Financial Management enabling Good Governance at the OAS

Lessons from the Winter ICGFM Conference

Benefits of Joining ICGFM

Climate Change and Public Financial Management

ICGFM Survey Report: Public Financial Management Changes from the Financial Crisis Long-Term Effect

Innovations in Public Financial Management (PFM) Fraud Detection

Updates to Public Expenditure and Financial Accountability (PEFA)

Good Practices in Public Investment Management

ICGFM Transparency Standards Workshop

Attendees at the 2010 ICGFM Winter Conference worked through numerous questions on the use and impact of transparency standards in Public Financial Management (PFM). Some observations from the workshop groups.

1. What standards could or have had the greatest impact on transparency?

• Standards adopted by the international community, by their very nature, have a positive impact in countries


• Some standards have legal basis in the country


• IPSAS and accrual accounting standards, auditing standards, aid transparency standards


• Transparency portals on procurement, human resources, budget


• Right to information


• Citizens are recognizing the value of transparency and are now demanding more


• Standard accounting information enables benchmarking countries

2. What were or would be the greatest obstacles to transparency?

• Political will defines whether standards will be uniformly respected and whether unlawful activity will be punished (just because there is a law doesn't mean that it is respected)


• Education and capacity in public servants (one person said "capacity, capacity, capacity")


• Proper compensation for public servants


• Lack of accountants in developing countries


• Brain drain of qualified personnel


• Honest and transparent public servants


• More effort by citizens and civil society to demand more transparency and create transparency momentum


• Lack of credibility by citizens in the information disclosed by governments


• Lack of historic information to provide context


• Media can often have a political agenda, so may use disclosure for political reasons


• Focus of reform can shift after an election


• Conflicting laws, lack of legal backing


• General resistance to change


• Different donor requirements that push governments in different directions


• Attempting to do much at the same time


• Lack of strong monitoring and evaluation


• De-centralization has pushed accountability to lower tiers where the accounting is not always easy to consolidate or audit


• Organization structure of internal audit may not be conducive


• Nationalism in some countries who feel that they are giving up sovereignty


• Barrier based on the "unknown" in order to start the process and give up on previous standards

3. Are there any key preconditions to implementing new standards?

• Effective training for public sector employees


• Treasury Single Account (TSA)


• Appropriate IT infrastructure, power and bandwidth


• Uniform Chart of Accounts (COA)


• Political buy-in to carry process forward (although there seems to be more will for transparency than in the past)


• Legal standing of standards in order to make people and organizations accountable


• Acceptable internal PFM standards


• Need for public servants to be accountable - that there are legal consequences


• Training population and civil society on the information being presented by the government


• Use of social oversight tools and access to technology


• Strong Supreme Audit Institutions


• Freedom of the press


• Certification processes to train accountants for government service


• Need to define the government controlled entities


• Need to build a value proposition to stakeholders, more communications

Aid Policy and Management, the Rwandan Experience

Clement Ncuti, Budget Advisor, Rwanda, described the challenges facing the government in aid effectiveness at the ICGFM Winter Conference. These included:

Human and institutional capacities

• Predictability because of aid conditionality


• High transaction costs


• Requests for unstructured data from donors


• Lack of alignment with government priorities

Mr. Ncuti described the Rwanda aid effectiveness policy. He warned that the challenge is to implement the policy. Lessons were learned to improve the effectiveness of the policy after implementation. Aid effectiveness must be country driven in order to be successful.

The aid effectiveness policy goals of the Government of Rwanda are:

• Use of reliable country systems


• Alignment to national priorities


• Strengthening local capacities


• More predictable aid


• Untied aid


• Use of common arrangements


• Results-oriented frameworks


• Mutual accountability

Mr. Ncuti described the institutional framework in Rwanda for aid policy implementation. He described the criteria for placing aid on budget and the process of aligning aid to country priorities. Medium Term Expenditure Framework (MTEF) is used in the creation of budgets. The Government of Rwanda uses the Development Assistance Database (DAD) and an in-house Integrated Financial Management Information System. These systems are not integrated.

