2013-05-07 AfDB Lessons Learned on the PFM Front Lines

7/30/2019 2013-05-07 AfDB Lessons Learned on the PFM Front Lines

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Lesson Learned on the Public

Financial Management Front Lines

African Development Bank Group

May 7, 2013


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Agenda

Story behind FreeBalance

Lessons in: ICT-enabled good governance

Lessons in: PFM reform sequencing Lessons in: FMIS delivery and sustainability

Conclusion


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for public financial management supportreform and modernization to improve

governance, transparency and accountability.

FreeBalance solutions


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1984

free balance

+ Budget

- Commitments- Obligations

- Actuals

= Free Balance


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1984+

Ottawa: Parliament Hill


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1994+

Appropriations

Expenditures

Procurement

Treasury

Materials

Civil Service

Receipts

Payroll

Social Programs

Budget Controls

Planning

Analysis

Budget Law

Policy

Forecasting

Budget Books

Government Resource

Planning (GRP)


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How is GRP Unique?

1994+

Budget Centric

CommitmentAccounting

Modernization

& Reform

ComplexPerformance

Not ERP


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1994+

different

organizational

configurations

MULTIPLE

CONTROLS

aggregate

detailed

MULTIPLE

CONTROL

LEVELS

configured

CONTROLS

budget

appropriations

transfers

commitments

obligations

receiving

expenditures

COMMITMENTCYCLE

segregationof

duties&workflow

monthly

PERIOD

yearly

TOLERANCE

LEVELS

flexible

strict

Financial Controls


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1998

Nunavut


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1999

Kosovo


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quickest

implementation

26 days

average

first phase8 months

Rapid Implementation

2000+


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2006

FreeBalance Public Financial

Management Component Map

FreeBalance Public Financial Management Component MapComprehensive and Extensible

Product Suite for Government


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today

Countries Penetrated 21

Time Zones 15

World wide Software Installations Over 200

Users Over 60,000

Civil Servants Almost 1.5 Million

Handling annual budgets of > $ Trillion

Global Impact


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today

Developed

CountriesDeveloping Countries Post Conflict

National

Uganda,

Guyana,

Antigua,

Suriname,

Lao PDRMongolia,

Kyrgyzstan

Timor-Leste, Iraq

Afghanistan,Kosovo,

Sierra Leone,

Liberia, South

SudanDepartmental

Canada

28 Financials

42 Budget

USA

10 Financials

1 Budget

Panama,

Jamaica,

Pakistan

Sub-National NunavutPalestine

Project Namibia

Global Impact

d


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FreeBalance Offices and Regional Support Centrestoday

Vientiane

services & support

sales, business development & marketing

product management & development

corporate services

Dili

Ulaanbaatar

BishkekOttawa

Guatemala City

Washington

St. Johns

Lisbon

Monrovia

FreetownKampala

Pristina

Ramallah

Kolkata

Kabul

Bangalore

Paramaribo

d


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GlobalPFM

Provider

CanadianCompany

GRPLeader

100%Government

Focus

ISO-9001/2008

CoversBudget

Cycle

ModernWeb

Technology

HighSuccessRate

Company Summary

today


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Agenda



Lessons in: PFM reform sequencing

Lessons in: FMIS delivery and sustainability

Conclusion


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Multiple Definitions

Tinged with Ideology

Multi-variant and Complex Measurement Difficulties

Yet Governance Measures Critical

Good Governance


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1919


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About $37B of

foreign aid

annually is

phantom aid


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Tax evasion

through untaxed

shadow economy

= 17% of world

economy, wellover $2.5T


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brief discussionForeign DirectInvestment to

DevelopingCountries at

$684B


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brief discussionTotalworldwide

remittances to

developingcountries

exceed $534B


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Tax Revenue

ranges from1.4% of GDP

in UAE to

almost half inBelgium,

Sweden andDenmark


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What Works in Technology-Enabled Public Financial Management?An On-Going Debate

TechnicalReformsDifficult

TechnicalReforms Easy

TechnicalReformsEffective

TechnicalReforms

Ineffective

Use PFM BestPractices

Use CountryContext

Its not

about

technology

Its all about

technology

Good

Practicesapplied

technology

applied

practice


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Good Governance Mind Map v.1.0


