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The Design and Implementationof Treasury Systems
Ali Hashim
Europe and Central Asia Region
World BankMay 3,2005
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Part I : Basic Concepts
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IFMIS: Integrated Financial ManagementInformation Systems
Not a very specific term
May mean different things to differentpeople.
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What are the main systems forGovernment Fiscal Management ?
Macro economic forecastingBudget preparationBudget execution, accounting and fiscal
reportingCash managementDebt management
Revenue administration (Customs and Tax)Civil service managementAuditing
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TREASURY SYSTEM
Functional
ProcessCentral
BankDebt
ManagementBudget
ManagementCash
Management
Govt.
SpendingAgencies
Revenue Collection
Agencies
Paying/
ReceivingBanksTaxes Customs
BUDGET PREPARATION
BUDGET MANAGEMENT
& FISCAL REPORTING
Ac.Receiv. Ac. Payable
Treasury General Ledger
AGENCY
BUDGETEXECUTION
DEBT MANAGEMENT
POSITIONMANAGEMENT
PAYROLL &PENSIONS
PERSONNELMANAGEMENT
TAXATION
AGENCY
BUDGETPREPARATION
CUSTOMS
Domestic Foreign
Invest ment Current
CASH
MANAGEMENT
AUDITINGSample Transactions from Government Systems to Auditing
Budget
Guidelines
Cash Forecasts; Allocations
C
O
MM
ER
C
IA
L
B
AN
KS
MacroEconomic
Forecasting
BudgetPreparation
BudgetManagementAccounting
&Fiscal Reporting
CashManagement
DebtManagement
Revenue
Administration
Civil Service
Management
Auditing
Estimate
ofBorrowing
andPublicDebt
Interest
Macro Economic Framework
Budget Proposals;
old & new programs
Audit
Organ.
Revenue Estimates
Approved Agency Budget
CENTRAL
BANK(TSA)
Payment Instructions
to Central Bank
Report on Payments& Receipts to TSA
Reports
onRevenue
Receipts
Information Systems Architecture for Government Fiscal Management
CentralOffice
RegionalUnits
EconomicPolicy
Treasury
Ministry of Finance
Government
Banking Arrangements
Feedback
fromAudit
Vendors
TaxPayers
Previousyears data
MACRO ECONOMIC FORECASTING
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The World Bank has financed a number ofTreasury Systems Projects world wide.
In some countries these projects haveinvolved building on and repairing existingfinancial management arrangements and
systems
In transition economies, they have required
setting up institutional structuresand accompanying systems, ab-initio, asthese countries move from centrally plannedto market economies
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It has been easier to implement Treasurysystems, ab-initio, at green field sites such as
countries of the Former Soviet Union
In other countries, e.g. Turkey, Pakistan,
where the reform required that old systems berepaired and modernized, greater difficultieshave been experienced due to resistance to
changes in the organizational and legalframework, functional processes andprocedures.
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Why Treasury Systems ?
Ensure that expenditures are in accordance withbudget appropriations, commitments and cash
allocations, thereby enabling better control overexpenditures, fiscal deficits, and arrears
Enable better cash management and reduction of
idle balances by bringing all government accountsunder the control of Treasury and consolidation in aTreasury Single Account (TSA)
Provide more accurate and timely information fordecision making and accountability by integratingtransaction processing, enforcement of controls,
accounting and comprehensive reporting.
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Why Automated Treasury Systems ?
Effective economic management requires the
availability of timely and accurate dataon all government expenditures andrevenues and balances in government accounts.
Without some degree automation this data maysimply not be available with the requireddegree of timeliness and accuracy since thisrequires compilation and consolidation of transaction
data from across a country wide network of offices
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Why Automated Treasury Systems ?
In addition automated systems enable:
Integration of transaction classification andposting with transaction processing thereby
increasing data integrity
Automation of many controls and
procedures
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What do Treasury Systems do?
