IPSAS Implementation Blueprint Government of Rwanda

REPUBLIC OF RWANDA

MINISTRY OF FINANCE AND

ECONOMIC PLANNING

P.O. Box 158 Kigali

Tel: +250-252577994 Fax: +250-252577581

E-mail: [email protected]

IPSAS Implementation Blueprint

Government of Rwanda

Ministry of Finance and Economic Planning IPSAS Implementation Blueprint

Government of Rwanda Page 3 of 377

Table of Contents

Foreword ....................................................................................................................................................................... 2

Table of Contents .......................................................................................................................................................... 3

Table of abbreviations .................................................................................................................................................. 6

1 Executive summary ................................................................................................................................................. 9

1.1 Main purpose and benefits of accrual accounting ................................................................................................. 9

1.2 Summary of the results of the gap analysis ..........................................................................................................10

1.2.1 Fixed Data gaps ......................................................................................................................................10

1.2.2 Gaps in policies, people, systems and processes .................................................................................. 12

1.3 High-level timeframe for implementation............................................................................................................ 14

1.4 Overview of the approach to implementation ..................................................................................................... 22

1.4.1 Phase/Year 1 .......................................................................................................................................... 22

1.4.2 Phase/Year 2 ......................................................................................................................................... 23

1.4.3 Phase/Year 3 ......................................................................................................................................... 23

1.4.4 Phase/Year 4 ......................................................................................................................................... 24

1.4.5 Phase/Year 5 ......................................................................................................................................... 24

1.4.6 Phase/Year 6 ......................................................................................................................................... 24

1.5 Outline of human resource capacity and development....................................................................................... 25

1.6 Change management............................................................................................................................................. 26

1.7 Projected costs of implementation ....................................................................................................................... 26

1.8 Project team and staffing ...................................................................................................................................... 27

2 Gap analysis ........................................................................................................................................................... 29

2.1 Overview and approach ........................................................................................................................................ 29

2.1.1 Approach to Phase 1 – Gap analysis .................................................................................................... 29

2.1.2 Data collection ....................................................................................................................................... 30

2.1.3 Gap analysis ........................................................................................................................................... 30

2.2 Detailed findings ................................................................................................................................................... 32

2.2.1 Fixed assets............................................................................................................................................ 32

2.2.2 Intangible assets .................................................................................................................................... 40

2.2.3 Inventories .............................................................................................................................................. 41

2.2.4 Revenue ................................................................................................................................................. 43

2.2.5 Accrual and expenses ............................................................................................................................ 47

2.2.6 Employee benefits ................................................................................................................................. 49



2.2.7 Provisions ............................................................................................................................................... 51

2.2.8 Financial instruments ........................................................................................................................... 52

2.2.9 Reporting ............................................................................................................................................... 55

2.2.10 Consolidation ........................................................................................................................................ 58

3 Improvement to budget preparation and formats .............................................................................................. 62

3.1 Gap analysis between the current budget practices and accrual IPSAS ............................................................ 62

3.1.1 Overview/Main findings ....................................................................................................................... 62

3.1.2 Gaps identified ...................................................................................................................................... 63

3.1.3 Recommendations ................................................................................................................................ 64

3.2 Format to reconcile budget information to financial statements as stipulated under IPSAS 24 ..................... 65

3.2.1 Considerations for reconciliation of budget and IPSAS prepared financial information ................. 65

3.2.2 Reconciliation template ........................................................................................................................ 67

3.3 Assessment of the possibility of moving to accrual basis budgeting .................................................................. 68

3.3.1. Overview ................................................................................................................................................ 68

3.3.2. Accrual basis budgeting vs cash budgeting ......................................................................................... 68

3.3.3. Implications of the GoR adopting IPSAS accrual basis budgeting (summary) ................................. 70

4 Improvements in preparation of financial statements including reporting templates ..................................... 73

4.1 Government’s main transaction types mapped to the relevant IPSAS and accounting entries passed thereof ................................................................................................................................................................................ 73

4.1.1 Specific transactions in the consolidated statement of financial performance ................................. 76

4.1.2 Specific transactions in the consolidated statement of financial position ......................................... 84

4.2 Development of reporting templates/formats of financial statements in line with accrual basis IPSAS ...... 100

4.2.1 First time adoption of IPSAS considerations .................................................................................... 100

4.2.2 Consolidated statement of financial performance (IPSAS considerations) ..................................... 107

4.2.3 Consolidated statement of financial position (IPSAS considerations) .............................................. 111

4.2.4 Consolidated statement of cash flows ................................................................................................. 115

4.2.5 Proposed reporting templates for the GoR ......................................................................................... 118

4.3 Scope of consolidation for the Public sector ....................................................................................................... 119

5 Alignment and improvement of Chart of Accounts (CoA) and GFS Manual 2014 .......................................... 123

5.1 Gaps between GFS Manual 2014 and IPSAS reporting ..................................................................................... 123

5.1.1 Gaps due to conceptual differences .................................................................................................... 124

5.1.2 Overview/Main findings ...................................................................................................................... 126

5.1.3 Gaps identified ..................................................................................................................................... 126

5.1.4 Recommendation ................................................................................................................................. 127

5.1.5 Gaps in the context of the GoR per segment ..................................................................................... 128



5.1.6 Recommendations to address the gaps .............................................................................................. 145

6 Data needs for Government Business Enterprises (GBEs) ................................................................................ 147

6.1 Gap analysis between current reporting by Government Business Enterprises (GBEs) and accrual IPSAS . 147

6.1.1 Overview/Main findings ...................................................................................................................... 147

6.1.2 Gaps identified ..................................................................................................................................... 147

6.1.3 Recommendations ............................................................................................................................... 147

6.2 Overview of GBEs to be consolidated ................................................................................................................ 148

6.2.1 The ‘control’ concept ............................................................................................................................ 149

6.2.2 Determination of the scope of consolidation of GBEs ....................................................................... 149

6.2.3 Types or nature of GBEs to be consolidated .......................................................................................150

6.2.4 Steps for consolidation of the accounts of the GoR ........................................................................... 157

6.2.5 Significant disclosures on GBEs in the consolidated financial statements of the GoR.................... 159

6.3 Overview of the current reporting formats for GBEs ........................................................................................ 160

6.3.1 Differences between IPSAS and IFRS in the context of GBEs ......................................................... 160

6.4 Proposed reporting format for GBEs to submit financial data in line with the proposed accrual basis IPSAS financial statements ............................................................................................................................................. 164

6.4.1 Overview ............................................................................................................................................... 164

6.4.2 The consolidated statement of performance ...................................................................................... 165

6.4.3 The consolidated statement of financial position .............................................................................. 167

7 Audit implications ................................................................................................................................................ 173

7.1 Internal audit ........................................................................................................................................................ 173

7.1.1 Overview of internal audit ................................................................................................................... 173

7.1.2 Implications for internal audit ............................................................................................................ 174

7.2 External audit/Office of the Auditor General ..................................................................................................... 175

7.2.1 Overview of external audit ................................................................................................................... 175

7.2.2 Implications for external audit ............................................................................................................ 176

7.3 Recommendations ............................................................................................................................................... 178

8 IPSAS requirements that will impact IFMIS ...................................................................................................... 181

8.1 Gap analysis between current IFMIS modules and IPSAS requirements ........................................................ 181

8.1.1 Overview ............................................................................................................................................... 181

8.1.2 Gaps identified .................................................................................................................................... 184

8.1.3 Recommendations ............................................................................................................................... 185

8.2 Adoption of IPSAS and enhancements to IFMIS ......................................................................................... 186

8.2.1 Overview .............................................................................................................................................. 186



8.2.2 Existing modules and enhancements ................................................................................................ 186

8.2.3 New modules and enhancements ...................................................................................................... 204

8.2.4 Analysis of GoR entity access to IPSAS modules ............................................................................... 211

8.2.5 Analysis of GoR accrual basis IPSAS main transactions and impact on IFMIS ............................... 212

9 Review HR capacity and skills mix and identify areas needing external consulting assistance ..................... 224

9.1 Overview of the current HR capacity and skills within the General Government .......................................... 224

9.2 Gaps in human resource capacity ...................................................................................................................... 224

9.3 Recommendations for the above gaps ............................................................................................................... 226

9.4 External consulting assistance required ............................................................................................................ 226

10 Training and communication aspects ................................................................................................................. 231

10.1 Brief overview ............................................................................................................................................ 231

10.2 Integrating IPSAS training into the PFM learning and development strategy ...................................... 231

10.3 Objectives of a well-coordinated communication plan .......................................................................... 232

10.4 Identification of Target Groups ............................................................................................................... 232

10.5 Identification of training needs ............................................................................................................... 233

10.6 Training programme ................................................................................................................................ 238

10.7 Training strategies .................................................................................................................................... 238

10.7.1 Recruitment of qualified accountants ................................................................................................ 240

10.7.2 Uses of external consultants ............................................................................................................... 240

10.7.3 Roll out of online training ................................................................................................................... 241

10.7.4 Classroom training ............................................................................................................................... 241

10.7.5 On the job training .............................................................................................................................. 243

10.8 Training plan ............................................................................................................................................ 243

10.9 Communication plan ................................................................................................................................ 243

10.10 IPSAS training governance structure ...................................................................................................... 246

11 Implementing risks and mitigation measures ................................................................................................... 248

12 Monitoring and evaluation framework .............................................................................................................. 252

12.1 Overview of the M&E framework.................................................................................................................. 252

13 Cost estimates ...................................................................................................................................................... 255

13.1 Overview ......................................................................................................................................................... 255

13.2 Approach and scope of costing ................................................................................................................ 255

13.3 Assumptions ............................................................................................................................................. 255

13.4 Unit costs .................................................................................................................................................. 255

13.5 Budget summary ...................................................................................................................................... 256



14 Project management and governance arrangement ......................................................................................... 259

14.1 Overview ......................................................................................................................................................... 259

