PUBLIC FINANCIAL MANAGEMENT AND ACCOUNTING SYSTEM: Improved Service Delivery

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PUBLIC FINANCIAL MANAGEMENT AND ACCOUNTING
SYSTEM (Improved Service Delivery)

• ASSESSMENT AND ACTION PLANS
• J B DAUDA
• MINISTER OF FINANCE
• 11-12 March 2004

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Aims and Objectives

• To regulate financial management in the central
  and local governments
• To ensure that all revenue, expenditure, assets
  and liabilities of those governments are managed
  efficiently and effectively
• To provide for the responsibilities of persons
  entrusted with financial management in those
  governments
• To improve overall public service delivery
• To have greater clarity and understanding in
  public finance documents

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Main Components of Public Financial Management

• Mobilisation of budgetary resources
• Management of public expenditure
• Management of Public debt
• Overall budget Process
• Procurement control
• Legal and Regulatory Framework
• Internal Control and Reporting Mechanisms
• Data Quality and reconciliation of data
• Integrated Financial Management Information
  system

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Underlying Principles

• Transparency
• Accountability
• Efficiency
• Effectiveness

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REALITIES OF PFM IN SIERRA LEONE

• Weak financial planning
• Weak revenue base
• Focus on inputs and not on results
• Fragmented and unclear accountabilities and legal
  frameworks
• Poor quality and late information
• Wastefulness, inefficiency and corruption (fraud
  and theft)
• Poor compliance with existing legislation
• Substantial extra-budgetary resources and
  extra-expenditure
• Weak human resource and institutional capacity
• Weak financial management information system
• Weak public/private participation
• Weak centralised public sector payroll management
  
• Poor clarity of accounting documents

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PFM ASSESSMENTS/REPORTS

• The following consultative assessments/reports
  have helped to map out the required PFM reform
  agenda
• A Country Financial Accountability Assessment
  (CFAA) was carried out in 2001 with TA from the
  World Bank and DFID
• EU Evaluation in 2002 and Matrix of Corrective
  Measures agreed
• HIPC Expenditure Tracking Assessment ongoing
• Consultative workshop on PFM involving wide
  ranging public/private stakeholders was organised
  in February 2004 under the Institutional Reform
  and capacity Building (IRCB) project of the World
  Bank
• Public Accounts Committee
• Auditor-General
• PETS
• Budget Oversight Committees
• Cabinet

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PFM REFORM VISION

• Establish a legal and regulatory framework with
  clear definitions of financial management
  accountability
• Establish decentralised budget formulation,
  execution, accounting, reporting processes and
  controls
• Implement personnel management measures to
  undertake appropriate recruitment, reward
  performance and sanction poor management
• Intensive training of vote controllers,
  programme/project managers, financial management
  staff, so they can perform financial management
  responsibilities devolved to them

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FMAS WEAKNESSES

• The present FMAS, a bespoke system, was designed,
  managed and administered by one person, who also
  acted as Accountant General. The system has been
  recently evaluated by an external firm of
  consultants (International Management Consultants
  Ltd), with support by DFID. A number of major
  weaknesses identified
• Poor system design and inadequate functionality
• Incomplete development
• Lack of system data checks and controls
• Batch processing with reliance on front end
  processes and controls
• Lack of system design and maintenance
  documentation
• Poor system performance in terms of response
  times
• Lack of proper audit trail
• Weak security
• Inadequate link with Budget Bureau
• Lack of a comprehensive and integrated payroll
  database system

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DESIRED OUTCOMES

• Transparent and participatory budgeting process -
  budget formulation, budget execution, budget
  reporting and procurement
• Sound financial management systems and processes
• Effective management of revenue, expenditure,
  assets and liabilities
• Reliable and useful data collation, reporting on
  performance, annual reports and annual financial
  statements
• Improved accountability of MDAs
• Improved understanding of Government activities

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REFORM AGENDA 1Legal and regulatory framework

• The Public Budgeting and Accounting Act
  (PBAA)1992, Public Amendment Act 1996, Financial
  Administration Regulations 1998 and the
  Constitution provide the legal framework for the
  budgeting, accounting, control and management of
  public finances.
• The PBAA is not comprehensive and technically
  robust enough as legislation for financial
  management
• The 1996 decree resulted in the strengthening of
  the executive in the execution and monitoring of
  the budget. It had effect of diminishing the
  oversight role of both the Legislature and the
  Office of the Auditor General
• Proposals for a new Government Budget Management
  and Accounting Act will foster a new Organic
  Budget Law to replace the PBAA. These proposals
  arose following the CFAA.

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REFORM AGENDA 1Legal and regulatory framework
(contd)

• The new Government Budget Management and
  Accounting Act is currently under preparation.
  The main aims are
• To secure transparency, accountability and sound
  management of budget, assets and liabilities of
  GOSL
• Need to make legal structure of the laws to
  further conform to the requirements of an
  effective institutional framework
• Need to increase the degree of comprehensiveness
  and technical robustness of the recent financial
  management related legislation
• To reconcile the major divergence between the
  current laws and the requirements of a
  transparent and accountable budget management and
  control system

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REFORM AGENDA 1Legal and regulatory framework
(contd)

• Additional implementing regulations
• Extending the mandate for external audit purposes
• Empowering the internal audit function
• Government borrowing and debt management
  including contingent liabilities
• Government stores management
• Liability and offences
• Rules of Virement
• Budget Oversight Committees
• Linkage with the Local Government Act

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REFORM AGENDA 2Overall Budgetary Process

