Financial Management for Good Governance - From Deficit to Surplus

Financial Management

March 2008

City District Government Faisalabad, Pakistan

S.M. Khatib AlamImran Yousafzai

From Deficit to Surplus

for Good Governance

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FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 Projected FY 2008-09 Projected FY 2009-10 Projected

This document is produced as part of the Strengthening Decentralised Local Government in Faisalabad (SDLGF) Project for the purpose of disseminating lessons learnt from the project. The views are not necessarily those of DFID or the City District Government Faisalabad

(c) SDLGF March 2008

Parts of this case study may be reproduced for educational use, provided that such material is not printed and sold. The authors expect that, any material which is used will be acknowledged accordingly.

Layout & Designed at:

FaizBakht Printers, The Mall, Jhang (Punjab) Pakistan.

VISION

“Pre-empting Poverty, Promoting Prosperity”

MISSION STATEMENT

“We will provide high quality services which compare with the best in the country. We will work with everyone who wants a better future for our District. We will establish an efficient, effective and accountable District Local Government, which is committed to respecting and upholding women, men and children’s basic human rights, responsive towards people’s needs, committed to poverty reduction and capable of meeting the challenges of the 21st Century. Our actions will be driven by the concerns of local people”

ACKNOWLEDGMENTS

This case study is the culmination of efforts by a number of individuals from government and

the technical assistance team. Firstly it is important to thank all those who have cooperated

with the team preparing this case study not only in the last few weeks but over the course of

the last four years. They have been critical to the work and demonstrated what is possible to

achieve in government when the right set of conditions prevail.

We would also like to thank the communities and elected representatives of the district that

assisted the SPU team in implementing this project and its various components.

The authors wish to thank Rana Zahid Tauseef, City District Nazim; Maj (Retd.) Azam

Suleman Khan, District Coordination Officer; and Dr. Tariq Sardar, EDO Finance & Planning

for their valuable contribution in making this project a huge success.

We are also thankful to: Mr. Ch. Zahid Nazir, ex-District Nazim Faisalabad; Mr. Tahir Hussain,

ex-DCO Faisalabad and Mr. Athar Hussain Khan Sial, ex-DCO Faisalabad for their valuable

contribution to the success of this project. We are also thankful to: Mr. Asad Islam Mahani, ex-

EDO Finance & Planning Faisalabad and Mr. Waseem Ajmal Chaudhry, ex-EDO Finance &

Planning, Faisalabad for their valuable contribution to the success of this project.

We are further thankful to all CDGF employees (past and present) and CDGF partner

departments but we would like to specifically mention by name the following: Mr. Muhammad

Akhtar, District Accounts Officer; Mrs. Saima Raza, District Officer (DO) Finance and Budget;

Mr. Muhammad Ramzan, DO Planning; Mr. Dilmir Khan, DO Accounts; Mr. Amir Tareen, DO

Revenue; Mr. Mehmood Wazir, DDO Revenue; Mrs. Talat Qamar DDO Accounts; Mr.

Ghulam Rasool Bhawana DDO Planning and Mr. Rana Saif, Assistant Finance & Budget for

their efforts in successfully implementing reforms in their departments.

We are thankful to all DFID Project Advisers and Management that have assisted in this

project since its start and we would like to specifically thank Mr. Mosharraf Zaidi, Governance

Advisor, DFID Pakistan; Mr. Wajahat Anwar, Deputy Programme Manager, Accountability

and Empowerment team, DFID Pakistan; Ms. Jackie Charlton, DFID; Mr. Alistar Moir, DFID

Pakistan and Ms. Nighat-un-Nisa, DFID Pakistan for their continuous support and

professional technical guidance since their involvement in 2004.

Our thanks are also to Dr. James Arthur, Dr. Richard Slater and Ms. Janet Gardener for their

valuable inputs throughout the project. We would also like to thank Mr. David Gray,

Governance Advisor DFID; Mr Roy Brockman; Ms. Joji Reyes and Ms. EJ Nacpil for their

valuable contribution in completing the case study.

We are thankful to Mehreen Hosain for proof reading the document and all the SPU team

members for their dedication, hard work and the many late hours spent designing,

implementing and documenting the work of this project. These include: Nadir Ehsan,

Mahmood Akhtar, Muhammad Shahid Alvi, Muhammad Tariq, Kashif Abbas, Ajaz Durrani,

Farhan Yousaf, Muntazir Mehdi, Gul Hafeez Khokhar, Mirza Muhammad Ramzan,

Muhammad Sharif,Humaira Khan, Sumara Khan, Saima Sharif, Mubarak Ali, Adnan Akram,

Sohail Anjum, Saleem Shehzad, SamiUllah, Arooj Sultana , Mamoona Mustafa and all long

and short-term international and national consultants.

FOREWORD

The City District Government Faisalabad (CDGF) is

changing. After a period of introspective assessment we

believe that we are now moving towards becoming a more

responsive, effective and efficient Local Government

through reforms that we initiated in May 2004.

It is with great pleasure that I say we have now additional

resources which three years ago seemed difficult. Our

budget for the forthcoming year will have money that we plan

to allocate based on those whose needs are greatest in

Faisalabad. We are currently in a very good state of affairs at

all levels. Our finances are considerably better then 3 years

ago, and with a surplus budget. We now have fiscal space to

allocate resources in those sectors that we deem critical to

fighting poverty in Faisalabad especially in Education,

Health and Community Development sectors.Our budgeting

process in this quarter has been the most participatory ever,

and we believe we are a leading district in undertaking

widespread consultations which have fed into the budget.

We will be further broadening the participation process.

The availability of credible and timely information is now

helping the Finance & Planning department to correctly

inform Local Government so that discussion can be made in

a rational manner. Our information systems allow us to

present accurate information to senior management during

our monthly meetings. This information enables top

management to prioritise its needs and identify areas that

need targeted investment. The challenge ahead is clear,

how to translate this progress into good financial

management? While the CDGF continue to rely upon

provincial support, there is much that can be done at home to

offset fiscal instability.

I would like to take the opportunity to thank our City District

Nazim for his valuable support to the reforms in our district. I

would also like to congratulate my City District team

members especially all the EDOs for working to achieve the

objectives in their departmental reforms programme. Finally,

I would like to thank our major partners in development, the

Department for International Development (DFID) UK and

their management consultants GHK International Ltd., for

assisting Faisalabad City District through the project

“Strengthening Decentralized Local Government in

Faisalabad”.

Maj. (Rtd.) Azam Suleman KhanDistrict Co-ordination Officer

City District Government Faisalabad

March 2008

The Clock Tower, symbol of Faisalabad

Office of the District Co-ordination Officer, Faisalabad

PREFACE

Starting from a base where there was very limited strategic human resource management,

little or no validated data for making informed decisions, poor levels of fiscal management,

limited technical capacity within our team and an almost non-existent policy for both gender

and communication, we have made, in this very short period of time, good steady progress.

These strategic aims form the basis of improving how we govern ourselves but also

supporting a paradigm shift that leads us to becoming a more citizen friendly District

Government. The F&P department has been hard at work in improving systems, processes

and procedures that will aid to improve services in the social sectors, such as education,

health and community development.

We continue to focus on fiscal transparency and therefore, we have been liaising with as

many stakeholders as possible, about the way we allocate and spend money. We have been

involving our politicians to make financial decisions. Hence our efforts to educate and train

our politicians in core areas such as gender, finance, governance and expenditure

management are leading to more accurate budgeting and planning. Cash flow has improved

because of the strong financial management in CDGF. The District prepared a realistic

budget in 2007-2008 and based on our cash flow position the Finance department is

confident that in the next financial year providing there are no adverse provincial decisions

taken, the CDGF is likely to have more fiscal space for development projects.

Planning remains at the heart of good financial management. We have therefore continued to

focus on building multi-year planning capacity within the Department. Cost benefit analysis of

Financial Management Information System reveals that it has brought savings of more than

Rs.10 Million per annum. The City District administration feels it more appropriate to focus on

maximizing existing revenue sources rather than trying to identify new revenue sources.

Revenues from advertisement and commercialization remain potentially the most attractive.

They constitute 68 percent of total district receipts and the department plans to improve

revenue collection from these sources.

The road ahead will present many challenges, not least convincing sceptics that these

reforms are not only important but a necessity. Other districts in Punjab and the country will be

looking to Faisalabad to see how we develop and whether Local Governments can indeed

deliver a level of service that people deserve. The onus is on all of us to work together for a

brighter future - we owe it to all the citizens of Faisalabad.

Dr. Tariq Sardar Additional Project Director

Strengthening Decentralised Local Government in Faisalabad

March 2008

TABLE OF CONTENTS

ACKNOWLEDGMENTS

FOREWORDPREFACE

ACRONYMS

EXECUTIVE SUMMARY

BACKGROUND

OVERVIEW

THE CASE

IMPLEMENTATION AND IMPACTS

DRIVERS OF CHANGE

LESSONS & REFLECTIONS

1

4

5

7

8

Design 8

Continuing to Build Local Capacity 8

Improvement in Financial Management 9

Making the Budgeting Process Work 12

Improvement in the Release of Grants 19

Expenditure Tracking System 20

Facilitating the Reconciliation of Financial Accounts 21

Facilitating the Pensioners in CDGF 22

Asset Management 23

Information Systems 23

Increase in Revenue Mobilisations & Fiscal Efforts 25

Influence on Corporate Policy towards Reduction of Poverty 29

Strengthening the Internal Accountability Mechanisms 31

33

Provincial Government and Legal Protection 33

Leadership 33

Location, Administrative Setup and Ownership 33

Link with Non-devolved Departments and Other Donors 34

Timely Technical and Financial Support 34

Innovative System and Processes 34

35

Policy Change 35

Awareness 35

Replication 35

The Role of Survey 36

Consultation with Elected Representative 36

Availability of Technical Team 36

Financial Incentives 36

Understanding of Government Culture and Related Legislation 37

Table of Contents

Decentralisation of Revenue 37

Lack of Funds in not the Real Issue in the District 37

38

Spatial Planning Farmework 38

E-Procurement 38

PIFRA Access 38

Receipt Facilitation Centers 39

Sustainability 39

40

46

Figure 1: Improved Financial Management 10

Figure 2: Online Budgeting Process 16

Figure 3: Simplified Reconciliation system of CDGF 21

Figure 4: Financial Management Information System 24

Figure 5: Flow of Funds in the CDGF Account IV 26

Figure 6: Trends of Local Receipt from FY 2002-03 to FY 2007-08 28

Annex 1: A Case Study on Situation Analysis of CDGF’s Budget 2004-05 42

Annex 2: Comparison of PESRP Funding from 2004 to 2008 43

Annex 3: Receipt Facilitation Model 45

WAY FORWARD

CONCLUSIONS

BIBLIOGRAPHY

FIGURES

ANNEX

Figure 7: Education Department’s Development Expenditure trend from FY 2002-03

to FY 2007-08 (upto November 2007) 31

Table of Contents

ACRONYMS

AA Administrative Approval

ADP Annual Development Programme

AMC Asset Management Cell

BCL Budget Call Letter

BM Budget Management

BSF Budget Salient Features

CCBs Citizen Community Boards

CDGF City District Government Faisalabad

COs Collecting Officers

DAO District Account Office

DCC District Coordination Council

DCO District Coordination Officer

DDC District Development Committee

DDOs Deputy District Officers / Drawing and Disbursing Officers

DFI District Financial Information

DFID Department for International Development

DMS Document Management System

DO F&B District Officer Finance and Budget

DOA District Officer Accounts

DOP District Officer Planning

DOs District Officers

EDO Executive District Officer

EMIS Education Management Information System

F&P Finance and Planning

FMIS Financial Management Information System

FY Fiscal Year

GIS Geographical Information System

HRMIS Human Resource Management Information System

M&R Maintenance and Repair

MDG Millennium Development Goal

MTBF Mid-Term Budgetary Framework

NAM New Accounting Model

NBP National Bank of Pakistan

NFC National Finance Commission

PC1 Planning Commission Performa 1

PCF Provincial Consolidated Fund

PESRP Punjab Education Sector Reforms Programme

PFC Provincial Finance Commission

PIFRA Project to Improve Financial Reporting and Auditing

PLGO Punjab Local Government Ordinance

PMIU Project Management Implementation Unit

PPRSP Punjab Poverty Reduction Strategy Paper

RFC Receipt Facilitation Centre

RMIS Revenue Management Information System

SDP Strategic Development Plan

TMA Town Municipal Administration

UCs Union Councils

ZAC Zila Account Committee

Acronyms

EXECUTIVE SUMMARY

The experience of the Strategic Policy Unit (SPU) of the City District Government Faisalabad

(CDGF) demonstrates how changes in financial management practices have fuelled the

District's transformation from being a Local Government in constant fiscal crisis to being a

Local Government that can take pride in its fiscal surplus. This situation has allowed the

District Government to provide more efficient service delivery and enabled it to take vital

steps toward targeting poverty.

The last three years of the reforms programme have been a watershed for Local Government

in Faisalabad. There has been a tremendous change in the District. Who could have

envisaged three years ago that the District Government would be wholly committed to ridding

the District of deprivation and replacing earlier ad hoc and reactive policies with a firm and

sustained commitment to development and modernization? The CDGF is now saving more

time, money, and human resources, with the benefits of efficiencies being transferred to its

citizens.

On the whole the financial management reforms component has been well accepted both by

the CDGF and Provincial Government, especially, since service delivery to client

departments has improved considerably as a result of the change issues identified and then

implemented by CDGF.

