Contemporary Trends in Public Financial Management

Lessons from the Winter ICGFM Conference

Job Opportunity: IMF Looking for Public Sector Cost Accounting Expert to be Based in Sao Paolo, Brazil

The IMF Fiscal Affairs Department (FAD) is looking for candidates to work in a project on public sector cost accounting in the State of Sao Paolo, Brazil. The project aims to improve the budget preparation, budget execution, and cost control at the state level. We are looking for highly-qualified public sector cost accounting experts for two assignments: (i) a long-term assignment (one year, renewable for one more year); and (ii) a short-term peripatetic assignment (a two-week visit every quarter during two years). The assignments are in Sao Paulo, Brazil. It is expected that the short-term expert will be a leader in his field and have a strategic guidance role in the project, while the long-term expert will work more intensively on the implementation of the project with Brazilian counterparts.

The objectives of the project are to (i) implement the public cost system in phases, starting with four pilot entities (health, education, prisons, and social assistance); (ii) develop a cost methodology adequate to the public services at the state level; (iii) organize seminars, courses, and other training events to educate the state officials on how to prepare and use cost information; (iv) document the cost methodology used in the existing projects; (v) prepare guidelines for external dissemination of cost data; and (vi) prepare progress reports.

The State of Sao Paolo will create a unit in the Secretary of Finance dedicated to implementing the project. The authorities are also enrolling the University of Sao Paolo to provide support on capacity building and research methodology. The consultants will work directly with this unit and in collaboration with the University.

The State of Sao Paolo has some similarities with US states because Brazil is also a federation. Sao Paolo relies strongly on its own tax resources to implement local policies, and is responsible for the provision of the main public services (education, health, police, etc.). The State has well-functioning integrated financial management information system (IFMIS). The State of Sao Paulo has a population of more than 40 million people and an economy of the size of Argentina. It is indeed a nice place to work and live.

The positions are funded by the State of Sao Paolo itself through a Trust Fund administered by the IMF. The IMF will provide guidance and support (“backstopping”) to the consultants during the entire project, and introduce and support the consultants during the kick-off phase.

Qualification requirements include at least ten years of relevant professional experience, including in cost accounting in the public sector. The ideal candidates would have a degree in accounting, business management, or economics. Portuguese language skill is a plus but it is not a requirement. Fluency in Spanish or English is also acceptable.

The deadline for applications is September 30, 2010. Please send your CV to Mr. Mario Pessoa (mpessoa@imf.org) indicating if you are applying for the short-term or long-term position.

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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Financial Crisis accelerates PFM Reform

David Nummy introduced the second day of the 24th Annual ICGFM Conference by reflecting on the recent article from the IMF PFM blog. This recent article agrees with the conclusion from last year's conference in Miami - the financial crisis is accelerating PFM Reform.

Last year's conference found wide agreement that public financial reform is key to overcoming the financial crisis.

How to Initiate a Performance Framework in Budgeting

Performance of fiscal policy and budget management vital for Public Financial Management

Performance Budgeting is a modern management tool and not a panacea for all evils – it is the way to go forward for public sector efficiency and performance

Pokar Khemani of the International Monetary Fund described the benefits of a performance framework in Public Financial Management at the ICGFM Winter Conference held at the Inter-American Development Bank in Washington DC. There is an increasing demand for government accountability, transparency and effectiveness, according to Mr. Khemani. This generates a need for improved government services and responsiveness from politicians and public officials. He pointed out that the financial crisis created a demand for the improved performance of the budget

Mr. Khemani identified the three goals for the performance of budget management that are closely interwoven:

• Macroeconomic stability and aggregate fiscal discipline
• Allocation of resources to the strategic priorities – expressed by the society
• Efficiency in the use of resources in the implementation of government policies

Mr. Khemani described the evolution of performance frameworks in budgeting around the world. Many frameworks were developed during financial crisis. There has been widespread interest in Eastern Europe, Latin America, Asia and Africa. Performance budgeting in government is a world wide movement according to Mr. Khemani.

