A study on Federal Financial Management Law No. 6 of 2019

Introduction:

The organization of financial  (2) The definitions included the terms contained in the law and included (45) paragraphs (budget allocations, those authorized in public money management, budget and person authorized to implement the budget, capital expenditures and cash payments, account schedules, commitment to spend amounts, emergency reserve, current expenditures, economic classifications, financial assets, fiscal year, federal budget, federal government, bank account, governorate budgets, governorate councils, public money, public institutions and public companies, spending units, oil revenues)

r="ltr">  (2) It included definitions of terms contained in the law and included (45) paragraphs (budget allocations, those authorized to manage public funds, budget and person authorized to implement budget, capital expenditures and cash payments, account schedules, commitment to spend amounts, emergency reserve, current expenditures, economic classifications, financial assets, fiscal year, federal budget, federal government, bank account, governorate budgets, governorate councils, public money, public institutions and public companies, spending units, oil revenues) 

agement in Iraq began with the application of the Ottoman General Accounting Principles Law issued in 1326 AH and the Authority System in Financial Affairs No. 715 of 1924, both of which were repealed after the issuance of General Accounting Principles No. 28 of 1940, which underwent numerous amendments totaling fifteen (15) modifications according to the development of financial management in Iraq during the monarchical and republican eras. The Iraqi state continued to apply this law in organizing financial management in Iraq until it was repealed in 2004, when it was suspended after the issuance of the Federal Financial Management Law No. (95) of 2004.

1- Concept of Financial Management:  It is that financial function of any economic unit that is concerned with organizing the movement of funds necessary to achieve its objectives and fulfill its obligations on time, or it is the function related to planning, providing, monitoring and managing funds. At the state level, the concept of financial management is broader and more comprehensive, as the concept of financial management refers to how to organize, plan and monitor public funds in terms of collection and expenditure from various sources legally defined and spending them on expenditure items related to the state's various economic and service activities. The most important elements comprising public financial management are:

a- Public Expenditures:- In order to achieve its objectives and meet public needs, the state requires a certain amount of public expenditures, whether for producing goods and services or distributing transfer incomes to achieve social or economic objectives 

b- Public Revenues:- For the purpose of fulfilling its obligations referred to in (a) above, the state is required to secure the necessary resources, and the major part of resources is derived from three basic sources: revenues derived from its assets and economic projects, fees derived from providing public services, and sovereign revenues, primarily taxes 

c- Public Budget:- It is a financial organization that matches all public revenues and public expenditures to achieve fiscal policy. In other words, it represents the financial data of the public economy and its relationship with the national economy and represents the financial aspect that shows detailed estimates of revenues and expenditures for an upcoming period (fiscal year)

(1)

2- Financial Legislation Governing Public Financial Management :- To ensure revenue collection and expenditure in a way that achieves the state's general objectives in various security, economic and social sectors, there must be legal rules governing revenue collection and controlling public expenditure, control and supervision of public funds movement and their preservation. Therefore, there must be laws governing this, and the following is a review of the most important laws that have organized public finance in Iraq since the establishment of the Iraqi state until the present time:-

a- The Ottoman General Accounting Principles Law of 1326 AH and the Authority System in Financial Affairs No. (715) of 1924. This law and system remained in force until the legislation of the General Accounting Principles Law No. (28) of 1940 

b- The General Accounting Principles Law No. 28 of 1940 (Amended). This law was issued on 17/4/1940 and published in the Iraqi Official Gazette No. (1793) dated 29/8/1940 and was considered effective after its issuance date. The law contained 56 articles and underwent fifteen (15) amendments that included fundamental modifications. The law covered matters related to organizing and preparing the budget and its timing, determining the beginning and end of the fiscal year, ending on March 31. The law also addressed the authority of the Minister of Finance to make transfers within the same chapter, and transfers between chapters are not permitted except by law. The law also entrusted the Minister of Finance with organizing the state's general accounts and coordinating them in a unified format in terms of classifying revenues and expenditures. It also organized the collection of fees for services provided by the state by the competent minister and with the approval of the Minister of Finance.

