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PFM In the 21st Century The PFM Architecture, Institutions, and Tools to Meet the Challenges of the Modern World
April 29 - May 4, 2012
Mahesh P. Dahal
Joint Financial Comptroller General Financial Comptroller General Office (FCGO) and Coordinator , PEFA Secretariat Ministry of Finance Government of Nepal
8. Nepal Portfolio Performance Review (NPPR) 9. Issues and Challenges 10. The Way Forward
1. Understanding PFM
PFM is understood as the management of financial spheres of any Government. It includes the following: Planning and Budgeting
Management of Revenues Budget Execution and Expenditure Management Debt Management Reimbursement Public Procurement Accounting, Recording and Financial Reporting Internal Audit and Control Final Audit and External Scrutiny. The broad objectives of PFM are to achieve overall fiscal discipline, allocation of resources to priority needs, efficient and effective management of public services. The specific objective of PFM is to develop a predictable, transparent and accountable system of financial governance. A strong PFM system is fundamental to the Good Governance.
fund" and monitoring of some fiscal risks (notably, the situation of public enterprises),
However, a significant-and possibly growing-gap has
based budget with the adoption of the Medium Term Expenditure Framework (MTEF) and the creation of "business plans" for several sectors.
Gaps include:
Lack of engagement of the political leadership on the MTEF
monitoring of outputs).
The audited consolidated financial statements and annual revenues and expenditure statements do not include accounting policies and explanatory notes as required by International Public Sector Accounting Standard (IPSAS).
Accounting, Recording
However, the consolidated financial statements issued by Financial Comptroller General Office(FCGO) for government use include basic accounting principles and assumptions.
The financial statements prepared by the line ministries, FCGO and Office of the Auditor General (OAG) do not reconcile since the accounting system does not allow recording non-cash transactions (direct payments and commodity grant or aid or turnkey projects) due to which FCGO faces difficulties in providing true and fair picture of such transactions.
lack of public access to information (including accounts of local governments; contracts) and ,
weak process to engage the legislature in discussing the MTEF and in scrutinizing the budget.
7. Donor Practices
Despite progress in recent years (toward general and sector-specific budget-support), much remains to be done to meet the principles of Nepal's 2002 Foreign Aid Policy (and the Paris Declaration and ), In particular, the quality of financial information provided by donors is weak and, The proportion of aid that uses national procedures is much below 50 percent.
Score
B C A D+
PI-6
PI-7 PI-8 PI-9 PI-10
B
C C D+ B
C+ C+
Score
C+ C D+ C+ C+ C C C D+
C. BUDGET CYCLE
D. DONOR PRACTICES
C+ C C+ C+
D+
D+ D+
DONOR PRACTICES
PI-29 PI-30 PI-31
Predictability of Direct Budget Support Financial information provided by donors for budgeting and reporting on project and program aid Proportion of aid that is managed by use of national procedures
D D D
Donor Practice: D = 3
PFM Reform
Driving Factors
Structural Adjustment Programme - 1987 Paradigm shift from state intervention to economic liberalization during 90s Public Expenditure Review Commission (PERC) 2000 and 2011
PFM Reform...
Rationale
A sound PFM System is fundamental in harmonizing/mobilizing development assistance and creating conducive environment for FDI, An effective PFM system is essential in channelizing all resources through the national system, A good PFM system is instrumental in enhancing governments credibility and trustworthiness, A functional PFM mechanism improves confidence among the Tax Payers, A sound PFM practices integrates and standardizes national system with the global system.
PFM Reform
Strategy & Action Plan
Based on PEFA Report and PFM strategy, PFM Reform Program (2009/10-2011/12) has been prepared and approved by the Government. The PFMRP has identified 6 outcome and 18 output areas including institutional capacity improvement for PFM implementation. 147 immediate and intermediate actions has been identified. Government has initiated separate budget head (Public Financial Management Reform Program (3051153/54) from FY 2009/10 to support PFMRP. Each year more than NRs. 10 Millions of being allocated to support Program. Many donor supported activities also complement to the PFMRP implementation.
