MM THE WORLD BANK S E C T O R S T U D I E S S E R IE S

I:d.r.l'A'MIC POLICY I YI:.'JCAT ION

I1'.RGY, MINING &

Information Systemsfor Government

1. NVIRONMENT

Fiscal ManagementI-INANCIAL SECTOR

FINANCIAL SECTOR

DEVELOPMENT

C.If, RITION &

ALl HASHIM

*jj1.U.ENT BILL ALLAN

I IIDEVELOP ENT

*.fal.. lAL PROTECTION

TRANSPORTATION, WATER

& URBAN DEVELOPMENTPoverty Reduction & Economic Management

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S E C T O R S T U D I E S S E R I E S

Information Systemsfor GovernmentFiscal Management

ALI HASHIMSENIOR INFORMATICS SPECIALISTTHE WORLD BANK

BILL ALLANSENIOR ECONOMISTINTERNATIONAL MONETARY FUND

Copyright () 1999The International Bank for Reconstructionand Development / THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printing November 1998

The findings, interpretations, and conclusions expressed in this paper are entirely those of the authorsand should not be attributed in any manner to the World Bank, to its affiliated organizations, or tomembers of its Board of Executive Directors or the countries they represent. The World Bank does notguarantee the accuracy of the data included in this publication and accepts no responsibility for anyconsequence of their use. The boundaries, colors, denominations, and other information shown on anymap in this volume do not imply on the part of the World Bank Group any judgment on the legal status ofany territory or the endorsement or acceptance of such boundaries.

The material in this publication is copyrighted. Requests for permission to reproduce portions of itshould be sent to the Office of the Publisher at the address shown in the copyright notice above. TheWorld Bank encourages dissemination of its work and will normally give permission promptly and, whenthe reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions forclassroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive,Danvers, Massachusetts 01923, U.S.A.

Ali Hashim is Senior Informatics Specialist in the Public Sector and Institutional Reform Cluster, which ispart of the Poverty Reduction and Economic Management Unit in the Europe and Central Asia Region,the World Bank.

Bill Allan is Senior Economist, Fiscal Affairs Department, the International Monetary Fund.

Library of Congress Cataloging-in-Publication Data

Hashim, Ali, 1941-Information systems for government fiscal management / Ali Hashim,

Bill Allan.p. cm. - (Sector studies series)

Includes bibliographical references.ISBN 0-8213-4398-X1. Finance, Public-Developing countries-Data processing.

2. Finance, Public-Data processing. 3. Finance, Public-Europe,Eastern-Data processing. 4. Finance, Public-Asia, Central-Dataprocessing. 5. Management information systems. 1. Allan, Bill.II. World Bank. III. Title. IV. Series.HJ1620.H37 1998352.4 238'091724- dc21 98-32006

CIP

Contents

Foreword iv

Abstract v

Acknowledgments vi

I. Introduction 1

II. Characteristics of Integrated Systems 3

III. GFM Functional Processes and Information Systems Architecture 5

IV. Systems for Government Budgeting and Accounting 9Overall Regulatory Framework 9Functional Processes for Budgeting and Accounting 11 Cash Management, Budget Execution and Accounting 13Information Systems for Budget Execution, Accounting and Fiscal Reporting-The Treasury Ledger System 14

Alternative Institutional Arrangements For Expenditure Processing 20

V. Technology Architecture 25Application-Specific Factors 25Requirement for a Multi-tiered Network 28Systems Portability and Scalability 28Off-the-Shelf Application Software 28

VI. Critical Success Factors 30Government Commitment and Management Support 30Inter-Agency Coordination 30Organizational Capacity and Skills 31Setting Priorities for Systems Implementation 31Formal Project Planning 31Systems and Data Administration 31Local Technical Support 32Management of Change 32

Annex I-Sample Information Systems Architectures for GovernmentFiscal Management -Pakistan and Turkey 33

Annex II-Activities and Tasks Associated with the Implementation of theTreasury Ledger System 36

Notes 39

References 40

iii

Foreword

The ECA Region PREM projects portfolio contains a government fiscal management in several countries innumber of projects to set up/ modernize institutional the ECA region and elsewhere. It presents a method-structures to manage public finances in member coun- ology that could be useful in developing an integratedtries as they move from centrally planned to market network of systems that could support the informationeconomies. Among these are the institutions and sys- requirements for economic management. Of particulartems for budget preparation, budget execution, importance is the concept of developing an informationaccounting, fiscal reporting, customs administration, systems architecture that provides an overview of thetaxation, debt and cash management, and auditing. systems network required to support fiscal manage-Automated information systems underpin the busi- ment and identifies the major component modulesness processes associated with these functions and and the information linkages between these modules.offer unique opportunities to public sector managers to This information architecture can also serve as a roadprocess business transactions efficiently, apply neces- map for systems implementation.sary controls and simultaneously gather and report Some of the concepts presented in this paper havetimely and accurate information required for economic been incorporated into the Public Expendituremanagement. Implementation of information systems Management Handbook published by the PREMtherefore, constitutes a crucial element of many of the Network center inJune 1998. This paper gives a fullerprojects designed to improve institutions and systems and more complete treatment of these concepts andfor economic management. could be helpful to task managers and country officials

This paper is based on the authors' experience in in designing and implementing information systems fordesigning and implementing Bank/IMF projects for government fiscal management.setting up institutions and information systems for

Pradeep K. MitraDirector

Poverty Reduction andEconomic Management

October 1, 1998 Europe and Central Asia Region

iv

Abstract

Ready access to accurate and timely information for stantial reforms to the underlying management processdecision-making, is a paramount requirement for pub- are required, for systems to be implemented piecemeallic sector managers to function effectively in the current without significant reform and with little attentionpolitical environment, which is characterized by paid to critical flows of information between systemincreased scrutiny of governmental actions, account- components. The end result is often a set of partialability and the ability to exercise financial controls. information systems with overlapping and/or conflict-Computer-based information systems provide public ing functionality, and a resulting lack of integrity in thesector managers a set of tools to access reliable and overall fiscal databases.timely information for decision-making in an environ- To assist in the process of designing governmentment that requires consolidation of large amounts of fiscal management systems, this paper starts with adata across dispersed locations. In fact, in the absence discussion of the essential characteristics of integratedof some degree of automation, the basic data required systems giving some emphasis to the need to identifyfor economic management may simply not be available core and non core elements of the overall GFM systemswith the required degree of timeliness and accuracy network. It describes a methodology that could assist inFurthermore, since many of the functional processes in the design of an integrated network of systems. It con-the fiscal management area are repetitive in nature and tinues with a brief discussion of the key functionalfollow a prescribed set of rules, computer-based sys- processes of government fiscal management and thetems present public sector managers with unique main characteristics of the information systemsopportunities to process business transactions effi- required to support these processes. It uses the infor-ciently, apply necessary controls, and simultaneously mation on GFM functional processes and systems togather and report timely and accurate information develop a framework that identifies the various ele-required for decision making. ments of a GFM information systems network and

Despite its advantages, the implementation of infor- describes critical inter-linkages. The paper then dis-mation systems for the automation of financial man- cusses in some detail the functional processes, infor-agement processes in the public sector poses a number mation flows and information systems for budget exe-of major design and implementation challenges: The cution, accounting and fiscal reporting in view of theirinvestments required are sizable and can easily span central place in the financial management process. Theseveral years. Implementation of these systems gener- paper closes with a discussion of some of the factorsally requires substantial reform of existing institution- that determine the choice of technology for the com-al arrangements. Multiple information flows among ponent modules of the GFM systems network and thedifferent elements of the system have to be closely prerequisites for successful implementation of inte-integrated to achieve the full advantages of computer- grated financial management systems.ization. It is only too common, particularly where sub-

v

Acknowledgments

The Authors are grateful to a number of colleagues from the World Bank and elsewhere for helpful commentson earlier drafts of this paper. In particular we would like to thank Peter Dean, Jit Gill, Malcolm Holmes, FritzKonigshofer, Hana Polackova, Alexey Proskuryakov, Rino Schiavo-Campo, and David Wood for their comments.

