Annex 7: Classification of expenditure to track project and programme implementation and cost assessment methods

Classification of heads

Expenditure by item based on categories used in administrative control such as wages, travel allowance, telephone expenses and office supplies.

Administrative classification:

Expenditure by officer of the organization for financial management. the model of administrative classification differs from country to country, number and administrative rank of the finance officer.

Functional classification:

Government activities and expenditure by target such as police, defense, education, health transport and communication.

Economic classification:

Government financial transactions by economic category, with a distinction between investment expenditure on one hand, and on the other hand, current expenditure and revenue; subsidies, State allocations to families and other public institutions; interests and financial transaction fees. This classification is used in Government Finance Statistics Manual (1996), prepared by the International Monetary Fund (IMF).

Programme classification:

Expenditure by programme (that is, by the overall activities undertaken to achieve the same goals). Classification by programme may be akin to breaking down administrative classification or lump up administrative units.

Geographical classification:

Revenue and expenditure by geographical impact area (rural/urban, province, etc.).

Full cost capitalization:

To post full costs, appropriations and accounts of operational public bodies should include the following items:

Expenditure analysis by institutional structure:

To direct public body expenditure to poverty reduction, there is a need to determine the share of the budget earmarked for social service delivery. Breaking down costs by department ensures direct costing of service delivery on the ground in respect of administrative duties and support duties. More specifically, the cost share of the head office and operator support departments is apportioned as a proportion of field expenditure.

Unit cost analysis:

This analysis seeks to set unit cost/performance for a given period. Performance is measured by production, as it indicates the activity level of the public body. In a health centre for instance, unit costs may be calculated based on the number of consultations. It is possible to calculate the unit cost for every body or each of its departments. In each case, unit costs should be posted by head – personnel costs and investment costs per production unit. General support service costs will be posted to determine total production costs.

Costs analysis by activity:

Production implies resource-demanding activities. Hence, the need to determine general costs in detail in a bid to highlight the link between support services and final production of the body. This approach presupposes a detailed activity analysis, indicating the amount of resources needed by personnel to successfully implement each activity and cost drivers per activity or group of activities. By way of example, in a maternity, the cost driver may include the number of consultations, number of births, number of births attended by a doctor, or the duration of antenatal hospitalization. Costs of each activity are charged to each production unit incurring such costs.