PFM Reform
Outputs & Outcomes
PFM Reform
Outputs & Outcomes
PFM Reform
Outputs & Outcomes
PFM Reform
Outputs & Outcomes
and Audit
1.Improved quality and timeliness of audit, 2.Improved monitoring and implementation of PAC recommendations and directives, 3.Constitute a Government Budget Management and Expenditure Review Commission under the chairmanship of the Member of the Public Accounts Committee (PAC).
PFM Reform
Outputs & Outcomes
P E F A
Executive
NPC
Legislative
Judiciary
(Courts)
MOF
LMs
FCGO
Others:
Depts.
DTCOs
Established in 1975
Goals:
Treasury Management
MOF
FCGO
Central
Policy Review
Outcome/Impact Evaluation Annual Review and Policy Updating
Strategic Planning
3 years Fiscal Targets Policy Targets Resource Management Expenditure Priorities
Govt. Policy & Program MTEF Sectoral Business Plan Special Commitments (MDGs) Priorities(P1,P2,P3) Projections
Budget Preparation
Revenue and Expenditure Projection Programmatic and Financial Plan Ministerial Allocations Legislative Approval
Resource Committee (NPC Level) Budget Ceilings Sectoral Program Procurement Master Plan
MOF
BMIS
OAG
FCGO
F M I S
Line Ministries
DTCOs
Line Departments
L M B I M S
ACCOUNTING
7. Key PFM Reform Initiatives Public Expenditure And Financial Accountability (PEFA)
PEFA tries to :
Institutionalize the PFM reform processes and build capacity Establish performances milestones and monitor them Review PEFA progress periodically, assess the performance indicators and reports accordingly Conduct meetings, seminars and workshops on PFM related areas Liaison with development partners to mobilize resources for PFM/PEFA
TSA...
Conceptual Understanding
Treasury Single Account (TSA) is a changed operating system in Nepal Government's Treasury function and cash management. In this system, governments transaction done through single or limited set of (linked) bank accounts operated by District Treasury Control Offices (DTCOs). Unified structure of bank account gives a consolidated view of government cash resources at any given time and government monitors all its receipts and payments for cash management.
TSA...
Objectives
Improve cash management, introduce cash planning and forecasting system, Ensure effective control over aggregate government cash balances, Establish transparent and efficient payment and receipt mechanism, Improve financial reporting system with qualitative data, Enhance efficiency and effectiveness in the use of public resources, Optimize the cost of financing by minimizing the volume and cost of government borrowing, Gainful placement of surplus treasury balance, Reduction on time taken to prepare consolidated financial statement.
TSA...
Benefits
Complete and real time information on government cash resources, Accurate and reliable cash flow forecasting, Improved operational and appropriation control, Day to day information about government treasury and timely information on Integrated Treasury. Short-term forward estimates of cash flow imbalances (after full functionality TSA), Harmonization of forward cash planning with government borrowing (after full functionality TSA ), Zero-balance Single Account for payment and receipts in place of multiple accounts, Single check issuing agency in place of multiple check issuing agencies.
TSA...
Rationale More than 4000 spending units More than 14000 bank accounts Idle cash balance in various government accounts Weak cash management Virtually no cash planning and forecasting system Non-harmonization of public debt management with cash management of government Delays in financial reporting No accurate information about Treasury Balance on time.
TSA
Initiation and Coverage
Recommended by IMF (Study Report) in December 2009, Government of Nepal decided to implement TSA system in January 2010, Piloted in two districts (Lalitpur and Bhaktapur) in 2009/10, Rolled out in 20 more districts in 2010/11, Revenue TSA also piloted in one district in January 2010, Further rolled out in 16 districts in July 2011, Implemented in 38 districts till now Revenue, Expenditure and Deposits (Retention money) captured 22 additional districts will be expanded by mid July 2012, Remaining 15 districts will be covered by mid 2013, TSA with Full functionality is expected by 2014.
TSA
Implementation Modality
Each DTCO opens zero-balance accounts at a bank for expenditure, revenue, and deposit transactions Existing Accounts of Spending Units (SUs) are closed SUs send payment requests to DTCOs DTCOs prepare checks and handover to the SUs. Checks are prepared and handed over within 2 hours. DTCOs do not handover the checks directly to suppliers unless SUs request for payment through the Bank A/C. Banks daily report the expenditure and revenue transaction to DTCOs for daily settlement of net dues. DTCOs send verified bank statement to the NRB (Central Bank) same day. The NRB settles net cash position with commercial banks same day.