vi

1. Introduction

As countries that were part of the former Soviet Union and reclassifying it in a format or classification schemeand Eastern Europe move from centrally planned to appropriate for management decision-making can bemarket economies, and other developing countries extremely time-consuming and labor-intensive.proceed to open up their economies and free them In such an environment, in the absence of somefrom regulatory controls, public sector managers in degree of automation, the basic data required for eco-these countries are required to perform a new set of nomic managemnent simply may not be available withfunctions. These include such functions as: the required degree of timeliness and accuracy Com-* designing appropriate fiscal and monetary respons- puter-based information systems provide public sector

es to changing macroeconomic conditions; managers a set of tools to access reliable and timely* ensuring transparency and accountability in the information for decision-making in an environment

deployment and use of public resources; that requires consolidation of large amounts of data* improving the effectiveness and efficiency of pub- across dispersed locations. Thus, such systems sup-

lic expenditure programs; port rapid compilation and consolidation of data from* mobilizing domestic resources and managing exter- across a countrywide network of treasury or tax offices

nal resources (foreign aid and loans); and at the central ministry of finance. Data in the system* decentralizing operations while maintaining ade- databases can be presented in a variety of formats in

quate controls. accordance with management requirements.In the new environment, increased scrutiny of gov- Furthermore, many of the functional processes in

ernmental actions, heightened accountability and the the fiscal management area are repetitive in nature andability to exercise financial controls are not only domes- follow a prescribed set of rules. For example, the rulestic requirements but are also important factors in for processing expenditures or for calculating taxesdetermining international creditworthiness by multina- and duties can be explicitly stated. In such cases com-tional agencies and the international investment com- puter-based systems present public sector managersmunity in general in the context of global investment with unique opportunities to process business trans-choices. Ready access to accurate and timely informa- actions efficiently, apply necessary controls, and simul-tion for decision-making is a paramount requirement to taneously gather timely and accurate informationfunction effectively in this environment. required for decision-making. Two aspects of this

The information used by public sector managers is enhanced efficiency are particularly important:generated as the agencies responsible for government (a) Computer-based information systems make it pos-financial management processes perform their func- sible to integrate transaction classification andtions, such as budget preparation, execution of bud- posting with transaction processing. This meansgetary expenditures, collection of revenues, etc. Since that as a transaction is processed, e.g. as a paymentmany of these functional processes require processing is made, it can be simultaneously classified anda large number of transactions in limited periods of posted to the relevant account. This ensures that alltime across a countrywide network of offices, the transaction data are promptly and correctly includ-process of retrieving information from manual records' ed in system databases.

1

2 Information Systemsfor Government Fiscal Management

(b) Use of computer-based systems facilitates auto- overall fiscal databases. For the design and implemen-mation of many controls and procedures. As a tation of effective government fiscal management infor-transaction is processed, the system can apply the mation systems, it is essential therefore, that (a)necessary controls, e.g. ensure that a proper budget required reforms of the underlying financial manage-allocatiLon exists prior to making a commitment ment processes be clearly agreed upon and understoodor approving a payment. Manual intervention as the basis for systems design; (b) functional and tech-is required only in cases which require an excep- nical specifications for system design be based on thesetion to the procedures. In these cases the system processes, and (c) clear guidelines be provided for inte-would keep an appropriate audit trail that would grating all of the subsystems needed to supportinclude details regarding the authorization for the Government Fiscal Management (GFM)exception. To assist in the process of designing governmentDespite its advantages, implementation of infor- fiscal management systems, this paper starts with a

mation systems for automating financial management discussion of the essential characteristics of integratedprocesses in the public sector poses a number of major systems, giving some emphasis to the need to identifydesign ancl implementation challenges: The invest- core and non core elements of the overall GFM systemsments required are very sizable and can easily span network. It describes a methodology that could assist inseveral years. Investments in such systems in moderate- the design of an integrated network of systems. It con-sized countries could easily range from $10-50 million tinues with a brief discussion of the key functionalover a five-year period. Implementation of these sys- processes of government fiscal management and thetems generally requires substantial reform in existing main characteristics of the information systems re-institutional arrangements. Multiple information flows quired to support these processes. It uses the informa-among different elements of the system have to be tion on GFM functional processes and systems toclosely integrated to achieve the full advantages of develop a framework that identifies the various ele-computerization. It is vital that the challenges men- ments of a GFM information systems network andtioned above be tackled effectively in systems design describes critical inter linkages. The paper then dis-and implementation in order to realize the benefits of cusses in some detail the functional processes, infor-improved efficiency and better fiscal decision-making. mation flows and information systems for budget exe-

It is only too common, particularly where sub- cution, accounting, and fiscal reporting in view of theirstantial reforms to the underlying management process central place in the financial management process. Itare required, for systems to be implemented piece- closes with a discussion of some of the factors thatmeal-without significant reform and with little atten- determine the choice of technology for the compo-tion paid to critical flows of information between sys- nent modules of the GFM systems network and thetem components. Often, the end result is a set of partial pre-requisites for successful implementation of inte-information systems with overlapping and/or conflict- grated financial management systems.ing functionality, and a resulting lack of integrity in the

11. Characteristics of Integrated Systems

Integrated systems are not monolithic. For practical trols). Adherence to this design principle eliminatessystem implementation, it is essential that system ele- duplicative data gathering and, more importantly,ments be developed in a modular way These modules enables all agencies responsible for specific GFM func-are integrated in the sense that they can exchange data tions to work with the same set of data, thereby elimi-and there is a single secure point of entry for commonly nating risks of data inconsistencies, which areused data. Modules in an integrated system can be dis- inevitable in separately gathered data.tinguished as core modules and non-core modules. The first step towards achieving integration is toCore modules are those that are essential to the opera- develop a framework that provides an overview of thetion of the system and which define standards for data systems network required to support GFM. This frame-exchange for other system components. Non-core work would address questions such as:modules perform an ancillary function and should pro- * What are the different information systems mod-vide data in the form required by the core system or use ules that are required to support GFM functionaldata in a way that be reconciled with core system data. processes?;As will be discussed in more detail below, the General * What is the scope, scale, and type of a particularLedger Systeml (GLS), which maintains the database systems component?; andfor GFM, and accounts payable and receivable-the * How do these systems modules interrelate in termsmain transaction-processing systems-would gener- of their information flows?ally be considered to be the core of most GFM systems. This framework is developed by analyzing the basicOther systems, such as debt management or tax and functional processes associated with GFM, the overallcustoms administration, though of vital importance to regulatory framework that underpins these processes,GFM, must be seen as supporting the core system by their information requirements, functional responsi-adhering to the data exchange standards of the core and bilities of agencies commonly responsible for thereconciling data and reports with core data and reports. processes, information flows between the processes, the

A basic underlying principle for the design of inte- nature, volume, and frequency of these flows, and thegrated systems calls for them to be structured along data characteristics of the information used and creat-functional rather than organizational lines. A number ed by the processes.of organizational units and agencies are closely The framework would consist of:involved with different aspects of GFM and need to * An Information Systems Architecture that identifiesshare information among themselves. A particular the major component modules of the systems net-GFM system module should provide support to a func- work required to support GFM, the type of infor-tional area across all these organizations. This approach mation maintained by each systems module andsupports the creation of systems and databases in which the information flows between various modules;the primary responsibility for the timely provision of a andparticular subset of data resides with the organization * A Technology Architecture that identifies the appro-responsible for that function. However, data in the sys- priate technology choices for the hardware andtem data bases should be accessible by all other relevant software required to set up the various modules.organizations (subject to appropriate security con- Once the initial framework has been set up and the

3

4 Information Systems for Govenment Fiscal Management

prerequisites and criteria for integration have been plan, the actual implementation and integration of sys-spelled out and incorporated into the implementation tems modules is a goal that can be phased in over time.