14.2 Key Role Definitions ................................................................................................................................. 260

14.2.1 Minister of Finance and Economic Planning .................................................................................... 260

14.2.2 PFM Sector Working Group ............................................................................................................... 260

14.2.3 Project Owner – Permanent Secretary and Secretary to the Treasury (PS/ST) .............................. 260

14.2.4 IPSAS Technical Working Group (TWG) – Chaired by the Accountant General ............................. 261

14.2.5 IPSAS Project Manager ....................................................................................................................... 262

14.3 IPSAS Implementation Teams ................................................................................................................ 262

14.3.1 Training, Capacity Building, Communication and Change Management team .............................. 262

14.3.2 Policy Development Team .................................................................................................................. 263

14.3.3 Asset Management Framework Implementation Team ................................................................... 265

14.3.4 Auditors ............................................................................................................................................... 265

14.4 Meetings .................................................................................................................................................... 266

14.5 PFM Sector Working Group/ Technical Committee Meetings .............................................................. 266

14.6 IPSAS Project TWG Meetings .................................................................................................................. 266

14.7 Workshops and Consultative Meetings ................................................................................................... 267

14.8 Coordination with the IFMIS project team ............................................................................................. 267

14.9 Change management ................................................................................................................................ 267

15 Develop the action plan ...................................................................................................................................... 269

15.1 Overview ......................................................................................................................................................... 269

15.2 Implementation plan ................................................................................................................................ 269

15.2.1 Phase/Year 1 ........................................................................................................................................ 289

15.2.2 Phase/Year 2 ....................................................................................................................................... 303

15.2.3 Phase/Year 3 ........................................................................................................................................318

15.2.4 Phase/Year 4 ....................................................................................................................................... 343

15.2.5 Phase/Year 5 ....................................................................................................................................... 357

15.2.6 Phase/Year 6 ....................................................................................................................................... 369

Appendices ................................................................................................................................................................ 374



Table of abbreviations

ACCA Association of Chartered Certified Accountants

ATL Aviation Travel and Logistics Holding Limited

CAT Certified Accounting Technician

CBHI Community Based Health Insurance

CIA Office of the Chief Internal Auditor

CIT Corporate Income Tax

CoA Chart of Accounts

COFOG Classification of the function of Government

CPA Certified Public Accountants

DAD Development Assistance Database

DMFAS Debt Management and Financial Analysis System

EDCL Energy Development Corporation Limited

EDPRS Economic Development and Poverty Reduction Strategy

EFD External Finance Division

EFT Electronic Funds Transfer

EUCL Energy Utility Corporation Limited

FIFO First In First out

FSLI Financial Statement Line Item

FTEs Full time employees

GAAP generally accepted accounting principles

GBEs Government Business Enterprises

GFS-2014 Government Finance Statistics Manual 2014

GoR Government of Rwanda

GRN Goods Received Note

HRM The Human Resources Manager

IAS International Accounting Standards

ICAEW Institute of Chartered Accountants of England and Wales

IFMIS Integrated Financial Management Information System

IFRS International Financial Reporting Standards

INTOSAI International Standards for Supreme Audit Institutions

IPPIS Integrated Personnel and Payroll Information System

IPSAS International Public Sector Accounting Standards

IPSASB International Public Sector Accounting Standards Board

ISPPIA International Standards for the Professional Practice of Internal Auditing

KPI Key Performance Indicators

LAIS Land Administration and Information Systems

M&E Monitoring and Evaluation



MIFOTRA Ministry of Public Service and Labour

MINECOFIN Ministry of Finance and Economic Planning

MININFRA Ministry of Infrastructure

MINALOC Ministry of Local Government

MMI Military Medical Insurance

MTEF The Medium Term Expenditure Framework

NBV Net Book Value

NDPR National Development Planning & Research

OAG Office of the Auditor General

ODA Overseas Development Assistance

PAYE Pay as you earn

PFM Public Financial Management

PIT Personal Income Tax

PPP Public Private Partnership

RAB Rwanda Agricultural Board

RAMS Road Asset Management System

RCAA Rwanda Civil Aviation Authority

RDB Rwanda Development Authority

REG Rwanda Energy Group

RGCC Rwanda Grain and Cereals Corporation

RHA Rwanda Housing Authority

RITCO Rwanda Interlink Transport Company

RISA Rwanda Information Society Authority

RLMUA Rwanda Land Management and Use Authority

RMF Road Maintenance Fund

RNMT Rwanda National Museums and Tourism

RRA Rwanda Revenue Authority

RSSB Rwanda Social Security’s Board

RTDA Rwanda Transport Development Authority

RURA Rwanda Utility and Regulatory Authority

SCoA Standard Chart of Accounts

SEAS Subsidiary Entities Accounting System

SPIU Single Project Implementation Unit

ToT Training of Trainers

VAT Value Added Tax



Executive summary



1 Executive summary

1.1 Main purpose and benefits of accrual accounting

The superiority of accrual accounting over cash accounting is now acknowledged by the vast majority of

governments worldwide. By introducing accrual accounting, governments demonstrate their commitment to improve the use and management of resources, a desire to promote enhanced financial reporting and transparency, including greater accountability and a pledge to fight fraud and corruption.

Cash accounting, and even accrual accounting based on locally defined financial reporting standards, are no longer sufficient to enable public-sector organisations to respond to the legitimate needs and demands of the citizens they serve. Independent standards are essential for high-quality financial reporting, which in turn is fundamental for developing the levels of accountability and quality decision making that lead to good governance, transparency and trust.

Conversion to accrual accounting and adoption of International Public Sector Accounting Standards (IPSAS) is a catalyst for improved public management. This is not an end in itself, but a catalyst for increased transparency and accountability and for improving operational performance. If included with government accounting reforms, IPSAS can improve the quality and transparency of a country’s public financial management system and encourage use of the country’s own systems for delivering aid.

Greater transparency and accountability are widely recognised as the greatest benefit of adopting IPSAS or equivalent standards. Information prepared in accordance with internationally recognised accounting standards provides a basis for comparing governments with one another and making comparisons across individual government units. Transparent accrual-based financial statements will help the Government of Rwanda to demonstrate, and users to evaluate, accountability for its use of public funds.

In addition to the benefits related to external stakeholders, high quality accrual-based information has many advantages for internal users and decision makers. Accrual based financial information will provide a comprehensive view of the government’s financial position and performance, allowing government officials to evaluate the result of their past activity, assess the future obligations and resource requirements, and plan for future investments in public goods and services.

In particular, accrual-based financial information includes a comprehensive inventory of government assets and liabilities, which provides a view of government resources and future obligations. This in turn allows for better management of government resources. It provides a basis for building more effective administrative processes and controlling costs. Equally, bringing liabilities onto the government statement of financial position provides a view of the long-term implications in terms of spending commitments and borrowing needs.

Additional benefits of IPSAS adoption can be seen in providing access to better funding sources and reduced risk of fraud and corruption.

Given the benefits of adopting accrual basis accounting, Government of Rwanda made a decision to transition to accrual basis accounting in line with a recognised international accounting framework such as IPSAS. To enable a well-structured transition, the Government contracted PwC Rwanda to assist in the preparation of an IPSAS implementation blueprint.

This IPSAS implementation blueprint was developed through a participatory process where inception meetings were held with key stakeholders and institutions across government that are managing major government assets and liabilities. For transfer of information, a project team was set up at the Ministry of Finance and Economic Planning (MINECOFIN) to work alongside the team of consultants.



After the inception meetings, a data collection questionnaire that had been developed in line with IPSAS requirements was rolled out. The questionnaire was rolled out through the project team and was completed by key government institutions. The data collected was analysed in order to identify gaps and areas of improvement/enhancement. Meetings were further held with key stakeholders and institutions managing major government assets and liabilities to review the systems and databases maintained in order to identify information gaps. This also involved a review of IFMIS to identify enhancements required.

Thereafter, this IPSAS implementation blueprint was developed by incorporating the gaps identified. The blueprint was circulated to key stakeholders in government and key institutions supporting MINECOFIN in public financial management for review and comments. Their comments were incorporated and a final IPSAS implementation blueprint submitted.

The purpose of this IPSAS implementation blueprint is to guide the Government of Rwanda in the adoption and effective implementation of IPSAS across government.

1.2 Summary of the results of the gap analysis Development of IPSAS implementation blueprint commenced with a gap analysis that covered 10 main accounting areas and IPSAS detailed requirements for recognition, measurement and disclosure under each standard.

1.2.1 Fixed Data gaps

The main data gaps are in non-current assets and liabilities in the statement of financial position because under

the current modified cash basis of accounting, some of the financial assets and liabilities are currently reported, and some items of revenue and expenditure are accrued at year end.

Under the statement of financial performance, the gaps identified relate to items that are recorded on cash basis and hence not properly accrued (such as taxes, prepayments and inventory) or items not treated in line with IPSAS requirements (such as grants and transfers) and items not captured due to the current accounting treatment (such as depreciation and amortisation expense and impairment of property, plant and equipment because property, plant and equipment is not capitalised but expensed).

The main revenue source in the statement of financial performance is non exchange revenue consisting of taxes and transfers (grants and transfers to other entities). Taxes are recognised when cash is received as opposed to when a taxable event occurs. Hence, tax receivable at the end of the period but not paid is not recognised. Nonetheless, the information is available from the various tax collection systems of RRA. Most taxes are paid monthly on the 15th of the following month and therefore the amount paid subsequently can be accrued and reported. The challenge is personal and corporate income taxes which would need to rely on prior year actual numbers as estimates for the current year reporting considering that these taxes are paid quarterly. To enable this accrual to be conducted, tax systems need to be interfaced with IFMIS in the longer term and in the shorter term, RRA can input this information in IFMIS.