First- Amendment Law No. (12) of 1942, which determined the affiliation of accountants to departments and ministries to which they belong and treasury directors to the Director General of Accounts, and defined the financial authorities of the Minister of Finance, Prime Minister, competent ministers and accounting officials for expenditure and organizing expenditure rules.

Second- Amendment of the beginning and end of the fiscal year, as it used to begin on 1/4 and end on 31/3 of each year and became beginning on 1/1 and ending on 31/12 

Third- A number of articles of the law were also repealed for not being consistent with the developments that occurred in financial management in the seventies of the last century 

Fourth- Work with the law was suspended after 2003 when the Financial Management and Public Debt Law No. (195) of 2004 was issued 

(2)

c- The Unified State General Budget Law No. 107 of 1985

The reasons for legislating this law stated the absence of legislation organizing how to prepare the state's general budget and its preparation stages and the entities responsible for coordination in it, so there must be legislation of a law that defines its components in two groups: the centrally funded government sector budget, which is the current general budget and the investment budget, and the unified budget for self-funded economic activity units. The law also organized how to prepare the general budget and the entity responsible for preparing the basic guidelines for that, and the responsibility of each of the Ministries of Finance, Planning, Commerce and the Central Bank. The law also set controls related to budget implementation and setting specific dates for submitting trial balances and final accounts and the content of the annual report attached by the Financial Audit Bureau. The law included four chapters dealing with the following matters:-

Chapter One: Budget components including the centrally funded government sector budget (current budget and investment budget) and the unified budget for the self-funded public sector with economic or productive activity 

Chapter Two: The centrally funded government sector budget is an allocative and planning budget that includes all resources expected to be collected from funding sources and also includes approved allocations for their use

Chapter Three: All divisions included in the centrally funded government sector budget are subject to the provisions of the General Accounting Principles Law No. (28) of 1940 and the annual budget law 

Chapter Four: The unified budget for public economic sector units is a planning budget prepared and implemented according to the provisions of the unified accounting system 

Chapter Five: The law distributed budget preparation tasks among the Ministries of Finance, Planning, Commerce and the Iraqi Central Bank, each according to its competence 

- Ministry of Finance: responsible for preparing detailed bases for preparing the current budget and discussing it with ministries and entities not affiliated with a ministry and submitting it to the Council of Ministers 

(3)

- Ministry of Planning: responsible for preparing detailed bases for preparing the annual investment budget and discussing it with ministries and entities not affiliated with a ministry and submitting it in its final form accompanied by a report on the history of investment budget implementation and its implications on the state's economic situation and expectations for the upcoming fiscal year to the Council of Ministers.

- The Ministry of Commerce is responsible for preparing the foreign trade plan and discussing it with ministries and entities not affiliated with a ministry and submitting it to the Council of Ministers.

- The Iraqi Central Bank is responsible for preparing the foreign currency budget for the fiscal year and submitting it to the Presidency in due time.

Sixth- Budget Implementation: The law required implementing units of the budget to follow the approved mechanism, which is submitting monthly trial balances to the accounting department and submitting final accounts within specified deadlines not exceeding ten days after the following month and final accounts by a deadline not exceeding the end of March of the following year. The accounting department undertakes to consolidate final accounts at the budget level and submit them to the Minister of Finance within the period specified by the General Accounting Principles Law No. (28) of 1940 

- The law also requires self-funded public sector units to follow a specific mechanism by submitting financial statements to their affiliated entities audited by the Financial Audit Bureau within a period not exceeding the end of June of the following year.

Financial Management and Public Debt Law No. 95 of 2004:-

The reasons for issuing this legislation according to what was stated in the law or (order) were to improve living conditions or provide job opportunities for Iraqis, reduce unemployment, create stable financial markets, and Iraq's need for laws related to issuance and repayment of public debt to support government financing, strengthen the country's economic infrastructure, and improve economic infrastructure and stable conditions. This law also establishes a comprehensive structure for implementing tax policy and budget policy in accordance with best international practices by setting stages for formulating the federal budget and a number of reports required to increase reliability and transparency of budget operations. The Financial Management Law included contents divided into sixteen sections.