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Governance Linkages

1. back office GRP software provides

2. a set of Governance tools

3. whose effectiveness in improving

governance is determined by

institutional maturity

4. and can be seen

5. measured

6. shown to improve country outcomes


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Consider a Scenario


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brief discussionTotal AnnualGovernment

Procurement

is estimated

at $9.5T


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Developing

Countries lose an

estimated $20B to

$40B annually

because ofcorruption


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ICT Platform

1. SecureInfrastructure

2.User GroupControls

GovernmentPerformance

3. BudgetPreparation

Core PublicFinancials

4. CommitmentAccounting

Public ExpenditureManagement

5. Procurement

6. E-Procurement

7. PaymentManagement


8. Audit

Automating the Procurement Cycle


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Controls

Core Public

Financials

Expenditure

Management

Receipts

Management

Treasury

Management

Civil Service

Management

Performance

Management

Standards IPSAS, GFS CoST, OpenC EITI IATI GFS

Front-Office

financial

statementse-procure revenue

aid, debt &

PPP

e- recruit &

disclosuregov results

budget transparency

Decision-Makingforecasts programs reporting & analytics dashboards alerts - output/outcomes KPIs

economics historical data - benchmarks policy planning scenarios programs

Other Controlsassets secure payment & secure transactions audit

accruals TSA accruals

Commitment budget commitment cash - payment

Process Controls chart of accounts workflow & procedures approval cycle - reconciliations

IT Controls data integrity data encryption IT security - integration


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ICT Platform








5. Procurement

6. E-Procurement



8. Audit

Chart ofAccounts

Dashboards

Alerts

ProcedureWorkflow

Integration

Segregation ofDuties

ICT Platform








5. Procurement

6. E-Procurement



8. Audit

Data integrity

Encryption

IT security

Usermanagement

Budget &CommitmentControls

Planning

Historical data

E-Procurementfront office

Securepayments

Audit trail


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IT Controls

ICT Vulnerability Technique

DatabaseD

ataIntegrity

Obfuscation

Encryption

Biometrics

VPN

SecurityPolicy

SecurityAudit

AuditTrail

Tran

saction

Audits

DB Abstraction

Network

SniffingUser Identify

IntegrationInterfaces

Reports External Transparency

Intrusion Intrusion Detection


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FreeBalance Public Financial Management Component MapComprehensive and Extensible

Product Suite for Government


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GPM BCM PFM GTM GRM PEM CSM

Chart of Accounts

Budgets & Commitments

Segregation of duties

Secure Payment

Integration

Reconciliation

Workflow & Procedures

Approvals

Accrual

Asset Management


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Governance Enablers Matrix

CharacteristicsCapacit

y

PoliticalWill

Accounting

Procedures

Standards

Efficiency

Risk

Managem

ent

Compliance

Decentraliz

ation

Independence

Informal

Mechanisms

Accessto

Information

Transpare

ncy

Outreach

Participation

Legitima

cyInstitutions

Executive

Legislature

Judiciary

Internal & External Audit

Enforcement

Other Govt Oversight

Public Service

Civil Society & Citizens

Businesses

Election Commission

Political Parties

Donors


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ICT Platform








5. Procurement6. E-Procurement



8. Audit

Chart ofAccounts

Dashboards

Alerts

ProcedureWorkflow

Integration

Segregation ofDuties

ICT Platform








5. Procurement6. E-Procurement



8. Audit

Data integrity

Encryption

IT security

Usermanagement

Budget &CommitmentControls

Planning

Historical data

E-Procurementfront office

Securepayments

Audit trail

Political WillCapacity

Standards Compliance

Accounting

Procedures

Transparency

Civil Society

Internal Audit

External Audit

Independence

Enforcement


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PEFA to PFM Component MapCore Public Financials

& Budget Controls

Expenditure

Management

Receipts

Management

Treasury

Management

Civil Service

Management

Performance

Management

A. PFM-OUT-TURNS:

Credibility of thebudget

Budget Controls

Expenditure

Controls &Forecasting

Revenue

Forecasting

Cash and Liquidity

Forecasting

Wage Bill

Forecasting

Budget Planning

Processes

B. KEY CROSS-

CUTTING ISSUES:

Comprehensiveness

and Transparency

Budget Classifications

Budget Transparency E-ProcurementRevenue

Transparency

E-Recruitment,

Wage & Expense

Disclosure

Results Portal

C(i) Policy-Based

Budgeting

Talent

Management

Budget Planning

Processes &

PerformanceManagement

C(ii) Predictability and

Control in Budget

Execution

Non-Salary Controls

Expenditure

Controls &

Forecasting,

Procurement

Value for Money

Taxpayer

Obligations & Tax

Collection

Cash and Bank

ControlsPayroll Controls

Audit trails &

Computer Aided

Audit Tools

C(iii) Accounting,

Recording and

Reporting

Timeliness and Completeness of Statements and Reports, Support for International Public Sector StandardsQuality of

Reports

C(iv) External Scrutiny

and Audit

Audit trails &

Computer Aided

Audit Tools


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GovernanceRating

GovEffective

PFM Transparency

improves

enables

results

perception

behaviour

Impact of Public Financial

ManagementImprovements on

International Governance

Ratings

Openness, Effectiveness,Service Delivery, Growth,

Anti-Corruption

GRP Anti-Corruption Hospital Procurement Scenario


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Government Resource Planning Software Governance ToolsetGovernance

EnablersGovernance Signs

Governance

Indicators

Governance

Outcomes

chart of accounts | segregation of duties |integration | workflow & procedures | alerts & dashboards

ICT Platform

1. Secure

Infrastructure

Data Integrity

Improved Health

Outcomes Child Health

CIESIN/YCELP

Reduce Child

Mortality MDG

Immunization

Rates WHO/UNICEF

Reduce Maternal

Mortality MDG

Universal Accessto Reproductive

Health MDG

Encryption

IT Security

2.User Group

ControlsUser management

Government

Performance Mgmt3. Budget Planning

Planning PEFA C3:

Accounting,

Recording,

ReportingHistorical data

Core Public

Financials

4.Commitment

Accounting Budget &

Commitment

Controls

Accounting

Procedures

PEFA C2:

Predictability &

Control in Budget

Execution

Public Expenditure

Mgmt

5. Procurement

6. E-ProcurementE-Procurement

front office

TransparencyPEFA B:

Transparency

WGI Control of

Corruption

World Bank Doing

Business IndexTI Corruption

PerceptionCivil Society

Procurement Graft

incidents7. Payment Secure payments

Increase in Foreign

Direct InvestmentGovernment

Performance Mgmt8. Audit Audit trail

Internal & External

AuditPEFA C4: External

Scrutiny & AuditIndependence

Enforcementstandards | capacity|political will| compliance


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+ Public Finances

- Transparency

- Accountability= Corruption


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Version 7 sectionLessons Learned

GRP Technology improves governance

Hard to see success with good PFM processes

without a GRP

Significant improvements in governance requires

institutional changes


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Agenda





Conclusion


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What Works in Technology-Enabled Public Financial Management?An On-Going Debate

TechnicalReformsDifficult

TechnicalReforms Easy

TechnicalReformsEffective

TechnicalReforms

Ineffective

Use PFM BestPractices Use CountryContext

Its not

about

technology

Its all about

technology

Good

Practicesapplied

technology

applied

practice


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Governance Formula?


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Not prescriptive

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Evaluation Methods


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Evaluation MethodsEvaluation Method Scope Back-Office Technology Front-Office Technology

Public Expenditure and Financial Accountability

(PEFA)

Comprehensive PFM

assessment

No technology guidance although PEFA assessments attribute some

achievements to the use of technology

Commonwealth Public Financial Management

Self-Assessment Toolkit (CPFM-SAT)

Comprehensive PFM

assessment

A3: Use of IFMIS

B2: Use of Debt ManagementsoftwareNo technology guidance for publishing

informationThe Chartered Institute of Public Finance &

Accountancy (CIPFA) Whole Systems Approach

Comprehensive PFM

assessment

O7: Financial management

information systems

Revenue Watch Institute IndexExtractive Industries

transparency

Paris Declaration and Accra Agenda for Action Aid effectivenessUse of country systems for PFM and procurement does not specify use of

technology

International Budget Partnership Open Budget

Index (OBI)