The key lesson learned, according to Mr. Ncuti is the need for mainstreaming of an Aid Policy requires extensive input and ownership over the policy from across government at both technical and political levels

Ncuti aid policy and management, the rwandan experience

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Ncuti politique d'aide et gestion, l'expérience du rwanda

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Ncuti política de ayuda y gestión, la experiencia de ruanda

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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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Public Financial Management Responses to an Economically Challenging World

Jason Levergood, Senior Manager at Grant Thornton LLP, provided an overview of the ICGFM Worldwide Survey, Public Financial Management Responses to an Economically Challenging World on December 7th. at the ICGFM Winter Conference. Public financial managements from over 50 countries were surveyed in 2010.

The survey found that the financial crisis and stimulus packages have had significant impact on public financial managers. Yet, in this environment of doing more with less, governments have accelerated reforms including support for international standards and improvements in transparency.

Mr. Levergood described the survey results for stimulus programs, use of public private partnerships (PPPs), infrastructure investment and increasing transparency. 76% of respondents said that their countries have made or renewed a strong commitment to public fianncial management transparency. 80% of respondents said that their countries are adopting international standards. The survey found that the use of the eXtensible Business Reporting Language (XBRL) is gaining interest but has not been widely adopted in government.

The survey concludes with the observation that "public financial managers face some of the most challenging times in decades in meeting their responsibilities, but they have faced them no only with a variety of policy measures but with an unprecedented commitment to transparency".

Grant thornton global financial management leaders responses to an economically challenging world

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Grant thornton leaders internationaux de la gestion financière réponses à un monde de défis économiques.pptx

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Grant thornton líderes globales de la gestión financiera respuestas a un mundo económicamente exigente

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Public Financial Management Responses to an Economically Challenging World 2011 ICGFM Survey

IPSAS Case Study in Republic of Georgia

Nino Tchelishvili, Deputy Head, Treasury Service of the Republic of Georgia described the government adoption of the International Public Sector Accounting Standards (IPSAS) at the ICGFM Winter Conference. She described the challenges of moving from a planned to a market economy. The public financial management functions were designed on the socialist model and did not meet international standards. She described how assets were not properly defined in the old system.

Georgia is a top reformer during according to the World Bank. Ms. Tchelishvili described some of the initiatives taken by the government since 2003 such as the adoption of the Treasury Single Account (TSA). She described the difficulties of accounting for government businesses and local service providers like hospital. Government entities operated on a cash basis, but parastatal organizations operated on accrual accounting. Consolidation is almost impossible to achieve given so many different systems and accounting methods.

Ms. Tchelishvili described some limitations including the lack of an Integrated Financial Management Information System.

Ms. Tchelishvili described the six phase strategy implementation strategy in Georgia:

1. 2010 Initiation
   Strategy agreed; Georgian Public Sector Accounting Standards Board formed; translation IPSAS initiated


2. 2012 Pilot
   Pilot financial statements under modified cash basis IPSAS


3. 2015 Modified Cash IPSAS
   Gov’t consolidated financial statements (excluding GBEs) under modified cash IPSAS (cash IPSAS + additional information)


4. 2017 Some accrual
   Simple accrual information provided under modified cash IPSAS Part II (GBEs not consolidated)


5. 2020 Accrual IPSAS
   Financial statements in full compliance accrual IPSAS


6. Ongoing
   Programme for ongoing adoption of new IPSAS
   

Ms. Tchelishvili described the capacity building process in Georgia using a certification process that professionalizing public accountants.

Ms. Tchelishvili described the differences in GFS and IPSAS definitions of government entity and government sector. She pointed out the reform in Georgia will cover all aspects of the public sector. She provided a decision-tree to define whether an organization is a government-owned business or a non-profit organization controlled by the government.