(4)

(1) Including the purpose of issuing the law:- The article addressed that this law regulates the procedures governing the development, adoption, registration, management and implementation of Iraq's federal budget and related matters, which include general purpose, guarantees, internal control, accounting and auditing. The principles of transparency, comprehensiveness and consistency should be followed. The principle of transparency requires that budget information be published according to internationally accepted standards and presented in a way that facilitates analysis, enhancement and confidence in it. The principle of comprehensiveness requires that the budget includes all government institutions and departments that carry out government operations and that it provides a coherent and integrated idea about their operations. The principle of unity requires that all government resources be directed to a common allocation container and used for public expenditure 

 (2) وتضمنت التعاريف المصطلحات الواردة بالقانون وقد شملت (45) فقرة (تخصيصات الموازنة , المخولين في ادارة الاموال العامه , الموازنة والشخص المخول بتنفيذ الموازنة , النفقات الرأسمالية والمدفوعات النقدية , جداول الحسابات , الالتزام بأنفاق المبالغ , احتياطي الطواريء , النفقات الجارية , التبويبات الاقتصادية , الاصول المالية , السنة المالية , الموازنة الاتحادية , الحكومة الاتحادية ’ الحساب المصرفي , موازنات المحافظات , مجالس المحافظات , المال العام , المؤسسات العامه والشركات العامه , وحدات الانفاق , عوائد النفط )

 (3) Financial authorities of the Minister of Finance and those authorized to spend 

 (4) General provisions, the most important paragraph of which is the classification of public revenues into tax revenues including oil tax revenues, non-oil tax revenues, non-tax revenues including (oil revenues and non-oil revenues) and includes revenues from several sources 

Article (5) includes paragraphs specific to budget preparation and its timing 

Article (6) Budget law and related matters Content (8) Approval of final accounts by the legislative authority and their publication in the official gazette and making them available for public review 

e- Federal Financial Management Law No. 6 of 2019 :- This new law included eleven chapters as follows 

Chapter One : Addressed definitions and terms included in the law provisions 

(5)

Chapter Two : Budget preparation and its components and entities responsible for its preparation and timing, as the federal general budget of the state consists of:

• -    Centrally funded government sector budget
• -    Investment project expenditures for self-funded revenues
• -    Regional and governorate revenue expenditures

The Ministries of Finance and Planning undertake, starting from March of each year, to prepare a report on fiscal policy priorities and budget trends in terms of its elements, size, and functional and sectoral distribution, and a report on foreign currency proposed by the Central Bank for a period of (3) years. The report includes economic forecasts and predictions about revenues and expenditures, analysis of the foreign trade sector, targeted deficit and ceilings of total federal expenditures (current and investment) 

Chapter Three – General Budget Approval: The Council of Ministers undertakes to discuss the draft budget law, approve it and submit it to the House of Representatives for discussion and approval 

Chapter Four – Budget Implementation: The federal general budget is implemented through funding installments from the general treasury account and repayment mechanism, expenditure limits and ceilings, mechanisms for entering into financial commitments, authorities and those authorized to spend from budget allocations, authority to make transfers between budget chapters and within one chapter, and how to handle accounts, advances and deposits and their time ceilings and how to dispose of them after the specified time period expires 

Chapter Five – Control and Auditing

   The responsibility of the Minister of Finance for accounts related to all receipts and payments made in all ministries, departments not affiliated with a ministry, regions and governorates was determined, and he must monitor financial and accounting transactions by methods determined by the Ministry of Finance. The administrative affiliation of financial departments to the entities they belong to and technically to the Ministry of Finance was also determined. Internal control and audit formations are technically affiliated with the Ministry of Finance. In case of a dispute between the spending officer and the employee responsible for spending, a written order is issued by the spending officer 

(6)

and control formations undertake to inform the Financial Audit Bureau of both parties' opinions within fifteen (15) days.

