Planning refers to the process of developing long-term strategies and goals for the use of public resources. It involves analyzing current trends, identifying future needs, and developing policies and programs to address those needs. Planning is usually done over a multi-year horizon and involves a wide range of stakeholders, including government officials, private sector representatives, civil society organizations, and the general public.

Budgeting is the process of allocating resources to specific programs and activities within the context of the overall plan. It involves translating the long-term goals and strategies into specific financial targets and plans for the short-term. Budgeting is typically done on an annual basis and involves government officials, particularly finance and budget officers, as well as other stakeholders.

Planning is the process of setting long-term goals and strategies, while budgeting is the process of allocating resources to specific programs and activities to achieve those goals. Both planning and budgeting are critical to effective public finance management, and they must work together to ensure the optimal use of public resources.

 

QUESTION 8

December 2021 Question Two A

Outline two objectives of the Public Finance Management Act.

(2 marks)

ANSWER

Objectives of the Public Finance Management Act

1. To ensure Public finances are managed at both the national and the county levels of government in accordance with the principles set out in the Constitution
2. To ensure Public officers who are given responsibility for managing the finances are accountable to the public for the management of those finances through Parliament and County Assemblies.

 

QUESTION 9

December 2021 Pilot Paper Question Two A

Highlight the steps followed by your county government in developing its annual budget.                                                                      (9 marks)

 

ANSWER

Steps followed by your county government in developing its annual budget

The budget process for county governments in any financial year shall consist of the following stages—

1. Integrated development planning process which shall include both long term and medium term planning;
2. planning and establishing financial and economic priorities for the county over the medium term;
3. making an overall estimation of the county government’s revenues and expenditures;
4. adoption of County Fiscal Strategy Paper;
5. preparing budget estimates for the county government and submitting estimates to the county assembly;
6. approving of the estimates by the county assembly;
7. enacting an appropriation law and any other laws required to implement the county government’s budget;
8. implementing the county government’s budget; and
9. accounting for, and evaluating, the county government’s budgeted revenues and expenditures;

 

QUESTION 10

September 2021 Question One B

Outline four functions of a County Treasury as provided in the Public Finance Management Act.                                                                 (8 marks)

 

ANSWER

Responsibilities of a County Treasury with respect to county public funds

1. The County Treasury for each county government shall ensure that all money raised or received by or on behalf of the county government is paid into the established County Revenue Fund.
2. County Government Executive Committee may establish county government Emergency Fund.
3. County Executive Committee member for finance is responsible for administering the Emergency Fund
4. County Executive Committee member for finance has the responsibility to seek approval for payments from Emergency Fund from the county assembly.
5. County Treasury is to submit a report to Auditor-General in respect to Emergency Fund
6. County Treasury is responsible for preparing County Fiscal Strategy Paper.
7. County Treasury responsible for preparing a County Budget Review and Outlook Paper.

 

QUESTION 11

September 2021 Question Two A

Explain the following attributes that must be considered when preparing a national budget:

(i) Periodicity.                                                          (2 marks)

(ii)         Predictability.                                             (2 marks)

(iii) Comprehensiveness.                                        (2 marks)

 

ANSWER

Explanation of the following attributes that must be considered when preparing a national budget:

 

(i) Periodicity:

This attribute refers to the frequency with which a national budget is prepared and presented. A budget must be prepared on a regular basis to ensure continuity and stability in government spending. The most common frequency for national budgets is annually, although some countries may prepare budgets bi-annually or every three years. The periodicity of the budget must be consistent and predictable to enable effective planning and management of public resources.

 

(ii) Predictability:

This attribute refers to the degree of certainty that stakeholders can have in relation to the budget, including the timing of its preparation and the expected outcomes of government spending. A predictable budget helps to reduce uncertainty and enables stakeholders to plan and allocate their resources accordingly. This can also help to build trust in government decision-making processes and increase confidence in the economy.

 

(iii) Comprehensiveness:

This attribute refers to the extent to which the budget covers all aspects of government spending and revenue. A comprehensive budget includes all sources of revenue and all areas of government spending, including capital investments and debt servicing. It also includes estimates of the cost of implementing government policies and programs. A comprehensive budget enables stakeholders to understand the government’s priorities and to evaluate the effectiveness of government spending in achieving its goals. It also helps to ensure that all government activities are transparent and accountable.

 

QUESTION 12

May 2021 Question One B

In managing the national government public finances, the National Treasury or such state organ in your country enforces certain fiscal responsibility principles in accordance with the Constitution and the Public Finance Management Act.

 

In relation to the above statement, explain four fiscal responsibility principles.                                                                                (8 marks)

ANSWER

Fiscal responsibility principles enforced by national treasury in managing public funds in accordance with the Constitution and the Public Finance Management Act

1. Over the medium term a minimum of thirty percent of the national and county governments budget shall be allocated to the development expenditure.
2. The national government’s expenditure on wages and benefits for its public officers shall not exceed a percentage of the national government revenue as prescribed by regulations
3. Over the medium term, the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure
4. Public debt and obligations shall be maintained at a sustainable level as approved by Parliament for the national government and the county assembly for county government
5. Fiscal risks shall be managed prudently
6. A reasonable degree of predictability with respect to the level of tax rates and tax bases shall be maintained, taking into account any tax reforms that may be made in the future.