The modified cash approach to be used by the Government of Georgia in phase 3 using IPSAS 2 format cash flow statements. Ms. Tchelishvili described the mandatory and encouraged portions of the standard.

Ms. Tchelishvili described the current status in the Republic of Georgia:

• IPSAS Strategy adopted and approved by Ministerial Decree in 2009


• Georgian Public Sector Accounting Standards Board (GPSASB) established as permanent consultative body under the Government of Georgia in 2010


• 11 different pilot organizations selected for implementing modified cash basis IPSAS.

Lessons learned from the IPSAS project include:

• If supporting GFS 2001, not that difficult to support IPSAS modified cash accounting


• IPSAS implementation needs to be phased over a decade or longer


• Fully implementing the Cash Basis IPSAS at national government level is not feasible for any country


• A country is not compliant with accrual IPSAS until all implemented and is not feasible except in very long term

Georgia ipsas strategy for ipsas implementation

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Géorgie stratégie de mise en œuvre des normes ipsas

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Georgia estrategia para la implementación de los ipsas

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Ms. Tchelishvili conducting a survey of attendees about IPSAS:

• 44% same Chart of Accounts for cash and accrual accounting, 40% plan to implement, 16% no plans


• 26% Permanent independent body for IPSAS, 22% consultative body under the government, no board 52%


• 82% agreed that IPSAS requires an Integrated Financial Management System (IPSAS) to succeed


• Most important success factor for IPSAS adoption: 61% political leadership, 21% IFMIS, 18% skilled staff, 0% dedicated staff

IPSAS Implementation at the OAS

Heather Alsopp of the Organization of American States presented a case showing how the OAS adopted IPSAS standards. suggested that the move to IPSAS was somewhat of a baptism of fire.

The OAS used different accounting methods for operating, voluntary, special reserve, fiduciary and internal service funds. Ms. Alsopp pointed out that the adoption of IPSAS typically happens in the context of wider management reforms. She suggested that the move to a common language through IPSAS enables improved transparency, accountability and manage for results.

The OAS project was primarily funded by a grant from the Canadian International Development Agency (CIDA).

The OAS experienced some challenges when adopting IPSAS including:

• Difficulty of moving to accrual accounting
• Resistance to change
• Competition for IPSAS experts

Ms. Alsopp suggested that the benefits of accrual accounting need to be articulated rather than the theoretic differences between cash and accrual. One major lesson learned is having dedicated qualified expertise to move to accrual accounting.

Ms. Alsopp described how IPSAS impacted:

• Consolidation of controlled entities
• Revenue recognition
• Expense recognition
• Employee benefits
• Property plant and equipment

She said that there is a lot of qualitative and legal assessments required for accrual based IPSAS. Ms. Alsopp pointed out that there was a concern that the move to accrual accounting loses important information. She recommended that budget variance reports based on cash basis can provide this information.

Although the move to accrual accounting and support of IPSAS has been a major project, Ms. Alsopp believes that the benefits in transparency and accountability will help improve decision making.

Alsopp ipsas a case for accounting reform at the oas

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Alsopp ipsas ipsas un cas pour la réforme comptable à l'oea

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Alsopp ipsas ipsas en favor de una reforma contable en la oea

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Supporting IPSAS in the Government of Honduras

Carlos Castejon, Deputy Minister of Finance, Jose Romero, Accountant General and Angel Moncada, Deputy Accountant General of the Government of Honduras described the implementation of cash-based IPSAS (International Public Sector Accounting Standards) planned by the Government of Honduras. Legal reform was required in order to adopt IPSAS into national standards. The IPSAS cash standard for reporting will be adopted on January 1, 2011.

The Government of Honduras faced serious macroeconomic challenges because of the financial crisis. Minister Castejon pointed out that the financial management system was not able to report effectively on the financial situation of the government.