It also included determining spending documents and those authorized to sign them, internationally and locally accepted accounting standards, and required the Financial Audit Bureau to issue the government accounting manual for centrally funded departments and the unified accounting system for self-funded administrations.

The mechanism for preparing and submitting financial statements from spending units and submitting them to the Financial Audit Bureau and their time ceilings was also determined 

Chapter Six- Oil Revenue Management

Oil revenues that fall within the federal general budget revenues were determined and include:

• -    Total revenues of public companies from domestic and foreign crude oil sales and oil and gas products
• -    All amounts realized from oil and gas contracts implemented by international oil companies
• -    Treasury's share of profits from companies operating in the oil and gas sector and includes all revenues from the above sources within an account called (Oil and Gas Revenue Account)
• -    All revenues are deposited in bank accounts opened specifically for these revenues by the Minister of Finance
• -    Spending from oil and gas revenue accounts is only for financing federal budget allocations and with the signature of the Minister of Finance and two employees not less than Director General level chosen by the Minister of Finance
• -    The surplus of the oil and gas revenue account may be invested in credible financial assets
• -    This account is subject to audit by the Federal Financial Audit Bureau and an internationally recognized external auditor

(7)

• -    The Minister of Finance submits to the House of Representatives and the Economic Affairs Committee a detailed report on the account and quarterly audit results on the status of investments and the Financial Audit Bureau report including details about the account's money movement
• -    Companies operating in the oil and gas sector submit a quarterly report to the Minister of Finance and Minister of Oil actually

including quantities and amounts of all oil and gas production, sale and export operations and payments and outstanding claims to international companies, and the Minister of Finance submits a report to the Council of Ministers

Chapter Seven- Loans and Guarantees

 The Minister of Finance was authorized to borrow domestically or externally short-term or issue treasury bills and financial bonds to cover the general budget deficit, and he may authorize the Central Bank to issue treasury bills and financial bonds, manage and recover them, and no ministry or unaffiliated entity may borrow from any source or overdraw within its bank account.

The Minister of Finance was also authorized with the approval of the Council of Ministers to issue guarantees within the maximum limits set in the budget law.

Regions and governorates were authorized after the approval of the Minister of Finance to obtain local loans and issue guarantees within the debt limits set by the budget law

Chapter Eight – Self-Funded Administration Budgets

A mechanism was drawn for preparing budgets of self-funded administrations and approved, and the Ministries of Planning and Finance submit a detailed report on the total budgets of these administrations, taking into account the independence of operations carried out by these administrations, and their budgets do not fall within the federal budget except for their investment projects

Time ceilings were also set for submitting budgets of these administrations to the federal Minister of Finance by May 31 of the year following the fiscal year, provided they are prepared according to local and international accounting and control rules and standards and audited by the Federal Financial Audit Bureau

(8)

Chapter Nine –Debt and Asset Write-off Authority

The law determined the authority of the Minister of Finance and ministers to write off debts of centrally funded departments that prove impossible to collect after exhausting legal methods, and the law also determined the authority of the Council of Ministers to write off debts exceeding the authority of the Minister of Finance or competent minister. Authority for donations and cash in-kind rewards for the Minister of Finance and competent ministers was also determined.