Il1. GFM Functional Processes andInformation Systems Architecture

This section describes in brief the major functional work consist of modules to support each of the majorprocesses associated with government fiscal manage- functional processes associated with GFM.ment and presents an information systems architecture Examples of information systems architecturesnecessary to support these processes. This informa- developed for GFM systems in Turkey and Pakistan astion systems architecture shows the core elements of a part of Bank-financed projects are given in Annex 1. ItGFM systems network required to support GFM func- may be noted that although the organizational arrange-tional processes and the main information flows ments and functional responsibilities in the two casesbetween elements. The functional processes associated are quite different, the basic information systems mod-with government fiscal management and the informa- ules and the critical information flows between mod-tion requirements for these processes have been docu- ules are the same. In these projects, the development ofmented by Davies, Hashim and Talero (1993), Hashim information systems architectures for fiscal manage-and Allan (1994) and in other World Bank publications ment systems highlighted which elements of the GFM(see References). A brief description of the major func- systems network the projects were targeting and thetional processes and the associated information systems critical linkages that would need to be developed withfor GFM is given in Table 1. The information systems the other network elements. This exercise also pointedarchitecture for GFM is shown in Figure 1. out how the information systems modules being devel-

The information systems architecture for GFM has oped as part of separate projects fitted in and the majorbeen derived by analyzing data from a number of coun- gaps in the GFM network that would need to betries on fiscal management processes and the infor- addressed as part of subsequent projects in order tomation systems required to support these processes. make available to public sector managers the informa-The Y axis lists the main functional processes associ- tion required for economic management.ated with GFM and the X axis lists the organizations In an actual systems development exercise, eachnormally responsible for these processes. Each box in box presented in the information systems architecturethis diagram lies at the intersection of the functional diagram will need to be analyzed further in terms of theprocess and the organization(s) normally associated processes it covers and the information flows associat-with the process and may be seen as an information ed with the processes and linkages with other systemssupport system for that process. Each such system to determine the characteristics of these modules. Incould in practice comprise a number of subsystems. view of their central place in the fiscal managementThe main information flows between the systems mod- process, the core elements of the GFM systems net-ules are also shown. As shown in the diagram, the work, namely those involved in the processes of gov-main elements of the GFM information systems net- ernment budgeting and accounting, are analyzed in

the next section of this paper.

5

6 Infornation Systemsfor Government Fiscal Management

Table 1: Government Fiscal Management Processes and Information Systems

Government Fiscal Management Processes Infonnation Systems Support

Macro Economic Forecasting Information Systems to Support Macro Economic Forecasting

This process assists expenditure and resource planning This group of systems assist the MOF with macro fiscal forecasting and devel-by developing a macroeconomic framework linking the opment of the macroeconomic framework. This is in turn used by the MOF togrowth of national income, savings, investment and bal- advise cabinet on aggregate budget parameters and guidelines for budget agen-ance of payments to public expenditures and revenues. cies to submits budget estimates. These systems require data from external eco-The process helps in the development of: aggregates of nomic databases, and the assumptions regarding GNP, inflation rates, and thethe government budget, notably revenues, expenditures, central government deficit. In addition they require information on programsand the overall fiscal deficit and its financing; the balance and projects the government intends to implement over the period of thebetween the capital and recurrent components of the MTEF, data on estimates of tax and non-tax revenues, data on domestic andbudget; composition of expenditures by the main sector external borrowings, for example, maintained by other components of thespending agencies; revenue forecasts consistent with GFM systems network. Manpower component, the maintenance, and othermacro-economa-ic assumptions; forecasts of non-tax rev- operating expenses.enues based on macroeconomic projections; estimates ofresources available from domestic and external borrow-ings; projections of current expenditure.

Budget Preparation Information Systems to Assist in Budget Preparation and Approval

The process of budget preparation starts with the devel- The Budget preparation systems receive details of ongoing and planned pro-opment of a budget circular indicating economic grams and projects from the various line agencies, consoLidate them, and pro-prospects, broad policy objectives, bow the budget is duce from them the documents that form the basis of the negotiations betweenexpected to attain them, and sectoral allocations/ceilings the line agencies and central agencies (MOF). After finalization of the budgetconsistent with the macroeconomic framework. The by cabinet, the systems produce the approved budget estimates. The systemsnext step is the preparation and analysis of line agency record and maintain the budgetary proposals and income estimates of all gov-expenditure proposals and revenue forecasts and their emient agencies and record any changes during the budget preparation,consolidation into an annual budget document after a approval and amendment processes. To assist in the evaluation of the budgetseries of discussions at cabinet level, between line min- proposals the system should be able to access and generate the baseline data onistries, the MOF, the budgetary committees of parlia- the manpower component, the maintenance, and other operating expenses fromment and approval by the legislature. These discussions the relevant past-year databases. Examination of the capital expendituresfocus on how the budget proposals would meet the pol- requires data on the status (physical and financial) of government-approved pro-icy objectives cutlined in the budget circular, on inter-se jects, (both locally and foreign-funded). The budget preparation systems needpriorities of the various proposals, the validity of the re- to be supplemented with tools (such as those for cost-benefit analysis, evalua-source requirements contained in these proposals and tion, and performance measurement) that assist the sector and core agencies inhow they can best be accommodated in the overall bud- deciding between alternative program proposals.getary envelope.

Budget Execution, Accounting, and Fiscal Reporting Information Systemsfor Budget Execution, Accounting and Fiscal Reporting

This set of processes covers the functions associated These systems are the centerpiece of the GFM systems network, the primarywith implementing the budget, including the procure- repository of financial data, and serve as the basis of the governmenes Financialment of goods and services in accordance with budget Management Information System (FMIS). These systems are used to performestimates, the recording and accounting of all govern- the processes associated with budget execution, monitoring and control toment transact-ions, and development of periodic reports obtain the status of actual expenditures on ongoing projects. These systems alsoto monitor the overall flow of spending or use of appro- monitor and evaluate the overall budget implementation processes and producepriations, over the course of the year, highlighting major the necessary fiscal reports. In addition, these systems would provide usefuldeviations froim the planned budget and suggesting cor- financial information to the line ministries, and spending units (in their respec-rective measures. tive areas) to enable them to better manage their work programs.

Systems support is focused on four main systems (1) budget and warrant con-trol; (2) accounts payable; (3) accounts receivable; and (4) the treasury gener-al ledger system (TLS). Together they constitute the government's CoreAccounting System. The first of these is concerned with maintaining data onspending authority. These systems maintain data on approved budgeted appro-priations (both capital and recurrent), sources of financing for programs andprojects, budget transfers, and supplementary allocations, fund releases (war-rants) against budgetary allocations over the course of the year. The second andthird group of systems are used to process transactions electronically as theyoccur, and record data on commitments and actual expenditures against bud-geted allocations. The TLS/FLS is used for compilation of summary records forcontrol and analysis.

GFM Functional Processes and Information Systems Architecture 7

Table 1: Government Fiscal Management Processes and Information Systems (Continued)

Government Fiscal Management Processes Information Systems Support

Cash Managemnent Cash Management System

This includes the processes of developing agency and The cash management system assists Government to maintain an up-to-datecentral cash flow forecasts, the release of funds to spend- picture of the governmenfs liquidity position and cash requirements. It obtainsing agencies, the monitoring of cash flows and expected information on actual agency expenditures and cash balances in governmentcash requirements, the issue and redemption of gov- (including agency) accounts from the general ledger. Revenue inflows, bor-ernment securities for financing government programs. rowing, loan disbursements, treasury bills, government bonds, and cash deposit

maturities are obtained either from the general ledger or from the specific sys-tems for these areas, for example, the debt management system. Using this infor-mation, the government can decide on (a) budget ceilings and fund releases toline agencies; and (b) the timing of the issues and redemptions of governmentsecurities to provide short-term financing for shortfalls.

Debt Management Debt Management System

This process defines the tasks associated with mainte- These systems maintain information on public domestic and external borrow-nance of records on all contracted public debt on an ings. This includes information contained in loan documents and transactionsindividual loan basis and classified according to source and issues of government securities. In addition to accounting information,and type of loan. This process also assists economic and these systems also provide important information required in the formulationpolicy analysis by determining, for example, the debt of fiscal policy, such as forecasts of drawdown and debt-servicing liabilities, andimplications of different fiscal and deficit financing poli- debt implications of various fiscal and deficit financing policies. Paymentscies by preparing projections of debt service commit- related to government borrowings are camed out by the central system basedments under existing and anticipated contracts. on the data in the debt management system. Loan receipts recorded in gov-

ernment accounts are processed by the central accounting system and then usedto update the debt database maintained by the debt management system.

Revenue Administration Systems for Revenue Administration

The process deals with formulation and administration This group of systems assist the government in the processes associated with for-of tax policies and covers the actual levy and collection mulating tax and tariff policies and the subsequent collection of tax and non taxof revenues including taxes and duties as laid down in revenue. A number of separate systems are involved in this group: for example,these policies, and the valuation and collection of non those supporting the administration and collection of income taxes, customstax revenues, such as stamp duties, user fees, charges for duties or VAT, and those supporting the collection of various types of non-taxservices etc. revenues, such as stamp duties. The revenue administration systems provide

summary information on revenue collections to the Core Accounting Systemsas shown in the diagram. Revenues collected by the tax and customs adminis-tration departments would be recorded at an aggregate level in the FLS, andwould be reconciled with deposits made in the banking system.