The following are a brief summary of the initiatives implemented:

� The District’s first major intervention to reform the financial management process,

was to conduct a capacity development programme for financial officers, Drawing

and Disbursement Officers (DDOs), clerks and accountants to prepare the budget in

accordance with the new rules and regulations;

� Analysis of the cash flow has helped to present a macro level picture of Local

Government finances enabling management to rectify micro level issues. The

Finance and Planning Department (F&P) has been able to inform politicians of the

need to exercise fiscal discipline and to avoid new development investment as a

prelude to zero based budgeting;

� Analysis of the budget preparation process in 2005 exposed the District's ability to

manage its financial resources in a responsible manner. Close scrutiny of the process

and the way the budget had been implemented since 2003 shed light on the extent of

the financial problems facing the administration. This analysis was necessary to

inform financial managers and top administration about the current financial status of

the District and how best to use the resources available;

� The budgeting process of Faisalabad used to be cumbersome and labour-intensive.

In the last three years, the departments took huge strides in improving the traditional

budgeting process. Much of this is due to better coordination, better training provided

to the officers involved in the process and ongoing technical support from the CDGF

reform initiatives;

� Prior to the reforms process, the required data for targeting the poor was not available.

The identification of development schemes was undertaken on a highly politicised

basis with little regard for prioritising a pro-poor agenda. Elected representatives

were not conscious of poverty targeting while the majority of the Executive District

Executive Summary

“Devolution is not apposed because of capacity constraints, shortage of technical manpower, the quality of awareness of local elected leaders or any such thing. It is apposed simply because it created such a huge disruption in the political economy of corruption.”

Long Serving DMG Officer

1

Officers (EDOs) were not fully aware of the concept of poverty reduction. A key aspect

of the financial reforms process was to achieve more efficiency gains in resource

allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP);

� The procurement process of CDGF was often constrained by the outdated Delegation

of Financial Power Rules, which were issued by the Provincial Government in 1990 to

delegate and authorize approvals at various levels for the purchase of differing goods

and services from suppliers and contractors. The CDGF raised its concerns to the

Provincial Government by suggesting the changes in the rules to make the

procurement more effective. The Provincial Finance Department in year 2006 revised

the Delegation of Financial Powers Rules which helped in the improvement of

procurement of goods and services in the District;

� It has been difficult for departments to track monthly development and non-

development expenditure. The main reason has been the systems in place in the

departments were aligned to the District Accounts Office (DAO). The departments

were only preparing budgets at the departmental level while incurred expenditure

was recorded at DAO. The F&P department was thus unable to monitor expenditure

against the budget. The F&P department is now able to develop reports giving

individual line item expenditures and other components such as the Punjab

Education Sector Reform Programme (PESRP), National Programme for the

Improvement of Watercourses (NPIW), Chief Minister's Accelerated Programme,

and significantly CCB projects are now also classified;

� Reconciliation of accounts in an accurate and timely manner is critical to fiscal

discipline. Rule 67 (3) of the Budget rules 2003 clearly states that it is the joint

responsibility of all key officers to submit accurately reconciled accounts to the District

Government. The appropriation of annual account is prepared by the DAO and that

did not give the true picture of expenditure detailed object wise but only informed

about the grant wise expenditure in the District. Therefore, the CDGF for the first time

made an attempt to reconcile the June 2007 annual accounts DDO wise, grant wise

and detailed object wise with the District Account Office;

� Good strategic management relies on an organization's ability to manage its

information properly. It is only now, that the District has started to understand the

implications of having reliable information as the basis for its business decisions. For

a district as large as Faisalabad, having the right information at the right time will allow

managers to redefine Local Government services and allocate resources

accordingly;

� Revenue generation in local receipts has been constantly improving since 2002-03.

In 2007-08 the District has made considerable progress in revenue collection. Up to

November 2007, the District has collected 92 percent more revenue than the previous

financial year. This upward trend in CDGF's local receipts, combined with more

successful efforts to increase the District Government's PFC award, strongly bolsters

Faisalabad's fiscal position for the future. Faisalabad's financial reforms process has

undoubtedly brought tangible fiscal rewards to the District Government. The financial

plans and reports are being prepared on time and with fewer errors;

� Financial accounts are being reconciled allowing local policymakers to make

informed judgements and policies. Facilities for an on-line budgeting system are in

place. Financial planning and equitable resource allocation have been linked.

Commercial properties have been identified and properly valued enabling the District

Government to generate increased local revenues. The procurement process is

Executive Summary

2

being streamlined. Workshops and trainings are ongoing to continue to build a skilled,

knowledgeable, and well-motivated local work force. The Financial Management

Information System (FMIS) is at the core of the fiscal transformation.

The Finance & Planning department of CDGF through the technical assistance provided by

the reforms programme brought significant changes in the financial management practices of

the District. The Department analysed the reasons for fiscal deficit and undertook major steps

to bring improvement and efficiencies in the departmental business processes like budgeting,

expenditure tracking and release of funds etc. These efficiencies together with both the

Provincial directives and local policy changes have contributed towards the District moving

from a deficit situation to a surplus.

Keeping in view this upturn, CDGF remains optimistic that continuing with the financial

management disciplines will allow the District in the future to remain in surplus.

The fiscal space allowed the City District Government to target poverty, using evidence

based planning which built on data and information being generated at all levels. An example

of this is the District Citizen Perception Survey, which influenced the allocations in the

education and health sectors.

This wide acceptance of reforms in Faisalabad is intriguing. After all, similar or less intense

attempts to reforms in Pakistan particularly in the Punjab have been slow in producing results.

How is it then possible that reforms in Faisalabad could proceed, and were widely accepted

since 2004? Had the CDGF identified the major gaps regarding the employees’ existing

capacity and made them effective to plan an implement the proposed changes in Faisalabad’

financial management practices? Was the online budgeting systems instrumental in making

the CDGF budgeting process more efficient? How did the CDGF manage to monitor and track

the expenditure against the approved allocation and established strict financial discipline in

the district? Had the reform initiatives helped the CDGF in identifying the true potential of local

revenue? Had the CDGF improved the planning systems by developing tools to influence the

corporate policy towards targeting poverty? Had the reform initiatives changed the working

culture of the CDGF employees regarding knowledge sharing, team working, transparency

and mutual understanding?

These are just some of the issues addressed in the case study.

Executive Summary

3

BACKGROUND

The Strategic Policy Unit (SPU) was set up by the Faisalabad District Government in 2002, as

a policy think-tank. Its key aim was to act as a conduit in the district from which all reforms

programmes could be initiated. In 2004, the United Kingdom's Department for International

Development (DFID) agreed to provide technical assistance to the district through the

“Strengthening Decentralized Local Government in Faisalabad” and using the SPU as the

platform from which change would be driven.

The SPU over a four year period has acted as a key resource fostering social capital within the

City District Government and often being the focal point for local and international technical

assistance and programme development. With a cohort of key technical resources and

change management agenda it plays a key role in facilitating public sector reforms. It has

been instrumental in assisting Faisalabad to become a modern administration.

Pakistan's devolution in 2001 ushered a series of bold structural changes which created a

new tier of Local Governments comprising District Government, Town Municipal

Administration (TMA), and Union Administration. The objectives of the devolution, easily

discernible from various Government publications and ordinances, include improving the

Districts' financial management practices. Underpinning these objectives is the promise to

improve service delivery, particularly social services, and ultimately, the potential to reduce

poverty in the country.

The Government of Pakistan through devolution introduced a new system of Local

Government. But Local Governments are not a constitutional tier of Government, and are

established and assigned functional responsibilities through provincial legislatures, primarily

under the Punjab Local Government Ordinance (PLGO). District Governments have the

responsibility for delivering social and economic services, including elementary and

secondary education, primary and secondary health, agriculture and municipal services.

To make devolution function effective, the management of district and other local authorities

needed to be strengthened. Pakistan had only limited experience of Local Government and

did not have the systems, trained staff or the means of improving governance.

The process of devolution was undertaken quickly and many new initiatives were built into the

legislature, some powers of the Provincial Governments were decentralized to the District

level, but supporting processes and rules were not thought through sufficiently. For example,

there was a lack of in-house treasury arrangements at the District level, where a District

Accounts Officer (DAO) controls the accounting function making the Finance & Planning

(F&P) department dependent on it.

Background

4

Box 1: Financial Management Functions in the City District Governments

In the City Districts the Key Financial Management functions are undertaken by four departments:

� Finance and Planning department is responsible for budgeting, expenditure management, cash

management, reconciliation, pension, audit, development planning, enterprise and investment promotion;

� The Revenue department assesses and collects local receipts, for example, building rent, license fee, local

rates;

� The Municipal Services department assesses and collects the revenue from advertisement,

commercialization and bus stations;

� The District Accounts Office which is a non-devolved department performs the functions of treasury in the

District.

OVERVIEW

To meet the challenges of devolution in 2001, the City District Government Faisalabad

established a Strategic Policy Unit (SPU), to drive the process of reforms. The District

Government Faisalabad obtained the assistance of the Department for International

Development (DFID) in providing technical assistance to develop and improve systems and

processes. As a first step, the City District Government Faisalabad prepared five year

evidence based Departmental Strategic Operational Plans (SOPs) in 2004 in line with the

District Government's Corporate Governance Plan (2004-2009).

The Finance & Planning (F&P) and Revenue departments had undertaken a very detailed

situation analysis of the departmental activities. The situation analysis critically highlighted

the management, organizational, financial and capacity constraints of the departments. The

key strategic issues that needed to be addressed were identified:

� Financial management systems did not allow the F&P department to analyse the

District cash flow, issue an effective Budget Call Letter (BCL), track and monitor

expenditures & receipts or provide timely release of grants to the departments;

� Users were not able to have access to financial information nor did financial reporting

mechanisms exist to assist in decision making. A key issue was the need to establish

an effective Financial Management Information System (FMIS);

� Bottom-up-planning was non-existent, and most development funds were used by

councillors for local and ad hoc schemes and not for strategic district level

improvements. The City District Government was unable to plan for its capital

investment, a need essential to balance budgets and allowing the proper allocation of

money toward district functions was identified;

� Since 2001 up-to 2004, the Provincial Finance Commission (PFC) development

award was static and the increased amount from the National Finance Commission

Overview

5

Retained Account

The money in the Retained account is retained by the Provincial Government and is not distributed to the districts as part of the PFC award. This is mainly used for the Provincial Governments functions and the Provincial Government may provide funds to the districts for various projects in the form of conditional grants.

Manual budgeting system in 2004

(NFC) went into the retained account only. Local receipts were low until 2006 when

the District Government was upgraded into a City District Government where

additional revenue sources such as advertisement, commercialization and General

Bus Stands fee came under the CDGF control. But there was no fare-based record of

revenue sources available. So yearly targets set by the departments for the local

revenue sources were unrealistic;

� The Revenue department is the primary custodian of District Government assets. But

the department did not have any record of properties for which the department could

be held accountable for managing and maintaining the CDGF assets. Besides there

was no culture of asset management in the District;

� The capacity and resources of the F&P department were not adequate or fit for

purpose for the delivery of quality public services;

� The process of reconciliation of accounts needed improvement to enable

expenditure and receipts realized in line departments to be reconciled with the

District Accounts Office (DAO) and to publish financial reports of the District Officer

Accounts (DOA) on a monthly basis to be submitted to the Council for approval;

� The utilisation of development funds was less than 70 percent, which can be traced to

the ineffective and inefficient budgeting process;

� System deficiencies and lack of availability of financial data prevented top

management in determining investment priorities, leading to poor investments,

which were not effective in reducing poverty. Political will and ownership by the

District administration were needed in evaluating plans to ensure that health and

education programmes were allocated to the areas of greatest need;

� Procurement of goods and services was inefficient in the District. Outdated rules, lack

of trust of suppliers, poor Government procedures and instructions, late fund

releases and the lack of effective financial control systems were the key problems.

Overview

6

Weekly brainstorming session of F&P department to identify key issues

DO finance & budget Mrs. Saima Raza introducing FMIS to finance & planning department

THE CASE

This case study describes how the District undertook the financial reforms which are

essential to improve service delivery in critical sectors i.e. education, health, agriculture and

municipal services generally. It addresses a number of questions including the following:

What were the factors that allowed the District to become more fiscally responsible? How was

fiscal space created in becoming more transparent, accountable and efficient? How did the

FMIS help the City District Government Faisalabad in decision making? Why was it important

to improve the budgeting, reconciliation, releases and expenditure tracking systems in the

City District Government Faisalabad? Were the Provincial Government, local administration

and politicians supportive of the reforms process? How committed has the CDGF been in

their goals of investing and getting value for money on the education and health sectors?

Specifically, this case study focuses on the following areas:

a) Can one achieve efficiency by strengthening the capacity within the District

Government for effective planning and budgeting process?

b) How can improvements in the Financial Management systems help in bringing more

transparency and accountability?

c) How does the increase in revenue mobilization and fiscal efforts create more fiscal

space?

d) Did the City District Government influence the corporate policy towards reduction of

poverty?

e) Can one change departmental culture and behaviours by strengthening internal

accountability mechanisms to ensure professional integrity and financial propriety?

7

The Case

IMPLEMENTATION AND IMPACTS

Design

Continuing to Build Local Capacity

Faisalabad was committed to reforms and change and had set itself a series of challenges

that if met would result in marked improvements in local governance and public services. The

first major step was to establish a good governance framework, which underpinned the

reforms process and injected life into public services.

During the inception phase of the reforms initiatives (from May-November-04) the district

corporate plan was prepared. The Faisalabad's 'Corporate Plan' provided the overarching

policy framework for service planning and delivery. The corporate plan laid out the Mission

statement, and core values of the District. The District Corporate Plan provided a clear

indication of where Faisalabad as a District Government wants to be and the principles by

which the District want to get there.

To achieve the corporate objectives, Departmental Strategic Operational Plans (SPOs) were

prepared. The Corporate Plan and all the Departmental SOPs have not been prepared in

isolation, but have been informed in a number of ways including: seeking views from a

number of key stakeholders which included the Government, elected members, civil society

groups and monitoring committees.

The detailed situation analysis was conducted of the Finance & Planning and Revenue

departments. During the situation analysis, key change issues were identified and to address

those issues five years implementation plans were prepared highlighting the strategy,

objectives, activities, performance indicators, means of verification, time span and where

applicable, costs. These were discussed in the Zila council (district assembly) and approved

in December 2004.