• Mobilisation of budgetary resources
• The primary objective is to mobilise budgetary
  resources, aimed at well over 16 of GDP. To
  achieve this, principal measures to be taken
  include
• Widen the tax base by reforming the system for
  controlling exemptions and tax evasion, and for
  granting incentives and fiscal benefits to
  investment
• Consolidate all public resources into the budget
  as required by the Constitution
• Ensure greater coordination and sharing of
  information and data between the MOF and NRA
• Ensure maximum collection of budget revenues from
  all sources including internally generated funds,
  the extraction of natural resources,
  particularly non-renewable resources
• Create a more efficient, broad-based, fair,
  simple and predictable tax system
• Strengthen the capacity and efficiency of tax
  administration
• Integrate project funds into national budget

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REFORM AGENDA 2Overall Budgetary Process (contd)

• Management of Public Expenditure
• The main objectives are
• To improve the programming, execution, control
  and transparency of the budget process
• Ensure that public expenditure is more efficient
  in its impact on poverty reduction
• Ensure that public expenditure creates favorable
  conditions for economic growth
• Ensure the recording of public expenditure
  enables the devolution of relevant functions to
  local councils

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REFORM AGENDA 2Overall Budgetary Process (contd)

• Principal measures to be undertaken include
• Strengthen the public accounting process. This
  requires
• finalising the new Government Budget Management
  and Accounting Law
• Developing computerised systems to control and
  register expenditure, allowing for more timely
  reporting of activities
• Changing classifications used in the budget to
  allow for the registration and control of
  expenditure at the central and local government
  levels
• Improving auditing and inspection of accounts
• Incorporate off-budget expenditure and revenue
  into the budgeting process, including resources
  and expenditure controlled by the donor community
• Continue and strengthen the MTEF, PETS and
  oversight processes

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REFORM AGENDA 3Public Debt management

• The main objects are
• To develop a medium and long-term strategy for
  management of both domestic and external debt
  leading to a lasting exit from debt burden
• Strengthen the system for control and management
  of the public debt
• Principal measures to be undertaken include
• Prepare a medium and long-tern strategy setting
  overall parameters for debt policy and post-HIPC
  sustainability domestic arrears, commercial
  creditors, non-HIPC official creditors
• Prepare a medium and long-term strategy on
  capacity to incur and sustain domestic debt.
  This should integrate the use of public debt as
  an instrument for monitoring management, taking
  into account the link between issuing debt and
  the need to manage domestic interest rates to
  stimulate investment and growth
• Evaluate the foreign debt of state enterprises
  and the private sector to identify risks and
  vulnerability to accumulation of contingent
  liabilities, destabilising the external sector
  including capital flight and fluctuations in the
  exchange rate

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REFORM AGENDA 4Procurement Reform

• The main objective is to develop an efficient
  procurement system that promotes competition,
  transparency, and value-for-money (economy,
  efficiency and effectiveness). The key measures
  include
• Improve procurement competition and control
• Implement a new legislative and regulatory
  framework for procurement
• Implement a standard procurement policy
  (government and donor procurement rules and
  procedures)
• Disseminate the new policy and law and promote
  transparency and accountability of procurement
• Undertake intensive training of procurement
  oversight institutions, tender boards, and
  procurement staff
• Ensure that vote controllers maintain effective
  procurement and inventory management systems
• Promote value-for-money

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REFORM AGENDA 5Integrated Financial Management
Information System (IFMIS)

• The objective is to design, procure and implement
  a new IFMIS which is able to meet the control and
  information requirements of the decentralised
  system of financial management. Measures to be
  undertaken include
• Acquire new IFMIS to replace FMAS
• Set up IFMIS for new design and pilot Ministries
• Prepare Ministries for roll-out of IFMIS
• Introduce new Chart of Accounts

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REFORM AGENDA 6Integrated Payroll Management

• Objective To improve the quality and management
  of payroll database. The Public Service wage bill
  (civil servants, teachers military, police and
  other sub-vented agencies), comprising wages and
  salaries, pensions, gratuities, allowances and
  contributions to Social Security represents 8.3
  of GDP or 52 of total domestic revenue or one
  third of total recurrent expenditure. Key
  measures include
• Effective payroll management photo
  verification, issuance of ID cards
• Alignment of payroll cycles with the budget
  cycle, especially recruitment of teachers ie
  academic year
• Predictability of payroll database in terms of
  recruitment, promotions, retirements, etc
• Integrate payroll into IFMIS
• Timely payment of wages and salaries
• Strengthen the Office of the Establishment
  Secretary computerised personnel records

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BETTER FINANCIAL MANAGEMENT

• Where do we want to be?
• Real national strategy
• Real national standard
• Real national pride
• Real operational plans
• Real financial plans
• Real income generation strategies
• Real improvement for the poor

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WHAT STOPS US FROM GETTING THERE?

• Indecisiveness and fear of change
• Lack of law and order
• Society disgruntlement
• Social injustice
• Poor governance and corruption
• Low self-esteem
• Insecurity
• Low objectivity and professionalism
• Weak human resource and institutional framework

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DONOR SUPPORT TO PFM REFORM

• PFM reform has and will continue to receive
  varied donor assistance, in particular
• World Bank PSMS, IRCB
• EU MOF/Accountant Generals Office (IFMIS)
  capacity and institutional building
• DFID Audit Service, IFMIS
• AfDB Public debt management, support to
  selected MDAs
• Commonwealth Public debt management
• Various PIUs
• Agree a multi-donor budgetary support mechanism
  in the context of the PRSP

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I THANK YOU ALL