Personnel Administration Systems to Assist in Fiscal Aspects of Personnel Management

This covers the activities associated with the develop- The aspects of personnel management which are relevant from the point of viewment and maintenance of government's human resource of GFM are the processes associated with post management and complementpolicies including manpower planning, complement control and with payroll and pension payments. The corresponding systemscontrol, civil service pay and pension policies, the fiscal modules therefore form important elements in the GFM network of informa-impact of these policies and their administration. tion systems as shown in the diagram. The payroll, pensions and employee

advances systems periodically post summaries to the central system.

Auditing Systems to Support Auditing

The process deals with the analysis and scrutiny of pub- Auditing takes place at two levels; internal audit at line ministries during thelic, financial, and other transactions to ensure the com- course of the FY and external audit by the auditor general through randompliance with government policies and procedures and to checks and on the final accounts for the FY. These systems assist the internalensure cost-effective use of public funds in accordance and external audit agencies in their functions.with overall government priorities.

co

Figure 1: Information Systems Architecture or Governmnt Fisca Management i

Function Central MOF Planning Ministry of Finance Regional Government Spending Revenue Coll. Aaencies Paying/Receiving AuditBank Debt Mgmt Organ. Budget Management Cash Mgmt Accounting Treasury Units Agencies Taxes Customs Banks Org.

Macro Legend - -t Arrows show information flows. Full lines indic eEor casti g X t uems fon MacZ omic electronic t flows, dofted lines, paper based flowForecasting o .Sr-C fol ..o....eo ....et .......

7 i"| Kev Information Svstems Modules for GFM

Macro-Economic Framework

Dafta on i~AO.~~ iU previogs B Godd eli syeeWand cu@rent Fstems c Peed,backyear | Budget Guideises B tGuidelineg - fo !u - fro aditactualsi - to variouss

4 … . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~areasBudget Budget Proposals

Preparation 6. tto P rep ara tio n s , .--.---------------_ ................ :: PN fon j. | | + t~- --- ------ -----Investment Current Revenue Estimates Badgeted Figures

Budget -- -- - - - -- - --.- - -- - - - - --

Investment Current Budget Appropriafions -Approved Bills

,~~~~~~~~~ .No. ...is..li.tso s S . Aepdnc |y

Budget I Systems for . s dgt Appr. C* Core Government . P\__aents EExecution, Acutg Accounting .- - = and . N . Eo editare AocountlACC t4 1and Fiscal EI an information on agency Bank RlRconcili ition i M

of. of Borrowings- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -ri graec s ifra tind p o nj agencyReporting ed Public Debt Interest - -srams and profects R R

A RL

Cash Agency Cash Requirements Forecasts _ . ash |Cash /ExBend tilur a ' I Bank IManagemenl MOgmt Cash allocations (w r ants) to line agencies (TSA) A

Borrowing Requirements stem s LBanks

Debt :Debt ManagementManagemenl XiSvkt . . , I

Doetc| Foreign |1 ,1 :::Debt Service Payments/Loan receipts Tax: stom

Revenue Admffs* Ad*ris.Admin. Sy$ystums

Personnel _ I t I SysteI 'Managemeni Authorized posts Patt Post control

A u d it -- - - - -- - - - -- - - - ---- - -- - - - -- - - - --- - - - - + - - - - - -.- - - --- -- - - - -- - - - - - - - - - - - - -- - -- - - -- - - -- - - -- - -

IV. Systems for Government Budgetingand Accounting

The objectives of a well-performing budget resource needs to be in place-possibly reviewed and modified-allocation and management system (Public Expen- before productive work can commence on the design ofditure Management Handbook-World Bank, 1998) computer systems to supportfiscal management. A fullare to: discussion of the overall regulatory framework is out-* control aggregate spending and the deficit; side the scope of this paper. However, this paper does* facilitate strategic prioritization of expenditures describe the basic elements of this framework to high-

across policies, programs, and projects for alloca- light control factors that should be incorporated intotive efficiency and equity; and the design of component system modules.

* encourage better use of budgeted resources toachieve outcomes and produce outputs at the low- Control Structureest possible cost.Management of these three objectives is integrated Many of the basic controls that are to be applied to the

through a perspective that goes beyond the annual bud- use of government funds are derived from a legislativeget cycle. This is achieved by linking policy, planning framework, very often with basic principles laid downand budgeting in a medium-term expenditure frame- in financial provisions in the constitution and lawswork at both the overall government and sectoral levels. related to the management of public finances. Controls

GFM systems provide decision-makers and public are defined at several levels:sector managers with a set of tools to support these * Formal legislation and regulation that control theobjectives. The architecture of the information sys- structure of funds and appropriations, and admin-tems network is determined by the basic functional istrative practices.processes that public sector managers employ to * Financial legislation and administrative regula-achieve these objectives and the overall regulatory tions that specify the detailed requirements forframework that underpins these processes. We there- control to ensure that transactions are properlyfore start with a discussion of these aspects. authorized and documented and that appropriation

authority is not exceeded.Within most legislative frameworks, receipts of

Overall Regulatory Framework governments are paid into a fund (which will herein bereferred to as the consolidated fund (CF)2, and any

The overall regulatory framework for operating the expenditure from the fund must be formally appropri-various component modules of the system network ated by the legislature.consists of the following elements: Regulations, administrative instructions, and* the control structure; administrative practices specify the standards and pro-* the accounts classification; and cedures to be followed for transaction processing.* the reporting requirements. These include:

The information systems will need to incorporate * document and transaction level controls to ensurefeatures to ensure that they abide by the requirements correct processing, full and correct recording, andof this framework. Therefore, the regulatoryframework audit trails;

9

10 Informationq Systernsfor Government Fiscal Management

* access controls to ensure that only authorized per- * Integrating planning, budgeting and accounting;sonnel can-record, change, or report information; * Capturing data at the point of entry throughoutand the government; and

* overall system controls to ensure that the system * Compiling budget allocations and program andembodies established processing standards. project costs within and across various govern-Formal regulatory frameworks in western indus- ment agencies.

trialized economies have generally evolved at a time The design of the accounts classification struc-when the predominant interest was to ensure that the ture should, therefore, be determined by the informa-executive arm of government used public funds prop- tion requirements of each of the above objectives. Inerly and within the limits authorized by the legislature. principle, this structure should accommodate the fol-Legislative developments have not always kept pace lowing elements: fund, program, organization unit,with the needs of modern economies, however, where project, and object of expenditure classifications.the concerns of fiscal management are much broader. Program codes should identify program elements andIn particular, the roles of the budget in macroeconomic supplements down to the basic program decisionmanagement and the efficient allocation of resources to units. Similarly, organization codes should identifymeet social and economic objectives are as important as budget and cost centers. Projects can be related eitherthe traditionial compliance role. Defining such needs to organizations or programs, but should be furtherand designinig control systems to meet them is now an sub-classified independently of these structures inessential element of the design of GFM systems. terms of sub-projects, jobs, and functions. The object

From a systems design point of view, the macro- of expenditure classification should serve both admin-economic mnanagement objective has a direct bearing istrative and economic classifications and be dividedon the definition of the control structure. It is necessary, into sub-categories for control purposes. It shouldhowever, to look beyond controls specified at a leg- also be consistent with economic classification codesislative level and the traditional compliance role of the used for generating national accounts or governmentaccounting system. For fiscal management, the overall finance statistics (GFS).deficit of the general government and the way in whichthis deficit is financed are crucial variables. It is vital Reporting Specificationsthat all elements of the budget and accounting infor-mation system be designed to produce this information Governments must specify reporting requirementsin a timely way to facilitate the formulation and exe- and objectives in two areas:cution of macroeconomic policy * external reporting-to provide information to the

The resource allocation aspects of fiscal manage- legislature and the public, as well as other coun-ment are reflected in systems design primarily through tries, international organizations, overseas invest-appropriate budget and accounts classification and ors, and financial markets; andreporting specifications, which are discussed in the * internal management reporting-for governmentfollowing sections. policy makers and managers.