Issue

The lack of service planning in the City District Government was a major cause for concern.

Poor departmental performance can often be attributed to a number of factors i.e.

interdepartmental relationships, weak reporting & management structures and a lack of

resources. However one of the most important areas is the lack of knowledge and skills

possessed by personnel on multi-year service planning and development, leaving

departments unable to plan and deliver professional services. Despite these skill gaps, the

District was still expected to deliver quality services.

Process

Realising this major gap, the F&P department organised training workshops for senior

officers, Drawing and Disbursing Officers (DDOs), Accountants / bill clerks of the City District

Government and other implementing and executing agencies.

Implementation and Impacts

8

As part of the CDGF’s internal monitoring process to determine how the District is performing with respect to what is mentioned in the corporate and departmental operational plans? Faisalabad under the reforms initiatives developed the bi-annual performance reports, which presented detailed assessments for consideration by the district assembly and other stakeholders. This has allowed the CDGF to be held accountable and transparent, as well as informed all the relevant stakeholders of the issues that Faisalabad faced during the last 3 years of implementation.

DDOs training on budget & planning

Local capacity was weak, and needed to be boosted to effectively plan and implement all the

proposed changes in Faisalabad's financial management practices. Much of the success of

the reforms process was hinged on the ability of concerned staff to use the FMIS. Resource

Centres, established in the departments have provided on-line budgeting, reconciliation, and

expenditure tracking facilities for all DDOs. Training sessions were planned to cover various

modules of the FMIS.

Encouraging broad-based citizen support of the City District Government's plans and

programmes entails more participation. A trilingual approach such as English, Urdu, and

Punjabi has been used to train stakeholder groups to facilitate understanding of the basic

concepts of translating plans into financial budgets. Different workshops have been

conducted involving District Council Members to discuss the benefits of locally-evolved

planning and to help them to understand their roles in the preparation, approval and

implementation of the budget.

Impacts

A series of training workshops for the top, senior and middle management contributed to

district’s success by helping the CDGF to develop its human resources to meet its present

and future needs. It has also improved the employees' performance, provided them

professional development opportunities and became more efficient and effective in

managing the finances of the CDGF. Following are the benefits achieved through the reforms

process:

l 960 DDOs and their account clerks trained on budget and planning; The error rate in

budget preparation from more than 33 percent to less than 3 percent as a result of this

training;

l Capacity building of all EDOs and other operational officers on Mid-term Budgetary

Frame work (MTBF) enhanced the understanding of District & Tehsil Officers on

MTBF, service planning & project planning;

l Technical training on FMIS imparted to the F&P department gave opportunity to the

F&P staff to use and modify the systems without reverting to consultants and experts;

l Training of 413 members of the District Council on Gender Responsive Budgeting

and budget & planning has been carried out which helped to increase their

understanding level on budget & planning.

The experience of the CDGF demonstrates how politically and technically supported

changes in financial management practices can fuel a transformation from being a Local

Government in constant fiscal crisis to being a Local Government that can take pride in its

fiscal surpluses. This situation has allowed the District Government to provide more efficient

service delivery and enabled it to take the vital steps toward reducing poverty.

Improvement in Financial Management

9


Fiscal Space

“Fiscal space can be defined as room in a government´s budget that allows it to provide resources for a desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy.”

Box 2: Identification and Training of the Master Trainers

To train over 900 government officials was a major undertaking and given the limited resources available, it was

important to decide on a delivery model that would achieve the desired outcome within a suitable time frame. The

approach that was finally adopted included the use of master trainers from various departments as key resource

persons to deliver training to the DDOs in Towns. Consultations were held with departments as part of the process

to identify master trainers and 32 master trainers were identified with the support of the other departments

especially the Education department.

Following is a description of the activities and initiatives of reforms undertaken in the F&P

department of CDGF and Figure 1 describes this process.

Issue

A fiscal assessment showed that the City District Government's weak fiscal performance can

be traced in part to the poor linkage between policy making, planning, and budgeting. A lack

of interest or may be the poor appreciation of the relevant accounting procedures and policies

seemed to be among the underlying reasons for Faisalabad's fiscal deficit in 2004. Receipts

for development and non-development expenditures were inflated and inconsistent with local

receipts. There was a gap between the City District Government's recorded bank balance

and the actual available balance.

In January 2005, close scrutiny of the CDGF's process and the way the budget had been

implemented since 2003 shed light on the extent of the financial problems facing the

administration. To this point, the City District Government had been working on the

assumption that there was more money available to the administration than actual releases.

As a result of the 2004-2005 budget analysis, the team identified that there were errors in the

budget which subsequently resulted into the deficit budget in Faisalabad.

Process

Generally, there tends to be a practice in the City District Governments that if the estimated

expenditure exceeds the estimated receipts, then for the sake of balancing the budget and

under the assumption that Provincial Government will make the loss good, an entry of grant in

aid from the Provincial Government is made on the “budget at glance sheet” of the budget

book.

The evidence suggests that due to the lack of capacity, enough care was probably not taken

and errors were made in the preparation of this important document. As an example the

situation is explained in Annex 1 where it is discussed as a short case study to learn from. The

financial situation was very tight for the CDGF and at that time of crisis, major steps were

Strengthening Fiscal Planning


10

Figure 1: Improved Financial Management

Pre-empting Poverty, Promoting Prosperity

ISSUES WAY FORWARD

P A D

P A D

P A D CDGF

Sustainability

Replication

Receipts Facilitation Centers

Spatial Planning Framework

E-Procurement

REFORMS PROCESS

I proved r ic Delivery

mSe v e

Section 112 (4) (a) PLGO 2001

A budget shall not be approved if the sums required to meet estimated expenditures exceed the estimated receipts.

Pre-empting Poverty, Promoting Prosperity

ISSUES WAY FORWARD

P A D

P A D

P A D CDGF

Sustainability

Replication

Receipts Facilitation Centres


E-Procurement

REFORMS PROCESS

prov d r i Del ve y

Ime Se v ce i r

taken by the administration to ensure that greater fiscal responsibility was achieved.

The City District Government's fiscal position, however, began to look up in financial year

2006-07. The following factors contributed to this upturn in fiscal fortune:

l Improved budgeting systems of the CDGF;

l Effective expenditure tracking systems;

l Timely releases of funds to the departments and executing agencies in the CDGF;

l The District started receiving more resources when in October 2005, Faisalabad was

afforded the status of City District Government which brought with it enhanced

jurisdictions and resources;

l Octroi grant of Rs. 655 million from the Provincial Government was provided to

CDGF;

l The Municipal Service department became responsible for managing resources

from advertisement, commercialization and General Bus Stands, which had a

positive impact on the fiscal surpluses of the District;

l CDGF received an increased PFC award from the Provincial Government on the

request of the City District Nazim and District Coordination Officer (DCO).

District Cash Flow analysis is a tool which helps to present a macro level picture of the Local

Government finances enabling management to rectify micro level issues. Armed with the

cash flow information, the Finance & Planning department is able to present a stronger case

on the basis of evidence, to senior and top management on the District's financial status.

Identifying and setting priorities becomes easier now in the light of information never

previously available. Cash Flow analysis is a useful tool since it allows managers to develop

numerous scenarios based on short and long-term forecasts.


11

Box 3: Steps Taken by the CDGF to Improve Fiscal Position

� There was no new project executed by the F&P department. District administration took very difficult decisions

on seeing the tight financial position of the District, in order to pay outstanding liabilities before taking on new

ones;

� The F&P department submitted a request to the Provincial Government that the current PFC share is not

enough to meet the development and non-development needs of the District and PFC share of the District

should be according to population and area of the District;

� A further request was made to the provincial Finance department to help City District Faisalabad by providing

funds to cover the deficit of CDGF over the coming years.

Section 111 (5) PLGO 2001

“Conditional grants from the provincial retained amount shall be shown separately in the budget and shall be governed by conditions agreed therein”.

In addition, the Finance and Planning department developed the FMIS which was compatible

with the national Project to Improve Financial Reporting and Auditing (PIFRA) and other

management information systems already in place, allowing more accurate and timely

analysis and planning.

Due to the recent changes in the political and administrative set-up at the Provincial

Government level, the finance department has changed the policy of fiscal transfers for the

District Governments. Under the current scenario, due to decrease in the PFC award, the City

District Government expects 8% decrease in the fiscal transfers from the Provincial

Government up-to June 2008. The City District Government Faisalabad by following the

Provincial Government guidelines has changed the fiscal strategy by reducing the non-

development non-salary expenditure by 13 percent and development expenditure by 10

percent Therefore, this strategy will no doubt affect the development and the service delivery

in the District but will also save Faisalabad from deficit in the coming years.

Impacts

The financial reforms process undertaken by Faisalabad has not been easy. But, it has

transformed the City District Government into one of the most progressive Local

Governments in the country. Due to the reforms implemented, Faisalabad has turned its

finances around and succeeded in generating a fiscal surplus for the first time in three years.

The prospects are strong for more funds in the coming years. The extra fiscal flexibility that

comes with the surplus funds affords the City District Government the chance to finally

increase public expenditure on sectors previously neglected.

Issue

The Local Government Ordinance encourages a participatory budgeting process and

consulting stakeholders' is the first step in the budget cycle. Due to certain political and

administrative reasons, the City District Government Faisalabad did not follow the Budget

Rules 2003, and were issuing the Budget Call Letters (BCLs) without consulting stakeholders

(Citizens, elected members, CCBs, and NGOs).

City District Government estimates its local receipts based on historical data. In 2004-2005

the District Government Faisalabad did not have authenticated data and information to base

on and to assess the true potential of revenue. Therefore the targets set for revenue were not

realistic. Previously receipts were estimated on the forms prescribed by the Provincial

Government in the Budget Rules 2003. The District Officer Accounts was unable to track the

actual receipts against the departmental targets.

In 2004, the project identified the following major issues in the non-development budget:

� Most of the District Council members (including chairpersons monitoring committees)

did not examine the departments' non-development budget during the budget session

Making the Budgeting Process Work


12

Box 4: Budget Call Letter (Budget rule 11)

The Budget Call Letter shall be finalized after consultation with the relevant stakeholders. The "stakeholders"

include Councils, elected representatives, general public, women's organization, private sector, Citizen Community

Boards, Non-Governmental Organizations, Community Based Organizations, and other organizations.

Budget cell of the Finance & Planningdepartment

or prior to the budget session and yet they approved the budget;

� There was no proper training for DDOs on budget preparation under the new rules;

� In the majority of cases, budget forms were prepared by DDOs' clerks but these forms

were not checked by the DDOs themselves and yet signed by them. The possible

reason for that has been lack of capacity and interest;

� Completed forms returned by DDOs to District Officer (DO) Finance & Budget (F&B)

often contained errors and these forms were then returned to the concerned DDO for

rectification. The forms were then corrected by the DDO clerks and once again

passed to the DO F&B. If there were still errors, this process was repeated;

� Various forms often contained exactly the same information but when they were

individually completed, the information was found not to match.

Similarly on the development side during the situational analysis, the F&P department

identified the following key issues in the development budget preparation process:

� Lack of evidence based planning with most projects being identified by the local

politicians on the basis of political priorities. Often these politically motivated projects

tend not to be pro-poor or as such no conscious effort was made to identify the most

vulnerable and their needs;

� The major portion of the District Government's funds were distributed throughout the

289 Union Councils equally and the remaining funds were not distributed on the basis

of the greatest need. The Local Government Ordinance envisaged a process where

projects would be prepared with complete community participation of all 21 members

of the Union Council and general public were to be consulted in identifying local

projects. However, frequently the UC Nazims have a very strong input and influence

on project selection, thus resulting in local development schemes without honest

community participation, as was envisaged in the Ordinance;

� Budget preparation for any coming financial year should take six months to complete

from January-June in the preceding year, but in reality tends to be compressed in the

last two months. Projects tend to be identified continuously throughout January - June

without one single submission deadline. This not only increases the workload of the

F&P department but also impacts on the planning process. Projects are also identified,

at the last minute, during the budget preparation process in June, and are then

included in the budget document as “unapproved schemes”. At the end of June, the

ADP is submitted to the District Assembly and House for approval. These projects

therefore bypass the process of discussion or approval in the District Development

Committee (DDC);

� Block allocations for development projects in the ADP, with no regard for targeting

deprivation and economic opportunity;

� The volume of carried forward schemes was quite substantial and was affecting the

development programme for the next year;

� No gender responsive projects in the ADP.


13

Box 5: Errors in the Completion of Budget Forms

The first test to look into the DDOs' budget was to see that the total figures of the Budget Detail Others (BDO 3) is

balanced with the establishment charges of the Budget Detail Current (BDC 3) and then total of BDO 4 is balanced

with allowances of BDC 3. The second test was to verify the establishment charges and all regular allowances with

BDC 6. But in most of the cases the figures were not balanced. The assistant who made those budgets did not know

the effect of one form on the other.

Rule 57 (2) Budget Rules 2003

“The Budget based on the preliminary estimates as approved by the Nazim shall be presented to the Council for discussion as a draft budget”.


“The Annual Development Programme shall classify projects by sector, function and geographic location”.

In Faisalabad, the previous accounting system up to March 2005, only recorded cash

payments and receipts on a daily basis. The problem with this system was that the recorded

inflows and outflows had no direct relationship with the actual financial performance. The

obligations to make future payments could not be properly identified. It is a mandatory

provision that the New Accounting Model (NAM) will be followed by all tiers of government in

their financial operations. The Project to Improve Financial Reporting and Auditing (PIFRA) stbased on NAM started its operations in District Faisalabad on 1 April 2005.

Process

To address the above mentioned issues, the process followed is given here:

Budget Call Letter

Budget Call Letter (BCL) is the instrument in which the Local Governments communicate the

vision/ policies/ priorities and targets fixed under various sectors/ programmes and

investments etc. Issuing the budget call letter is a legal requirement for the District

Government - it provides direction and a macro-level perspective on financial policy. This is

an outline plan of who will take responsibility for preparing the final budget.