Grants are recorded in the development assistance database (DAD) but grant conditions are not tracked to guide recognition of grants and the data is also not complete as not all commitments and disbursements are captured in DAD. This will require a detailed review of grant agreements to identify grant conditions and also ensure that grant conditions are captured and tracked and status reported on. DAD has an option to capture grant conditions but the option is currently not utilised. DAD therefore needs to have the ability to limit access rights based on authorised permissions. This notwithstanding, DAD may need to be enhanced to allow the grant conditions to be entered/recorded in the system and tracked accordingly through online inquiries and reports that will be run by authorised staff with a role of passing appropriate accounting entries on the grant revenue recognition transactions.



There will also be need to reclassify revenue from exchange transactions and ensure it is completely recorded and properly treated as outlined under section 15 of the blueprint. Currently revenue from sale of goods and services (i.e. revenue from exchange transactions) is captured under administrative fees, fines and penalties which are accorded different accounting treatment under IPSAS because they are revenue from non-exchange transactions. In addition, with the move to IPSAS, some revenue items such as borrowings will be correctly classified under the statement of financial performance.

Under expenditure, depreciation and amortisation expense and impairment of property, plant and equipment is currently not captured as property, plant and equipment are expensed. This will require a physical verification and valuation of all assets in order to recognise these assets. Other items that are currently expensed are inventory and prepayments which will be accorded the correct treatment with the transition to IPSAS as well as the treatment reflected as such in the PFM manual.

One of the key activities during IPSAS implementation is to enhance IFMIS in order to capture transactions in line with accrual basis of accounting. This enhancement will assist in ensuring inventory, prepayments and other revenue and expenditure items to be properly accrued. With the exception of taxes, the other revenue items are currently captured under IFMIS at local and central government level. Taxes are collected under RRA and have different systems for each major category of tax.

The major data gaps as earlier mentioned are in the statement of financial position because under the current accounting practices, only financial assets and liabilities are reported.

Under non-current assets, land and buildings, infrastructure, plant and equipment have the most significant data gaps. Various databases are maintained at entity level and by entities with the mandate to manage property and infrastructure assets. A review of a sample of fixed asset registers indicated the main gap is lack of asset values. Also databases are maintained in excel and in different formats. Once IFMIS develops the assets management module, all entities should maintain their fixed assets registers within IFMIS.

Rwanda Housing Authority maintains a database of government land and buildings. The valuation of land and buildings was last done in 2013 but new assets constructed or purchased subsequently have not yet been valued. If the market is not volatile, land and buildings should be valued every 3 to 5 years. Hence, a comprehensive physical verification and valuation of land and buildings is planned as part of IPSAS implementation.

Rwanda Transport Development Authority maintains a database of national and part of district roads and bridges countrywide. However, the database has no values and mainly includes information on classification of roads countrywide. A separate geographic information system (GIS) captures data on the name of the road, length (km), coordinates, alignment and number of bridges. These databases do not also contain information on roads which are mapped under the respective districts in Rwanda. The districts currently do not have accounting information on the roads. Thus, an exercise will need to be conducted to physically verify all roads, assess their condition and provide their values and useful lives to provide the data required for IPSAS implementation.

Hence, under the IPSAS implementation plan, significant time and effort has been allocated to transitioning property, plant and equipment over three years and this will commence with undertaking a physical verification of all assets and valuing the assets without values. This also includes assets under service concession agreements.

Leases are not captured (other than rent paid under operating leases) and there is no database of leases. A comprehensive inventory of leases will need to be undertaken clearly classifying leases into finance and operating leases in order to guide accounting treatment to complement the current efforts made towards the development of the fixed asset module in IFMIS.

Under current assets the main data gap is related to inventories which are currently expensed. Hence, as part of the implementation plan, a stock take will be conducted of all inventory items and values assigned.

Prepayments are also expensed and once IFMIS is enhanced with proper trigger points, entities will be able to capture prepayments. Other items that are currently not captured are current receivables from non-exchange transactions.



Under non-current liabilities, pension and terminal benefits to be paid in future years are not recognised and long-term borrowings are currently expensed when paid. Hence, under both non-n current and current liabilities, current and non-current portion of long-term borrowings are not reported and other short-term borrowings are also not captured on the statement of financial positions. Long-term borrowings should be measured at amortised cost using the effective interest rate method. The GoR currently uses DMFAS, a debt management software developed by the United Nations Conference on Trade and Development (UNCTAD), for analysis and management of its debt. DMFAS maintains information on GoR loans, debt securities and other external borrowings. Public debt and associated interest is recognised on cash basis. However, DMFAS does not compute the effective interest for amortising debt as required by IPSAS.

Other financial liabilities that are currently not recognised are financial guarantees. A comprehensive database should be put in place and financial guarantee contracts treated as financial instruments should be recognised. Similarly, short-term and long-term provisions and long-term payables are not captured. With the transition to IPSAS, procedures for collecting information from non-financial staff (such as legal officers) in respect of provisions, contingent liabilities and contingent assets must be set up.

Another area that requires data is employee benefits. Only short-term benefits are currently recognised and this excludes performance bonuses paid after year end. Post-employment benefits, termination benefits and other long-term benefits are not recognised as stipulated in the staff contracts and GoR staff policy manuals. Post-employment benefit is a defined benefit plan which is more complex to measure. Actuarial assumptions are required to measure the obligation and the expense and due to this, actuarial losses or gains will arise. This is one of the areas that have been provided three years to transition under the implementation plan.

Refer to section 2 for further details.

1.2.2 Gaps in policies, people, systems and processes

Transitioning to accrual accounting and IPSAS is much more than an accounting exercise that impacts on

policies, people, systems and processes. Hence, considered are the foregoing four dimensions in the gap analysis.

1.2.2.1 Policies

One of the inevitable consequences of a government adopting accrual accounting is the need to review and amend its policies, governance and control structures. This also requires financial rules and regulations to be amended.

A review of Organic Law N° 12/2013/OL of 12/09/2013 on State Finances and Property indicates that the law allows the Minister to issue an order that determines the accounting standards and policies applicable to all public entities. Hence, in terms of adopting accrual basis IPSAS, no further changes are required to this law. However, in terms of adopting accrual basis budgeting, further amendments will be required particularly on the format and content to recognise assets and liabilities.

Article 99 of Ministerial Order N°001/16/10/TC of 26/01/2016 relating to Financial Regulations stipulates that central government and decentralised entities shall follow IPSAS while public institutions shall follow IFRS. This sets the stage for IPSAS adoption and from the review, minor amendments were required particularly to recognise the format and content of accrual basis IPSAS financial statements.

A detailed review of the draft PFM manual indicated new accounting policies in line with accrual basis IPSAS will need to be developed and some of the accounting policies enhanced. The IPSAS project team will include a team member in charge of policies and guidelines who will lead the development of new accounting policies, assessing the implications for MINECOFIN and the wider PFM framework.

Recommended is that a new and comprehensive accounting and reporting manual is developed. This should be accompanied by comprehensive year-end closing instructions, which will be key particularly during this IPSAS implementation period where a phased approach will be adopted to transition different items each year. Hence, year-end closing instructions should be tailored to the items being transitioned and reported each year taking



into account the items that were transitioned in prior years. To be developed also as part of the manual is procedures to guide monthly period end reporting through the transition years.

In the long-term, MINECOFIN may liaise with the public sector accounting standards committee once set up at the institute level (ICPAR) to guide on developments related to the issue of new standards or changes to current standards.

1.2.2.2 People

Accrual accounting is based on the occurrence of economic events and not merely on cash receipts and payments. Adopting accrual accounting and moving towards IPSAS as the basis for accrual accounting, accrual budgeting or performance-based management requires a significant cultural shift in the mind-set of management, staff, regulators, funds providers and other stakeholders.

For this to be successful, it is essential that change management processes are put in place and that they work, including communication, training, project management, awareness campaigns and organisational reform. As such, a project team headed by a project manager and three project team members in charge of change management, asset management, and policies, guidelines and procedures has been proposed. This team will oversee IPSAS implementation and coordinate the development of a comprehensive training programme.

IPSAS implementation is part of the wider Public Financial Management (PFM) reforms being implemented by the GoR. Under these reforms the government has developed a governance framework to execute the reforms and remedy several gaps noted in light of the country’s financial services strategy. The PFM Sector working group oversees PFM reforms in Rwanda. The PFM technical committee will have an IPSAS technical working group (TWG). The IPSAS Project Manager will report directly to the IPSAS TWG.

The government also has a learning and development strategy for the PFM sector. IPSAS is incorporated within the 22 competencies in the PFM learning and development strategy under financial reporting and analysis. The training programme for IPSAS has been aligned to this strategy to ensure it builds on the areas of competency identified for each level of PFM staff.

IPSAS implementation comes with more onerous reporting requirements. Depending on the size of each entity, there will be need to consider the recruitment of a Financial Controller to be accountable for the accounting operations at entity level i.e. specifically the production of entity periodic financial reports, maintenance of an adequate system of accounting records, and a comprehensive set of controls and budgets designed to mitigate risk, enhance the accuracy of the GoR's reported financial results, as well as ensure that reported results comply with accrual basis IPSAS. If an entity has smaller operations, a reporting accountant may suffice.

1.2.2.3 Systems

Accrual accounting also requires governments to develop new ways of reporting and communicating financial information. As the focus for government and public sector bodies has traditionally relied on budgetary execution rather than wider financial reporting, new data needs crop up when accrual accounting is adopted under IPSAS. In order to capture and analyse the increased accounting data and information, IT systems often need amending.

In order to capture and analyse the increased accounting data and information, IFMIS will need to be further developed in order to capture transactions in line with accrual basis IPSAS and also integrated with other systems such as tax systems and the payroll system (IPPIS). Also recommended is that all asset management databases held by different entities be integrated with IFMIS.