In general, the broad requirements for externalAccounts Classification reporting are specified in the budget legislation and

detailed requirements are given in regulations, instruc-The accounts classification code structure is a method- tions, and administrative practice (e.g., report formatsology for consistently recording each financial trans- actually in use).action for purposes of expenditure control, costing, From the point of view of resource allocation,and economic and statistical analysis. A standard, gov- increasing emphasis has been given in recent years toernment-wi(le classification code structure needs to be improving reporting standards by linking financialset up to provide a consistent basis for: and performance infornation and giving a clearer per-* Consolidating government-wide financial infor- spective on resource use by using accrual-based reports

mation; in addition to the usual cash-based government ac-

Systemsfor Govemnment Budgeting and Accounting 11

counts. Development of such report formats is, in gen- based on a formal macroeconomic framework paper),eral, occurring mainly in industrialized market and giving the parameters within which the budgeteconomies. Nonetheless, it is suggested that the design for each ministry is to be prepared. The circular mayof GFM systems in any country should take into give specific ceilings for expenditure by each agencyaccount, to the extent possible, the likely development and program. The sector agencies respond with theirof such report formats in the future. budget proposals. As indicated in Figure 2, the financial

information in these proposals should be categorized inthe following ways:

Functional Processes for Budgeting and Accounting * by type of expenditure-as per budget classifica-tion and, at the broadest level, distinguishing recur-

The functional processes carried out by the central rent from capital expenditures; andgovernment3 in the areas of budgeting and account- * according to whether they are continuations ofing-and linkages to the control framework-are illus- programs approved under existing policy or newtrated in Figure 2. The main elements are briefly project proposals.described below. As indicated in Figure 2, the func- Since budget requests generally exceed resources,tional processes of budgeting and accounting can be negotiations at the technical level between central andcategorized as those carried out by the central agencies sector agency staff are required to review costings forand those carried out by the spending ministries and existing programs and new project proposals. Cabinetagencies. Those of the former group are most directly level (or cabinet committee level) discussions are oftenlinked to the control framework-indeed, one of the required to set intersectoral priorities and prioritiesmain functions of the central agencies (particularly among the program and project proposals to ensurethe ministry of finance (MOF)) is to ensure that the that the selected proposals can be funded within thecontrol framework is properly applied throughout gov- macroeconomic framework. The framework shouldernment. The functional processes cover two interre- be updated frequently, particularly during budget ini-lated areas: macro fiscal forecasting, budget preparation tiation and finalization, as well as for subsequentand approval; and budget execution, cash manage- reviews during the year. As a result of these discussions,ment; and accounting. The first set of processes sup- a draft budget document is prepared.ports the objectives of setting fiscal policy and strategic After preparation by the executive branch, the leg-priorities. The second set of processes supports the islature reviews the estimates and approves the budget.objective of optimizing the use of budgeted resources The duration of legislative consideration and the degreeand ensuring accountability. of change that can be introduced at this stage vary

considerably among countries.Macroeconomic Forecasting, Budget Preparation This approved budget becomes the legal basis ofand Approval the PSWP to be executed by the sectoral ministries. It

gives estimates of expected revenue and borrowingFigure 2 shows the budget preparation processes car- and the amount of expenditure-by budget andried out by the central agencies in the column titled accounts classification-authorized to be spent on"Budget and Cash Management Processes." The approved programs and projects. It usually containsprocesses that take place at sector agencies which deal data on past expenditures. It may also contain descrip-with the preparation of estimates for programs and tions of programs and projects and data on expectedprojects that constitute the sectoral work programs performance expressed in terms of outputs and/or out-(public sector work program or PSWP) are shown in comes expected from program outlays during the year.the column titled "PSWP Management." (As discussed below, the approved budget may be mod-

At the start of the budget cycle, the central agencies ified in the execution phase by supplementary appro-(generally the Ministry of Finance) send the sector priation (requiring legislative approval) or by vire-agencies a budget circular indicating economic pro- ment-shifts of resources within the approvedspects and broad policy objectives (in some cases, total-with the approval of the central agencies).

12 Infonnaticin Systernsfor Gavemment Fiscal Managernent

Figm-2.fi� n An ysilsi:

and F00016hAl

CoMbF Mnistry/AgemCentral Procesvsesik Procdss"

........ ... Moget.and:Cash Mana nt Pisb1tq;SMcWiPr. .. ... �Ogram.

.... .. ... ...

..... .....- ma Budget

udgd

u geecurrent apita

DraftBudget Existing Programs

& Projectsw .... oposals

New Prv

.AppropflatioLaw Revenue Pr

Proposed Wor

Suppbmntery Consoliciated Cpsh men sFIOW ForecastsApprbodatibn Low

.... uestsFund Reqto

Purchase Orders

urchase Contracts/Commitments

......- Adimunts ReceiptGoodsPayabte and Verifications

Check Vouchers ent Vouche-P. Y-M r.. .. ...... .

Issue PaymentOrders to Bank

ReporOng: Gohdral,

ontax Receipt Transfers toReceipts & Loans Treasury Account

ArwUntsReoeKtable

Issues and Redemptionsof Govt. Securities

RL-concillationwith Bank

Revisions toBudget.Ravlk RevenueProjections

Fistat R & Work Programs

Systemsfor Govemment Budgeting and Accounting 13

Cash Management, Budget Execution and access to funds from the treasury, sector agenciesand Accounting begin implementing the approved programs and pro-

jects. The line agencies start using the appropriatedCash Management funds by requisitioning, procuring, and paying for

goods and services.At the start of the year, sector agencies prepare forecasts A typical sequence of administrative steps for theof cash requirements for the year based on known and acquisition of goods and services is shown in Figure 2.4anticipated commitments for both recurrent and capi- The first step is the placing of purchase orders for thetal expenditures. These forecasts are based on informa- goods and servicesand recording the resulting com-tion on firm commitments and the foreign exchange mitments in the accounting system. The second step iscomponent (if any) of anticipated expenditures. The the acquisition of goods and services. After work iscash requirements and revenue projections obtained completed or services rendered, bills are received.from the agencies responsible for revenue collection are Spending agencies then verify the receipt of goods anddeveloped into a consolidated cash flow forecast by the accuracy of the bills. The third step is the prepara-the Ministry of Finance. tion of payment vouchers, which are then passed to the

Once the budget is approved, the MOF has the treasury for review and, upon approval, a check ortask of controlling the release of funds, monitoring payment order is issued.5 Where payment is decen-progress on budget implementation, and managing the tralized, however, ministries may issue payment orderscash resources of the government. From the start of the directly. These may be drawn on a central account or afinancial year, the MOF releases funds (warrants/cash ministry account-depending on whether control ofallocations) periodically to sector agencies, keeping in bank accounts is also decentralized. The paymentview the approved budget, the sector agency cash orders are thereafter paid by the bank.requirements, and overall resource availability. As the To ensure proper expenditure control, sector agen-fiscal year progresses, the sector agencies prepare cies are required to institute a system of commitmentmonthly/quarterly requests for funds and submit actu- planning and control to ensure that expenditure doesal expenditure (and revenue) statements for the previ- not exceed the sum approved by parliament for specif-ous month/quarter. Capital expenditure warrants are ic purposes and expenditure is within the warrantallocated to specific projects. amounts. The latter element of expenditure control is

Warrants authorized by the MOF are sent to the often used by the MOF/treasury to ensure that expen-unit (the treasury, the accountant general's (AG) office, ditures do not exceed actual resources (which may beor its equivalent) that is the custodian of the Consoli- less than estimated in the budget). When a receiptdated Fund (CF)-hereinafter referred to as the trea- shortfall occurs, it is essential that the treasury be awaresury. The warrant either authorizes the treasury to of the commitments (e.g., statutory payments such asmake payments out of the CF or authorizes the treasury public debt, staff salaries and allowances, unpaid billsto make money available for payment by the responsi- and existing contractual obligations) for which cash isble accounting officers of the sector agencies. The lat- needed during the year.ter can be achieved either by giving authority to debit The spending ministry staff-or treasury staffthe central government account or sub-account or by assigned to this task-are responsible for steps onecrediting separate bank accounts (which are nonethe- and two mentioned above. At step three, the issuing ofless under overall treasury control) of the ministries in the payment order, many of the processes describedthe Central Bank (CB) or authorized service banks. above have to be scrutinized again. This rnay includeThe alternative institutional settings for banking ar- the following verifications:rangements are discussed more fully below. * the identity of the spending officer;

* the availability of budget provisions;Budget Execution * the exact budgetary imputation;

* the verification of receipt of goods and services; andUpon receipt of the warrant authority from the MOF * the observation of financial regularity.