It clarifies the steps needed to successfully complete the budget. BCL essentially sets out the

timing of events in the planning and budgeting process, the input required from other

stakeholders by the budget desk to enable the desk to compile the Local Government budget

framework and the information required by the stakeholders to enable them prepare their

input.

In 2007-2008 budget cycle, the CDGF managed to organize extensive workshops with the

departments and other stakeholders. The feedback was incorporated into the budget

preparation process and the findings shared with the District's political leadership. The

stakeholders' consultations revealed that social sector investments remain a priority for the

people of Faisalabad, with spending on education and health a primary concern.

The fiscal surplus resulting from improved processes and prudent financial management

allowed the City District Government to target poverty, using evidence based planning which

built on the data and information being generated at all levels. An example of this is the

District’s Citizen Perception Survey, which influenced the allocations in the education and

health sectors. Hence the budget 2007-2008 was more participatory and for the first time

spending limits were set for various sectors, departments were advised to follow the PPRSP

indicators and the Millennium Development Goals (MDGs) in planning their resources for

various sectors.

Gender Responsive Budgeting was also introduced in the BCL as of 2006-07 and

departments and politicians were advised to submit budgets that are more gender responsive.

This is expected to help the District administration in setting a budget which is more citizens

focused and gender responsive. The consultations also included an element of training, to

ensure that stakeholders understood the budgeting process clearly. Similarly, departments

and other stakeholders such as NGOs and elected representatives have been trained on

participatory and gender responsive approaches. All this bolsters their capacity to respond to

community needs and ensures targeted approaches to address poverty and marginalization.


14

Millennium Development Goals

By 2015 all United Nations member states, including the Government of Pakistan, have pledged to meet the following goals to:� Eradicate extreme poverty

and hunger� Achieve universal primary

education� Promote Gender Equality

and empower women� Reduce Child Mortality� Improve Maternal Health� Combat HIV/AIDS,

malaria and other diseases� Ensure environmental

sustainability� Develop a global

partnership for development


“The Nazim shall ensure that the needs of the disadvantaged groups are reflected in the priorities and gender issues are adequately addressed”.


“Each Head of Offices shall prepare its budget in accordance with the Budget Call Letter approved by the Nazim”.

Chart of Accounts

The Chart of Accounts is an essential component of the accounting framework. It provides the structure by which accounting transactions are coded, and thus used in financial reporting.

Gender Responsive Budgeting training for district council members

Estimation of Receipts

The District Government bases its budget on the following types of receipts;

� PFC award from the Provincial Government

� Octroi Grant from the Provincial Government

� Local receipts

� Donors' money

Physical surveys were conducted to assess the true potential of the local sources of revenue

and computerized Budget Detailed Receipts (BDR) forms were generated and the

departments were advised to fill in the electronic forms by using the Collecting Officer (CO)

codes and new Chart of Accounts (CoA). This has helped the F&P department in setting

realistic targets and tracking the departments' receipts against their targets on a monthly

basis.

Non-Development Budget

The Finance & Budget officer is responsible for preparing the non-development budget

according to the new Budget Rules. The non-development budget is more than 85 percent of

the total budget in City District Faisalabad, and includes the following:

� Establishment charges

� Purchase of durable goods

� Repair & Maintenance of durable goods

� Commodities and services

� Transfer payments

� Miscellaneous items

The budgeting process of Faisalabad used to be excessively cumbersome and labour

intensive. In the past, it used to take at least 9,000 man-days from the numerous service

officers involved to prepare and finalise the budget. The error rate was more than 30 percent.

In reality, the process was typically compressed during the last two months of the financial

year, resulting not only in the workload of the F&P department surging during this period but

also in substantive delays in project implementation.

In the last three years, the departments took huge strides in improving the traditional

budgeting process. Much of this is due to better coordination, training provided to the officers

involved in the process and on-going technical support from the SPU team. The F&P

department has established a fully equipped Budget Cell in the DCO complex and 40

Resource Centres throughout the District. These Resource Centres are providing support to

the DDOs at their door step and they now do not need to visit the F&P Department for the

submission of budgets (Figure 2).

CDGF now has an on-line budgeting system which has translated into fiscal planning and

operational efficiencies for the City District Government. Embedded as a distinct module in

the FMIS, Faisalabad's on-line budgeting system allows for highly effective budgeting and

timely approval of the budget by the City District Council.


15

Figure 2 : Online Budgeting Process

Performance Based Budgeting

Prior to FY 2007-2008, the CDGF could not measure the performance of departments

against the annual targets. To make the departments more accountable and improve service

delivery in the District, the CDGF in 2007-2008 introduced the concept of performance based

budgeting. All the departments were requested to submit annual targets against the

requested budget lines on Budget Salient Features (BSF) forms. This is now approved from

the District Council and is an integral part of the budget document. The EDOs of all

departments report the monthly progress against the BSF targets on the Budget

Management (BM) forms that bring more transparency and accountability in financial

management operations.

As an example, to improve the performance of the Education Department, especially the

elementary section of the Education Department and quality of primary education in the

District, the CDGF introduced the concept of school based budgeting.

The concept of school based budgeting is very new in Pakistan. Under the current set-up, on

the elementary side of the Education department, the Deputy District Officer (DDO)

Education is responsible for more than 300 schools. He or she also exercises financial

powers for those schools. Previously block allocations were made for these schools, and

therefore there was no criterion for the distribution of budgets to the individual schools.

To address this issue the F&P department introduced school based budgeting in Jaranwala

town as a pilot. Jaranwala town comprises 736 primary schools. All the schools were given

separate budget lines for few items. This is expected to provide an opportunity for more local

control and greater fiscal independence for primary schools, with resulting improvements in

the quality of education in the District. This will also help the Finance department of the CDGF

to work out the cost per child in the primary education system. The purpose is not to reduce

the cost at the expense of quality education but to improve the quality of primary education by

effective resource planning and strengthen the accountability mechanisms in the education

department.


16

Resource Centres (RCs)40 RCs helping 600 DDOs

DDO wise budget data entered & storedSubmitted to the Main server in web based FMIS

Head of Offices

Departments' own data entered & stored

Scrutiny and verification of RCs data

Verified data submitted to the main server

in web based FMIS

F&P Department

Retrieval of verified data

Consolidation of budget data

Finalization of Draft Budget

Council

Approval of final budget

BSF & BM8-9 Forms

BSF forms mean Budget Salient Features forms and these forms are used for setting the annual targets for the sector/ departments. BM8-9 forms mean the Budget Management forms and are used for monitoring the progress against the targets given in the BSF forms.

However, the Education department is still facing problems in the disbursement of money.

According to the DDOs, handbook in which all the categories of the employees are mentioned

who could exercise the powers of the Drawing and Disbursing Officers, the majorities of

primary school head-teachers do not belong to these categories and are therefore unable to

utilise the budget. As a result, the office of the DO assumes the power to process the bills for

those schools. According to the treasury and audit rules, if one person exercises the power for

the procurement of many cost centres, they have to undertake bulk purchases to achieve

economy. At the same time in accordance with rules, from the DAO, for every item in the cost

centre, separate bills per item per cost centre have to be produced. These inconsistent rules

are one of many challenges currently faced by the Education and F&P departments.

Development Budget

In the Annual Development Programme (ADP) process, the identification of development

projects is very important and initiated at the Union Council (UC) level by UC Nazims, the

District Nazim and EDOs. The elected member of the District Council (Zila council) submit his

project proposal to the District Nazim or to any other of the senior administration officers. The

proposal is then forwarded to the appropriate EDO i.e. education or Works and Services etc.

The department then begins the process of preparing cost estimates for the projects, which

culminates in a BDD-4 form (PC-1). All projects that contain a building, roads or other

infrastructure component involve the EDO Works & Services. Once estimates are prepared,

the proposal is then routed to the EDO F&P's team, where a working paper for the proposals

is prepared for submission to the District Development Committee (DDC). Proposals

successful at this stage are then “approved schemes” and included in the budget for the

following financial year.

In the past, block allocations were made as a result of which many sectors remained

neglected. Therefore, the CDGF in the Budget for 2007-08 made adjustments and in the

development allocation, the F&P department by following the Punjab Poverty Reduction

Strategy Paper (PPRSP) indicators has allocated a 5 percent increase over the previous

year's allocation for agriculture, 8 percent increase in community development, 11 percent

increase in education and 7 percent increase in the primary and secondary health care sector.

There has been a visible move towards ensuring that allocations and expenditures are pro-

poor, and reflect the District's commitments to achieving the Millennium Development Goals.

The CDGF's improved fiscal position and the timely release of development funds has

resulted in the timely execution of development projects. Further, it has reduced the number

of throw forward schemes from more than 3,000 in FY 2004-2005 to 1,468 in FY 2007-2008.

In the Finance & Planning department there was a need to have consistency in the


17

Box 7: Budget Rules and Block Allocation

According to Budget Rules 2003 Section 58(3), No lump sum provisions shall be made in the budget the details of

which cannot be explained.

Box 6: Steps Taken by the Planning Wing of the F&P Department

� Organized comprehensive training programme for elected representatives on budget and planning and

gender responsive budgeting.

� Identification of schemes through the elected members in February with the Department attempting to submit

the draft budget in April 2008.

� Development of the Planning module of the FMIS, which will reduce the times for budget processing,

preparing the working paper for the DDC and also for issuing the minutes of the DDC meeting.

PC 1

“PC1 stands for the Planning Commission 1. That is the form which is used for the submission of development projects”.

Rule 64 (1)(IV) Budget Rules 2003

“Each Local Government shall efficiently and effectively manage the resources made available to the Local Government”.

development project numbers. This issue was addressed by the planning wing of the F&P

department and allocated project numbers which were unique and consistent with the project

numbers used in PIFRA by the District Accounts office. Therefore, the Planning wing not only

allocated unique project numbers but also started tagging the individual development

schemes with the Geographical Information System (GIS). This will allow the F&P

department to assess the individual schemes according to the Provincial Government

Planning and Development (P&D) department’s prescribed planning and engineering criteria .

However, there is a need to develop synergy with planning at the UC and District levels. Once

this is achieved then it will be easier for the F&P department to understand local needs and

development priorities before approving projects at the DDC stage. If Town level and UC level

information was available, then the allocation of resources could be made on a priority basis.

At the moment, projects at the UC level are approved arbitrarily and not using official planning

guidelines.

New Accounting Model

In NAM, the concept of Modified Cash-Based Accounting was introduced. Transactions

regarding future commitment can now be recorded through NAM. By keeping a record of

future commitments that have been entered into, the budget position can be effectively

monitored and expenditures that may arise as a result of possible overspending in the budget

can be readily identified.

Impacts

Improved Financial Management has brought greater efficiency in the CDGF budgeting

process. It allowed the departments to evaluate the progress and asses where resources are

needed to be aligned in order to complete district's commitments. The CDGF is now in a

better position to identify the priority projects by sector and location by introducing the pro-

poor budgeting in the District. Following are the impacts of improved budgeting process in the

City District Government Faisalabad:

� Consultation workshops were organised with departments, NGOs, CCBs, and

elected representatives for the budget 2007-2008 and 2008-2009;

� An effective BCL was issued. In BCL 2007-2008 PPRSP indicators were strictly

followed. The concept of Gender Responsive Budgeting was introduced;

� Greater fiscal space was achieved (for the first time the City District Faisalabad

produced a surplus budget);

� A significant reduction in the budgeting process from inputs of 9000 man days to

3000 man days and a time-line of 45 to 9 days has resulted in savings of Rs.10

million;

� School based budgeting was introduced in Jaranwala Town as a pilot;

� The concept of performance based budgeting has been embedded into CDGF, and

EDOs have to report to the DCO on a quarterly basis;

� The Planning module of the FMIS is helping the planning wing of the F&P department

in preparing the working paper to be submitted in the District Development

Committee, and has reduced the time needed for this process from two weeks to one

day.


18

New Accounting Model

The New Accounting Model (NAM) has been adopted as the New Accounting Model for Pakistan that not only allows modified cash based accounting but also allows the commitments against budget and allowing statements of receipts and payments, asset and liabilities and cash flow statement.

Training on New Accounting Model

Improvement in the Release of Grants

Issue

In the past, releases for non-development expenditure were given to departments through

the respective EDO before being received by a DDO. Access to funds would often depend on

the nature of the relationship between a particular DDO and EDO, if strained then delays

often occurred.

On the development side there was a practice to release 30 percent of funds against the

approved allocation of individual projects. The large proportion of the majority of the individual

projects were less than Rs 50,000 and the contractors were not willing to work on the 30

percent releases against those projects. This has resulted in delays in starting development

projects and also affected utilisation. Most projects would not be completed and would spill

over to the next year's budget (ADP).

Process

A very large proportion of receipts emanate from the Provincial Government’s PFC award.

This award is received in 12 monthly equal installments; the problem with this arrangement is

that enough money is not available for releasing to DDOs in order to cater their spending

requirements. There was no criterion for the release of funds. This has led to the development

of a criterion for releasing funds which makes money available directly to the DDO, so that

they can use the funds immediately. The process bypasses EDOs, though they are kept

informed of the releases, gives enough flexibility to managers in spending money and cuts

additional bureaucracy.

Executing agencies tend to complain that the finance and planning department does not

release funds and therefore they are unable to complete their work within time and budget.

However, the evidence does not support this claim; executing agencies do tend to be

provided with funds. On the development side, the process of releases has now been

streamlined; 100 percent funds are released and Administrative Approval (AA) issued for

those projects which are approved in the DDC. The timely release of funds has not only

restored the confidence of contractors in the market but also improved the utilisation rate.