Record initial budgets, revisions, spending unitexpenditure plansDistribute budget appropriations, spending limitsand warrant allocations
Record commitmentsRecord receipt of goods and servicesAuthorize payments after checking for controlsGive payment instructions to Bank
Record revenues and other receiptsEnable posting of all transactions, enforcement ofcontrols, accounting and comprehensive reporting
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What legal and inst it ut ional reformsare needed prior t o work on systems
design? Budget management law that provides a framework
for management of public funds
GFS compliant Budget classification system/Chart ofAccounts
Banking arrangements for consolidation of funds in aTreasury Single Account at the Central Bank
Re- engineered functional processes and institutionalarrangements for TSA based for payment and receiptsprocessing
Cash management unit within treasury
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What needs t o be done so that various syst ems
modules can w ork t oget her as an int egratedsystem?
The systems modules should:
Be able to exchange information without difficulty
Be organized alongfunctional and not organizational lines
Share commonly used data
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How to achieve systems integration?
Develop an information systems architecture
that provides an over view of the GFMsystems network in terms of its:
Components- scope, scale and type
Connections- information flows Agencies responsible
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Development of an information systems architecture
requires an analysis of:
Functional processes Responsibilities of agencies Information flows in processes
and between organizations
Nature, volume and frequency of flows Data characteristics
T S t C F ti l P d I f ti Fl
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Commitment and verificationtransactions
Payment orders
Accounting reports
Regional Systems
Budget Appropriations
Central System Government BankingArrangements
Consolidated FiscalReports
TREASU
RY
LEDGER
SYST
EM
TLS
Ministry ofFinance
Budget appropriations
Treasury System: Core Functional Processes and Information FlowsCase1: Treasury is directly responsible for making payments;
Central Bank responsible for banking operations
LineMinistries
&
CentralSpending
Units
RegionalSpending
Units
CentralBank(TSA)
RegionalCentralBank
Branches
BankBranches
CentralTreasury
andTreasuryOffices at
Center
RegionalTreasury
Units
Cash forecasts
Commitment Limits
Fund allocations
Commitment and verificationtransactions
Payment orders
Accounting reports
Payment transactions against TSA
Daily file of payments and receipts
Credit to suppliers Acs
Summary of receipts
Payment transactions against TSACredit to suppliers Acs
Receipts deposit to TSADaily file of payments and receipts
Commercial
Banks
TaxPayers Suppliers
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TREASURY
LEDGER
SY
STEM
Treasury System: Core Functional Processes and Information Flows
Tax and Customs Receipts and Refunds
TaxAdministration
CentralBank(TSA)
Treasury
Offices
RefundCredit
toImporters Acs
Tax Refund paymentorder drawn on TSA
Tax ReceiptsDeposited
in TSA
and Tax PayerDocuments
toCentral Bank
Daily file of
Tax Paymentsand Documents
to Treasury
Commercial
Banks
TaxPayers
Importers
CustomsAdministration
Customs Duties
Electronic fileand documents
toTax
Administration
Request for Tax Refund
RefundPayment
Order
Refund
Deposit toTax payerAccount
Customs DutiesDeposited
in TSA
Duties Refund payment
order drawn on TSA
File ofCustom Duty Payments
Duty Paymentadvice
to Customs
DutyRefund
PaymentOrder
Duty Refund Request
CustomsWarehouse
Imported GoodsConfirmation of Receipt of Custom Duty
Confirmation ofExport for VAT Refunds
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MOF
Spending
Ministries
and SUs
Treasury(Central &
Regional
Offices)
Treasury
Ledger
System
TSA held
at Central
Bank
Commercial
Banks
MOF
SpendingMinistries
and SUs
Ministry
LevelLedger
Systems
Treasury
Central
Office
Central
TreasuryLedgerSystem
TSA heldat Central
Bank
CommercialBanks
Budget appropriationsBudget appropriations
Budget appropriations
Budget appropriations
Fiscal Reports
Fiscal reports
Payment requests from Ministries and SUs to Treasury; Financial
reports from Treasury
Expenditure transactions from Treasury to TSA Bank;Reports to Treasury on payments and receipts
Payments to Suppliers Accounts; Government Receipts
Expenditure transactions from Ministries to TSA Bank; Reports to Ministries on payments and receipts
Payments to Suppliers Accounts; Government ReceiptsReports to Treasury on Paymentsand Receipts
Reports from ministry systems
Alternative Arrangements for Payment Processing
Case 1: Treasury is Responsible for Payment Processing;
Central Bank responsible for banking operations
Case 2: Ministries and SUs are directly responsible for Payment
Processing; Central Bank responsible for banking operations
Alt ti B ki A t
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MOF
Spending
Ministries
and SUs
Treasury
(Central &
Regional
Offices)
Treasury
Ledger
System
Fiscal
Agent
Commercial
Banks
MOF
Spending
Ministries
and SUs
MinistryLevel
Ledger
Systems
TreasuryCentral