14 Information Systemsfor Government Fiscal Managemnent

Receipt (tax and non-tax) transactions are also projects. These systems also monitor and evaluate theshown in Figure 2 in a very simplified form. Again, overall budget implementation processes and producedetailed processes of administration and collection the necessary fiscal reports. In addition, these systemswould need to be specified for a full functional process would provide useful financial information to the lineanalysis-these too would generally be set up as sepa- ministries, and spending units (in their respectiverate subsystems of the Accounting System. areas) to enable them to better manage their work pro-

Tax revenue from customs duties, income, excise, grams.and land taxes is managed by the revenue collection Systems support is focused on four main systems:agencies. These revenues are deposited in local com- * budget and warrant control;mercial banks and remitted to the government's central * accounts payable;account in the Central Bank (CB). The CB then sends * accounts receivable; anda daily report to the treasury on inflows to this central * the treasury general ledger system (TLS) or theaccount. financial general ledger (FLS) system.

Non-tax revenue from fees, administrative charges, Together these systems constitute the government'sand product sales (e.g., products made in prisons) are Core Accounting System (CAS). The first of these isalso managed by the collection agencies and trans- concerned with maintaining data on spending author-ferred to the CF ity. These systems maintain data on approved budget-

ed appropriations (both capital and recurrent), sourcesAccounting of financing for programs and projects, budget trans-

fers, and supplementary allocations, fund releases (war-The basic processes involved in government account- rants) against budgetary allocations over the course ofing are: the year. The second and third group of systems are* maintaining records of spending authorizations used to process transactions as soon as possible after

at the appropriation and funds-release (warrant) they occur, and record data on commitments and actu-levels; al expenditures against budgeted allocations. The

- processing transactions-recording the transac- TLS/FLS is used for compilation of summary recordstions as they occur, applying the requisite con- for control and analysis. The term Treasury Ledgertrols, posting to the appropriate account, and list- System (TLS) is also used to refer collectively to the sys-ing transactions and associated data for control tems for budget execution, accounting and fiscaland audit; reporting. The TLS would normally be used by:

* maintaining ledger accounts to monitor and con- * the Treasury and its regional offices to perform thetrol actual spending and receipts against budget basic accounting functions and to undertake bud-and warrant controls; and get implementation;

* reporting. * the budget department of the MOF to obtain thestatus of actual expenditures and perform theprocesses associated with budget preparation and

Information Systems for Budget Execution, monitoring;Accounting and Fiscal Reporting-The Treasury * the Treasury cash management department to pro-Ledger Sysitem vide the information it requires for cash manage-

ment and implementation of cash limits;These systemns form the centerpiece of the GFM sys- * line agencies to cater to their accounting and finan-tems network. They are the primary repository of finan- cial information needs6; and,cial data and serve as the basis of the government's * the Government auditing organization to accessFinancial M[anagement Information System (FMIS). financial transaction data for auditing purposes.These systerns are used to perform the processes asso- In a fully automated accounting system as it existsciated with budget execution, monitoring and control in most developed countries and several middle-incometo obtain the status of actual expenditures on ongoing countries, the basic accounting processes are automat-

Systemsfor Government Budgeting and Accounting 15

ed and data captured only once as an accounting trans- (i) Development of a comprehensive Budget Manage-action progresses through the system. Such a system, ment Law which will provide a framework for theintroduced along with a modern budget classification proper management of public funds and property,system and an appropriate chart of accounts, enables with specific emphasis on: (a) the receipt and cus-expenditures and revenues to be recorded at a very tody of public funds (including banking arrange-detailed level and related to specific programs and pro- ments); (b) public expenditure managementjects. Data recorded at this level can be used directly for (including control processes and linkages withprogram and project management. These data also appropriations); (c) the accounting system; (d)would be easily amenable to cross-classification in other the role and responsibilities of the Treasury, MOF,ways as required for financial analyses. In the absence and other departments; (e) asset management andof an automated accounting system, data recording control; (f) borrowing and investment (specifical-would not be accomplished at as detailed a level. More ly management of the public debt); and (g) report-important, cross-classification of data to other schema ing and audit.would be very cumbersome and therefore seldom done. (ii) Adoption of a budget classification system consis-The introduction of an automated accounting system tent with the IMF's Government Finance Statisticsensures completeness of data capture (that is, no trans- (GFS) methodology, and final design of a treasuryaction would be processed outside the system) and rig- chart of accounts embodying this classificationorous application of appropriate financial controls to all system for implementation. The structure of thetransactions processed by the system. budget classification system would need to have

The information contained in the system databas- elements that support a breakdown of budgetes would provide the MOF and other core financial appropriations by function (consistent with theagencies with comprehensive management informa- IMF's functional classification), organizational unit,tion related to the country's financial resources. In programs/projects, and line items consistent withaddition, the system would provide useful financial the IMF's economic classification..information to the ministries and other spending units (iii) Setting up appropriate institutional arrangements(in their respective areas) to enable them to better for processing payment transactions. In a numbermanage their work programs. of transition and developing economies, the IMF

has recommended centralization of all Govern-Policy Framework and Institutional Reforms ment payments through the Treasury and consol-

idation of bank accounts to a single account at theAs mentioned above, the institutional and policy frame- Central bank. This model has been recommendedwork associated with budget preparation and execution by the IMF because:must be in place-possibly reviewed and modified- (a) Under the former system in practice in transi-before productive work can commence on the design of tion economies, the Ministry of Financecomputer systems to support budget execution, (MOF) periodically distributed funds to spend-accounting and fiscal reporting. The IMF and the ing agency bank accounts, and the spendingWorld Bank have been involved extensively in advising units directly processed payment transactionsGovernments developing policy and institutional against these accounts. This resulted in a situ-reforms how to enable the systems for budgeting and ation where sizable idle balances could buildaccounting to be set up and function in accordance up in spending unit bank accounts, while thewith international best practices. These reforms are MOF was in deficit in overall terms. This, inespecially important in transition economies where turn, necessitated additional government bor-the legal and institutional infrastructures need to be set rowing and/or caused arrears in payments.up ab-initio. Some of the key actions and policy reforms (b) The MOF could not exercise any control toneeded prior to the implementation of new computer ensure that public expenditures incurred bysystems for budgeting and accounting are detailed spending units were in accordance with budgetbelow: appropriations.

16 Information Systemsfor Government Fiscal Management

(c) The MOF did not receive timely information treasury system would not preclude the installation ofon public expenditures or receipts from line a similar system for local governments.age-ncies. The system encompasses the functional require-

In this environment, centralizing all Government ments for the budget implementation and accountingfunds in the Treasury Single Account (TSA) and processes and would normally cover the appropria-channeling all expenditures through the Treasury tion, commitment, funds allocation, and paymentwas necessary to ensure efficient cash manage- processes for both the investment and current bud-ment and adherence to budget appropriations.7 gets. The details of the functionality of the TLS areHowever, several alternative institutional arrange- given below.ments to manage government payment processing The Treasury Ledger System would have the abili-and banking are often put into practice. These ar- ty to:rangements are discussed in a following section. A * Record initial budgets and distribute the budget ap-choice needs to be made amongst these alternatives propriations, as approved by the legislature, tokeeping in view the local circumstances. spending ministries, and keep a record of initial

(iv) Implementation of systems for and development of budgets, revised budgets, and budget transfers fordetailecl regulations and operating manuals cover- a typical government spending unit.ing TSA-based budget execution processes (spend- * Distribute appropriation and commitment autho-ing limits, cash allocations, commitment and pay- rizations to spending units and record commit-ment control, payment processing, accounting and ments incurred by a spending unit against thereporting). approved limits and the appropriation during the

(v) Establishment of a cash management unit in the course of a year.Treasury and formulation of procedures for its * Distribute funds allocations to spending units andoperations, which will cover cash flow forecasting keep a record of the amounts of funds allocationsand monitoring, and day to day management of against the appropriations and any changes there-funds distribution among spending units and field to.treasuries. The cash flow forecasting and monitor- * Record expenditure against commitments anding function is of central importance to the system funds allocations (e.g. due to purchase orders orof mont:hly spending limits and commitment con- other payments). The system will have facilities totrol. The cash management unit will be responsible check availability of appropriation, commitmentfor making realistic forecasts of likely cash inflows and funds allocation prior to payment approval.and spending requirements based on actual trends. * Print consolidated payment instructions for actionThis unit should work very closely with the budget by the banking system.department of the MOF to advise on the appropri- * Record revenue and other receipts against appro-ate levels for spending ceilings. priate account heads.