Mr. Khemani suggests that performance budgeting begins with the fiscal framework. Other prerequisites include:

• Credible macroeconomic framework
• Integration of budgeting and planning
• Well developed budget preparation process
• Sound budget execution, accounting and reporting
• Strong PFM legal framework
• Clarity on budget roles of legislature and executive

Mr. Khemani warns that modernization, whether performance budgeting or accrual, can only succeed when the basics are working well. Budgets must be credible. He introduced the key tasks needed for a performance framework in government budgeting. He warned that governments need to be very clear about why reforms are being introduced. A performance framework is not a machine that can be easily implemented.

Traditional budgets are based largely on line items while program budgets have well-defined outputs and outcomes. Mr. Khemani pointed out that it is not a good practice to focus at the detail line items for budgets but rather at the aggregate level. He described the programmatic approach to budgeting, although he conceded that there are different approaches.

Mr. Khemani described good practices in program classifications: program, sub-program and activities. Programs should include both current and capital budgets. He suggested that inter-ministerial programs should not stretch over several ministries because accountability needs to be established at the level of sub-programs and activities. The chart of accounts (COA) needs to be revised to be fully consistent with the revised budget classification structure. He described the "sad story" of countries that budget based on program but cannot execute based on program. The program segment was missing in the COA and the financial management software was not enhanced to support this need. He warned that treating payroll cost as a single line item prevents governments from learning what the true cost of programs.

Common issues in creating performance specifications include mixing output and outcome indicators, and having too many performance targets. Performance measurements should be "SMART":

• Specific – What is the most critical success factor(s)?
• Measured – What are the quantifiable characteristics?
• Achievable – Can you improve on past performance?
• Relevant – Do clients think the target is most important?
• Timed – How quickly can it be achieved? How long will it take to respond to needs?

Mr. Khemani showed good and poor practice examples in creating indicators and targets. He recommends the improvement of monitor and review systems. Comprehensive spending reviews from the UK, Program Assessment Rating Tool (PART) in the US and Management Resources Results Structure (MRRS) from Canada were introduced as examples of program evaluation. He warned that "business as usual" will not enable governments to improve performance.

A credible Medium Term Expenditure Framework (MTEF) could facilitate linking resources to policy objectives and performance because multi-year spending allocations can be tied with multi-year performance targets according to Mr. Khemani.

Mr. Khemani suggests that the introduction of Performance Based Budgeting (PBB) takes time, in the 4-5 year range. He suggests that reform needs widespread political support and intellectual acceptance and should be linked with wider reforms. This reform requires flexibility to enable public finance managers to improve performance. Managers cannot be expected to be held accountable if they do not have discretion in decision-making. Empowering managers is not about removing controls but devolving the responsibility for applying some of them – the Ministry of Finance needs to monitor effectiveness of financial management.

In concluding, Mr. Khemani recommended the staged approach to implementing performance frameworks in government

9.00 10.15am How To Initiate A Performance Framework (Pokar Khemani) English

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9.00 10.15am How To Initiate A Perf Framework (Pokar Khemani) French

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9.00 10.15am How To Initiate A Perf Framework (Pokar Khemani) Spanish

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International Government Performance Management Conference Kicks-Off

Performance - Results - Outcome

The International Consortium on Governmental Financial Management (ICGFM) Winter Conference starts shortly at the Inter-American Development Bank (IDB) in Washington DC. The conference focus is on government performance management - understanding impact in managing public finance.