A number of workflows will need to be either enhanced or developed under IFMIS. This includes the following workflows:

- Financial reporting work flow; - Procurement work flow;



- Fixed asset work flow; - Consolidation work flow; - Revenue and receivables work flow; - Purchases, acquisitions and payables flow; - Payroll workflow; and - Cash (treasury) management work flow. An assessment and integration or interfacing of stand-alone legacy systems with IFMIS will need to be conducted including:

- Fixed asset databases at RTDA, RHA, RLMUA, and other agencies; - PPPs database under the PPP unit at RDB; - Tax collection systems under RRA; - Interface IFMIS with entities which are currently outside IFMIS i.e. RSSB, NBR etc.; and - Interface IFMIS with other standalone systems i.e. IPPIS, DMFAS, DAD, e-procurement etc.

It is worth mentioning that IFMIS is an internally developed software hence as the system is enhanced, plans should be put in place to ensure sustainability by documenting development of the system comprehensively, using databases that are readily available and training an in-house team to continue supporting the system once the team of experts developing the system handover.

The current uniform chart of accounts is being updated to support the implementation of the IPSAS accrual accounting framework. A draft of the updated CoA developed by MINECOFIN with support from IMF East ARITAC was shared for review during the preparation of this IPSAS implementation blueprint and has been updated with accrual basis IPSASs requirements.

1.2.2.4 Processes

Beyond people and systems, IPSAS adoption also has an impact on entities’ processes. This means that the

government will have to enhance existing processes, create new ones and re-examine internal control frameworks to ensure that both internal control and risk management are effective under the new accounting standards. Processes need to be designed taking into account the duality of IPSAS and budgetary requirements.

The review of current processes and internal controls will need to take into account the new accounting policies. The review should go beyond accounting and reporting processes to other functional areas that will be impacted which include human resource, internal audit, risk management, procurement and asset management.

Non-finance staff such as staff in procurement, debt management, external finance division, legal, infrastructure and other departments/entities with activities impacting on financial transactions will have to properly report events that trigger accounting entries hence the updated processes will need to ensure an accurate and timely flow of information.

Some institutional changes will be required involving reviewing and revising the current organisation structures to include additional staff that will be required such as financial controllers or reporting accountants as explained above depending on the size and complexity of the entity.

1.3 High-level timeframe for implementation

The implementation period runs from Q4 of the 2017/2018 to Q4 for the 2023/2024 financial years of the GoR.

MINECOFIN has a number of activities already running in readiness for accruals basis IPSAS adoption. The activities include the development of the fixed assets and inventory modules in IFMIS. Below are the main activities earmarked for the IPSAS framework implementation by the GoR from the financial year 2018/2019 to 2023/2024.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

1. Objectives – Milestones/Achievements

Consolidate central government, districts and projects’ accounts.

Improved disclosures to address data gaps in assets, investments, grant conditions, receivables and revenues from non-exchange transactions.

Add sectors within the local government cluster on year 1 consolidation scope and introduce separate cluster of GBEs, aggregated line by line.

Add hospitals on year 2 consolidation scope and aggregate remaining NBAs.

Eliminate inter entity transactions within GBEs.

Add GBEs and secondary schools on year 3 consolidation scope.

Add health centres on year 4 consolidation scope.

Compliance with accrual-basis IPSAS for the whole Public sector.

2. Sub-area/Activities – Accrual basis IPSAS compliance

2.1 IFMIS enhancements and new modules

Implement fixed assets and inventory modules.

Migrate data from legacy systems.

Enhance to make distinction between revenue from exchange and non-exchange transactions.

Update to capture financial investments (shares or bonds bought).

Improvement of accounting solution in FMIS and other IT systems - All entities.

Add new and updated features in IFMIS and other PFM systems to address data gaps in relation to IPSAS accrual accounting.

Update work flows/processes to support accrual accounting - Accountant General.

Update the chart of accounts for compliance with IPSAS - Accountant General.

Interface/ integrate IFMIS with asset management systems at RTDA, RHA, RLMUA, RISA and PPP unit at RDB.

Enhance IFMIS to record

and account for

estimated provisions.

Enhance accordingly to generate accounting entries from information submitted by the RSSB and interface with DMFAS and DAD.

Enhance the

IFMIS, RRA

systems to record

and account for

the estimated

provisions.

Add new and updated features in IFMIS and other IT systems in line with IPSAS roadmap.


2.2 PFM manual and other financial reporting policies

Update or amend PFM manual in respect of/to:

o Valuation policies and recording and reporting on all fixed assets,



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

intangible assets, concession assets and inventory.

o How and when to recognise goods and services.

o The accrual of the annual performance bonus, submission of information on pension liabilities relating to government staff.

o Year-end procedures with guidance on the treatment of the annual performance bonuses paid in respect of the financial year 2018/19 onwards.

o Measuring additional information on amortised cost of public debt using the effective interest rate.

o Categorisation of financial assets according to IPSAS 28.

o Criteria for the identification of controlled entities and therefore reporting entities that should be consolidated and submission of financial information to MINECOFIN.

2.3 Assets: Fixed assets, service concession arrangements, intangible assets and inventory

Complete identification of fixed assets, intangible assets, inventory and review of concession agreements.

Commence valuation of fixed assets,

inventory, intangible assets and concession assets.

Continue with identification, recording and valuation of assets as well as migration of data from legacy systems.

Continue to review

quality and completeness of data in registers.

Recognise inventory, concession assets (and corresponding liabilities) as well as all PPEs excluding infrastructure assets, land and buildings, heritage assets and

Recognise land, buildings, and intangible assets on an accrual basis.

Recognise infrastructure and biological assets on an accrual basis.

Recognise heritage assets and natural resources on an accrual basis.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Include appropriate disclosure note on fixed assets, inventory, intangible assets and concession assets in financial statements.

Review quality and completeness of data in asset registers.

Conduct impairment tests.

natural resources on an accrual basis IPSAS.

Continue to review quality and completeness of data in registers.

2.4 Revenue

Enhance DAD to track grant conditions and

report on status.

Include in financial statements disclosure note on tax and grants receivable.

Recognise revenue from

exchange transactions on an accrual basis.

Track grants conditions and ensure a proper disclosure of conditions attached to grants.

Recognise revenue

from fees, fines, penalties and licenses on an accrual basis.

Improve disclosures relating to taxation.

Recognise revenue

from grants and transfers from other government entities on an accrual basis.

Recognise

taxation revenue on accrual basis.

2.5 Accruals and expenses - GAAP

Enforce the requirement to recognise accounts payable upon receipt of goods and services and ensure invoices are entered into IFMIS promptly.

Ensure monthly financial reports submitted to MINECOFIN have appropriate note disclosures on commitments, accounts payable, arrears, including due dates and aging analysis.

Improve disclosures and aging analysis.

Recognise grants and other transfer payments transactions on an accrual basis.

2.6 Employee benefits and pension liabilities

Note disclosure on pension liabilities in the individual financial reports.

Note disclosure in the consolidated financial statements.

Recognition of pension liabilities in the statement of financial position.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

2.7 Provisions, guarantees and other contingent liabilities

Continue to disclose all guarantees and other contingent liabilities in the entity and consolidated financial statements.

Review completeness and quality of existing data.

Ascertain probability of payments related to guarantees and other contingent liabilities, and if payments are probable, estimate provisions and provide disclosure notes.

Review accuracy of the disclosure notes on the estimated provisions.

Identify other provisions (e.g. onerous contracts and decommissioning obligations) and maintain information.

Recognise provisions as estimated.

Update presentation of the financial statements to account for provisions and continue to disclose all contingent liabilities as a separate note.

Recognise other provisions in the balance sheet.

2.8 Financial instruments: Recognition and valuation (Financial investments, student loans, public debt, receivables and doubtful debts

Continue to include note disclosures of public debt but with additional information to include amortised cost.

Enhance DMFAS to capture/measure amortised cost of debt using the effective interest rate (principal and interest payable).

Enhance disclosures of all investments made by Public entities.

Analyse receivables to identify doubtful items

of both revenue from exchange and non-

exchange transactions.

Review reasonableness of information on the estimated provisions.

Improve the current disclosure of public debt and on lending.

Recognition and recording of financial investments of all public entities on an accrual basis.

Estimate provisions for doubtful debts and provide appropriate disclosure notes.

Recognition of public debt in the statement of financial position.

Recognise estimated provisions of doubtful debts arising out of revenue from exchange transactions (short and long term).

Recognise

estimated

provisions of

doubtful debts

arising out of

revenue from non

- exchange

transactions

(short and long

term).

2.9 Reporting: Presentation of financial statements (primary financial statements and notes) and budget information in the financial statements



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Adopt proposed financial reporting templates

developed in the IPSAS blueprint and update

annual formats in line with roadmap.

Include appropriate note disclosures for

financial information not handled on accrual

basis.

Adopt proposed financial

reporting templates

developed in the IPSAS

blueprint and update

annual formats in line

with roadmap.

Include appropriate note

disclosures for financial

information not handled

on accrual basis.

Include an explanation of

material differences

between budget (original

and final) and actual

amounts.

Include a reconciliation

between budget and cash

flow statement.

Adopt proposed

financial reporting

templates developed in

the IPSAS blueprint

and update annual

formats in line with

roadmap.

Include appropriate

note disclosures for

financial information

not handled on accrual

basis.

Adopt proposed

financial reporting

templates

developed in the

IPSAS blueprint

and update annual

formats in line

with roadmap.

Include

appropriate note

disclosures for

financial

information not

handled on

accrual basis.

Adopt proposed

financial

reporting

templates

developed in the

IPSAS blueprint

and update

annual formats in

line with

roadmap.

Include

appropriate note

disclosures for

financial

information not

handled on

accrual basis.

Include an

explanation of

material

differences

between

budget

(original and

final) and

actual

amounts.

Include a

reconciliation

between

budget and

cash flow

statement.

2.10 Consolidation

Appropriate disclosure notes for controlled

entities but not consolidated (GBEs,

Associates, and NBAs).

Operationalise GBE reporting template that

should include information on inter-entity

transactions.