* If required, print checks against payment instruc-Key Characteristics of the Treasury Ledger System tions and/or make arrangements for the electronic(TLS) transfer of payment information to an external

paying entity (e.g. a bank).The core functional processes and information flows * Consolidate data from all ministries and regionalassociated with the TLS are shown schematically in offices as necessary. The system will have goodFigure 3. The TLS is normally implemented at the report writing facilitates and support easy retrievalTreasury head offices and at each of the regional and and reporting on data in the system databases in adistrict branches of the Treasury to process and control variety of formats. The system would be able tocentral government payments in their respective areas. produce commonly required accounting and man-Local government payments are not normally part of agement reports.the system. Nevertheless, the implementation of the * The system would have facilities to restrict access

to duly authorized staff only.

Case la: Treasury is Responsible for Making Payments. Central Bank Directly responsible for Retail Banking Operations.

MR~~~~~~~~~~~~~~~~~~~Tvt690tl.0ng~ ~ ~~v- n^^2^22 HAW, I Iggggg N

Develop Macro Economic Framework (with Sectoral Ministry Input) Legend-p Information Flows

IssueBudgetGuidelines__ Budget Guidelies .-. . . .. _ l9^ ig g 01 Agency Involvement in the Process

Receive Budget Proposals (Ministries send consolidated proposals B.d. t Pto osals. .0*.(inciuding SUS) to MOF) Budget Preparation System

Consolidaet roposeals & Finalize Budget

Enter Budget Appropriations (original and revisions) into System & InformMinistries ApplAporair

Consolidated Fiscal reportsMonitor Overall Buget Exeoution _ From System

Treasury Ledger &Cash Management

Receive Cash Requirement Forecasts from Ministries -Cash F-casts/Requirm"n, mg2 RIMINI

Obtain Expenditure Figures and Cash Balances from TLS

Determine =rty= Lmits on Commitments (Enter In System and Internm Minlstriesi p

Determtne Funds Allocations to Ministries (Enter in System,Inform Mnstries) Financiaeleass&

Ministries Determine Budiget4ppropriations and Commitment Limits for SUs IV WIN

Financial Releases to SU Accounts (Enter into System and inform SUs) F, sFal Releaset sug

Requst fr Ependture Adinisratve Approval& Bugear Control (t W- Ministries)

Commitments and Verifications jo od eep)Transactions 'n-- Corm.itmentsNerifications -*

0 = =0'~~~'l ' =~~~0~~~-------X----- ............ _ Payfemaent Orders to/make Expendintue UR

Budgetary Control at Treasury

Payment transactions against TSA by Treasury I Fyesnt Transactions agains T

Credit to Commercial Banks of Amounts authorized for credit to Govt. Crediors CredittoSuppliers Accounts

Da5 File of payments from TSAa Reconciliation byTreast

-,-Summa_ryoftReceipts (Tax and Non Tax) to the TSA rnw fRy..5tsSrn-ry o1 Receipt

Detalled Accounts-of Ministries from System Detailed Accounts of Ministr -

Det ailed SU Accounts from System Dted SU Accoounts-

Information fiows to/from Subordinate Units

Request for Expenditu re Admi1n istrative ApProVal & Locat Budgetry Control

Commitme-nts and Verifications (fGosReceipt) Transatins Commnimeone V.ifatio

Payment Orders to make Expenditure 2 .retodn

Budgetary Control at Treasury (RTU) MPayment transactions against TSA by Treasury PyetTascin gis "

Credit to Commercial Banks of Amounts authorized for credit to Govt. Creditors C redit to Suppliers Accous-.

Daily File of payments from TSA -"'R 1/f Duil File of Pu masts tfmS

Summary of Receipts (Tax and Non Tax) to the TSA unnyofRclS.aofeeit

Detailed Accounts of SUs from System Dtie UA . t

18 Information Systemsfor Government Fiscal Management

Implementation of the Treasury Ledger System- A TLS implementation project would typically pro-Activities and Tasks vide financing for:

* Technical assistance for a training needs analysisAs mentioned above, implementation programs for and development of an overall training strategyinformation systems designed to support budget exe- and a schedule for training users in the light of thecution government-wide must be sequenced carefully results of the training needs analysis; the designstarting with the specification and design of ap- and specification of in-house training facilities and/propriate financial management processes and organi- or identification of suitable training courses with-zational arrangements to support these processes. in the country and abroad; the development/acqui-This should be followed by development of func- sition of training materials, technical documenta-tional and technical specifications for the information tion and end user manuals.system to support these processes. Finally, the acqui- * Training courses to be arranged at site, or in local orsition and implementation of the hardware and soft- foreign institutes to cover these areas. Staff to beware shoukL be completed. Annex II lists the main ac- trained under the project would include the MOF/tivities and tasks normally associated with the design, Line Agency/Government Auditors/Treasury staffdevelopment and implementation of information sys- and technical staff of the MOF/Treasury who will betems for budget execution and accounting, as well as involved in the development and implementation ofthe procurement of related hardware and software. the systems.Quite often, government agencies will require the * Study assignments for government officials in theassistance of external consultants to manage systems budget execution and treasury operations areas toimplementation. The activities and tasks listed in enable them to benefit from the experiences ofAnnex II would form part of the terms of reference for other Governments in these areas. This wouldsuch consuiLtants. include financing of courses, discussion trips on

Training needs to be recognized to be a crucial ele- specific topics by experts from these governmentsment for project implementation. Training require- or agencies to the country where the project isments for the project can be divided into several areas: being implemented.* Training in principles, concepts and methodologies

of the subject areas covered by the project, name- Budget Execution Using the Treasury Ledger Systemly, budget execution, cash management and trea-sury operations. Specific details regarding how the various government

* Senior level management training/orientation in agencies involved in budget execution would use thethe use of computer based financial management related information systems in the performance of theirinformation systems. duties as they relate to the execution of the budget are

* End user training in the use of the computerized described in this section.information systems to be set up under the project. The various steps in the execution of budgetary ex-This would include training for line agency finance penditures are shown schematically in Figure 3. Thisstaff ancl for Government auditors. figure lists in the first column the main processes per-

} Technical training in the use of the specific tools to formed by the central and line agencies involved. Thebe employed for developing and implementing the diagram shows the major information flows that resultinformation systems under the project. e.g. the as the different agencies involved in budget executionchosen RDBMS, the operating system-UNIX, appli- carry out the functional processes associated with bud-cation development and CASE tools, etc. get execution.

* More general training related to the design and Budget Appropriations: The process begins withdevelopment of information systems. the recording of the approved budget (and any

a Training in EDP project management and the pro- amendments thereof) by the Ministry of Financevision of end user support to staff who will use the (MOF) in the TLS by individual appropriationsystems. item or revenue estimate. The budget department

Systemsfor Government Budgeting andAccounting 19

of the MOF prepares and registers in the TLS the in the system. If the ministries and spending unitsdetailed allocation of budgetary appropriations by are directly linked to the system they will recordministry, and advises ministries accordingly. This the commitment themselves. If they are not, theyshould be done within the limits of appropriation will advise the Treasury of these commitments.approved by the Parliament. The Treasury will then record the commitments in

Cash Requirements Forecast: At the start of the the system. In the case of spending units (SUs)year, financial plans detailing projected outlays and located outside the center, the transactions will bereceipts are entered into the cash management sys- recorded in the system through a Regional Treasurytem. As the year progresses, sector agencies prepare Unit (RTU).quarterly/ monthly requests for funds by category of Verification of Receipt of Goods and Paymentspending. These are also input into the system. Orders: Following verification of a given expendi-

Commitment Limits: It may be appropriate for ture, ministries directly linked to the system wouldTreasury to propose commitment limits against record the corresponding payment order in thespending unit expenditure items. Treasury does system. The system would automatically checkthis by accessing the system and taking into ac- that the order falls within the funds allocation limitcount the balance in the Central Bank accounts and set for that Ministry. The outlying spending unitsthe balance in Ministries expenditure items. would process a payment order through the RTU,

Fund Allocations (Warrants): Treasury would which would check the payment order issued bythen make funds allocations to ministries for each the SU and register it in the TLS.category of spending. Under ideal circumstances, In the verification stage, once all the require-the funds allocation would be consistent with the ments for a particular obligation have been met, theproposed commitment limits as previously advised ministry/spending unit should confirm that theto ministries. Both proposed and actual cash allo- commitment is ready for payment.cation quarterly limits would also be consistent Payment Processing: The banking system mustwith the commitment levels and budget appropri- be advised at the same time as payment orders areations. The degree of consistency in the process registered in the TLS in order to make the neces-will largely depend on the quality of the budget ini- sary payment (that is, to transfer funds from a cen-tially prepared, the initial financial planning tral government account to the creditor). In a fullyprocess, and the revenue collection outcome. developed system this can be done automatically.

