PI-22. Expenditure arrears
This indicator measures the extent to which there is a stock of arrears, and the extent to which a systemic problem in this regard is being addressed and brought under control. It contains two dimensions and uses the M1 (WL) method for aggregating dimension scores.
| Score | Minimum requirements for scores |
|---|---|
22.1. Stock of expenditure arrears |
|
| A | The stock of expenditure arrears is no more than 2% of total expenditure in at least two of the last three completed fiscal years. |
| B | The stock of expenditure arrears is no more than 6% of total expenditure in at least two of the last three completed fiscal years. |
| C | The stock of expenditure arrears is no more than 10% of total expenditure in at least two of the last three completed fiscal years. |
| D | Performance is less than required for a C score. |
22.2. Expenditure arrears monitoring |
|
| A | Data on the stock, age, and composition of expenditure arrears is generated quarterly within four weeks of the end of each quarter. |
| B | Data on the stock and composition of expenditure arrears is generated quarterly within eight weeks of the end of each quarter. |
| C | Data on the stock and composition of expenditure arrears is generated annually at the end of each fiscal year. |
| D | Performance is less than required for a C score. |
Coverage
BCG.
Time period
Dimension 22.1: Last three completed fiscal years.
Dimension 22.2: At time of assessment.
Measurement guidance
Arrears are overdue debts, liabilities, or obligations. They constitute a form of nontransparent financing. Arrears can cause increased costs to government: creditors may adjust prices to compensate for late payment; or delayed supply of inputs may affect service delivery. A large volume of arrears may indicate a number of different problems, such as inadequate commitment controls, cash rationing, inadequate budgeting for contracts, under-budgeting of specific items, and lack of information.
Government payment deadlines are usually established in contractual obligations such as procurement or contractual grant agreements, or in debt service or other legal obligations such as payroll, pension, welfare payments, or noncontractual grants. An unpaid claim or obligation becomes an arrear when it has not been paid at the date stipulated in the contract or in the corresponding law or financial regulation. Even inadmissible or incomplete payment claims can become arrears if the beneficiaries are not notified of the defect before the payment deadline is met.
Assessors should confirm that the government’s data recording and reporting system analyzes payments, legal and contractual payment deadlines, and invoices, including suspensions and rejections, so that arrears can be and are calculated.
Delays in payments or transfers between government entities are not covered by this indicator.