Conference speakers include:

• Mario Sangines of the Inter-American Development Bank
• James Brumby of the World Bank
• Jean-Baptise Sawadogo of Leader One Inc.
• Edouard B. Houssou and Gabin Mehou of the Government of the Republic of Benin
• Dr. Piotr Perczynski and
  Dr. Marta postula of the Government of the Republic of Poland
• Doug Hadden of FreeBalance
• Jerome Dendura of Quistron Inc.
• Lelia Aridi Afas and Steve Clyburn of Grant Thornton LLP
• Pokar Khemani of the International Monetary Fund

IMF Job Opportunity

The Fiscal Affairs Department at the IMF seeks an who will provide technical assistance (TA) to IMF member countries on public financial management issues, such as:

• Budget preparation methodologies and procedures
• Management of budget execution, reporting and oversight
• Regulatory environment for public financial management

Beyond excellent written and spoken English skills they MUST be fluent in either Spanish or French.
10+ years practical experience within line management or advisory in a ministry of finance, treasury, or a related budgetary institution, including multilateral institutions; who have actively managed, or participated in, the delivery of TA programs in public financial management noted above; who can additionally show experience in managing and overseeing TA work and coordinating with donors; and who are fully aware of the PFM challenges facing member countries.

Contact: tvacher@imf.org

Government Fiscal Risks: Sources, Disclosure and Management

Ricardo Velloso of the International Monetary Fund says that countries were growing so fast that risk was not analyzed as it should. Mr. Velloso described the sources, discloure and management for fiscal risks at the 23rd Annual ICGFM Conference in Miami.

Mr. Velloso mentioned that the current financial crisis has brought more interest in managing risks. Many countries were experiencing such high growth that there was not a signficant effort to manage risk.

Fiscal Risks: Sources, Disclosure and Management

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Los riesgos fiscales: Fuentes, revelación y administració

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Risques Fiscaux: Sources, Divulgation et Gestion

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Mr. Velloso said that fiscal risks could be defined as deviations of fiscal outturns (deficits, debt/GDP) from expectations at the time of the budget and/or other fiscal forecasts.

The IMF World Economic Outlook has shown a broad deviation in debt to GDP ratios. Deviations are larger in emerging economies. Mr. Velloso suggests that there are two categories of major risks: macroencomic shocks and contingent liabilities. Sources of macroeconomic shocks include real GDP growth, inflation, commodity prices, and interest and exchange rates. Contingent liabilities are obligations triggered by uncertain events and can be:

• Explicit: defined by law or contract, such as debt guarantees.
• Implicit: arising from government ownership of SOEs, expectations that the government will provide assistance such as depositors in event of bank failures.
  

Mr. Velloso says there there is often more incentive in government to hide risk. Yet there are many important benefits to dsiclose this rick. This can increase confidence and reduce uncertainty for investors and taxpayers. He conclused that there is a trend, internationally, toward greater disclosure.

Mr. Velloso warned that governments must recognize that a narrow definition of the budget does not cover other affects. The IMF is advocating that governments accumulate risks in a single document or statement. He warned that Public Private Partnerships, State-Owned Enterprises and Sub-national governments tend to provide additional risk profiles.

Additional material on this subject is available from Mr. Velloso's posting on the IMF PFM blog.

Trends in Accountability from an Auditor's Perspective

February 4, 2009 (Washington DC)

DC Forum 

Trends in Accountability from an Auditor's Perspective

The role of the public auditor has advanced beyond verifying numbers and financial reports. Today, auditors in the public sector have evolved into serving as an independent source of accountability for not only financial performance but for commitments to outcomes, policies, efficiency, and effectiveness. In addition to serving the public interest, public sector auditors can be a valuable resource for management by providing important feedback on overall performance.

Our panel, representing internal audit functions of international organizations, will discuss trends in the role of the public audit function, the tools being employed in performing this new role, and what we can expect in the future for public accountability. The panel will consist of:

• David Nummy, moderator, (Executive Director, Grant Thornton)
  
• Alan Siegfried (Executive Director, IDB)
  
• Linda Fealing (Inspector General, OAS)
  
• Barry Potter (Director of the Office of Internal Audit, IMF)

Register for this presentation or the entire season

The International Consortium sponsors a learning forum and luncheon the first Wednesday of each month from January through June, and from September through December, at The Carnegie Endowment for International Peace. Sessions begin at 11:45 and details can be found on the Upcoming Events page on the ICGFM web site. Summaries of the presentations and question-and-answer periods which follow are published on the ICGFM blog