System of Receipts
Without TSA
Commercial Bank
Remittance to NRB- Lag between receipt from the payer and onward remittance not verifiable
Revenue Collectors
DTCO
Revenue tendered
Revenue Payer
45
Commercial Bank
Head Office
NRB
Daily Reports
Revenue tenderer
DTCO
FCGO
Revenue Collector
System of Disbursements
Without TSA
NRB
(Central Bank)
Commercial Bank
SU
DTCO
Supplier
Daily Settlement
Commercial Bank
NRB
Head Office
Daily Reports
Supplier
Disbursement to supplier
DTCO
FCGO
Payment Requests
SU
48
LEGEND: TSA DECS (38 Districts) Non - TSA DECS (20 Districts) Data Sharing Through Internet / Phone line (17 Districts)
Agreed Actions
Formulate Communication Strategy to raise awareness and Orientation Trainings on PFM/PEFA Support Research and Analysis on high priority PFM areas Capacity development of Internal Auditors Revision of Internal Audit Manual Develop Risk-based Audit Manual
2. Public Procurement
Issues and Challenges
Inadequate capacity on Public Procurement Lack of fairness in competitive biddings Lack of trained staffs in PPMO and PEs Low compliance with Public Procurement Law
Agreed Actions
Stakeholder Capacity Development on Public Procurement Development of e-GP System Initiation of accreditation program Undertake Compliance Performance Indicator (CPI) and Agency Performance Indicator (API)
Agreed Actions
Complete PIS Data entry covering (i) transfer, (ii) vacancy, (iii) scholarship/trainings and (iv) disciplinary actions related information of all levels of staff. Prepare data analysis framework Management audit of development projects (focusing transfer of project staffs.) Prepare Transfer Guidelines of five more ministries Performance- based incentive plan will be rolled over, maintaining it in DOCPR, to more government agencies/projects including PPMO and districts with TSA system Prepare and approve Human Resource Plan by MOGA Develop Need assessment framework for "Training for All " policy
4. Managing for Development Results Issues and Challenges Weak linkage of planning and budgeting Weak M&E system Agreed Actions
Continue implementation of Business Plan already prepared for 13 agencies and replicate and expand it to 5 more agencies Strengthen implementation of Result based budgeting in existing two agencies Department of Transport Management and Traffic Management Office Develop results framework in one GON agency Continue M&E system strengthening measures Assess the implementation progress of RBME Guidelines in P1 and donorfunded projects.
5. Mutual Accountability
Issues and Challenges
Aid Transparency: Aid Management Platform (AMP) reporting requirements about transparency are not met. (Baseline: October 2011: 35% of DPs fully meet AMP reporting requirements.) Aid Predictability: Aid is less predictable (Baseline: 25 % gap between planned and actual disbursements.) Use of National Budget System: Lack of Compliance of national budget system (Baseline: 45% of total external aid through treasury) Prevalence of Parallel PIUs : (Baseline: 68)
Agreed Actions
70 % of DPs report planned disbursements for next 3 Fiscal Years. (April 2012 status: Only 10% of DPs fully meet these requirements. On average 46% of projects meet the requirements.) 70 % of DPs report actual disbursements trimester and for the mid-term budget review. (April 2012 status: 60% of DPs fully meet the reporting requirements. On average 78% of projects meet the requirements.) Maximum 20% gap between planned and actual DP disbursement by end of FY. (April 2012 status: Actual disbursements represent 68% of planned disbursements (all donors), and 62% (core NPPR donors only). However planned disbursements are underreported (see above). Improvement in the use of national system- total external aid using the treasury, national procurement and audit system increase. (April 2012 status: 53% of disbursements reported between July 2011 and March 2012 go through national treasury (same figure for NPPR core donors and for all donors). Reduce parallel PIUs in DP supported projects in government sector.
MTEF/MTBF
FMIS Comprises
Genera Ledger Procurement; Accounts Payable; Banking and Cash Management; Budget Preparation; Budget Execution and Control; Financial and Management Reporting Payroll Foreign Exchange
Internal Audit
External Audit
Cross Cutting
Area Systems, Processes and Institutions
Structural Integration/ Response
Outcome
PFM Efficiency leading to Good Financial Governance
Any Queries?