Consolidation of accounts of central

government, districts and projects – base line

with improved disclosures to address data

gaps in the area of assets; investments;

grants conditions; receivables and revenues

from non-exchange transactions.

Add sectors within the local government cluster on year 1 consolidation scope.

Separate cluster of consolidated GBEs introduced and aggregated line by line.

Add hospitals on year 2 consolidation scope.

Aggregate remaining NBAs as per detailed reporting categories

Eliminate inter entity transactions within GBEs.

Add GBEs and secondary schools and include associates on equity basis on year 3 consolidation scope.

Add health centres on year 4 consolidation scope.

Compliance with accrual-basis IPSAS for the whole Public sector; consolidated accounts include all GBEs and NBAs.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

2.11 Consolidation: Investment in associates and joint ventures, GBEs, sectors, hospitals and secondary schools

Review and comment on completeness and accuracy of data in registers and disclosure notes towards accrual accounting information in annual financial statements - External and Internal Audit.

Annual implementation review reports (IPSAS implementation unit).





Conduct mid-term QA review of all the IPSAS implementation activities (External consultant).


Annual

implementation

review reports

(IPSAS

implementation

unit).

Review and comment on completeness and accuracy of data in registers and disclosure notes - External and Internal Audit.

Annual implementation review reports -IPSAS implementation unit.

Conduct final QA review of all the IPSAS implementation activities - External consultant.

First statutory Audit of official IPSAS compliant financial statements of 2022/23 and issue of formal audit opinion and recommendations for improvement - Auditor General.

2.12 Audit and Quality Assurance

Establishment of a public sector committee of the ICPAR.

Operationalisation of the PSC.

Develop medium-term work program for the committee.

Develop comprehensive accrual IPSAS accounting manual.

Issue instructions, circulars for the progressive implementation of the IPSAS manual in line with roadmap.

Update OBL and associated financial regulations.

Issue instructions, circulars for the progressive implementation of the


Issue instructions, circulars for the progressive implementation of the IPSAS



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Issue instructions, circulars (preferably as part of the year-end procedures) for the progressive implementation of the IPSAS manual in line with roadmap.

Recruit financial controllers for complex entities.

Develop training materials.

Train the trainers and key users.

Communicate key IPSAS implementation messages to target audiences through intranet, e-mail, newsletters, education fliers, IPSAS awareness videos, IPSAS webpage, brochures and media coverage

Assign project manager and set up implementation unit.

Develop detailed project implementation plan.

Institute risk and issue management tools.

Establish monitoring and reporting frameworks - IPSAS implementation unit.

Update training materials.

Reinforcement training of trained trainers.

Train users.

Continue with the communication tools on an ongoing basis.

IPSAS manual in line with roadmap.



Train users.




Train users.


manual in line with roadmap.



Train users.


Refer to the detailed IPSAS implementation roadmap in section 15 of the blueprint.



1.4 Overview of the approach to implementation

The implementation plan for the GoR transition to accrual basis IPSAS is phased to ensure it is progressive and

realistic. The approach proposed spans 6 years and takes a longer timeframe than IPSAS 33 – First time adoption which provides for a three year transition window in order to have a more realistic timeframe given the size and complexities of converting an entire government accounting system from the current one to accruals basis IPSAS framework.

The implementation plan recognises the simplest and most important stocks and transactions first, and then to gradually recognises more complex stocks and transactions in subsequent phases.

It also progressively extends the coverage of the financial statements from the budgetary central and local government to the whole of the public sector. The proposed phasing is also designed such that, at each phase of the transition, an integrated and internally consistent set of financial statements are produced. This will allow for regular reconciliation of stocks and flows and maintains the overall integrity of financial reporting at each stage.

Implementation will follow a systematic phased approach while ensuring reporting obligations of the GoR are met in each of the six years across the implementation timeline:

An important activity throughout the six years will be audit. The government will rely on the audit process (both internal and external) to confirm compliance to IPSAS requirements at each phase of implementation and finally, to audit the opening balance sheet. As a result, both the office of the Chief Internal Auditor and Office of the Auditor General must be fully involved in the project from an early stage and should provide timely and value adding input at each phase on what needs to be improved. The audit reports issued should be cognitive of the implementation strategy noting the requirements of each phase until IPSAS is fully adopted.

1.4.1 Phase/Year 1

Main activities

A comprehensive IPSAS Accounting Manual is to be developed and will guide updates to the PFM manual as well as enhancing IT and accounting systems to match with the complexity and volume of transactions of the GoR under the transition strategy at this stage. Furthermore, the transition of non-complex financial statement line items including cash and cash equivalents, short-term payables and employee compensation by the GoR entities will be at the core of activities in this phase. As part of the continuous adoption of accrual aspects of IPSAS, revenue from exchange transactions will be identified and recognised in Phase/Year 2. Furthermore, activities to prepare for the transition of fixed assets (e.g. physical verification of fixed assets and valuation) and revenue from taxes (updating of RRA systems and interfacing with IFMIS) are also in full swing.

The consolidation scope at this stage will be for the central GoR entities, districts and projects.

Update policies

Transition less complex receivables and payables

Chart of accounts

IFMIS - year 1 enhancements

Year 1

Transition exchange revenue

Financial investments


Year 2

Transition employee benefits

Transition inventory

Less complex PPE

Transition public debt


Year 3

Transitiion land and buildings

Transition infrastructure, plant and equipment

Transition grant revenue

Transition intangible assets

Year 4

Transition tax revenue

Transition infrastructure and biological assets

Year 5

Heritage assets and natural resources

Opening balance sheet

Year 6



Format of financials

The financial statements for the first year will comprise the statement of financial position, statement of financial performance and the statement of cashflows. This essentially means that the outlook of the consolidated financial statements for the GoR at this stage will not vary significantly from the current modified cash basis consolidated financial statements of the GoR. This is because only less complex items like cash and cash equivalents, short-term payables and employee expenses have been transitioned. The rest of the items in the financial statements will remain the same (be treated on modified cash basis).

Systems – IFMIS enhanced with a fixed asset functionality to ensure data is captured on all fixed assets.

1.4.2 Phase/Year 2

Main activities

This phase takes over from the first phase by transitioning more complex financial statement line items including revenue from exchange transactions and the accompanying receivables, student loans, financial investments of all public entities and expenses for use of goods and services.

The updating of IFMIS and other key IT systems at this stage continues ensuring that the items being transitioned to accruals accounting at this stage are catered for at the same time preparing updates for the next account balances and flows in phase 4 such as employee benefits, inventory and long-term provisions. These items are an addition to the balances and flows transitioned in the previous phase as outlined above.

At the end of year 2, the consolidation scope would include sectors within the local government cluster entities on top of the year 1 consolidation scope.


The financial statements at this stage build on from the year 1 financial statements by transitioning some items as above and setting aside the transition of more complex areas like employee benefits and inventory for the next phase. This means that the financial statements contain some items treated under modified cash basis accounting while other are on accrual basis IPSAS based on the transition strategy at this point.

The financial statements again will comprise the statement of financial position, statement of financial performance and the statement of cash flows. The statements will largely maintain the outlook of the year 1 financial statements except for the items transitioned to accrual accounting.

1.4.3 Phase/Year 3

Main activities

The balances and flows transitioned at this stage include employee benefits, social assistance expenses, provisions, long-term payables, inventory and revenue from fees, penalties and fines. At the end of this phase the majority of the balances and flows will have been transitioned to accrual basis IPSAS with the exception of complex fixed assets (including their depreciation and amortisation), revenue from taxation whose transition is scheduled for year 5 and revenue from grants scheduled for year 4.

Building on year 2, this phase is an addition to the consolidation scope for year 2, hospitals will be added in this phase as part of the progressive consolidation of the GoR accounts.




The financial statements will be made up of the statement of financial position, statement of financial performance and the statement of cash flows. At this stage, only tax and grant revenues as well as complex fixed assets remain to be transitioned to accruals basis IPSAS framework.

1.4.4 Phase/Year 4

Main activities

In this phase the GoR is expected to complete transition of all the financial statement line items under the current consolidated financial statements as well as adopting the accounting treatment requirements of accrual basis IPSAS for relevant balances and flows such as complex fixed assets, borrowings, inventory and revenues from grants.

Furthermore, IFMIS and integration with databases hosting financial information should have been completed at this stage.

The consolidation scope in this phase will bring on board GBEs and secondary schools on top of the prior year scope.


The financial statements at the end of the year will have all the financial statement line items under the current consolidated financial statements of the GoR fully transitioned to accrual basis IPSAS with the relevant IPSAS requirements and demands for balances and flows such as complex fixed assets, inventory and revenue from grants taken on board. This phase is also expected to produce the first full accrual basis IPSAS statement of financial position which will form the opening statement of financial position.

1.4.5 Phase/Year 5

Main activities

In this phase the GoR will take stock of the implementation conducted so far and assess major areas of noncompliance as well as devise remedies to the gaps noted. This is the year of fine tuning the financial statements and relevant disclosures to enable the GoR make an unreserved accrual basis IPSAS compliance declaration in the next phase.

The GoR will produce a closing statement of financial position which will serve as the opening statement of financial position in year 6 where full compliance to all relevant aspects of IPSAS is expected.

The balances and flows earmarked for transition in this period include infrastructure and biological assets as well as revenue from tax.

The consolidation scope increases to include health centres on top of the scope for year 4.


The financial statements at this stage will comprise the statement of financial position, statement of financial performance, the statement of cash flows and additionally the statement of changes in net assets.

1.4.6 Phase/Year 6

Main activities



Heritage assets and natural resources will be transitioned in the last year of the implementation plan. The consolidation scope at this stage will be the public sector.


The financial statements at this stage will comprise the statement of financial position, statement of financial performance, the statement of cash flows and the statement of changes in net assets.

The financial statements will also include accrual basis IPSAS comparatives i.e. the closing balances as at the end of year 5.

