EXPENDITURE AND PAYMENTS
Contents:
Scope
Key Points
Background
Authorisation of Expenditure
Timing of Payments
Advance and Interim Payments
Date of Payments
Proof of Payment
Accounting for Payments
Scottish Government Internal Procedures
Annex 1: Timing of Payments
Annex 2: Advance and Interim Payments
Scope
1. This section gives guidance on the basic principles and safeguards associated with authorising expenditure and making payments. The guidance is aimed primarily at the core Scottish Government (SG), SG Executive Agencies, non-ministerial Executive Agencies / Departments and bodies sponsored by the SG. However, other organisations to which the Scottish Public Finance Manual (SPFM) is directly applicable should ensure compliance with any relevant provisions and follow procedures consistent with the guidance.
Key Points
2. Expenditure should be incurred in a way which represents value for money, taking into account potential risks to regularity and propriety. Effective control over payments must be maintained at all stages.
3. Expenditure should be authorised in the operational area which entered into the commitment, with due consideration to separation of duties.
4. Desk instructions covering both the arrangements for entering into commitments and for approving and processing the resultant payments (i.e. both purchasing and budgetary authority) should be put in place at operational area level.
5. Payments should be made promptly and, where appropriate, in accordance with the Scottish Government target of 10 working days for the payment of invoices.
Background
6. Public sector organisations should ensure that their use of resources is properly authorised and controlled. Expenditure should be incurred in a way which represents value for money, taking into account potential risks to regularity and propriety. Effective control over expenditure must be maintained at all stages supported by an appropriate accounting system e.g. SEAS - the Scottish Government's accounting system. Essentials of systems for committing and paying funds are as follows:
- internal controls to provide authority for acquiring the goods or services to be purchased;
- authorisation for payment separated from the process of making payment, with appropriate validation and recording at each step;
- checks that the goods or services acquired have been supplied in accordance with the relevant agreement(s) before making payment;
- payment terms chosen or negotiated to provide good value;
- invoices paid accurately and on time;
- a balance of preventive and detective controls to deter and tackle fraud;
- audit trails which can be checked readily and reported upon both internally and externally; and
- periodic reviews to bring to bear any lessons from internal audit examination or other relevant experience, or to implement developments in good practice.
Authorisation of Expenditure
7. Expenditure should be authorised in the operational area which entered into the commitment, with due consideration to separation of duties. No one person should be able to control all aspects of the payment authorisation procedure and different people should be responsible for ordering goods and services, for approving payments, and for processing payments. Where this is not possible due to limited resources alternative arrangements should be agreed with the organisation's finance function.
8. Public sector organisations are responsible for the propriety, regularity and accuracy of the expenditure that they authorise. Desk instructions covering both the arrangements for entering into commitments and for approving and processing the resultant payments (i.e. both purchasing and budgetary authority) should be put in place at operational area level. The instructions for taking on commitments should state the circumstances in which prior finance function approval is required and should ensure that any such special requirements are met. The instructions should also identify the person(s) authorised to approve commitments, the limits on that authority, and the procedures to be followed before authorisation.
9. Instructions on making payments must ensure that:
- where necessary the expenditure has been approved and the proposed payment is in accordance with the approval;
- the payment is properly due, supported by invoices, goods received notes or other vouchers and (if appropriate) certified;
- the claim or invoice is arithmetically correct, in accordance with contract or other commitment (e.g. conditions of grant), properly discounted etc;
- where payment is made by instalments, (e.g. interim or part payments), the proposed payment is within the approved total cost;
- the claim or invoice is not a duplicate, is not a statement, and has not previously been passed for payment;
- any increase in cost over the order price is permissible and has been agreed; and
- the VAT treatment is correct.
10. All proposals for payment which do not meet these requirements or which depart from the normal rules or procedures should be referred for approval to the relevant finance function. See also the guidance on Checking Financial Transactions.
Timing of Payments
11. Detailed guidance on the timing of payments, including the impact of the Scottish Government target of 10 working days for the payment of invoices, is set out in Annex 1. The guidance reflects the underlying principles which should be observed in relation to the settling of invoices / claims i.e.
- payment terms should be agreed at the outset;
- payment procedures should be explained to suppliers / recipients;
- payment should be within the terms of any agreed contract, other documentation governing the transactions (e.g. Management Statement/ Financial Memorandum) or as required by law; and
- suppliers / recipients should be told without delay when an invoice / claim is contested and the invoice / claim should be settled promptly on receiving a satisfactory response.
12. Public sector organisations are also bound by the Late Payments of Commercial Debts (Interest) Act 1998, which came into force on 1 November 1998. It provides a statutory right to claim interest on late payments of commercial debt. Payment is regarded as late if made outside the agreed terms, or 30 days after receipt of a valid invoice where no terms are agreed. Public sector organisations should note any expenditure incurred under the Act in the resource accounts.
Advance and Interim Payments
13. Guidance on those exceptional circumstances where payment may be made outwith the normal procedures i.e. on receipt of a fully matured invoice or claim is set out in Annex 2.
Date of Payments
14. Although the date of payable orders should normally be the date of dispatch there may be occasions when the date on the payable order is later than the date of dispatch. Where this is the case organisations should ensure that payable orders do not reach the payee in time to be presented before the due date but if this is unavoidable the payee's attention should be drawn to the payment date. Payable orders (cheques) should not be backdated. Payments by BACS, which should be the usual payment method , will carry what the banking industry refers to as the "processing" date. The "processing" date is the day before the money moves from the paying organisation's bank account to the payee's.
Proof of Payment
15. The accounting system will normally provide sufficient proof of payment but where it is necessary, for example for legal reasons, to ensure that a payment represents the full discharge of an obligation to the payee, a separate receipt to that effect must be obtained from the payee or his/her authorised representative. In the case of a cash payment the receipt of the entitled payee or his/her authorised representative is essential.
Accounting for Payments
16. Under resource accounting expenditure is attributed to the financial year(s) in which resources are used / benefits received regardless of the timing of the payment. In most cases the appropriate accounting will be generated by the accounting system at the point of entry of the invoice. Any necessary adjustments should be made in the context of monthly or annual accruals exercises.
Scottish Government Internal Procedures
17. Detailed guidance on SG internal procedures with regard to authorising expenditure and making payments, including transactions between constituent parts of the Scottish Administration that share the core set of books and payments outwith SEAS, is available on the SG Intranet.
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Page Published / Updated: December 2008