Sr. Romero described legal reform in Honduras and the move towards supporting international standards. Sr. Moncado described the plan of action to implement IPSAS. Lessons learned included:

• Legislation enabling support of international standards
• Training is critical to the successful implementation of IPSAS
• Numerous changes in reports are necessary to support IPSAS

The application of international standards and a move towards accrual accounting leads to a deeper analysis and makes accounting more accurate in order for government accounting reports to be reliable according to Sr. Moncado. Identifying assets and liabilities of the government has lead theGovernment of Honduras to have better control over the state heritage.
The Government of Honduras plans to adopt the IPSAS accrual accounting standards by January 2014. The Government of Honduras is is currently cataloging all government assets. Sr. Moncado believes that the challanges for the future include rolling out to municipal governments, consolidating financial statements and supporting information in a single accounting system.

Honduras implementing cash ipsas and preparing for the accrual ipsas

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Honduras presentacion sobre la preparacion para implementacion de normas internacionales de contabilidad para el sector publico en

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Honduras mise en œuvre de la norme ipsas relative à la comptabilité de caisse et préparation à la norme ipsas relative à la comptabilité d’exercice

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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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Addressing Current Governance and Risk Management Challenges in Governmental and

Alan N. Siegfried, Auditor General of the Inter-American Development Bank presented "Addressing Current Governance and Risk Management Challenges in Governmental and
International Organizations" at the ICGFM Winter Conference. The IaDB has been a prime mover in public financial management reform in Latin America and the Caribbean. He described the changes in the organization to improve the performance of the organization.

On a lighter note, Mr. Siegfried described the wonders of risk management thanks to George Costanza from the Seinfeld television series.



Mr. Siegfried described the current global economic challenges that generate uncertainty and unpredictability including turmoil in financial markets, changing regulatory environment and budget restrictions. Mr. Siegfried believes that this uncertainty presents the internal audit profession with an opportunity to demonstrate leadership in risk management, control and governance. He cautioned that internal audit is crucial to improve the credibility of governance structures. He warned the attendees that internal audit is often seen as inflexible and non-responsive to emerging risk. And, many organizations have cut disproportionately in oversight because of reduced budgets.

Mr. Siegfried described the important role of internal audit to help management identify risks, design risk management strategies, and monitor the effectiveness of control. He pointed He described lessons learned. Mr. Siegfried emphasized the differences between risk management, control and governance. He recommended that organizations must take some risk, otherwise the organization become stagnant.

Mr. Siegfried suggested that organizations must balance risk and opportunity. Risk management is about risk mitigation, not about eliminating risk. He described governance structures and the principles for enterprise risk management. He recommended more holistic views on risk management. He pointed out that Standard & Poors is now using enterprise risk management as part of organizational valuation.

Mr. Siegfried presented an overview of risk management for international organizations. He suggested that risk management does not need to be a centralized function. Accountability is critical regardless of whether centralized or decentralized risk management models are used.

He showed the roles that internal audit should take, could take and should not take in risk management. He spoke about risk velocity where problems can happen very quickly, like the earthquake in Haiti.

There is a significant value proposition to internal audit. Internal audit needs to move from recognized to trusted to valued. Mr. Siegfried provided an overview of the risk management evaluation framework. He provided a list of financial, compliance, strategic and operational risks to consider.

Mr. Siegfried concluded by suggesting that risks facing organizations are unprecedented and stakeholders’ expectations continue to increase. He recommended that individual practitioners and organizations must ‘raise the bar’ to most effectively represent and advocate for strong governance and risk management. Organizations need to move from hindsight to insight to foresight.

Siegfried addressing current governance and risk management challenges in governmental and international organizations

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Siegfried relever les défis de la gouvernance et de la gestion de risques actuels dans les organisations gouvernementales et internationales

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Siegfried abordar los desafíos actuales del gobierno y la gestión de riesgos en organizaciones gubernamentales e internacionales

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