Impacts

The mechanism for releasing funds to departments lacked clarity in the past. This has led to

the development of criterion for releasing funds which ensures the availability of money to the

managers, so that they can use the funds immediately. The improved release process saves

time and consumes less human resources. The CDGF improved release policy has the

following benefits:

� The timely release of funds has improved service delivery in the departments and will

help the executing agencies in completing projects on time;

� Online direct releases to the DDOs, has also improved service delivery and the

utilisation rates especially in the education department.


19


“Delay in payment of money due from a Local Government shall be avoided”.

Expenditure Tracking System

Issue

Previously it has been difficult for departments to track monthly development and non

development expenditure. The main reason has been that the systems in placed in the

departments were not aligned to the DAO. The departments were only preparing budgets at

the departmental level while incurred expenditure was recorded at DAO. The F&P

department was unable to monitor expenditure against the approved budget.

Process

In the expenditure tracking system which was previously followed, the DAO was sending

expenditure details to the office of the EDO F&P and the expenditure statements were not

disseminated further to the relevant DDOs and the concerned executing agencies. The

DDOs and bill clerks were compelled to visit the DAO office on average two to three times

every month to reconcile their accounts. This was a major cause of inefficiency within the

departments.

The F&P department eliminated this by linking stakeholders with a centralised database that

allows access to expenditure information against budget lines with the minimum of effort and

fuss. The CDGF through the FMIS has introduced a more effective and simpler expenditure

tracking system. Consequently, the Local Government's top and senior management are

now able to monitor expenditures against approved allocations and utilisation against

releases at the respective cost centres.

The FMIS through the resource centres enables the DDOs and the executing agencies to

track and monitor expenditure at the DDO level. It also produces reports function wise,

detailed object wise, programme wise, grant wise and project wise against the approved

budget allocations, thus allowing departments to implement Budget Rule 65 (4) (ii) & (iii).

Impacts

Effective expenditure control is crucial for maintaining the financial discipline in the District.

The CDGF can now track and monitor the expenditure at the DDO, project and detail object

wise level. The following indicators explain the benefits of expenditure tracking system in

achieving the efficiency in the CDGF;

� The Department is effectively monitoring expenditure against approved allocations

on a monthly basis, using the Expenditure module of FMIS;

� There has been an annual increase of 131 percent in the utilisation of the

development budget as compared to the previous year (2005-2006);

� There has been an annual increase of 12.50 percent in non-development (non-

salary) utilisation against the District Budgets.


20

Box 8: Budget Rule 65 (4) (ii) & (iii)

“In order to keep the total expenditure within the grant, every Head of Offices shall be informed monthly by each

Drawing and Disbursing Officer of the extent of commitments that have been made but not paid for against such

Grant or Grants and the extent of expenditure that is likely to be incurred during the remaining period of the financial

year”.


“Each Drawing and Disbursing Officer (DDO) shad be responsible for the expenditure actually incurred against the funds allotted to him. The expenditure shall be sanctioned in accordance with the delegation of Financial Power Rules”.

EDOs

DDOs

DOA

If no

t cor

rect

vis

it D

AO

to r

ectif

y th

e re

cord

s

If any changes are required inform DDOs

Authenticated Expenditure

Online BM1 Form

Ens

ure

Rec

onci

liatio

n

Int mation to EDOs H

ead of Of ce

s

i

f i

Receipts &

Expenditure D

ata

If an

y ch

ange

s ar

e re

quire

din

form

DA

O

Pre

pare

R

econ

cilia

tion

Rep

ort

DAO

1

3

2

5

4

9

6

8

7

Facilitating the Reconciliation of Financial Accounts

Issue

The previous process of reconciling Faisalabad's financial accounts was lengthy and did not

correct discrepancies on time. This old system of accounts reconciliation did not work

because too often the EDOs did not communicate the corrections made by the DDOs to the

District Officer Accounts. Hence, information available at the District Officer (DO) Accounts

level was not too reliable.

Process

Reconciliation of accounts in an accurate and timely manner is critical to fiscal discipline. Rule

67 (3) of the Budget Rules 2003 clearly states that it is the joint responsibility of all key officers

in submitting accurately reconciled accounts to the District Government. The rules also state

categorically, that bills will not be passed to defaulting DDOs.

Currently, Resource Centres accessible to EDOs, DDOs and DO Accounts are helping the

department in timely reconciliation of expenditure and receipts data with the District Account

Office(DAO).The DAO data is transferred to FMIS by the F&P department on a monthly basis.

The Resource Centres' teams are also trained on transferring data from the DAO to the FMIS.

The DDOs have to only match the figures with the DAO figures through an online

reconciliation module which allows them to modify data if they find any mismatch between

their own Expenditure records and the DAO data (Figure 3).

Figure 3: Simplified Reconciliation system of CDGF


21

At the month end the DO Accounts (F&P department) reconciles the modified data with the

DAO. This has brought about efficiency and effectiveness in a sense that the monthly verified

accounts are available on a monthly basis with the effort of one hour of officer's time and with

fewer error rates. The FMIS serves as the clearing house for the statements from the EDOs

and the DAO. It reconciles the statements and notifies all concerned officers including the DO

Accounts regarding all the changes required in a timely manner.

On the development side, the Planning module of the FMIS is helping the Department in the

reconciliation of development expenditure with the DAO. The physical progress from the

executing agencies is being updated in the Planning module by the DO Planning (DOP) on a

monthly basis to track the real progress of development schemes. It is further linked with the

Reconciliation module of the FMIS to reconcile the expenditure figures of executing agencies

with the DAO figures. Although the reconciliation processes has improved and systems

established in the CDGF, but there is a need to improve and build the capacity of the lower

and middle management on the online module of the FMIS in the resource centres.

Impacts

Reconciliation has always been a problem in the district’s accounts. The accounts were

generally not reconciled until the end of the financial year. The information was not intimated

to District Officer Accounts of the F&P department after the rectification from EDOs.

Therefore, the District Officer Accounts records, did not match with the District Accounts

Office. The information available at the District Officer Accounts was not reliable.

Under the reform initiatives the reconciliation processes and monthly reconciliation of

accounts have now been simplified. The PIFRA information is now recorded on BM1 & BM2

forms by the FMIS, online access of the reconciliation module is given to the Drawing and

Disbursing officers who can see and amend the record from their computers in their offices/

resource centres and submit the same information online to F&P department. This not only

facilitated the DDOs by not visiting the District Accounts Office unnecessarily but also brought

efficiency in saving the human and financial resources of the district.

Issue

The cases of retired employees are processed after retirement and can normally take 6 to 12

months before approval. This delay causes economic hardship on the families of retiring

employees. The office of the DO Accounts in the finance and planning department processes

the pension cases manually i.e. calculation of gratuity, pension etc., due to which more

human resources are consumed which has financial implications on the district and the

chances of errors are comparatively higher.

Process

The existing process was studied in detail and it identified major gaps in the processing of

pension cases in the District. All the relevant stakeholders were consulted for identifing the

key gaps in the system. The pension module of the FMIS was designed, developed and was

linked to the Human Resource Management Information System. All the relevant and

Facilitating the Pensioners in the CDGF


22

prescribed forms were designed and various formulas for the calculation of CDGF employees

pension were inserted.

Impacts

The CDGF is now capable of generating the reports of the employees who are retiring in

coming six months so that their cases can be processed and by the time they retire their cases

are ready for disbursement. The Finance & Planning department has simplified the pension

process and has reduced the pension calculation time from two days to one hour for the

CDGF employees. Previously the process would take from four to six months and was very

much dependent on the availability of one or two key employees of the F & P department.

Issue

In the CDGF there was no culture of asset recording and management. Most of the assets

have no value and there was no proper procedure to record the assets. The inventory records

were manually prepared which could easily get outdated, if there were continuing absences

by staff. Under the New Accounting Model (NAM), every district needs to maintain and record

its own assets.

Process

The CDGF in order to capture the picture of its assets conducted physical surveys. The

Revenue and Municipal Services departments coordinated their efforts and captured the

detailed picture of those assets which are owned, managed and controlled by the City District

Government Faisalabad. The information was taken on the scaled maps along with their GPS

information.

Impacts

The CDGF has now established a comprehensive data base of all the immovable

(commercial and non-commercial properties), movable assets and the inventory records with

appropriate valuations in the District. This has not only brought transparency but also

introduced the concepts of accountability in asset recording and management

Issue

The CDGF while conducting an internal review and assessment of its management systems

and processes identified a number of areas that needed to be addressed urgently where

information and communication technologies could be used to bring about significant

improvements in the way the CDGF did business.

The information was lacking, and if available, it was scattered and was not regularly updated.

Critical decisions were thus being made on the basis of little or inaccurate information. Even

when data was digitised, it remained in disparate formats lacking a consolidated view to plan

and analyse the resource utilisation of the CDGF. It was noticed that the officers were greatly

Asset Management

Information Systems


23

Rule 3 Property Rules 2003

“The Local Government concerned, with approval of its Council, shall take such steps as may be necessary to ensure that the property vested in the District Government, Tehsil/Town and Union Administration respectively is managed and maintained in the best interest of the public for the purpose of the Ordinance”.

dependent on the subordinate staff in searching for files and policy letters. The other critical

issue in the Department was that the Head of the Offices could not track the progress of the

files sent to the F&P department.

Process

Good strategic management relies on an organisation's ability to manage its information

properly. Only now is the District starting to understand the implications of having reliable

information as the basis for business decisions. For a district as large as Faisalabad, having

the right information at the right time will allow managers to redefine Local Government

services and allocate resources accordingly.

Such efforts are helping to avoid duplication that in the past characterised services such as

the construction of roads and buildings. The CDGF with the help of the reforms programme

redesigned their financial information needs and products so that greater fiscal responsibility

could be achieved. To address the information needs in the Financial Management sector,

the team helped the District in developing the information systems (Figure 4)

Figure 4: Financial Management Information System

Various modules of FMIS were developed to help the City District Government in estimation

of receipts, budget preparation, expenditure tracking, managing treasury, development

planning, asset management, release of funds, processing of pension cases and

reconciliation of accounts.

The bookkeeping module has not been developed so far. The department is aware of the fact

that this module is important and through this the DDOs will not only save time but will also

discourage rent seeking behaviours while processing the bills. It will also reduce the

dependency of the CDGF on DAO regarding expenditure data, and the reconciliation of

accounts will become much easier promoting greater efficiency.


24

RMIS

ExecutingAgencies

ZAC NAZIM DCOEDOs

DDOs

Online System

FMISHRMIS

InformationFrom

Departments

Data from PESRPLahore

PMIU

Revenue &Municipal Services

DepartmentF&PDepartment

DAO

Web based FinancialReports through

EDO IT

EMIS

Cod

e

EMISC

ode

DDO &

erso a Nu b rP n l m e

COCodeDetail Object

One of the key issues identified in the situational analysis was related to the revenue

mobilization and fiscal effort. A Revenue Management Information System (RMIS) was

developed under the CDGF's reforms programme. The system helps the Revenue and

Municipal Services Department in assessing and collecting local revenue.

Further it was noticed that the officers were greatly dependent on the subordinate staff in

searching for files and policy letters. The other critical issue in the Department was that the

Head of the Offices could not track the progress of the files sent to the F&P department.

Therefore, the team after detailed discussions with the Department designed the Document

Management System. The system helps the Department in searching for important files,

policy letters and other related legislature to advise corporate management in a timely

manner. A more open and transparent culture exists in the Department, and the staff of the

F&P department can share and use information more effectively.

Impacts

After the development and implementation of FMIS, the CDGF can support many of the key

functions that the F&P department performs. It allows the District Government to regularly

analyse the financial position of the District which is critical to its aim of improving fiscal

responsibility. The FMIS is helping the CDGF in online budgeting, effective expenditure

tracking, streamlining the release of grants, ensuring timely reconciliation of accounts,

managing treasury functions and performing planning functions more efficiently.

Due to the RMIS, the CDGF has a very solid base to assess the revenue potential of the

advertisement boards. This is evidenced by the virtual doubling of revenues, to 71 Million

rupees, through outsourcing which was based on real knowledge of the situation through

data collection and assimilation. The DMS is encouraging more open and transparent culture

in the Department, and the staff of the F&P department can share and use information more

effectively.

Issue

According to the budget cycle, the draft budget has to be presented in the first week of April

and before presenting the draft budget the District Governments need to have a fairly good

idea about the cash inflow to the budget. The Provincial Government, however, usually does

not communicate the receipt figures to the District Government until the end of June and that

makes it difficult for the District Governments to follow the annual budget cycle.

Increases in Revenue Mobilisation & Fiscal Efforts


25

Box 9: Functions of Financial Management Information System

Faisalabad's FMIS is a modular management information system designed primarily to:

� Improve the accuracy, comprehensiveness, reliability, and timeliness of financial reports in the District;

� Enhance public financial management accountability and transparency;

� Build the capacity of public sector managers to use credible financial information for better and informed

decision-making;

� Understanding of public financial management as a basic responsibility of all public officials at all levels;

provide a reliable basis for discussion of common public financial management problems; and facilitate the

development of uniform financial reporting formats to ensure greater transparency, permit comparability, and

increase the utilisation of sound financial management information.

Revenue Management Information System (RMIS)

Section 111 (2) PLGO 2001

“To enable the budget preparation by Local Governments the Government shall, sufficiently before the beginning of each financial year, notify the Provincial shares which may be credited to the fund of Local Government from the Provincial Allocable Amount”.

The other issue with the PFC award is that the district receives this award in twelve equal

installments and for Faisalabad that created problems. The utilisation rate slowed down

because of insufficient funds in the District Account IV. There were no proper systems in

place to track receipts against targets. There were issues in the tax assessment process and

the actual potential of revenue was unknown. This resulted in setting unrealistic budget

targets. There was more room for corruption and service delivery was badly affected.

When the District Government Faisalabad was upgraded to a City District Government and

given municipal services functions in October 2005, the local receipts from outdoor

advertisement, commercialization and general bus stand became part of CDGF revenues.

