Using Government Chart of Accounts for Tracking Aid Flows and Expenditures in the budget4

Tithokoze Samuel, Principal Budget Officer, Ministry of Finance, Malawi, describes the financial management systems in use at the ICGFM Winter Conference. She described the Integrated Financial Management System (IFMIS), use of Treasury Single Account (TSA) and expenditure management.

Ms. Samuel described the limitations of the IFMIS. Many transactions are not controlled by the IFMIS including domestic revenues, domestic debt, external loan, donor projects, payments at the council level. This information is uploaded from other information systems, although the data transfer tends to be a month late.

Ms. Samuel described the footprint of donor aid in Malawi. She described the use of the Aid Management Platform. The Government Chart of Accounts tracks donor support in the budget. However, she pointed out, donors have many different unique codes. She described the four Chart of Accounts segments and the donor codes. She pointed out that getting disbursement information from donors is delayed, yet the IFMIS is real-time. She described the difficulties matching information from the IFMIS and the AMP.

Ms. Samuel hopes that donors can be encouraged to use the IFMIS for disbursements in order to get real-time effective data. The Government COA demands a lot of detail that promotes transparency and accountability, she concluded. It is imperative that cooperating partners not using country expenditure system be encouraged to do so as this reduces time required to produce expenditure reports. She stated that it is possible to track all donor financed projects in the budget and the corresponding expenditures if country systems used.

Samuel using government chart of accounts for tracking aid flows and expenditures in the budget

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Samuel l’utilisation du plan comptable gouvernemental pour assurer le suivi des flux d’aide et des dépenses dans le budget

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Samuel utilizar el plan contable del gobierno para registrar los flujos de ayuda y los gastos en el presupuesto

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IPSAS Lessons Learned

Jesse Hughes, Professor Emeritus, Old Dominion University provided lessons learned on the adoption of IPSAS standards. He commented that people speak many languages around the world, but accounting is the language of management. He emphasized that we can't speak of improved public financial management without improving accounting system. "It is the glue that pulls everything together to see what the whole of government is doing."

Dr. Hughes sees IPSAS as one the strategies to improve public financial management. He also recommended that cash management should be separate from budgetary controls, that the Treasury Single Account (TSA) be used and Integrated Financial Management Information Systems (IFMIS) adopted by governments.

Dr. Hughes emphasized the need for improved education in public financial management. He described the benefits of accrual accounting in government. These benefits include:

• Better accountability and better decisions


• More meaningful understanding of costs for goods and services


• Basis for performance management

Dr. Hughes stated that if we get nothing else about accrual accounting, it ensures that you don't pass along your debt to children and grandchildren.

12 steps for transition to IPSAS was described by Dr. Hughes:

1. Develop organizational transition plan and coordinate with auditors


2. Train staff


3. Assess the information system changes required


4. Prepare Policy and Procedures Manual for approved IPSAS policies


5. Pilot test IPSAS policies and procedures in the new/upgraded information system


6. Prepare IPSAS-compliant opening and closing Statements of Financial Position.


7. Prepare proforma Statement of Financial Performance.


8. Prepare proforma Statement of Net Assets/Equity.


9. Prepare proforma Statement of Cash Flows


10. Prepare proforma Statement of Comparison of Budget to Actual Amounts


11. Prepare proforma IPSAS-complaint statements for controlled entities


12. Prepare proforma Consolidated Statements

Dr. Hughes suggests that IPSAS may tackle public private partnerships, fiscal sustainability and social security reporting standards. He showed the difference in size between the cash and accrual version of IPSAS.

Hughes implementing ipsas to improve public financial management

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Hughes implementando las ipsas para mejorar la gestión de las finanzas publicas

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Hughes implementing ipsas to improve public financial management

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Using Country PFM Systems for AID

USAID Chief Financial Officer David Ostermeyer spoke at the ICGFM June DC Forum about the use of country PFM systems for donor funding. He introduced some ideas and described efforts to develop a consistent and transferable assessment tool that would objectively evaluate risk in pushing aid dollars through host country PFM systems. According to Ostermeyer, USAID is incredibly risk-averse. He wonders whether innovations and opportunities are lost as a result of shying away from pushing aid through country systems. He questioned how donors can identify country systems as high risk without an objective and standardized assessment tool.