Office
Central
TreasuryLedger
System
Fiscal
Agent
Commercial
Banks
Budget appropriationsBudget appropriations
Budget appropriations
Budget appropriations
Fiscal Reports from System
Fiscal reports from system
Payment requests from Ministries and SUs to Treasury and Financial
reports from TreasuryExpenditure transactions from Treasury to TSA Bank;
Reports to Treasury on payments and receipts
Payments to Suppliers Accounts; Government Receipts
Expenditure transactions from Ministries to TSA Bank; Reports to Ministries on payments and receipts
Payments to SuppliersAccounts; Government
ReceiptsReports to Treasury on Payments
and ReceiptsReports from ministry systems
Alternative Banking Arrangements
(Banking Operations carried out by a Commercial Bank acting as a Fiscal Agent of the
Central Bank)
Case 2: Ministries and SUs are
directly responsible for
Payment Processing
Case 1: Treasury responsible
for payment processing;
CentralBank
(TSA)
CentralBank
(TSA)
I t t C t El t f T P j t
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Investment Cost Elements for a Treasury Project(Base Costs + Taxes and Duties+ Contingencies)
Policy and Design Consultancies
Legal Framework (Budget Law, CoA, Budget Classification Strc.)Functional Requirements (Information flows, documents, proceduresTechnical Design and Architecture (S/W, H/W, Comm Specs)Project Management
Equipment and SoftwareServers/Work stations ( incl. systems software and office software)Printers and office equipmentLAN Networking/WAN Networking/Information SecurityMisc- Site Preparation & InstallationApplication Software (Licenses, Parametrization, etc.)
DBMS and Application Development tools
TrainingEnd User TrainingTechnical Training for IT staff in the use of Specific Tools used
Financial Management Training for Managers
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Recurrent Cost Items
Hardware Maintenance / ReplacementApplication Software and DBMS/ Tools
License fees ( 15% of installed software)
Telecommunications Costs
Stationary, Utilities, Office Premises
Staff Costs
On Going Training
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Act ivit ies and tasks involved in t he
implementat ion of a Treasury syst em
Develop Legal and Institutionalframework
Develop functional design, manualsand proceduresDevelop technology design andarchitecture
Procure Application SoftwareParameterize/Customize S/WTest Application S/W for functionality
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Act ivit ies and tasks - cont inued
Implement system at Pilot sites
Procure and Install hardware at pilot sitesInstitute change managementprocedures
Train end user and technical staffImplement systems
Replicate systems across all sites
I di ti I l t ti S h d l
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Legal and Institutional Framework
Functional Design, Budget Classification, CoA, Procedures and Manuals
Technical Design
Systems Procurement
Gap Analysis, S/W Parameterization
/Customization/, Testing
Pilot Systems Implementation
Systems Replication
Change Management & End User Training
12-18 months 12-18 months 24-36 months
Indicative Implementation Schedule
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Part II: Implementation Experience
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Some Treasury Systems Proj ect s-
Financed by t he Wor ld Bank
Kazakhstan Treasury Modernization Project
Ukraine Treasury Systems ProjectRussia Treasury Development Project
Hungary Public Finance Management Project
Turkey Public Finance Management Project
Pakistan Improvement in Financial Reportingand Accounting-PIFRA-project
Indonesia- GFMRAP
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Institution Building / TechnicalAssistance Projects with Treasury
Components
Azerbaijan- IBTA II
Turkmenistan
AlbaniaArmenia
Uzbekistan-under preparationSlovakia
Moldova under preparation
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Kazakhstan Treasury Modernization Project
Project approved: July 1966
Loan amount: $15.8 millionGovernment Financing: $5-10 million
Project Status: Treasury Organization / Legal Framework in
place Treasury Offices in Oblasts and Rayons Payments and Receipts Centralized
through Treasury Interim Computer System was first Installed ORACLE- FINANCIALS based full function
system installed and working
Ukraine Treasury Systems Project
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Ukraine Treasury Systems Project
Approved: March 1988
World Bank Loan: US $16.4 millionGovernment financing: $10-15 million
Status:
Treasury organization / Legal frameworkin place; business processes re- engineered
Payments and receipts centralized throughTreasury for both central and local
governmentAutomated Treasury system installed and
working at HQ, 27 oblasts, and about 650rayons
Russia Treasury Development Project
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Russia Treasury Development Project
Project approved: June 2002
World Bank Loan: $231 million ( Ist tranche)Estimated Cost: $400 millionStatus:
Treasury Organization, Legal framework in place,
business processes re-engineeredPayments and receipts processed through TreasuryTreasury Single Account established at CentralBank of Russia