There was a lack of capacity to manage the new department and its revenue sources.

Process

Flow of Funds from Federal and Provincial Government

The main sources of City District Government's revenue came in the form of transfers from

the Provincial Government (the Provincial Finance Commission or PFC award) and local

receipts. Funds coming from the National Finance Commission (NFC) are directly transferred

to the Provincial Consolidated Fund (PCF) in twelve equal installments which is divided into

four accounts, Non-Food account, Food account, Zakat account and District Government

account. Deducting the interest payments and other Provincial Government liabilities, the

remaining balance is divided into Provincial retained amount and the allocable amount. The

retained amount is a portion of proceeds that is retained by the Provincial Government for

meeting its expenditures and making grants of money to District Governments. The allocable

amount is the Provincial transfer to the Local Government under the PFC award (Figure 5).

Figure 5: Flow of funds in the CDGF account IV


26

Types of Accounts

There are 4 types of accounts in the Provincial consolidated fund, Account I (Non Food Account), Account II (Food Account), Account III (Zakat Account) and Account IV (District government Account) in the treasury system.

Federal Consolidate Fund

Provincial

Consolidated

Fund

Non-Food Account (Acc.1)



Re

tain

ed

(5

8.1

%)

Allo

cab

le(4

1.9

0%

)

Donor Money

Own Source

Revenue

District GovtAccount (Acc.4)

Provincial Receipts

DonorsReceipt

Receipts fromDistricts

Conditional Grant

PFC Award “12 Equal Installments” Development

and Non-development

Co

nd

itio

na

l Gra

nt

As explained above the main sources of CDGF’s revenue came in the form of transfers from

the Provincial Government (PFC award) and according to rule 90 of the budget rules 2003

“the Finance Department, Government of the Punjab shall communicate the preliminary

estimates of the respective Local Government share by the first week of March each year”.

The CDGF on numerous occasions requested the Finance Department of Punjab to intimate

the Provincial Government grants in March and release the awards on a quarterly basis.

However, the District despite having these constraints managed to release 100 percent funds

for the completion of development schemes. This not only improved the utilisation of funds

but also reduced the carried forward schemes in the ADP.

Local Receipts

The main contribution in the District's own source revenue (OSR) is from the Municipal

Services and Revenue departments, sharing a total of 81 percent of the total district own

receipts. In the Municipal Services department, the share of advertisement is 24 percent,

commercialization is 20.45 percent, and General Bus Stands is 23 percent, while in the

Revenue department, the share of building rent is 9 percent and licence fee is 4 percent

respectively. In order to identify the true revenue base of these major local receipts, the

Municipal Services department conducted a detailed survey of all outdoor advertisements,

commercialization activities, general bus stations and District Government assets.

Based on the survey results, it was possible to identify the financial leakages and areas of

improvements. For example, after conducting a survey on signboards it was identified that

there were many unauthorized hoarding boards installed in District Faisalabad. This resulted

in huge financial loss to the CDGF. In the shop signs survey, the survey team identified a large

number of businesses slipping through the tax net. After conducting a detailed situation

analysis and proper tax assessment, it was proposed that the department should be able to

improve its revenue base by outsourcing the advertisement component. In 2007 the

advertisement was outsourced for 65 percent more revenue than the previous financial year.

27


Commercial properties of CDGFMonthly meeting of the revenue optimization committee

The revenue from commercialization has also improved and an analysis of records from the

survey revealed that out of 1,555 commercial properties, only 140 applications for

commercialization have been submitted to the District Government from October 2005 to

November 2007. Most of these applications have been tended for setting up CNG & petrol

stations or small shops.

The applications for larger commercial shopping malls and markets have not been received

despite their construction throughout the District. Analysis based on a revenue assessment

shows that the potential of revenue enhancement from this activity is 600 percent more than

the existing target. The District administration has been informed about the outcome and they

have been sending legal notices to the owners to abide by the laws and pay their taxes.

The District administration has established an Asset Management Cell (AMC) in the Revenue

department to look into timely collection of revenue, auctioning procedures, repair and

maintenance and encroachment issues. It will overall streamline the collection of revenues

and proper record maintenance which was not followed previously. Revenue generation in

local receipts has been constantly improving since 2002-03.

In 2007-08 the District has made considerable progress in revenue collection. Upto

November 2007, the District had collected 92 percent more revenue than the previous

financial year. This upward trend in CDGF's local receipts, combined with more successful

efforts to increase the District Government's PFC award, strongly bolsters Faisalabad's fiscal

position for the future (Figure 6).

Figure 6: Trends of Local Receipt from FY 2002-03 to FY 2007-08

28


48.22 48.84 43.00

132.67

245.25

310.00

0.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

Am

ou

nt in

Mill

ion

(R

s.)

Collection from July - November Collection for whole Financial Year

20.09 20.35 17.9132.91

51.6598.94

Rule 4 Property Rules 2003

“District Government shall appoint a manager responsible for the administration, control, management and maintenance of the properties”.

Impacts

The revenue generation strategy of the CDGF has two objectives. Firstly to get maximum

from the existing sources by improving assessment and collection systems and secondly, try

to explore new avenues of revenue generation. The CDGF has done the cost benefit analysis

of different activities, the resources deployed and the stakeholders that benefited from

reforms initiatives. The following impacts reveal that CDGF has brought great efficiency and

the revenue mobilization and fiscal effort created fiscal surpluses:

l The Municipal Services with the Department has conducted and completed the

survey of all the commercial properties and advertisement boards, and a data-base

has been developed for the commercial buildings and advertisement boards. The

overall revenue of the Revenue and Municipal Services department has increased by

119 percent in 2006-2007;

l A Revenue Management Information System (RMIS) has been established, which is

helping the department in collection of receipts. It has reduced the time from 15 days

to 1 day. The system is saving more than Rs. 1 Million per annum by using fewer

human resources.

Issue

A key aspect of the financial reforms process was to achieve more efficiency gains in

resource allocation to support the Punjab Poverty Reduction Strategy Paper (PPRSP). Prior

to the reforms process, the required data for targeting the poor was not specifically available

and the identification of development schemes was made on political bases. Poverty was not

generally considered by most of the elected representatives as a matter of priority because of

their strong political motives and lack of awareness about poverty targeting. Similarly, the

majority of the EDOs did not understand the concept of poverty.

Influence on Corporate Policy towards Reduction of Poverty

29


A focus group discussion for Citizens’ Perception Survey

Process

CDGF has a clearly articulated vision for Faisalabad, 'Pre-empting Poverty, Promoting

Prosperity', and is taking many steps towards poverty reduction. A focus on pro-poor

approaches is integral to all departmental strategies with respect to both investments and

service delivery.

After three years of the reforms programme, the District is now better informed about where

poverty persists and where investments are required. Through the FMIS, spatial maps are

available which depict the clear patterns where the major chunk of investment has gone

during the past few years.

The district-wide Citizen Perception Survey that was conducted in all 289 Union Councils is

another tool available with CDGF. Spatial maps which show the investments made when

combined with the perception of the people within those Union Councils provide an

opportunity to the District to analyse the root causes of poverty, and provide evidence to

target local development needs.

One of the advantages of spatial representation of investments was that the top management

(City District Nazim and DCO) and the politicians could not ignore the fact that the neglected

or underdeveloped areas needed investment and it was imperative for them to address this

issue. The other advantage was that the Provincial Government started investing in these

areas which had been side-lined in the past and investments were made in the neglected

areas (Annex 2).

Impacts

CDGF can now track the investments Union Council wise and sector wise i.e. which Union

Councils have received the funds for schools, health facilities and for water & sanitation

services, enabling the District Government to identify the grey areas where no or little

investments have gone in the past. The CDGF is now targeting poor areas, kachi abadis,

slums and the most deprived areas.

The CDGF has increased its non-development budget (repair & maintenance component)

many-folds to maintain poor and essential infrastructure. Undoubtedly, these steps of

targeted investments for the poor, contribute to form the foundation of a district which is

specifically focusing on a pro-poor agenda. For a key service such as education,

development expenditure during 2007-2008 up to march 2008 was 20 percent of the total

development expenditure. This includes monies from vertical programmes, ADP, PESRP

and the District's own coffers (Figure 7).

One reason for the dip in the development expenditure of the District ADP in the education

sector was the delay in getting the budget for the FY 2005-2006 approved in April 2006. It was

therefore, difficult to incur expenditure on new projects when the budget was not approved.

Hence a number of these new projects were carried forward. Similarly for the health

department, the total development expenditure during financial year 2007-08 up to January

2008 was 21 percent of the total district development budget .

30


Figure 7: Education Department’s Development Expenditure trend from FY 2002-03 to

FY 2007-08 (upto November 2007)

Issue

In Faisalabad, there used to be a strong culture of tardiness and weak planning among the

public employees. There was also no concept of team work which translated into

inefficiencies. Time management was a vague notion to many, adversely affecting the ability

of the District Government to deliver on-time, quality services. Knowledge sharing was an

alien concept, with most information treated as confidential.

Process

The District Government realised that changing the culture of its employees was of

paramount importance for improved financial management. Computerised time keeping

systems were put in place and more recently, a Document Management System was

installed. Staff were required to attend short courses on team work, time management, and

leadership.

Section 114(5) of the PLGO states that a statement of monthly and annual accounts and such

other necessary statements shall be placed at a conspicuous place by the Local Government

concerned for public inspection. A series of brainstorming sessions and discussion have

been held on how to best meet the need for making financial information available to the

public. The outcome of these consultations has led to the idea of a summary leaflet that

informs the public of the City District's annual budget and monthly expenditure in simple lay-

person's language. The leaflet was produced in English and Urdu and was the first of its kind.

This is a key communication aim and part of the process of improving public accountability

and developing client interest in Local Government affairs as part of the broader strategic aim

Strengthening Internal and External Accountability Mechanisms

31


500.00

450.00

400.00

350.00

300.00

250.00

200.00

150.00

100.00

50.00

0.00

Am

ou

nt in

Mill

ion

s

Education Expenditure from Vertical programmes Education Expenditure without vertical programmes in ADP

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008Budgeted

275.00

158.21

177.26172.49129.58

2.44

3.83 73.99

63.5451.75

142.95


“Each Local Government shall submit a monthly report to the respective Council relating to the expenditure incurred during the month by the Local Government”.

32

of bringing City District Government and citizens closer. The District Financial Information

along with the leaflet is published and distributed for public dissemination.

Impacts

CDGF efforts remain to build the departments' ability to implement successful and durable

systemic change that results in a more civilised culture. Streamlined systems and procedures,

result in more efficiency and effectiveness within the departments in performing its daily

operations by reducing the human and time resources. The CDGF through the reforms

initiatives has changed the culture of keeping the public information confidential. The

followings activities establish the fact that CDGF is now more open, transparent and

accountable than before:

� Access is available to the web-based FMIS for all relevant stakeholders such as DCO,

Nazim, 11 EDOs and 40 Resource Centres;

� Sharing of all financial information through the CDGF website is now a standard

procedure;

� The Document Management System is helping the Department in searching for policy

letters and tracking files, receipt and dispatch register for tracking the status of files

from various sections and file storage for the storage of files in the system without

being dependent on the subordinate staff. The time for document search and retrieval

has been reduced from a couple of hours to two minutes and the human resource

requirement reduced from two to one person.

Reports being scanned into the Document Management System


DRIVERS OF CHANGE

Provincial Government and Legal Protection

Leadership

Location, Administrative Set-up and Ownership

Faisalabad's financial reforms process has produced notable accomplishments leading

others to suggest its replication in the other Punjab districts. The important factors that led to

the successful implementation of the reforms process are outlined below.

The Punjab Local Government Ordinance 2001 is legally supported until August 2009 by the

Provincial Government. The fact that these reforms, unlike prior reforms in Pakistan, were

legally embedded has had a huge impact on the reforms process. Everything the CDGF has

been doing was covered under the PLGO 2001 and other related legislatures such as budget

rules 2003, advertisement bye laws, commercialization rules 2003, and auction and

collection rights rules. The other contributing factor in the reforms process was the Provincial

Government's support. In the current Local Government set-up at the District level, the

Departments are not only reporting to the DCO in the District but they are also accountable to

the Provincial Government working under the departmental secretaries. All District

Government policies have to be consistent with the Provincial Government policy framework.

The Provincial Government, at various levels, fully supported and appreciated the CDGF

reforms initiatives and show-cased Faisalabad as a role model for other districts in its various

policy decisions.

Faisalabad has been lucky to have dynamic local political leadership. The Zila Nazim is the

head of the District under the Local Government Ordinance and without the strong support of

the City District Nazim, it would have been difficult to drive the changes under the reforms

process especially in the finance sector. The Nazims of Faisalabad acknowledged the fact

that the District is on the right track and were patient until the actual fiscal space to execute

developmental works in CDGF, was available.

Similarly on the administrative side, all the DCOs over the past four years have been very

supportive of the change management issues in Faisalabad. They have also been the Ex-

officio project director for the SDLGF Project and played a key role in driving the reforms. The

present DCO was not only supportive but was instrumental in convincing the Provincial

bureaucracy (the Chief Secretary, Chairman P&D and other administrative secretaries of

various departments) about the benefits of reforms. The DCO on various occasions provided

good strategic direction to the SPU team in resolving the District's financial position.

The Location of the SPU in the DCO office played a vital role in driving the reforms process. All

wings, except Enterprise & Investment Promotion, of the F&P department are located in the

DCO office. This provided an opportunity to the project team to work very closely with the

Department on daily basis. All strategies were consulted with the Department at various

levels and after their agreement were implemented by them. This sense of ownership would

be difficult to achieve had the team been located elsewhere. Consultation with other

departments also contributed to bringing the reforms process to the departmental level, and

consequently they were very receptive towards change.