1.5 Outline of human resource capacity and development Implementation of accrual basis IPSAS is part of the wider Public Financial Management (PFM) reforms being implemented by the GoR. To address the persistent capacity gaps, the government through the Ministry of Finance and Economic Planning (MINECOFIN) developed a 5 year PFM learning and development strategy, which commenced in 2015/16 to improve skills and capacity across the entire PFM occupational disciplines. IPSAS is one of the 22 competencies identified and falls under financial reporting and analysis.

A competency proficiency assessment that was carried out when the learning and development strategy was developed indicated that majority of the current PFM staff in public entities are at proficiency level 1 (awareness) meaning that they have a general understanding of the listed competencies or learning areas.

It is estimated that there are 8,441 staff that will need to be trained and this includes Budget officers, Planners, Economists, Accountants, Directors of Finance, Revenue Officers/Accountants, Monitoring and Evaluation Officers, Auditors- Internal, Auditors- External, Procurement Officers and Directors Generals.

Currently, there is lack of a sufficient number of qualified accountants. However, the government is sponsoring over 1,000 accountants in professional courses in CPA/CAT/ACCA which will assist in addressing this gap. IPSAS is a technical accounting area and requires accountants to have a background in accrual accounting concepts. Hence, the professional courses will provide a good foundation for IPSAS training.

To date, the government has sponsored 50 accountants in IPSAS certification and it would be recommended that accountants that have completed the foundation levels of their professional courses are also sponsored to sit for this certification. The other alternative is for ICPAR to tailor CPA or CAT courses for the public sector and incorporate units that cover IPSAS, in addition to other areas in public financial management.

In addition to professional qualifications and IPSAS certification, more tailored training will be required based on the accounting and reporting manual and focusing on accounting areas not currently handled under modified cash basis of accounting such as property, plant and equipment, employee benefits, financial instruments, amongst other areas. This will assist staff to apply accrual basis IPSAS requirements in their day to day finance roles.

Understanding changes required to current workflows/processes and enhancements to IFMIS will require users to be trained once the system is enhanced to enable them capture transactions on accrual basis.

There will also be need for annual update trainings on IPSAS as new developments under the standards emerge. For instance, currently, the IPSAS Board is developing a standard for social benefits which will provide guidance on recognition and measurement of social benefits, including disclosure requirements.

It will also be important to ensure that senior officials outside accounting and audit such as Ministers, Permanent Secretaries, Director Generals and Chairpersons of Boards appreciate the importance of accrual accounting and adopting IPSAS.



In addition, other external stakeholders such as parliamentarians will require an awareness training in order to understand the implications of adopting IPSAS and more so if accrual basis budgeting will be adopted.

1.6 Change management A significant component of IPSAS implementation is change management and particularly for accounting staff and stakeholders to transition their mind-set from cash accounting to accrual accounting, and embracing the new reporting framework and systems. This requires a change management expert to be incorporated in the project team. From the project implementation arrangement which falls under the PFM sector governance arrangement, there will be an expert in charge of change management and training in the IPSAS Project Team.

Change management will also be incorporated through developing and training drivers of change from selected PFM staff in job categories I and II (change champions). The two job categories include political appointment positions and senior servants and professional staff who will drive change at the lower levels of technical staff.

Part of change management is putting in place effective communication on the project. A well-thought communication plan towards the various categories of stakeholders has been developed in this blueprint. An awareness and information campaign on the benefits of the accrual accounting project and regular communication/reporting on the project wins and successes to keep up the motivation and buy in throughout the project should be developed by the GoR.

To ensure stakeholder buy in, particularly for external parties such as parliamentarians, an awareness training will be required on the benefits of accrual accounting. In addition, the project should be participative to ensure key stakeholders such as external auditors provide input to the project and are kept up to date on the implementation progress to reduce the level of qualified or adverse audit reports during the transition period.

1.7 Projected costs of implementation

The projected cost of the project is USD 6,879,900 for six years as summarised in the table below. The main

elements considered are level of effort for:

Putting in place a strong project team of a project manager and three experts for change management and training, fixed assets management and policies, regulations and guidelines;

Conducting a comprehensive review and updating policies, regulations and guidelines;

Developing a comprehensive training programme and material;

Costs of running trainings including venue and other participant costs;

Experts for valuing land and buildings, infrastructure and complex plant and equipment;

Costs of conducting physical verification of property, plant and equipment;

Experts for assessing and integrating/interfacing IFMIS with tax systems; and

Costs of experts to value complex inventory items.

The unit costs are aligned to current unit costs in the market inclusive of taxes. The quantities are based on estimates of the various variables (such as number of staff to be trained, level of effort to value complex areas, etc.).

Areas without budgets below will be handled by internal staff across government. For instance, the IFMIS team is an in-house team with a separate budget and hence no costs are envisaged for further development of IFMIS.



Activity Year Total

1 2 3 4 5 6

1 Update policies, systems and initial training

1.1 Develop/update regulations, policies and guidelines 216 - - 144 - - 360

1.2 Set up project management arrangements 324 324 324 324 324 324 1,944

1.3 Training and capacity building 179 425 425 425 122 - 1,576

Subtotal 719 749 749 893 446 324 3,880 2 Transition to accrual basis IPSAS using a phased approach

2.1 Statement of financial position

2.1.1 Engineers and property experts (identification and valuation of assets)

- 288 408 - - - 696

2.1.2 Accounting experts - valuation of public debt in line with IPSAS requirements

- - 144 - - - 144

2.1.3 Actuaries - valuation of employee benefits in line with IPSAS requirements

- 432 - - - - 432

2.2 Statement of financial performance

2.2.1 Consultant - adaptation of RRA systems and estimation of receivables and bad debts

- 432 864 - - - 1,296

2.2.2 Consultant - review of grant documents and identification of conditions

- - 432 - - - 432

Subtotal - 1,152 1,848 - - - 3,000

TOTAL 719 1,901 2,597 893 446 324 6,880

*All figures are in USD'000

1.8 Project team and staffing The IPSAS project will be implemented by the Project Management/Implementation Unit, a special unit under the IPSAS Technical Working Group which is part of the wider PFM reforms by the GoR. The full structure through which the project implementation team will thrive will comprise the following roles and responsibilities:

Minister of Finance and Economic Planning

PFM Sector Working Group

Project owner and sponsor – Permanent Secretary and Secretary to the Treasury (PS/ST)

IPSAS Technical Working Group (TWG) – Chaired by the Accountant General

Project Manager – Heads the project implementation team.



Gap analysis



2 Gap analysis

2.1 Overview and approach

This section covers a gap analysis of current accounting policies and practices against accrual basis IPSAS

requirements. The information reviewed include relevant laws and regulations, the draft PFM manual and financial statements issued in prior years. Also analysed is the information collected using a tool rolled out at the

commencement of this assignment and discussions with various stakeholders. Further analysed is existing

systems in order to identify gaps.

A typical accrual basis IPSAS implementation assignment has three phases. This gap analysis and

implementation plan covers the first phase and will guide implementation of the next two phases.

Conversion to IPSAS should use a step by step approach where the transition is conducted using a phased

approach. Accounting areas that are easier to convert should be transitioned first while data is collected and

systems are set up for the more complex areas such as property, plant and equipment.

2.1.1 Approach to Phase 1 – Gap analysis

The approach to the gap analysis is summarised below:

1) Defined the elements to be included in the first set of accrual basis IPSAS financial statements (“TO BE”

situation) (= Accrual Basis IPSAS).

2) Identified and confirmed the existing policies and the information currently available at the Government of Rwanda (“AS IS” situation).

Ga

p a

na

lysi

s

Gap analysis

Develop impementation plan/ road map

Co

nv

ersi

on

Phase 1

Set up project management team

Update policies, processes and systems

Develop training programme and material

Initial training on IPSAS

Phase 2

Transition account balances using a phased approach

Phase 3

Prepare first set of financial statements

Em

bed

din

g

Continous training on IPSAS

Continuous monitoring of developments in IPSAS and update policies

Current accounting practices

Accrual basis IPSAS



3) Identified the data gaps and areas of enhancement/improvement;

4) Determined the priority areas on which to focus in the determination of an action plan to collect the missing information/data.

2.1.2 Data collection

A data collection tool organised around the following key components of financial statements which are mapped

to IPSAS requirements was rolled out to key government institutions. The areas covered are as follows:

Accounting area Applicable IPSAS

1. Fixed assets IPSAS 5, 13, 16, 17, 21, 26, 32

2. Intangible assets IPSAS 5, 21, 26, 31

3. Inventories IPSAS 12

4. Revenue IPSAS 9, 11, 23, 27

5. Accruals and expenses GAAP

6. Employee benefits IPSAS 39

7. Provisions IPSAS 19

8. Financial instruments IPSAS 4, 28, 29, 30

9. Reporting IPSAS 1, 2, 3, 14, 18, 20, 22, 24

10. Consolidation IPSAS 35, 36, 37, 38, 40

The purpose of the data collection tool was to gather information on the accounting practices that are currently in place within the Government of Rwanda.

Meetings were held with key stakeholders from Office of the Accountant General, Head of IFMIS, Head of Budget, Head of Fiscal Decentralisation Unit, Chief Internal Auditor, Head of Government Portfolio, Office of the Auditor General, Rwanda Revenue Authority, Ministry of Infrastructure, Rwanda Transport Development Agency, Rwanda Housing Authority, Rwanda Social Security Board and Rwanda Development Board.

The results of the gap analysis are summarised in the sections below per accounting area.

2.1.3 Gap analysis

2.1.3.1 Overview

A key element in this gap analysis was to determine the current accounting policies and procedures within Central and Local Government and other budgetary and non-budgetary entities considered in regards to consolidation of the financial statements. The areas reviewed in the gap analysis include;

Laws and regulations

IPSAS requirements

Accounting areas



2.1.3.2 Gap analysis of laws and regulations

The gap analysis commenced with an analysis of laws and regulations regulating financial reporting and

determining if amendments would be required at this level.