Chapter Ten –Transparency

This chapter includes transparency principles and standards, as the law stated that all spending units must adhere to basic principles and standards of general budget transparency and disclosure of mechanisms for collecting and spending public funds, and provide sufficient data, information, documents and reports on their financial and administrative activities (past, current and future) regularly and in a timely manner and publish them on their electronic sites and include:

• -    The report approved in Article (3) of the law, which is the report prepared by the Ministries of Planning and Finance that includes fiscal policy priorities, government program and federal budget trends
• -    Financial data and budget proposed by the Council of Ministers
• -    Budget approved by the House of Representatives
• -    Fiscal policy document stipulated in Article (8) of the law which includes adopted fiscal policy objectives and rules, macroeconomic forecasts and public finance indicators and main budget assumptions, fiscal risks, list of all guarantees issued by the government
• -    Detailed estimates of current and investment cash and in-kind revenues for each spending unit
• -    Investment policy for oil and gas revenue account surplus
• -    Monthly report of oil and gas revenue account
• -    Quarterly audit results

(9)

• -    Annual financial statements of oil and gas revenue account
• -    Financial Audit Bureau report

Chapter Eleven- General and Final Provisions

• -    Adherence to budget principles (budget transparency, budget comprehensiveness, budget unity, budget annuality)
• -    Issuance by ministries, unaffiliated entities, regions and governorates of statistical tables of financial data for their formations

Conclusion

From the above, it is clear that the Iraqi state since its establishment has been concerned with financial management of public funds as the vital artery for its continuity and continuation in implementing its duties and obligations towards society, which requires setting legal frameworks for their collection, planning, organization and setting bases and mechanisms for their spending, preservation and control

Therefore, successive governments since the establishment of the Iraqi state have relied on legislation that was in force before independence, especially that applied by the Ottoman state and British occupation, until the first financial management law was legislated in 1940, which is the General Accounting Principles Law No. 28 of 1940 (Amended). With the development of Iraq's political and economic conditions, other financial management legislation was issued and included principles and rules governing public money management in collection and expenditure. Focus was placed on the following principles, rules and bases

1. 1-    Preparation of the annual general budget, which includes entities responsible for its preparation, timing related to it, determining the beginning and end of the fiscal year, the entity responsible for its legislation and issuance, and financial authorities of the head of government, Minister of Finance and competent minister
2. 2-    Administrative and technical affiliation of accounting and control departments in spending units and their work mechanisms
3. 3-    Determining accounting and financial systems used in recording operations and transactions in spending units and preparing data and final accounts and timing of their submission

(10)

1. 4-    Entities responsible for monitoring and auditing accounts of public spending units and reports required to be submitted when implementing the budget
2. 5-    Determining sources of public funds and methods of their collection
3. 6-    There are two types of public spending units
4. a-    Units funded centrally from the state's general budget
5. b-    Self-funded units with economic and service activity and their financing and monitoring mechanism
6. 7-    Determined sources of public funds from three main sources which are:
7. a-    Revenues from its properties and economic projects
8. b-    Fees from providing public services
9. c-    Taxes
10. d-    External and domestic loans
11. 8-    The Federal Financial Management Law No. (6) of 2019 was distinguished by a basic feature

of 2019 which is the compilation of principles, bases and rules included in legislation issued by the Iraqi state since its establishment until the present time, which are the matters referred to in the previous paragraphs in addition to the following features 

1. a-    Organization of financial revenue management in terms of their names, affiliation and control over them through allocating special bank accounts for them and restricting them to financing the general budget and investing the surplus in them and determining those authorized to spend from them, preparing final accounts and subjecting them to audit by the Financial Audit Bureau and foreign auditor, submitting quarterly reports about them

(11)

1. b-    A special chapter on loans and guarantees , where the law authorized the Minister of Finance to borrow domestically and externally short-term loans and issue treasury bills and government bonds to cover the budget deficit, and he has the right to authorize the Central Bank to do so and manage and recover them. The Minister of Finance was also authorized to issue guarantees including loans, debts, letters, credits, counter-guarantees and credit commitments
2. c-    Transparency : The law obligated all spending units to adhere to basic principles and standards of general budget transparency and disclosure of mechanisms for collecting and spending public funds and providing sufficient data, information, documents and reports on financial and administrative activities (past, current and future) and publishing them on their electronic sites in a timely manner. It specified the topics to be published on the electronic sites of the Ministry of Finance or other government sites 
3.     Prepared by Dr. Abdul Sahib Najm

Board of Trustees Member

Extractive Industries Transparency Initiative