Ostermeyer and his team have a plan to develop a new evaluation tool. The process will begin with analysis pilots in five countries beginning with Liberia and moving throughout 2010 to include Rwanda, Pakistan, Nepal, and Peru. Participating pilot countries were chosen based on how innovative the missions are and how well the mission understands and is committed to the Accra accords. The methodology for creating the assessment tool will involve examining what agencies like DFID and the World Bank have done to evaluate or mitigate risk and to build the capacities of country systems at the national level. This assessment tool will be transferrable among countries. It will also support national and sub-national government tiers.

Ostermeyer hopes that this initiative will assist in achieving stronger capacity and sustainability within host countries. This approach will enable the United States to compare host country systems and evaluate which are most ready to take on ownership of aid allocation and spending.

Value of Treasury Single Accounts in Government

Sailendra Pattanayak, Senior Economist, Fiscal Affairs Department, the International Monetary Fund, discussed Treasury Single Accounts (TSA). He suggests that the TSA aids cash management and facilitates other functions in public financial management. He presented diagrams showing the typical payment system with many bank accounts and the use of a TSA.
Mr. Pattanayak pointed out the TSA handles payments from all spending units separately. Unlike the use multiple bank accounts, the cash balances roll up to a single account.
The TSA is not just a single bank account. It can be multiple accounts rolled up to a single accounts. Mr. Pattanayak pointed said that the TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources. It could be just one account or a set of linked accounts (main and subsidiary). He warned that as far as possible, all public entities should be consolidated to the TSA. The TSA should be legally recognized, institutionally robust and stable according to Mr. Pattanayak.

Mr. Pattanayak agreed with previous presentations on cash management in that cash controls should be de-linked from budget controls. He emphasized that the TSA can contain ledger sub-accounts for control and monitoring purposes, but these should not contain over-night balances. He said that options for accessing the TSA is mainly dependent upon institutional structures and payment settlement systems. The cash balance in the TSA is maintained at a level sufficient to meet daily operational requirements of the government according to Mr. Pattanayak.

The TSA is nothing new according to Mr. Pattanayak. He warned that revenue and expenditure transactions should be classified through a well-developed chart of accounts and not by maintaining distinctive bank accounts for them. He recommends that the TSA should be maintained in the national currency because budget execution is in the national currency.

The benefits of the TSA includes:

• Ensures complete, real-time information on government cash resources
• Helps preparation of accurate and reliable cash flow forecasts
• Optimizes the cost of government operations
• Facilitates efficient payment mechanisms
• Improves operational and appropriation control during budget execution
• Enhances efficiency and timeliness of bank reconciliation
• Facilitates timely and more complete accounting statements/reports

Mr. Pattanayak described the TSA structure when there are limited and advanced Treasury communications and information systems, and through integration with the banking industry. He introduced the requirements for an efficient TSA:

• Co-operation of the line ministries
• Development of an Interbank settlement/clearing system
• Real Time Gross Settlement System (RTGS) at the central bank for high value transactions
• Major commercial banks and treasury connected to the RTGS
• Development of a small payments clearing system
  

Mr. Pattanayak described different banking arrangements and the management of payments, receipts and balances. He said that individual cash books are not needed when using the TSA.

Mr. Pattanayak described the coverage of the TSA. The minimum is to manage the entire central government. Public corporations are generally not included in the TSA. He described the possible integration of social security and other trust funds.

Mr. Pattanayak described how the TSA could include both central and sub-national governments. He also described the integration of transaction processing with government accounting systems. He warned that centralized payment systems can lead to inefficiencies and high transaction costs without IFMIS automation and accounting controls.