33

DCO, Faisalabad - a key driver of change

Drivers of Change

Links with the Non-devolved Departments and other Donors

Timely Technical and Financial Support

Innovative Systems and Processes

From the start, the Project adopted the strategy of not duplicating efforts and worked closely

with Provincial Government departments and other donor funded projects. Departments

such as the District Accounts and Regional Director Audit offices are non-devolved. By

recognising that solid relationships with them would be a catalyst for the reforms process, the

District Government was facilitated through the reforms programme in building good

relationships with these non-devolved departments.

The role of the DAO, which is a non-devolved department, is very important because all

expenditure is incurred at the DAO. Without the help of the DAO, it would have been very

difficult for the F&P department to build the link between the Federal Government's PIFRA

and the FMIS. This facilitated the District Government and the F&P department in cash

forecasting, expenditure management and reconciliation of accounts. The SPU team also

helped the Finance department in coordinating with other donor funded programmes and

projects such as Decentralisation Support Programme (DSP), National Commission for

Human Development (NCHD), Devolution Trust for Community Empowerment (DTCE),

National Reconstruction Bureau (NRB) and others. Various training programmes related to

the NAM and Planning & Budgeting were conducted in partnership and hence the District

avoided the duplication of efforts in building the capacity of officers and other staff members

of various departments.

The newly devolved structures and rules were unfamiliar and due to the lack of explanation,

many things were unclear at the start of the reforms process. The local capacity and

understanding of the officers and sub-ordinates about the new system was limited. The City

District Government Faisalabad realized the need for technical support in 2002 and

established a unit in the Faisalabad District in 2002. The main purpose behind the SPU

initiative was to build a unit strengthened by providing technical support so it could later act as

a think tank for the District Faisalabad.

City District Government Faisalabad had limited resources and could not afford to hire the

services of experts to support the implementation of the reforms process. The Department for

International Development (DFID) provided this support to Faisalabad. DFID approved a

project Strengthening Decentralized Local Government in Faisalabad (SDLGF) and provided

technical and financial support in driving the reforms process in District. The consultants,

placed within the SPU, acted as credible facilitators of change.

It is true that bringing about change takes time and changing mindsets is a very difficult task in

the reforms process. The SPU operated on the premise that once systems and processes are

set-up with consultation, they play a major role in changing the mind set of people. For

example, the employees of the F&P department were not initially supportive of the

implementation of the FMIS because they saw it as a threat to their jobs. With time, as they

experienced real benefits from the streamlining introduced by the system, they realized that

these systems are there to help them. Thereafter they played a key role in strengthening and

developing the new systems in the Department.

34

Drivers of Change

LESSONS & REFLECTIONS

Policy Change

Awareness

Replication

During the reforms process it was learnt that there are many changes which are only possible

if policy is changed at the Provincial government level. For example, in the improvement of

procurement processes it is important to follow the delegation of financial power rules and the

purchase manual. The policy regarding the delegation of financial power rules did not change

until 2007, which resulted in financial losses to the City District Government and this affected

service delivery in the District. Similarly the role of the Zila Accounts Committee is to

recommend policy change in the Punjab Local Government Ordinance 2001, like the Public

Accounts Committee in the Punjab Government. But, the City District Government is unable

to make any changes in the legislation without the Provincial Government.

Similarly, at the policy level due to the Provincial Government control mechanism regarding

the revenue collection and maximization, the District's local revenue is also affected. For

example, proposal for the new advertisement and fees for licensing and permits were

submitted in July 2006. But the process of getting the new rates approved by the Provincial

Government took eight months to issue final gazette notification, given the CDGF only four

months to collect the revenue for the whole financial year. There is similar case with the

Spatial Planning department where it is under staffed since the establishment of CDGF. Due

to the lack of technical staff the Department is unable to track and monitor the progress of

unauthorised commercialization activities and installation of illegal sign boards in Faisalabad.

It is reported that the lack of “on-time” sanctioning of new staff members and policies at the

Provincial Government level that are not conducive to change at the District level are causing

considerable loss of revenue to the CDGF.

To change the mind-set of the people is very difficult. In order to achieve this, it is important

that the staff of the departments is made cognisant of existing issues and the way forward.

Unless the people are fully aware, the chances of success are very low. In the absence of

consulting the relevant stakeholders, the Departments do not take ownership, which is very

important in business processes re-engineering under the reforms initiatives.

The CDGF has developed systems and processes during the reforms process. These

systems are not only developed but also implemented and used by the departments. One key

lesson learnt by the CDGF is that to make the reforms process successful, behavioural

change of the employees towards reforms is very important. This took CDGF three years to

change the existing mindset of the employees towards the improvements in the financial

management systems and processes.

The District Governments especially the City District Governments of Punjab now have an

opportunity to replicate those systems & processes in the financial management sector which

were carried out under the reforms processes in Faisalabad. However, keeping in view the

existing mind set of the employees and the technical capacity of the Finance & Planning,

35

Lessons & Reflections

“Pakistan's long term prospects will depend upon the interplay of evolution in political and social developments, economic policies to be pursued, the quality of governance and institutions, and most important investment in the human capital. It has become quite obvious from both Pakistan's own history and the experience of the developing countries that sustained economic growth and poverty reduction cannot take place merely on the strength of economic policies. Political stability, social cohesion, supporting institutions, and good governance are equally important ingredients coupled with both internal and external environments for achieving economic success”.

Dr Ishrat HussainFormer Governor

State Bank of Pakistan

Municipal Services and the Revenue departments, changing the behaviours of the District

employees towards reforms and technical expertise would be needed to replicate the

systems at a lower cost model in the other districts.

Another lesson for the CDGF was that the District must have evidence based information

regarding their potential revenue sources. Conducting of surveys and their results have

provided a solid baseline of the local revenues available to the CDGF.

Usually the district administrations do not share information and consult with the elected

representatives on the District's plans. The District’s administration apprehend that the

elected representatives at the local level are unable to understand the financial transactions

and the budgeting process and sharing information may create problems for the

establishment. The experience in Faisalabad demonstrated that after involving the

councillors/ elected representatives in the consultation process and building their capacity on

the budget & planning, there have been positive impacts. They are more aware of the District

Finances; they know the District's financial constraints and have realized that they need to

address gender issues in their future plans.

Generally, in a project framework, consultants provide short term inputs and give strategic

direction to the Government. The Faisalabad experience indicates that it is important to break

the ice first, establish relationships and then implement the strategies which are important for

the reforms process. The availability of the Project Team on a full time basis, within the DCO

office, had a positive impact on the reforms process and the departments (Finance &

Planning, Municipal Services and the Revenue Department) were far more confident in

implementing the strategies prepared with the consultants.

A unique model was adopted by CDGF under the reforms initiatives. A combination of

International and local consultants were used by the project. This has helped the District in

many ways. Firstly, reduced the overall cost of the project by using more local consultants

and less international consultants input, secondly, the availability of local consultants on

fulltime basis rather than providing limited input within the specific timeframe and lastly the

capacity of local consultants have been strengthened by interacting with international

consultants in specialising the skills which are rare in Pakistan.

Performance based incentives helped the project to influence the willingness of employees to

exert and maintain their efforts towards attaining project goals. There is need to bring about

reforms throughout Pakistan's largely underpaid civil service. Salaries are often not enough

to meet basic needs and the pay of Government employees has failed to match increases in

inflation. The service structure, pay scale, minimum entry requirements, etc., of the Local

Government employees are seriously inadequate to cater to the demands of efficient

management and delivery of civic services. However, it is important that if the salary structure

The Role of Surveys

Consultation with Elected Representatives

Availability of a Technical Team

Performance Based Incentives

36



as a whole is changed that attracts the right people to do the right job then it will consequently

improve the municipal finances & overall service delivery in the districts.

It is typical that District Governments strictly follow the legislature and notifications issued by

the Provincial Government. This rigidity made it difficult for the consultant team to work with

the District Government in the beginning. However, once an understanding of the culture and

constraints District Governments operated in was established, and relationships built, the

task became much easier. However when changes were introduced; supported by the Local

Government Ordinance, Budget Rules and the finance department notifications, these were

accepted and implemented by the various departments of the CDGF.

The Government has devolved various departments and functions to the District level but did

not devolve the revenue sources completely. The District Governments are still dependent on

cash injections from the Provincial Government in the form of the PFC award and other

conditional grants.

This is again an issue which is related to the Provincial Government. The District Government

can not function efficiently unless revenue is decentralised completely. For example, the

urban immovable property tax is collected by the excise wing of the revenue department and

the District Governments do not receive any financial benefit, although the District

Government pays the salaries of the excise wing which is a semi devolved department.

However, the District Government dependency on Provincial Government can be reduced if

all the revenue sources are fully devolved.

Our Faisalabad experience tells us that money has not been the real problem in the District.

The real issue was the management of human and financial resources in an effective manner.

Under the reforms programme, the CDGF improved the existing financial management

systems and processes which helped the District in establishing the financial discipline by

effective expenditure management and resource allocation to the social development

sectors. This helped the District’s administration in targeting the poverty by diverting the flow

of development funds to the neglected areas and increased allocation in the non-salary

component of the non development expenditure. The proper management of human and

financial resources not only increased the efficiency but also improved the service delivery in

the District.

Understanding of Government Culture and Related Legislation

Decentralisation of Revenue

Lack of Funds is not the Real Issue in the Districts

37

Land Revenue can be one of the taxes that can be devolved to District Government for better collection and creating a stake of the District Government in its collection. Even if Provincial Governments reduce the Provincial Allocable Amount equal to the amount of taxes devolved, it shall greatly suit District Governments if land revenue is devolved, which shall be a tax of great potential for District Governments.

DSP Policy PaperLocal Revenue Generation and Tax

Assignment

WAY FORWARD


E- Procurement

PIFRA Access

Receipt Facilitation Centres

Devolution Plan represents a big move towards the decentralisation of the provision of basic

services. However, the system of Local Governments continues to face coordination

problems due to lack of clarity of functions and authority in running the affairs of the

Governments at district level. The project focus was remained to improve the service delivery

in the District’s functions. Although most of the project activities have an indirect impact on the

union councils and towns but directly the project activities were limited to the City District

Government's mandate. During the last four years, the CDGF realised that to effectively

embed the change or reforms in the Local Government there must be a strong link in all tiers

of Local Government like City District Government, TMAs & UCs, to have generally positive

impact and to ensure participation of people in decision-making and local governance.

Integrated planning and effective resource allocation are very important for district

development. The Local Government Ordinance supports integrated planning concepts in

various sections, but the issue is that the Districts lack a spatial planning framework at the

District level. In the absence of such a framework, the various executing agencies are

implementing development projects but the impact is not optimal. The City District

Government should focus on preparing a spatial planning framework that will support the

District Strategic Development Plan. This will likely target investments and result in more

noticeable impacts on the reduction of poverty.

The F&P department could not initiate an E-Procurement process in the District. However, to

remove the inefficiencies in procurement due to complex procedures and possible rent

seeking behaviour of staff, it would be prudent to start E-Procurement in the District. The

District should have no problems in electronic transactions, first because electronic

transactions are supported in the electronic ordinance and secondly systems and processes

are already established and Faisalabad is in a very good position to materialize this idea in the

near future. This will not only restore the confidence of the suppliers but also save millions of

rupees.

Currently the F&P department is greatly dependent on the District Accounts Office for the

PIFRA generated reports. The FMIS is updated monthly, based on the month end reports

from PIFRA. To make the CDGF more independent and sustainable, it is important that the

EDO F&P has access to PIFRA information, as the CDGF is a major stakeholder in this

regard. This will also help the City District Government to generate reports on a real time

basis and the top management will be in a better position to make key strategic decisions.

The Finance & Planning department developed a proposed model for the collection of

receipts to improve service delivery and to ensure transparency, accountability and efficiency

38

Way Forward

Internal auditing

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations.It helps an organization a accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

The Internal Audit plays an important role as framed by the Local Government Ordinance in evaluating fiscal governance processes (PLGO section 115A). In Faisalabad the absence of an institution to undertake this process had exacerbated the Government's financial problems until 2004. The Provincial Government had set out a criterion for an Internal Auditor, which was formally notified in 2004. However the institution to undertake this task remains to be formed. If the institution had existed it would have provided guidance on sound financial management. It is essential that an institution is activated soonest so that it can provide the checks and balances necessary for sound financial management.

(Annex 3). Currently, the issue relates to the fact that clients from different towns must visit a

number of different departments to deposit the receipts.

If the concerned inspector or Collecting Officer (CO) is not available, the clients/citizens have

to revisit the department at a later point. Further, inspectors/COs usually hold on to the

receipts for more than one day, which is contrary to the rules. There is also a reconciliation

issue between the departments and the DAO, due to the large number of receipts deposited

against each head, which need to be further reconciled by each individual CO against their

allocated head.

Finally, for the same reason, the F&P department is unable to track and monitor receipts

against the targets set for each CO. By introducing the Receipts Facilitation Model, the clients

will only have to visit one Receipts Facilitation Centre (RFC) to deposit any of the receipts,

and would not have to visit each individual department to deposit funds. The proposed

system will greatly benefit the clients by providing them with a one window operation. Fewer

human resources will be required, as the RFC will require only one person to operate the

system. Furthermore, greater efficiencies will also be ensured by more timely reconciliation of

receipts by the departments with the DAO.

The amount of work carried out during the reforms process is commendable. However,

sustainability of the various reforms processes in the Financial Management sector is a key

challenge for the CDGF. The life of the DFID Project which has supported the development of

these new systems was four years and the implementation time was only three years, due to

an initial planning and diagnostic period.

In this limited time, it was difficult for the Project to fully ensure the sustainability of these

newly developed systems. However, keeping in view the City District Government's

commitment to ensuring that the key reforms initiatives are truly embedded and sustainable,

even without the technical support, a sustainability strategy was developed. The CDGF is of

course with the targets given in the sustainability strategy. In accordance with the

sustainability strategy the SPU has provided a check list to the Department, where they can

monitor their activities on a daily, weekly, monthly, quarterly and annual basis. The SPU, with

Project support, also facilitated the F&P department and the teams of the resource centres by

providing technical and operational training on the FMIS, also provided wireless telephone

sets to those resource centres where an internet connection was not available and helped the

F&P department in proper roll out of the systems to other departments.