Assorted Interim systems in useNew systems to be implemented under this project
Hungary PFMP Treasury Component
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Hungary PFMP Treasury Component
Project Approved: 1998
Loan Amount: $7.5 millionGovernment Financing: $5-10 millionStatus:
Treasury Organization, Legal framework
in place, business processes re-engineeredPayments and receipts processed through
TreasuryTreasury Single Account established at
Central Bank of HungaryCustom developed treasury system installed
and in useCovers Central Government transactions
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Critical success factors
Government commitment andmanagement support
Good project management Interagency cooperation Orientation and training Technical skills Management of change
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Commitment and Support of the MOF -1
A Government wide payment andaccounting system, has implications formultiple agencies and possibly for multiple
levels of government. Implementation ofsuch systems therefore requires the fulland active support of the MOF.
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Commitment and Support of the MOF -2
I t is difficult to get senior policy makers in theMOF actively involved if reform measures areframed in terms of resolution of an accounting
problem, e.g. non-conformity w ithinternational accounting standards, use of anarchaic chart of accounts, lack of timelyreporting etc.
Such a strategy w il l focus primarily on the
reform of the organization and processesrelated to the accounting function.
Commitment and Support of the MOF 3
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Commitment and Support of the MOF -3
Such projects should be framed as initiatives designedfor reform of the expenditure management systemsrather than merely accounting systems reform.
This raises the importance of the problem to a levelwhere senior level policy makers in the country and
their counterparts in donor organizations can relate toit.
Linkages can then be established between the
Treasury development program and requirementsunder policy based lending from both the Bank andIMF. The MOF then starts taking an active interest inensuring that project milestones are met.
Project Management and Interagency
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Project Management and InteragencyCoordination
The project needs to be headed by acompetent public sector manager from the
functional side who enjoys the respect of his
colleagues and superiors in the Governmentservice system and should have adequatefinancial and administrative authority.
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Core group of professionals need to be set up from
the core functions, who are trained and can act as
change agents as the system is rolled out.
Representatives of participating agencies need to be
represented on the team to manage the interface withtheir agencies.
Project secretariat should have specialist staff with
experience in the installation of large scale ITsystems and IT procurement
Orientation and Training 1
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Orientation and Training -1
A large number of stake holders in various
agencies need to become familiar with projectscope, advantages (what it will do for them)and timeline.
A very large number of staff need to be trainedin the actual use of the system.
This number and the training task couldappear overwhelming if a training plan is notprepared in a structured manner.
Orientation and Training 2
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Orientation and Training 2
Training effort needs to be coordinated closely
with implementation plans and focused to specificrequirements of a given site implementation
Training should be imparted just before
implementation
Most staff need to know only specific features of the
system
Help Desk; Hand holding clinics.
Technical Skills and Capacity:
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Technical Skills and Capacity:
Lack of career prospects for technical IT staff
within Government has been a major area ofconcern for sustainability of such projects
This could be remedied within the context ofan overall civil service reform effort - this ishowever, a long term measureOther solutions:
Hire specialist IT staff on contract atprivate sector salariesOutsource the technical operations and
maintenance of the system
Management of Change
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Management of Change
Need to overcome opposition from vested
interests who perceive the new systemsas a threat
advantages of new system need to be recognizedby MOF management and opposition resisted
perception of the system being a threat has to beremoved
Lack of incentives for change in a civil service
Setting
Bureaucracies are normally risk averseGive examples where this has been done
successfully
Show case results internationally
Extending the central system to sub-national
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Extending the central system to sub-nationallevels
This has posed problems in many countries. Sub-national levels of Government normally like to be ableto control payments without reference to afunctionary of the center.