Budget preparation and

reporting transparency

Internet publishing of budget documents

gains higher rating for many categories

Gartner Group Open Government Maturity

ModelOpen government

Provides open government technology

insight

Institute for Electronic Government e-

Democracy ModelE-Democracy Use of e-mail systems

Use of web technologyAndersen & Henriksen E-Government Maturity E-Government

Layne and Lee Framework of E-Government E-GovernmentHorizontal and vertical integration

within government

World Bank World Governance Indicators

Meta collection of 3rd party

indicators No technology guidance

Global Integrity ReportGovernance and anti-

corruption

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http://www.revenuewatch.org/http://www.revenuewatch.org/http://www.pefa.org/http://www.pefa.org/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.cipfa.org.uk/http://www.cipfa.org.uk/http://www.revenuewatch.org/http://www.oecd.org/document/18/0,3746,en_2649_3236398_35401554_1_1_1_1,00.htmlhttp://internationalbudget.org/what-we-do/open-budget-survey/http://internationalbudget.org/what-we-do/open-budget-survey/http://www.gartner.com/http://www.gartner.com/http://www-01.ibm.com/industries/government/ieg/pdf/e-democracy%20putting%20down%20roots.pdfhttp://www-01.ibm.com/industries/government/ieg/pdf/e-democracy%20putting%20down%20roots.pdfhttp://www.hellezinnerhenriksen.info/abstracts.htmlhttp://www.ingentaconnect.com/content/els/0740624x/2001/00000018/00000002/art00066http://www.globalintegrity.org/reporthttp://www.globalintegrity.org/reporthttp://www.globalintegrity.org/reporthttp://www.globalintegrity.org/reporthttp://www.ingentaconnect.com/content/els/0740624x/2001/00000018/00000002/art00066http://www.ingentaconnect.com/content/els/0740624x/2001/00000018/00000002/art00066http://www.ingentaconnect.com/content/els/0740624x/2001/00000018/00000002/art00066http://www.hellezinnerhenriksen.info/abstracts.htmlhttp://www.hellezinnerhenriksen.info/abstracts.htmlhttp://www.hellezinnerhenriksen.info/abstracts.htmlhttp://www-01.ibm.com/industries/government/ieg/pdf/e-democracy%20putting%20down%20roots.pdfhttp://www-01.ibm.com/industries/government/ieg/pdf/e-democracy%20putting%20down%20roots.pdfhttp://www-01.ibm.com/industries/government/ieg/pdf/e-democracy%20putting%20down%20roots.pdfhttp://www.gartner.com/http://www.gartner.com/http://internationalbudget.org/what-we-do/open-budget-survey/http://internationalbudget.org/what-we-do/open-budget-survey/http://www.oecd.org/document/18/0,3746,en_2649_3236398_35401554_1_1_1_1,00.htmlhttp://www.revenuewatch.org/http://www.cipfa.org.uk/http://www.cipfa.org.uk/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.thecommonwealth.org/http://www.pefa.org/http://www.pefa.org/


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Whats changed?

101011001110010101001010101

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Country PFM Context

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Government Performance ManagementData from Government Operations

Expenditures RevenueBudget

formulationBudget

executionHuman

Treasury ResourcesData from Government Operations

Government Performance Management

PFM Domain

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GovernanceValuation

SolutionBlueprint

Implementation

ProjectGovernance

ProductDevelopment

GovernmentResearch &Engagement

CustomerSustainability

FreeBalance i3+qM MethodologyAligning Customer Needs with Product, Service and Sustainability Offering

Steering

Committees

SWAT Teams

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Calculates?

TechnologyPriorities

PFMPriorities

CountryConditions

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Anchor


PFMPriorities

CountryConditions

BenchmarkPriority

GapsSequencing

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Sequenced


PFMPriorities

CountryConditions

BenchmarkPriority

GapsSequencing

capacity

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PFM reform sequencing as much a science as an

art

Holistic approaches that consider technology,

capacity, lessons in peer countries andmethodology increases success

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Agenda





Conclusion

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58

Risk of Project Failure Higher in Government

Includes ICT Project Risks + mostERP risks

Complex legal reform

Need for continuous reform

Covers more lines of businessthan private sector enterprises

Need to rationalize needs ofpoliticians, public servants and civilsociety

Government Resource Planning

Includes all ICT Project Risks

High customization requiredto achieve benefits

Often requires businessprocess re-engineering

Highly complex project coversmultiple organizational silos

Projects often delivered late

High maintenance costs,especially upgrades leads tohigh Total Cost of Ownership(TCO)