The project also facilitated a consultation process with key stakeholders for FY 2008-2009 in

the months of August and September 2007. The submission of BM 8 forms against the BSF

forms of respective departments, reconciliation of accounts and the progress against

outstanding audit paras' are now regular features of the EDO conference, which is the

platform where all EDOs report the progress of their departments to the DCO on a fortnightly

basis.

Sustainability

39

Way Forward

Rule 76 Budget Rules 2003

The primary obligation of the Collecting Officers shall be to ensure that all the revenue due is claimed, realised and credited immediately into the Local Government fund under the proper receipt head”.

CONCLUSION

The CDGF identified the major gap that the local capacity of the staff, officers and elected

representatives was weak, and needed to be boosted to effectively plan and implement all the

proposed changes in Faisalabad's financial management practices. The Finance & Planning

department built the capacity of public sector managers and sub-ordinate staff to use credible

financial information for more informed decision-making, and promoting an understanding of

public financial management as a basic responsibility of all public officials at all levels.

Workshops involving District Council members were conducted to discuss the benefits of

locally-evolved planning which helped them to understand their roles in the preparation,

approval and implementation of the budget. However, there is a need that the process of

Continuous Professional Development (CPD) continues in strengthening and improving the

existing Financial Management systems in the District.

Faisalabad through reforms process, provided opportunities to the administration for an on-

line budgeting system which helped the finance & planning department to make the

budgeting process highly effective and efficient. The budgets are now prepared based on the

participation of stakeholders and performance measures have been instituted to ensure

transparency and accountability. Fund releases have been streamlined by setting criteria for

releases.

The administration is now able to monitor expenditures against approved allocations and

utilisation against releases at cost centres. More timely budget approvals and releases in

CDGF have also reduced the waiting time of suppliers and contractors for their payments.

Financial accounts are being reconciled in a timely manner with a reduced error rate allowing

local policy makers to make informed judgements and policies.

All the major local receipts have been analysed and proper tax assessments have been

carried out to identify the true potential of local revenue. This has resulted in setting realistic

budget targets and improved revenue collection. All District Government assets have been

identified and properly valued, making the assessment of fee much easier. The upward trend

in the District's local receipts, combined with more successful fiscal efforts to increase the

District Government's PFC award and effective expenditure management helped Faisalabad

in creating more fiscal space.

The decentralisation of revenue sources to the CDGF would have positive impacts and the

district would have more money available for the improvement of service delivery and

development projects to address poverty issues.

CDGF realised the need that the evidence based planning is extremely important to influence

the corporate policy towards reduction of poverty. Most of the projects identified and

executed prior to 2007-2008 by the local politicians were on the basis of political priorities.

The departments have now spatial maps available which depict clear patterns where the

major chunk of investment has gone during the past few years.

The fiscal space resulting from improved processes and prudent financial management

allowed the City District Government to target poverty, using evidence based planning which

40

Conclusion

“I believe if districts get their financial system right, there is no way that there is not going to be the right outcomes. Once they start using money better, their investments will start mattering more and once their investments start mattering more then the impacts will be much more visible.”

Suleman GhaniChairman

Planning & Development BoardGovernment of Punjab, Pakistan

built on the data and information being generated at all levels. An example of this is the District

Citizen Perception Survey, which influenced the allocations in the education and health

sectors.

The financial management reform initiatives have gradually changed the working culture of

the F&P department to some extent. This process required capacity development,

knowledge sharing and multiple consultation sessions to develop mutual understanding.

Experience suggests that developing a good relationship with the political regime and

establishment, has been key to driving the process of financial reforms.

41

Conclusion

Group photo of the master trainers for Planning & Budgeting training with the DCO Faisalabad (2005)

BLAN

K

42

Annex 1

Annex 1 A Case Study on Situation Analysis of CDGF’s Budget2004-05

Table A 1-1: Budget estimates 2004-2005 at a glance

Box case study

In January 2005, the Finance & Planning department conducted an analysis of its Budget 2004-2005. The evidence

proved that mistakes were made in preparing and finalizing the budget 2004-2005. The budget was then finalized

on the assumption Rs. 868 Million as opening balance in the District Account IV, but the actual opening balance was

Rs.653 Million. Receipts (Provincial and local) were inflated, such as grant in aid (unconditional grants from

provincial retained amount and non-development grants) were shown as receipts but there was no confirmation /

commitment from the Provincial Government in this regard. Secondly, the conditional grants of Rs.257 Million were

shown on the receipts side but were not mentioned on the expenditure side. Similarly, Rs.273 Million rupees was

shown as the target for the local receipts, but the maximum/ realistic potential was Rs.43 Million. Table A 1-1 gives a

picture that due to the above errors the district unknowingly approved a deficit budget of Rs. 820 Million.

The above analysis shows that great care needs to be taken while preparing the budget. It is an important financial

instrument and mistakes need to be avoided at all costs. This was a learning experience for the CDGF and to avoid

repetition of this scenario the CDGF planned to base its financial management practices in the future on more sound

facts and figures. The CDGF realised that it should not rely on the receipts which are not confirmed from the

Provincial Government and the targets for the collection of local receipts should be realistic.

Receipts Amount in Rupees

Situation Reflected in budget 2004-2005

Situation should have been reflected in budget 2004-2005

A Opening Balance on 01-07 653,000,000

a) Development 590,000,000

b) Non-Development 278,000,000

Total (A) 868,000,000 653,000,000

B Share out of Provincial Allocable Amount under P.F.C Award 3,588,612,000 3,588,612,000

Expected Conditional Grants from Provincial Retained Amount (2004-2005) 257,166,000 257,166,000

Unconditional Grants from Provincial Retained Amount 10,000,000 0

Foreign-Aided Project Grant (S.P.U) 7,008,065 7,008,065

Fedral Development Grants 28,414,000 28,414,000

Non-Development Grants 381,177,000 0

Own Receipts 273,139,000 43,000,000

Total (B) 4,545,516,065 3,924,200,065

Grant Total (A+B) 5,413,516,065 4,577,200,065

CURRENT EPENDITURE

A a) Current Expenditure 3,440,055,673 3,440,055,673

b) S.NE.2004-2005 28,853,217 28,853,217

Total (A) 3,468,908,890 3,468,908,890

B Annual Development Programme (New) 949,200,000 949,200,000

Annual Development Programme (Ongoing) 302,532,000 302,532,000

Schemes against Conditional Grants from Provincial Retained Amount(2004-2005) 0 257,166,000

C.C.B 419,167,000 419,167,000

Total (B) 1,670,899,000 1,928,065,000.00

Grant Total (A+B) 5,139,807,890 5,396,973,890

Closing Balance on 30-06-2005 273,708,175 -819,773,825

Annex 2

Annex 2 Comparison of PESRP Funding from 2004 to 2008

Figure A2-1: Expenditure trends from FY 2004 to FY 2006

43

Annex 2

Figure A2-2: Pro-poor resource allocation in FY 2007-08 (As of March 2008)

44

Annex 3 Receipt Facilitation Model

Figure A3-1: Proposed Model for the Collection of CDGF Local Receipts

DAO

Print Invoice & Receipt(Challan Form 32-A)

Collection Account Collection Account

Jhumra Town (RFC)

Deposit

Bank Statement

Send Information

I n fo r m at i o n S ha r i ng

On l i ne A c c e s s t o W e b B a s e d RM I S O nl in e A c c e ss t o W e b B a se d R M I S

Lyallpur Town (RFC)

Deposit

Bank Statement

Jinnah Town (RFC)

Deposit

Bank Statement

Iqbal Town (RFC)

Deposit

Bank Statement

Jaranwala Town (RFC)

Bank Statement

Deposit

Summandari Town (RFC)

Bank Statement

Deposit

Tandlianwala Town (RFC) Madina Town (RFC) NBP NBP

Deposit

Bank Statement Bank Statement

Deposit

NBP

NBP

NBP

NBP

NBP

NBP

I n te rn

a l

Tr a ns f

e r ( I

T )

I T

I T

I n t e r n a l T r a

ns fe r ( I T)

I T

I T

R e

m i t ta

nc

e s

Central Collection Account

State Bank of Pakistan

Info

rma

tio

n S

ha

rin

g

TI

IT

FMIS

RMIS

Annex 3

45

BIBLIOGRAPHY

Asian Development Bank, Department for International Development, and World Bank.

“Devolution in Pakistan-An Assessment and Recommendations for Action.” DFID, United

Kingdom.

Asian Development Bank, Department for International Development, and World Bank.

“Devolution in Pakistan, Annex 1-Recent History.” DFID, United Kingdom.

City District Government Faisalabad, “Selected Services in Faisalabad Perceptions and

Realities, A Citizen Focus Initiative”, June 2007. Faisalabad, Pakistan.

City District Government Faisalabad, 2007. Performance Report, 1st June 2007 to 30th

November 2007. Faisalabad, Pakistan.

City District Government Faisalabad, “Estimation of Receipts and Current Expenditure,

2007-2008.” Faisalabad, Pakistan.

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City District Government Faisalabad, “Estimation of Receipts and Current Expenditure,

2007-2008.” Faisalabad, Pakistan.

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Operational Plan, 2004-2009.” Faisalabad, Pakistan.

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Punjab Local Government Taxation Rules, 2001

Punjab Local Government Accounts Rules, 2001

Punjab Local Government Property Rules, 2003

Punjab Local Government Commercialization Rules, 2004

Punjab Local Government Fiscal Transfer Rules, 2004

Punjab Local Government Internal Audit Rules, 2004

DSP Policy Paper Local Revenue Generation and Tax Assignment

Bibliography

46

Communications


S.M. Khatib AlamNadir Ehsan

Humaira Khan

Building local government capacity for effective service delivery

for Good Governance

March 2008

5

Financial Management

March 2008


S.M. Khatib AlamImran Yousafzai

From Deficit to Surplus

for Good Governance

3

Rs

. M

illio

ns

-150

-100

-50

0

50

100

150

FY 2004-05 FY 2005-06 FY 2006-07 FY 2007-08 Projected FY 2008-09 Projected FY 2009-10 Projected

S.M. Khatib AlamJanet Gardener

Muhammad TariqMarch 2008


4

Union Council Profiling

For Pro-poor Planning & Investment

& Service Mapping

S.M. Khatib AlamKarin Tang

Mahmood AkhtarMarch 2008


1

Learning to embrace the challenge of good governance

Managing Changefor Improving Service Delivery

March 2008


2

Human Resource Management for Good Governance

Building local government capacity for effective service delivery

S. M. Khatib AlamDavid Alan Watson

Muhammad Shahid Alvi

Esteem(self and others)

Social Needs

Safety and Security

Basic Physiological Needs

Self-Actualization

Promising Change

Dr. Fareeha ZafarMarch 2008

8


Six Case Studies on Whole School Development

Measuring Change


Dr. Fareeha Zafar

the education research component

March 2008

9

GNIRAHS NOITAMROFNI

NOITATLUSNOC

REHTEGOT GNIDICED

REHTEGOT GNITCA

STSERETNI YTINUMMOC GNITROPPUS

S.M. Khatib AlamMuhammad TariqMehreen HosainMarch 2008


7

Citizen Engagementin Local Governance

Citizen Voice in Local Governance

March 2008

6


The Citizen Perception Survey

S.M. Khatib AlamSumara Khan

Mehreen Hosain

Public Private Partnershipin Education: from Policy to Implementation


Value Addition and Best Practices

March 2008

11

Beala Jamil

Dr. Umar SaifMuntazir Mehdi

Gul Hafeez KhokharMarch 2008


13

Enabling Joined-Up GovernmentIntroducing Geographic Information System

Management Information Systems


S.M. Khatib AlamNadir Ehsan

Kashif AbbasMarch 2008

12

Changing the dynamics of governance through ICTs

in Local GovernmentTeacher Training

in Whole School Development


Change and Transformation as a Reflective Process

March 2008

10

Brigid Smith

OUR OTHER PUBLICATIONS

All case studies including other reports can be downloaded from the web site: http://www.faisalabad.gov.pk

S.M. Khatib Alam - Project Manager and Overall Team Leader

Khatib Alam is an international management consultant with considerable experience of

leading large and diverse teams on multi-disciplinary, complex and challenging projects

around the world. He has a particular expertise in strategic management, organisational

change management, institutional strengthening, urban development and corporate

social investment. Since 2004, he has been the Overall International Team Leader on

the innovative DFID funded SDLGF project.

Imran Yousafzai - Development Consultant

Imran Yousafzai is Public Financial Management Specialist. He has the experience in

the multidisciplinary areas of Financial Management, such as public sector financial

management, governance, management accounting, procurement, internal auditing,

risk management and supply chain management. He has been working on the DFID

funded project SDLGF since May-2004.

ABOUT THE AUTHORS

DIS

TR

ICT

AC

CO

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TS

OFFIC

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DISTRICT FINANCIAL INFORMATION

(March 2008)

Management ConsultantsGHK International Ltd.526 Fulham Road, London, SW6 5NRUnited KingdomTel: +44 (0) 20 74718000Fax: +44 (0) 20 7736 0784E-mail: [email protected]: http://www.ghkint.comInternet: http://www.ghkpak.com

Strategic Policy Unit2nd Floor, DCO OfficeNear Iqbal Stadium, FaisalabadPakistanTel: +92 (0) 41 9201256Fax: +92 (0) 41 9201257E-mail: [email protected]: http://www.spu.com.pk

City District Government FaisalabadDCO Office, Near Iqbal Stadium

Faisalabad, Pakistan

Tel: +92 (0) 41 9200205Fax: +92 (0) 41 9200206

E-mail: [email protected]: http://www.faisalabad.gov.pk

Documents

Financial Management for Good Governance - From Deficit to Surplus