Many donors are concerns about putting funds into the TSA:

• Assurance for use of donor aid on specific projects (or non-diversion of funds)
• Some ring-fencing to avoid liquidity problems (and ensure timely payments during project execution)
• Minimize exposure to exchange related fluctuations/losses in the value of donor aid (when currency exchange rate regime is volatile)
• Reliability of controls (in managing donors’ funds) and information produced by the national PFM systems

These donor issues can be addressed by activities such as the separation of currency sub accounts according to Mr. Pattanayak

Mr. Pattanayak described some of the issues that need to considered when designing a TSA. He described country-specific issues. He recommended that the design of the TSA should form part of the design of an Integrated Financial Management Information System (IFMIS). He described the preconditions for establishing the TSA including political support, regulatory requirements and the need for technological integration. He emphasized the need to formalize banking agreements. The Chart of Accounts may need to be extended to cover non bank expenditure transactions. He pointed out that moving to a TSA will require some capacity development among users.

Sailendra pattanayak tsa presentation english

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Sailendra pattanayak ts apresentation es

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Sailendra pattanayak tsa presentation francais

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Using Periodic Audits to Prevent Catastrophic Project Failure

Following this debate, Paul Dorsey makes the case for independent periodic audits of all major IT projects. This, it is said, will effect a major reduction in the level of IT failures which all entities across the globe suffer. As Paul concludes, stopping from time to time, stepping back and asking “Is this system ever going to work?” is the key to not being surprised by a massive system failure.
Using Periodic Audits to Prevent Catastrophic Project Failure

PFM Conference Knowledge Base

by Doug Hadden, ICGFM VP Communications

You will find an updated PFM Knowledge Transfer series on the FreeBalance Sustainability Blog with notes, images and presentations from the 23rd Annual ICGFM Conference. This knowledge transfer series includes notes about:

1. Introduction and References
2. History of Public Financial Management Reforms
   current cycle of PFM reforms
   how the financial crisis is accelerating PFM reforms
3. Benefits of IFMIS
   enabling government reform
   improve efficiency and controls
   improve conficence through transparency
   reduce costs
   improve budgets, planning and decision-making
4. Acquisition Practices
   build or buy
5. Implementation Practices and Project Management
   implementation practices lessons learned
   project management
   government ownership
   planning and benchmarks
   building the government team
   role of IT
6. Implementation Sequencing
   implementation success factors
   issues and reasons for sequencing
   implementation and roll-out phases
   post implementation changes
   diagnostic tools
7. Capacity Building
   coordinating training and implementation plans
   capacity development
   staffing and skills
8. Subjects in PFM - Procurement, Budget Planning and Performance Management
   procurement
   budget planning
   performance management
   public private partnerships (PPP)
9. Transparency and Accountability
   need for transparency
   budget transparency
   forms of accountability
   service transformation
   elements of good governance and transparency
   international benchmarks - lessons learned

Finance and Technology for More Effective Systems

Christine Walker, the CFO of the Canadian International Development Agency (CIDA) discussed the impact of the government stimulus package and the use of technology during a keynote at the 23rd Annual ICGFM Conference.

The stimulus package requires identifying risks. Based on these risk, internal controls need to be established. Effective reporting is essential. This need effective IT systems. Systems in use by the Canadian government were not designed to handle quarterly reporting, according to Ms. Walker.

Finance and Technology for More Effective Systems

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The budget bill that passed in January. Each department to receive the money needed to design systems and programs to achieve parliamentary approval. All submissions were accumulated to a single bill that was passed in Parliament, which has never been done in Canada before.

The challenge for government departments is the complex procurement process for all purchases over $25,000. This process is designed to protect the government. Ms. Walker suggested that it was very difficult to quickly manage stimulus procurement. Hiring people to help was very difficult and the government found that they had capacity problems. Vendors are able to appeal to the Canadian International Trade Tribunal should there be any mistake in the procurement process. This can delay procurements by over a year.