A review of Organic Law N° 12/2013/OL of 12/09/2013 on State Finances and Property indicates that the law allows the Minister to issue an order that determines the accounting standards and policies applicable to all public entities. Hence, in terms of adopting accrual basis IPSAS, no further changes are required to this law. However, in terms of adopting accrual basis budgeting, further amendments will be required particularly on the format and content to recognise assets and liabilities. Refer to appendix 6 for the detailed analysis conducted.

Article 99 of Ministerial Order N°001/16/10/TC of 26/01/2016 relating to Financial Regulations stipulates that central government and decentralised entities shall follow IPSAS while public institutions shall follow IFRS. This sets the stage for IPSAS adoption and from the review, minor amendments were required particularly to recognise the format and content of accrual basis IPSAS financial statements. Refer to appendix 5 for the detailed analysis conducted.

2.1.3.3 In-depth gap analysis against IPSAS requirements

A gap analysis of recognition, measurement and disclosure requirements under each IPSAS standard against current practices was conducted. Refer to appendix 2 for the in-depth gap analysis conducted. The gap analysis analyses the degree of compliance with accrual basis IPSAS and compares the current reporting framework (modified cash basis of accounting) with accrual basis IPSAS requirements. The gap analysis also reviews the policies in the draft PFM manual. The main gaps were standards not applicable under the current reporting framework of modified cash basis of accounting and policies that are either missing in the draft PFM manual or that need to be updated.

2.1.3.4 Gap analysis of current financial statements

Under revenue, the main gap results from the treatment of revenue from non-exchange transactions, which is the

most significant revenue source consisting of taxes and transfers. Taxes are recognised when cash is received as opposed to when a taxable event occurs. Hence, tax receivable at the end of the period but not paid is not recognised. The information is available from the various tax collection systems of RRA. Most taxes are paid monthly on the 15th of the following month and therefore the amount paid subsequently can be accrued and reported in IFMIS. The challenge is personal and corporate income tax which would need to rely on prior year estimates as they are paid quarterly.

Under transfers which constitute grants and transfers, the main data gap is identifying if the conditions have been fulfilled in order to determine what should be recognised as revenue.

Revenue from exchange transactions such as sales of goods and services, and other revenue such as property income are currently reported under administrative fees, fines, penalties, and licences while they should be reported separately as recognition points and nature of revenue is not similar.

Under expenditure, the main data gap is post-employment and other long-term benefits are not captured and grant conditions are not tracked for grants and other transfer payments. IFMIS is currently not able to capture or determine prepayments and hence these are expensed.

IFMIS does not have an inventory module hence inventory items are also expensed. In addition, property, plant and equipment is currently expensed and hence depreciation and amortisation expense, including impairment of property, plant and equipment is not captured. Intangible assets are also expensed and under IPSAS, such costs should not be subsequently capitalised. Going forward, a system for accounting for costs for intangible assets needs to be put in place to enable these costs to be captured.



In summary, the gaps in the statement of financial performance relate to items that are not accrued and hence not reported. The major data gaps as explained in the next section are in the statement of financial position because under the current accounting practices, only financial assets and liabilities are reported.

Under non-current assets, land and buildings, infrastructure, plant and equipment have the most significant data gaps. Rwanda Housing Authority maintains a database of government land and buildings. The valuation of the land and buildings was last done in 2012 and new assets after 2012 have not yet been valued.

Rwanda Transport Development Authority maintains a database of roads and bridges countrywide. However, the database has no values and information on the condition of roads. A review of asset registers maintained in other sectors such as health indicate data on acquisition cost and values is largely missing. Hence, under the implementation plan, significant effort will be allocated to transitioning property, plant and equipment over three years and this will commence with undertaking a physical verification of all assets and valuing the assets without values.

Under current assets the main data gap is related to inventories which are currently expensed. Hence, as part of the implementation plan, a stock take will be conducted of all inventory items and values assigned. There is also a data gap with prepayments which are not recognised and may require entities to review accounting records to get an inventory of all prepayments. Once IFMIS is enhanced with proper trigger points, entities will be able to capture prepayments. Other items that are currently not captured are current recoverables from non-exchange transactions.

Under non-current liabilities, pension and terminal benefits to be paid in future years are not recognised and long-term borrowings are currently captured as revenue when the funds are received. Long-term borrowings should be measured at amortised cost using the effective interest rate method. Long-term provisions and long-term payables are also not captured. Under accounting practices, the current portion of long-term borrowings is currently not captured. Short-term provisions and short-term employee benefits related to performance bonuses are also not accrued. Refer to the data and system gap analysis under appendix 3 and 4 which are also further discussed in the next section.

2.1.3.5 Gap analysis per accounting area

Further analysed are the different accounting areas to identify gaps with regard to accrual basis IPSAS. The areas

included for each accounting area cover those aspects/dimensions/specificities that are considered important in the context of an IPSAS-based accrual accounting implementation. These areas relate to the accounting technical aspects (recognition, measurement and disclosure requirements) as well as the availability of the relevant accounting data.

2.2 Detailed findings

Detailed findings are summarised below.

2.2.1 Fixed assets

2.2.1.1 Overview

The major fixed asset classes which are within the reporting units and which are part of the consolidation are

land, buildings, infrastructure assets, military assets, heritage assets (national museum) and IT equipment. Each of these major fixed assets are managed by different entities while minor assets such as office furniture and equipment are managed under the respective entity. Refer to the detailed asset gap analysis under Appendix 1 indicating the entities managing each category of assets and the data gaps noted.



Property, plant and equipment

All entities are required by law to maintain a fixed asset register. As property, plant and equipment is expensed on acquisition, a fixed assets register is maintained for logistics and maintenance purposes and not for accounting or financial reporting purposes. As a result, the asset registers reviewed had incomplete information, particularly on values and useful lives.

Hence, the main gaps identified under fixed assets is lack of up to date values for land and buildings, lack of values for infrastructure assets (roads and bridges), intangible assets are expensed, lack of a complete inventory of leases and incomplete asset registers for the other categories of assets (comprising of missing information on tag numbers, date of purchase, disposal date, condition, etc. for some assets).

In addition, entities are currently using different databases for maintaining fixed assets registers and there is no harmonised software or database for maintaining the fixed assets registers resulting in lack of harmonisation in the information maintained. Recommendation is made that asset registers are maintained in IFMIS once the fixed assets module is rolled out. This will ensure completeness and consistency of information on fixed assets.

There will also be need for guidance on the costs to capture for acquired property, plant and equipment. Currently, the practice is to capture purchase prices without adjusting for directly attributable costs of bring the asset to the location and condition necessary for it to be capable of operating, borrowing costs, costs of dismantling, removing the asset and restoring the site, amongst other costs.

The central government, specific budgetary entities and government business entities have self-constructed assets. These assets include buildings under Rwanda Housing Authority (“RHA”) and districts, military assets under the Ministry of Defence, roads and bridges under Rwanda Transport Development Agency (“RTDA”), district buildings and heritage sites under the districts, energy plants under Rwanda Energy Group (“REG”), water and sanitation assets under Water and Sanitation Corporation (“WASAC”) and aviation assets under Aviation Travel and Logistics Holding Limited (“ATL”). However, most government assets are acquired or constructed through tendering and external contractors. In each budgetary entity, the Chief Budget Manager is in charge of the fixed assets under either of the departments: logistics, estate, or maintenance unit.

Under the current legislation, decentralised entities have rights, subject to the approval of the Minister in charge of finance, to borrow funds for financing construction of fixed assets. Such financing is sourced from commercial banks for local governments and is obtained upon approval by the Minister of Finance as per the current legislation requirements. Borrowing costs are expensed once incurred in the financial statements.

Leases

The GoR engages in lease accounting where it’s either a lessor or a lessee. The lease agreements are maintained by respective budget or non-budget entities. In a year, different lease contracts are signed depending on the needs for each asset. The main categories of lease contracts are operating leases within different reporting entities such as; Ministry of Sports leases out space at the Amahoro stadium. There is currently no comprehensive database of lease contracts and whatever information is available, is held in excel in different entities, making it challenging to determine if the information is complete.

Comprehensive accounting policies and guidelines on leases should be developed. During IPSAS implementation, each entity will be required to make an inventory of all types of existing leases contracts. All leases must be classified at inception as either finance or operating leases. Lease categorisation is critical as it drives accounting treatment. Public Private Partnerships

Public Private Partnerships (“PPP”) are governed by an Act of Parliament and are managed by Rwanda Development Board. RDB serves as the secretariat of the PPP Steering Committee as per the Prime Minister’s



orders. Most of the PPPs are in the energy and water sector of the economy. Currently, there are approximately 40 service concession agreements/PPP contracts. The agreements and contracts signed are currently managed in a database maintained by the PPP unit at RDB. RDB is currently developing, with the help of World Bank, a framework for identifying commitments, contingencies and liabilities in PPPs that will be used by MINECOFIN. Once the framework is completed, information on existing PPP projects will be captured in the database. Some of the key fields in the database are as follows:

Parties to the PPP including operator, grantor and grantee;

Duration of the PPP;

Investment value of the PPP including cash flows over the duration; and

Conditions. A comprehensive policy and detailed guidelines are required to guide entities on capturing service concession agreements to ensure service concession assets are recognised and a corresponding financial liability against which future payments are allocated to reduce the liability. Some guidelines already exist and these will need to be linked to accounting procedures to be included in the new PFM manual. The database at RDB also needs to be reviewed in details to ensure it is complete and conditions are properly captured. Refer to appendix 1 for the specific gaps identified with regards to the PPP database. Investment property

The government also has assets (land, buildings) that are held to earn rentals or for appreciation such as the RDB building, Nyarugenge building etc. These buildings have been rented out to entities such as banks for rental income. There is no separate register or database for investment property for the government and all land and buildings are captured by RHA and the districts under one database. There is a need to distinguish between properties that are held for use by the government and investment property (properties earning rentals or for capital appreciation or both) to enable proper categorisation between property, plant and building and land or buildings held for investment potential. The recognition criteria for investment property is similar to property, plant and equipment.