Enterprise Resource Planning

Many ICT projects fail todeliver on expectations

High maintenance costs tokeep lights on

Complex ICT projects have

higher failure rates thanmodest projects

Move to Cloud computing areaction by customersagainst high ICT costs

ICT Projects

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COTS dilemma

MIDDLEWARE

DEVELOPMENTENVIRONMENT

REUSABLECODE

CONFIGURATION

APPLICATION

NEEDS

governance

customization

enterprise

costs

proprietary

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Failure Unsuccessful Success

Reported Enterprise Resource Planning Success RatesMultiple Studies, Multiple Methods, All Industries

42%

34%

24%

Successful

Unsuccessful but not

failure

Failure

Low, Average and High ratings from ERP

studies indicating Failure, unsuccessful

(including Failure) and Success

Calculated Average ERP Success,

Unsuccessful but not Failure and Failure

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11

76

1

1

47

3

0 2

2

0

0

2

4

6

8

10

12

14

16

FreeBalance Oracle SAP Epicor

Failure

Problems

Successful

Failure = Abandoned or > 10 Years to ImplementProblems = Reported issues, incomplete implementations, late

Success = No exceptionally reported problems

Government Resource Planning Success in Developing CountriesNational Government Level Implementations

Tier1 ERP Tier1 ERP Tier2 ERP

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0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

350.00%

400.00%

450.00%

500.00%

ERP Price

FreeBalance

ERP 5 Year TCO compared to FreeBalanceGovernment Quotations from 2006-2012

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0%

10%

20%

30%

40%

50%

60%

1. Upgrade & Optimize

2. Adapt Processes

3. New Apps

4. Process Automate5. Process Decisions

6. Decisions in Apps

7. OtherBarriers to Success

Time Consuming

Enterprise Software Barriers to Success & Time Consuming TasksInformation Week 2012 Enterprise Applications Survey

1. Changing, upgrading or optimizing existingapplications

2. Changing or adapting processes as businessrequirements change

3. Implementing new applications

4. Automating or integrating business processes

5. Developing or improving decision-supportcapabilities for processes

6. Developing or improving decision-supportcapabilities within apps

7. Other

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featuritis

6464

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Version 7 section Conflict between customized vs. generic

solutions

More vertical capabilities creates larger footprint

Governmentfocus reduces:

Customization

Technical footprint

Time to implementation

Product Design and Sustainability

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Version 7 sectionHuman Capacity

Adaptable help

Single file translation

Methodology

CIPFA partnerships

Evans partnership

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Version 7 section Configuration options

Parameters

Business Rules

Workflow

Progressive Activation

New Custom Domain

capabilities

FreeBalance Model

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brief discussionFreeBalanceAccountability SuiteCountry Specific Functionality(CFG) Configuration (CFCB)ChartofAccountsBuilder (CFCD)CustomDomains

(CFPR)Parameters

(CFWF)Workflow

FreeBalance

Accountability SuiteConfiguration and

Metadata Management

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Progressive Activation

6969

Modules Modernization Decentralization

Financials

Treasury

Revenue

Debt

Budgeting

Purchasing

Payroll

AssetsInventory

HR

MoF

LineMinistries

Regions&States

Treasuries

Devolution

Commissions

GovtBusinesses

Municipalities

Cash-based

CashManagement

ModifiedCash

BudgetaryControls

MTEF

AggregateControls

ModifiedAccrual

CivilServiceReformPerformanceMgmt

Accrual

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Government

Functions

HibernateSpring TrinidadEclipse

Government

Applications

Government

Entities

Framework JavaEE

Infrastructure

FreeBalance Web Architecture

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First

GenerationERP Era to2007

Strategic

InflectionPoint 2007-2010

Second

GenerationGRP Era2010+

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broken software model?

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Product developers

Government is one ofmany verticals


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Product

Management

Sales &

Marketing

User

Trainer

Consultant

Customer

Support

Product

Development

Product often designed

with different customers

in mind

Product developers

have no expertise in

government financials

Salespeople want to sell

to every possible

market.

