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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Malawi Experience in Aid Information Systems

Aaron Batten, Economist, Ministry of Finance, Malawi, described why aid should be managed at the country level. He described the aid profile of Malawi including funds that are on-treasury, on-budget and on-plan.

Mr. Batten described the problems associated with low technical capacity while managing data from multiple donors within the budget cycle. The Government of Malawi had only ad-hoc information from donors with at least half of the information unavailable to the government. This undermined the budget cycle. He described the process of implementing the Aid Management Platform (AMP) to coordinate aid with the country budget cycle. The biggest challenge was to establish consistent and timely donor reporting to the government.

Mr. Batten described the advantages of using an aid management system in Malawi. Malawi was able to tailor data standards to meet country needs. Donor funds are integrated at aggregate levels, but execution by the government is at a more detailed level. He showed some of the codes.

Mr. Batten found that timely and frequent aid information from donors is more important than accuracy for effective budget control and management. Unless aid information is given to recipients in a very timely manner it is often not very useful for budget control. The Government of Malawi accepts that some of the data may be inaccurate that will need to be fixed later.

Malawi changes classifications and modernizes functions. Therefore, systems much support this type of country level of dynamism according to Mr. Batten. Data needs and priorities change and donors need to be flexible. He concluded that donors need to be responsive and accountable at the country level to enable public financial management reform. The task for recipients is to utilize this information in a way that improves public financial management.

A survey of ICGFM attendees found that almost 1/3 of countries receive no aid information from donors.

Batten aid information management in practise malawi experiences

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Batten gestión de la información sobre ayuda en la práctica experiencias en malawi

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Batten gestión de la información sobre ayuda en la práctica experiencias en malawi

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Technical Solutions and Standards to Bring Transparency to Donor Aid

Samuel Moon, Research Officer, Overseas Development Institute, moderated a panel discussion on aid transparency and the International Aid Transparency Initiative (IATI). Mr. Moon described the history of IATI since the Accra Agenda for Action.

The ODI studied whether budgetary classifications, in the Chart of Accounts, used in developing countries could be consistent with an aid standards. The study examined any common ground amoung budgetary classifications.

Mr. Moon pointed out that large amounts of aid can disrupt the accountability cycle in developing countries. ODI studied information at the donor and country level. 14 countries were selected. The study examined the OECD/DAC CRS and COFOG classifications.

The study focused on the organization and function codes for government charts of accounts. The study uncovered significant similarities among countries however there were limitations in the CRS and COFOG standards. Mr. Moon described some of the budget classification problems such as in the case of where police is found in the Chart of Accounts. He found that the classifications of health functions were inconsistent in the study.

Mr. Moon described the similarities found with the creation of a "spine" classification that could form the basis of a standard. He concluded that interfacing information on aid with budget systems will be country specific.

The paper is available at: http://www.odi.org.uk/resources/details.asp?id=4801&title=aid-effectiveness-agenda-recipient-countries-budget

Moon approches pratiques pour une aide efficace

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Moon practical approaches to aid effectiveness

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Moon enfoques prácticos para la efectividad de la ayuda

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Framework for Evaluating Internal Controls Over Financial Reporting

In the next paper in this issue, Jawahar Thakur and Nalin Kumar Srivastava also make the case for extending the remit of audit activity. In this case they develop a framework for a generic evaluation of the internal controls of government financial reporting. This is an interesting alternative, or complement, to adopting international standards and we would welcome comments on the approach which Jawahar and Nalin suggest.
Framework for Evaluating Internal Controls Over Financial Reporting in Sovereign Governments

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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