Ms. Walker identified numerous risks of delay such as complex environmental assessments and just-in-time project reporting. She indicated that the monitoring and reporting burden became significant. Timely and accurate information is required. The government needed to asses a certain level of risk. CIDA has created a vendor assessment and audit process to help pre-select a short list of vendors.

Parliament wants to know non-financial information. They want to know progress to date against the project plan. Governments are not used to reporting on financial and non-financial at the same time. It is imperative to use IT systems to compare projects according to Ms. Walker. Parliamentarians will demand why projects have not been completed in their ridings. She believes that the political environment will be very challenging. No one wants to be a CFO in the Government of Canada, according to Ms. Walker. IT systems are critical to support effective financial management for the stimulus package.

Malawi using Aid Management Systems to Optimize Development during Financial Crisis

Naomi Ngwira, Director, Department of Debt and Aid, Ministry of Finance in Malawi discussed the use of the Aid Management Platform (AMP) from the Development Gateway Foundation. Aid finances half of the government budget and 80% of development expenditures. She pointed out that the software does not contain debt management functionality. The Government of Malawi intends to integrate AMP with the Integrated Financial Management Information System (IFMIS).
She described the Government of Malawi experience in financial management systems. Ms. Ngwira pointed out that the complexity of handling large volumes of information on aid requires a solution like AMP. The system facilitates entering in objectives and targets. She complemented the support from the Development Gateway, a non profit organization specializing in informatics solutions for emerging countries. Reporting has improved and is used by donors and the government.

Ms. Ngwira indicated that not all development partners provide timely and accurate data. The government discovered that only four donors disbursed within +/- 10% of submitted projections. This has not improved.

AMP has assisted the Government of Malawi to ensure that pledged money is fully disbursed. Reports can create peer pressure among donors. AMP can improve allocateive efficiency and enable managing for results.

The Government Integrated Financial Management System (IFMIS) of the Future

By Doug Hadden, VP Products, FreeBalance.

I presented an overview of the top ten trends in Government IFMIS last year at the May ICGFM conference.

Ifmis-of-tomorrow-

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What has changed in the past year?

Trend 1: Market Consolidation

* The market continues to consolidate. The large acquisitions of Hyperion, Business Objects and EDS points to this continuing trend.

Trend 2: Open Source Software

* Free and Open Source Software (FOSS) adoption continues, particularly in middleware.

Trend 3: Commoditization of the Software Stack

* Middleware continues to become less and less expensive. Commercial vendors are providing more functions for the same price. Open Source is gaining traction.

Trend 4: Decentralization

* Countries are moving rapidly to administrative and fiscal decentralization. There is great interest in systems that address local capacity yet can integrate with the national government system.

Trend 5: Business Process Management

* There seems to be a cooling of the BPM market. BPM is becoming integral in most software products. Customers are also discovering the limitations of BPM in collaborative and creative environments.

Trend 6: Software as a Service (SaaS)

* There is steady SaaS growth with major vendors providing alternatives. The take-up in government remains low.

Trend 7: The Web as Platform, Web 2.0

* Web 2.0 has exploded in government. There have been many Government 2.0 conferences and lots of talk in the blogosphere. Many government agencies are using these technologies for both internal and citizen-facing initiatives.

Trend 8: Wireless Government

* Wireless Government remains in its infancy. Mobile telephone adoption is increasing world-wide, so the use in Government is likely to grow. Mobile technology was used during the recent earthquake in China to provide up-to-date information.

Trend 9: Government Performance Management

* Performance budgeting and performance management continues to grow in government. There are some cultural issues to overcome in some governments.

Trend 10: Service Oriented Architectures

* Adoption and interest in SOA continues as it reaches mainstream adoption.


What trends have we seen since May 2007?

New Trend 1: Usability

* There has become a renewed focus on usability in software. Financial Management software has become feature rich and hard to use. The success of products designed for consumer use has begun to affect thinking on usability.

New Trend 2: Virtualization

* Virtualization enables organizations to leverage all computing resources more effectively. This includes the ability to deploy applications from different computing environments and from different servers. This cuts computing costs and simplifies support.