Consultants help

customers to customize

code.

Government needs

may not go into

upgrades

Consulting firms

generate revenue fromcustomization.

Typical Approach by Enterprise Software Vendors to

the Government Market

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Government Resource Planning and the CustomerCentric Approach


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Product Management

Customer Support

Product Development

Consultant

UserAll problems & feature

requests are tracked

management dashboard

Vendor consultants bring

experience to write

specifications.

Developers visit customers

and are part of SWAT

teams.

Steering Committee setsproduct direction.

Customers interact with Vendor staff

and other customers on collaborative

web application

Customers visited at

least once every year.

Local in-country

support pass on

needs.

Centric Approach

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Software design matters: risk of failure & cost isproportional to distance

Separate product development and

implementation firms increases risks of failure African governments require vendor

commitment and better project governance

structures

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Agenda





Conclusion

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.943.286

low medium high very high

Canada

.908

Antigua

.764

Mongolia

.653

Liberia

.329

Timor-Leste

.495

| | |

Selection of FreeBalance Customers, National Level GRP Implementationsfrom low to very high Human Development Index

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CustomerExperience

MarketResearch &

EventsParticipation

Customer-CentricProduct

Governance

FreeBalanceGovernanceFramework

FreeBalanceGovernance

Valuation

1. Engage the PFM Community

Similarity in

similar

circumstances

Enhancement

requests from

governments

Deep research in

public financial

management

Engagement with

larger PFM

community at events

Customers drive the

FreeBalance

product roadmap at

the FreeBalance

International

Steering Committee

Framework links

Government

Resource Planning

(GRP) to positive

governance

outcomes

Methodology

provides PFM

reform and

GRP

sequencing

blueprints

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FreeBalance Accountability Suite


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GovernmentFunctions

HibernateSpring TrinidadEclipse

GovernmentApplicationsGovernmentEntities

Framework Java EE

Infrastructure

FreeBalance Accountability Suite100% Web Technology

open system runs on open

source and commercial

middleware

reusable business objects

leveraged as part of the Service-

Oriented Architecture

no client/server or

legacy code used

multitier

design

separates

presentation,business

logic and

data layers

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8080

Economy

Approximate starting point

of current state and peace

building

Relative progress by 2010

Afghanistan 2001-02 Substantial

Cambodia 1991-93 Intermediate

Congo, Dem. Rep. 2001 Limited

Kosovo 1999 Substantial

Liberia 2003 Intermediate

Sierra Leone 2002 Substantial

Tajikistan 1997 Limited

West Bank & Gaza 1993-2002 Intermediate

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2 Possible to Leapfrog


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BudgetPlanning

Budget BooksAdvancedSalaryManagement

TreasuryManagement

TransparencyPortal

PerformanceManagement

Modern-ization

AccrualAccounting

AdvancedChart ofAccounts

De-centralization

Fixed AssetsHumanResources

Procurement

2. Possible to LeapfrogExample FreeBalance Accountability Suite Implementations

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3 GRP Can Improve Assessments


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A. PFM-OUT-TURNS: Credibility of the budget

B. KEY CROSS-CUTTING ISSUES: Comprehensiveness and

Transparency

C(i) Policy-Based Budgeting

C(ii) Predictability and Control in Budget Execution

C(iii) Accounting, Recording and Reporting

C(iv) External Scrutiny and Audit

FB Public

Public PEFA

Public PEFA PEFA

Avg

HDI

Avg

HDI

Category

FreeBalance

Customers2.47 0.482 Low

*Countries

do not use

FreeBalance

2.35 0.569 Medium

3. GRP Can Improve AssessmentsOnly the Most Recent Public PEFA Assessment


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5. Success Requires Vendor Implementation & Long-Term Support Commitment


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Product Management

Customer Support

Product Development

Consultant

User

Term Support Commitment

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GlobalPFM

Provider

Company

GRPLeader

100%Government

Focus

ISO-/

CoversBudget

ModernWeb

Technology

High

SuccessRate

More:www.freebalance.com/blog

Documents

2013-05-07 AfDB Lessons Learned on the PFM Front Lines