The solution to this problem has to be found in thecontext of the local political economy and therelationships between the central and sub-nationalgovernments.
If the central government is the sponsor of the
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If the central government is the sponsor of theproject then the scope should be restricted to centralgovernment payments and receipts.
If the central government wants to extend its controlto provincial level payments then it should have somefinancial leverage and control over provincial
finances; e.g. it should be funding a major portion ofthe LG budget.
Two types of solutions
Use of same system across multiple levelsof governmentUse of common standards, CoA anddata exchange protocols
Russia: The Provincial treasuries are
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Russia: The Provincial treasuries arerequired to use the central system if it is adeficit province. Surplus provinces can
develop their own treasury systems basedon agreed standards and provide data atspecified time periods to the Federal
Government.
Ukraine and Kazakhstan: Central and Local
Governments use the central treasury system.Moneys are banked in the Central Bank.
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Pakistan: Central and Provincial governments
are required to use the same system. Moneys
banked at the Central bank/ National bank inSeparate accounts.
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Use of the Central System and CentralGovernment Treasury offices for payment
processing can alleviate capacity constraintsat local Government level.
However, care should be taken to ensurethat this system use is provided as a servicerather than an attempt to control localgovernment budget execution by the center.
Local government moneys should not be co-mingledwith central government.
Realistic time frames for reform program
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Realistic time frames for reform program
The functional reforms have taken several years to
be implemented. Sustaining management supportover long periods has been a problem. Linkage toIMF program and/ or SAL operations has often beenused to reinforce commitment
Some times interim technical solutions have beenimplemented to support these reforms followed byfull function systems. This has proved useful.
The whole process has can easily take 8-10 years
Procurement delays using Bank procedures
ECA- Technical Infrastructure and Capacity
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ECA Technical Infrastructure and Capacity
Technical capacity has not been a major constraint
in ECA
Relatively good quality telecommunications
Expertise in the technical areas is relatively easilyavailable from the local private sector.
However, there is a dearth of expertise in the
functional areas.
Pay and remuneration in Government is a key
constraint.
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Some closing words
Institutional and political economy issuesare more difficult to resolve and take moretime for resolution than technical issues
Reform of underlying fiscal management
processes should be the basis for systemsdesign
MOF/ Loads Budget
Treasury SystemModules
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Treasury makes apportionments
for line ministries and lineministries make allotments for
subordinate spending units
MOF/ Loads BudgetAppropriations
( Initial, revised andsuppplementary)
LineMinistries
MOF/Treasury
Budgetappropriations
Treasury makes Warrantallocations to ministries and
ministries make sub warrantallocations for subordinate units
Warrant allocations
Spending Units registercommitments/ enter purchase
order and contracts data after
checking for budget availability
System passes commitments datato Accounts payable module and
Treasury authorizes paymentsfrom TSA after checking funds
availability/ prior commitment
CentralBank
TSA
Paymentorders
Vendors/Govt.
CreditorsBanks
TaxPayers
Bank
Payments
Receipts
System records receipts
information provided by the Banks
Apportionments
SpendingUnits
Line Ministries enter consolidatedcash requirements for year for all
subordinate spending units.
Debt Management Department
enters debt commitments, debtservicing expenditure and loan/ aid
receipt transactions
Debt
ManagementDepartment
Develop revenue and expenditureforecasts/ monitor cash balances/
determine warrant amounts/
borrowing requirements
FiscalReports
to MOF
Fiscalreports
Management of
Budget Authority
Commitment
Management
Payments
Management
Receipts
Management
Cash
Management
Debt
Management
Cashforecasts
RevenueCollection
Agencies
Revenue forecasts
Borrowing requirements
Donors/
Aid
Givingagencies
Loan/ AidReceipts to
TSA