Ministries inform Spending Units: The Ministries At the end of each day, the TLS would structure awould then advise the appropriate spending units file with complete information on the creditorsof their budgetary appropriations commitment lim- and payments to be made, as advised by ministriesits and fund allocations. These limits would be and spending units. This file would be sent to theentered into the TLSS. Central Bank or by the RTU to the regional branch

The advance knowledge of indicative cash lim- of the Central Bank, which holds the Governmentits, as well as of quarterly commitments limits, account. The applicable bank would transmit thewill allow agencies to make the best arrangements relevant information (and funds) to each com-and to set priorities in a situation of scarce re- mercial bank to credit the appropriate account andsources. This ensures that any necessary cuts in debit the government account. The appropriateexpenditures by agencies can be made in an order- bank would confirm to the TLS (through the RTU)ly, rational and effective way. the debits in the Government account. Alterna-

Requestsfor Expenditure and Actual Commitment tively, the applicable accounting office could for-Transactions: As the year progresses, sectoral min- ward to the appropriate bank a consolidated listingistries will process requests for expenditure. After of the registered payment orders requiring pay-verifying the appropriateness of the expenditure ment. Action by the banking system would be asand availability of budget appropriation and funds, described above, but confirmation to the account-registration of actual commitments would be made ing office would be manual.

20 Information Systemsfor Government Fiscal Management

it should be noted that the process outlined above can Receipts: Government receipts (e.g. taxes andbe simplified for certain types of expenditures, either duties) are often paid into accounts set up by theadministratively or by automated procedures in the corresponding revenue collection agency in corn-TLS. Some of these cases are discussed below. mercial banks. They are then transferred to the

Commitments for Civil Service Salaries: Salary TSA at the Central Bank. A periodic report fromcommitments may be advised only once a year on the Central Bank informs the Treasury and thean estimated basis and adjusted as necessary dur- appropriate revenue collection of the details re-ing the year. garding the collections.

Payments for Civil Service Salaries: In theoryeach payment to each civil servant could be treat-ed as a cliscrete payment and processed in the man- Alternative Institutional Arrangements Forner already described. However, given the number Expenditure Processingof individual payments involved, the similar struc-ture of each payment, the regular occurrence of Responsibilityfor Payment Processingpayments, and the additional personnel issueswhich need to be considered, it is preferable to Previous sections and Figure 3 describe the common-develop a separate sub-system for processing salary ly occurring institutional setting in which: (a) all pay-payments-the payroll system-in a manner com- ments from line agencies are channeled through thepatible with the overall expenditure process. Treasury; (b) the Treasury is responsible for making

Small Expenditures: The commitment (and verifi- payments from the Treasury Single Account (TSA),cation) of small expenditures (up to a predetermined which is held at the Central Bank; and (c) the Centrallimit) can be entered into the system simultaneously Bank is responsible for the retail banking operationswith the order for payment. However, to prevent associated with government payments and receipts.misuse, the system must know in advance which However, in those countries where the institutionappropriation items allow such simplification. of the Treasury and the necessary legal framework for

Comrmitments for the Investment Component of budget preparation and execution is in place and thethe Budrget: Commitment control for the re-cur- need for financial discipline is recognized govemment-rent component of the budget can be operated sat- wide, several alternative institutional arrangements areisfactorily on a within year basis, primarily as an aid often put in place for managing the payment process.to sound cash management activities. However, in The first variation on the standard institutional settingthe case of the investment component, where many is that in some countries the spending ministries/spend-projects have a financial life of more than one year, ing units are directly responsible for making paymentsit is often useful to maintain an accurate record of from the TSA instead of the payments being channeledthe forvward expenditure commitment. If this is through the Treasury. The TSA is nevertheless still helddone, Govemment has a better understanding of at the Central Bank, which continues to be responsiblethe flexibility available to it for future investment for retail banking operations related to govemmentdecision.s. This process can be accommodated in payments and receipts. This system may result in athe FLS by extending the commitment control quicker response time for payment transactions sincefield against each investment appropriation line the payment authority resides in the agency itself. Initem to cover two years beyond the budget year. As this case the responsibility to ensure compliance withlong-term commitments are entered, the financial budget execution limits and procedures is delegated toimpact is recorded for budget and "later" years. the agency. For this system to be successful, the MOF

Tracking the implementation of capital projects needs to ensure that necessary controls are adhered tonormally requires separate subsystems at the by the agency prior to making a payment. Budget con-agency level. For these, it is important to maintain trol responsibility can be exercised by officers from thedata on both the financial and physical status of central treasury who are out-posted to the line agency,projects, including historical data. or by line agency finance and accounting staff.

Systemsfor Government Budgeting and Accounting 21

It may be noted that if a computer-based system is payments are channeled through Treasury or where theused for controlling budget execution and for process- agencies are directly responsible for authorizing pay-ing payment transactions and the system design incor- ments. The arrangement has the advantage of provid-porates the necessary controls, the location of the pay- ing more expeditious payments to government credi-ment authority is not as important as it would be in a tors in view of the greater capacity of commercialmanual system. Prior to allowing a payment, the banks to process these transactions. Three processesaccounting system software would normally ensure are important for the efficient functioning of this sys-that a budget appropriation exists, a warrant allocation tem. First, the float of all payments to be transferred to(cash) is available, and a prior commitment has been the TSA should be as small as possible. Second, themade (in those cases where commitment accounting bank accounts should continue to be under the controlhas been implemented). Manual intervention would of the Treasury even though they may be operated bynormally be required only to override some of these the agencies. Finally, their balances should be clearedrestrictions. In these cases, the system would keep a log to the TSA periodically to ensure that government hasof the event, including the date, time, amount involved an accurate idea of the total amount of cash availableand the name of the authorizing officer. This ensures in the system so that it can optimize its borrowingadherence to the controls prescribed for budget exe- strategies.cution. The mechanisms required to ensure that the Min-

In a manual system, the finance personnel located istry of Finance has the necessary information on bankat the spending agency or the Treasury would need to accounts can be implemented more easily in an infor-ensure that these controls are applied in each case. In mation technology-based environment. However, it isa spending agency-based payment system, if the spend- necessary to note that mere existence of an electronicing agency finance personnel are functionally and connection is not sufficient. For the necessary controlsadministratively responsible to the head of the spend- to be implemented the Bank accounts would need toing agency, they may be subject to pressures to process be under the control of the Ministry of Finance/payment transactions that do not comply with specified Treasury so that it can obtain data on balances in theseprocedures. It may therefore become more difficult to accounts and make transfers from them independent-ensure that prescribed controls and procedures are ly of the spending agencies.adhered to in a decentralized system as compared to a The various alternative models for expendituretreasury-based central system. processing are shown schematically in Figure 4. Cen-

tralized payment processing through Treasury offices isBanking Arrangernents used by the United Kingdom, Canada, France and

Australia, amongst other advanced countries. TheA further variation that is often implemented is dele- Government of New Zealand has put in place a decen-gation of retail banking operations to one or more fis- tralized payment system in which agencies directlycal agents (normally authorized commercial banks) process expenditure transactions and have direct accessby the Central Bank. This model is put in place in to bank accounts. The Treasury nevertheless has con-those cases where the Central Bank does not have an trol over these accounts and they are cleared