Biological assets

RAB under its departments: crop production and food security, research and animal resources has biological assets ranging from livestock (cattle, goats, pigs and chickens) and crops. The college of agriculture, animal sciences and veterinary medicine at University of Rwanda has biological assets for its various academic purposes.

There currently no comprehensive database of biological assets with values. University of Rwanda had prepared a policy for biological assets in line with IFRS requirements which covers more farm management aspects than accounting aspects. However, it can be a starting point for preparing a comprehensive policy in line with IPSAS requirements. There should also be a clear distinction between biological assets and agricultural product as this will guide the accounting treatment.

2.2.1.2 Gaps identified

For the purpose of identifying the gaps in the current reporting framework, the following IPSAS were considered in the analysis:

IPSAS 5: Borrowing costs; IPSAS 13: Leases; IPSAS 16: Investment property; IPSAS 17: Property, plant and equipment



IPSAS 21: Impairment of non-cash generating assets; IPSAS 26: Impairment of cash generating assets; IPSAS 32: Service concession arrangement: Grantor; and IPSAS 27: Agriculture

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, we identified the gaps below:

Area Gaps identified

Policies The GoR drafted a fixed assets policy manual from 2013 to 2014. The manual incorporated both administrative and accounting requirements (drawn from both IPSAS and IFRS). Rwanda Housing Authority rolled out administrative requirements of the manual but the accounting requirements were not rolled out because that part was awaiting IPSAS implementation. As this manual was developed in 2013 and finalised in 2014, it needs to be updated with changes in IPSAS and IFRS over the last three years.

Also analysed are the current policies as used under the current modified cash basis of accounting and noted the following gaps:

Borrowing costs incurred in connection with acquisition, construction or production of a qualifying asset are not capitalised. The general rule is that all borrowing costs should be expensed in the period in which they are incurred. However, when borrowing costs are incurred in connection with the acquisition, construction or production of a qualifying asset, the entity can elect to capitalise them as part of the cost of the qualifying asset. This is an accounting policy choice. Refer to section 4.1.2 for the treatment of borrowings costs under accrual basis IPSAS.

Leases are not classified at inception as either finance or operating leases and the accounting treatment is not in line with IPSAS.

Recognition, measurement, presentation and disclosure of investment property is not in line with IPSAS. Investment property is not captured on the statement of financial position.

Property, plant and equipment are expensed when acquired and recorded in asset register. Recognition, measurement, presentation and disclosure of property, plant and equipment is not in line with IPSAS.

There is no policy on service concession agreements and accounting treatment.

Impairment is currently not recognised and measured for both cash and non-cash generating assets.

Biological assets and agricultural products are not recognised there is need to develop a comprehensive policy to guide on their recognition and measurement.

People

Staff need to be trained on accounting for fixed assets covering the areas below:

Leases

Investment property


Impairment of non-cash generating assets

Impairment of cash generating assets

Service concession arrangement: Grantor

Agriculture/Biological assets

The training should cover both operations and accounting staff to ensure that they are both conversant with IPSAS requirements on fixed assets.

Following the training, there will also be need for close coordination between the accounting team and operations team to ensure fixed assets are properly captured.




Also there is need to have coordination between MINECOFIN and other key entities that maintain major government assets such as Rwanda Land Authority (RLA), Rwanda Information Society Authority (RISA), Rwanda National Museums and Tourism (RNMT), RHA, RTDA, RDB and other entities.

Other experts should be involved as required to value assets and also assist in determining impairment. Some of the experts that will be required include valuers and quantity surveyors (for buildings), agriculture experts for biological assets, civil engineers for infrastructure assets and other experts as required.

Systems IFMIS has no fixed assets module and also specific workflow for fixed assets.

In addition, the current procurement flow under IFMIS does not distinguish between goods and services, inventory and fixed assets.

There is also no system in place for capturing assets under construction such as roads and buildings.

IFMIS needs to be enhanced to enable leases to be captured and properly accounted for as either operating or finance leases.

IFMIS also needs to be enhanced to enable investment property, heritage assets, concession agreements and biological assets to be captured.

Overall, there will be need to review the process flow for the fixed asset life cycle (from acquisition to disposal) to ensure compliance with IPSAS accounting requirements. The IT requirements will need to be defined in the accounting system to enable proper accounting for fixed assets.

Processes

The following gaps were noted:

There is no process in place for capturing and capitalising borrowing costs.

Lack of a complete inventory of all types of existing lease contracts of the Government and a process to determine the type of lease (finance or operating) to guide the accounting base treatment.

Lack of a process of identifying and capturing investment property and hence, no complete listing or database of all investment properties held.

Lack of a central database of all government property, plant and equipment.

Lack of a complete database with values of major infrastructure assets such as roads and bridges.

Lack of a complete database with values for heritage assets.

Lack of a comprehensive listing or database of all concession service agreements.

Lack of a complete and centralised biological assets register for the government for the biological assets under GoR control.

2.2.1.3 Recommendations for incorporating in the action plan

Fixed assets will be recognised in the years 3 to 6 of the proposed IPSAS implementation plan. However, fixed

assets identification, physical verification and valuation will be done in years 1 to 3 of the implementation plan. This will also involve the rectification of data and system gaps identified as per the appendices 1 and 4. The following activities are considered for incorporation into the action plan:



Develop a process for capturing and capitalising borrowing costs.

Develop a complete inventory of all types of existing lease contracts of the Government and a process to

determine the type of lease (finance or operating) to guide the easy accounting treatment.

Develop a process of identifying and capturing investment property to ensure there is complete listing or

database of all investment properties held.

Develop a central database of all government property, plant and equipment.

Develop a complete database with values for major infrastructure assets such as roads and bridges.

Develop a complete database with values for heritage assets.

Develop a comprehensive listing or database of all concession service agreements.

Develop a complete and centralised biological assets register for the government.

Review the process flow under IFMIS for fixed asset life cycle (from acquisition to disposal) and develop a

fixed assets module that enables compliance with IPSAS requirements. The development of the process flow

and the fixed assets module in IFMIS should be implemented in the year 1 (i.e. FY 2018/2019) of the six year

implementation plan in readiness for the recognition of fixed assets beginning in year 3 of the

implementation plan.

Train accounting and operations staff on accounting for fixed assets and ensure close coordination between

the two so that fixed assets are properly captured and recognised.

Develop, in conjunction with the entities such as RTDA, RHA and RDB, a valuation policy for fixed assets as

roads, land and buildings. This policy should be rolled out to local authorities as well. The circular can

accompany the introduction of the IFMIS asset register.

Harmonise the roles of the custodian entities of the GoR assets as well as the suitability of the information

they maintain in relation to accrual basis IPSAS reporting as per the table below:

Custodian entity Recommendation on bridging gaps

Rwanda Land Authority (RLA)

Develop reporting templates including the fixed asset register as per the GoR fixed assets policy.

Coordinate with MINECOFIN on development of valuation policy for land as part of the fixed assets valuation policy to be developed at central level.

Revise land assets records (at the least) to ensure that the information is able to generate asset information to facilitate IPSAS reporting or develop a database to interface with IFMIS Fixed assets module for IPSAS reporting purposes.

Engage valuers to determine the initial recognition values of the assets.

Rwanda Information Society Authority (RISA)

MINECOFIN should link RISA to its payment module (contract management module) in IFMIS so that RISA has oversight over all ICT procurements to give guidance on pricing which is crucial to the initial recognition of the ICT assets especially software.

Rwanda National Museums and Tourism (RNMT)

Engage valuers to determine the initial recognition values of the assets in preparation for the recognition of heritage assets under intangible assets in year 6 of the implementation plan.

Rwanda Housing Authority (RHA)

Coordinate the data collection to ensure the data is complete according to the parameters of assets under RHA’s administration.

The data maintained on land and buildings should be aligned to IPSAS reporting requirements i.e. using either the cost model or revaluation model to carry the assets in the books of accounts. The selection of the model is a matter of choice of accounting policy. In practice, land is normally valued using the revaluation model and buildings using the cost model. Refer to Section 4.1 of the report for the description of the two models.




While IPSAS does not require the use of professional valuers it does however encourage the use of the professional valuers who understand the local market where the valuation of the assets involved is significant as in the case of RHA.

For IPSAS reporting, RHA has two choices for the assets under its custody: to maintain a central level fixed asset register or to devolve the task to the individual GoR entities using the assets.

o Central level fixed asset register –RHA already maintains a database of assets under its mandate. Once the database is updated for the required fields and information to enable accrual basis IPSAS computation of the Net Book Value of each asset, the information will be updated in IFMIS. This then means that RHA should be granted access to the Fixed Assets module in IFMIS so that updates are taken account of in real time. Under the circumstances, maintaining a fixed assets register at central level is more feasible for the GoR because the nature of some of the assets like buildings is that they are not entirely used by the government entities; they have portions of them that are leased to third parties. Therefore it is more feasible to be managed centrally. This will also ease the burden of financial reporting in relation to those assets for government entities which are partly occupying some of the government buildings. Furthermore, the maintenance cost for the assets are incurred centrally at RHA which also means that a central level fixed asset register is more feasible. RHA serves as the overall Project Manager for any GoR building being constructed. RHA is also mandated to manage GoR land and buildings. Therefore, assets constructed are still recognised in the RHA database. Therefore RHA is better placed to manage, centrally, the fixed asset register in relation to GoR land and buildings. RHA receives a budget allocation from the GoR as a supplement to its other sources of revenue including state or donors’ subsidies, income from RHA services, interest from its property and loans to RHA, as approved by the Minister in charge of finance; and donation and bequest.

o Entity level fixed asset register – this approach is more prudent for IPSAS

reporting for various reasons. Some of the reasons are as follows:

The entities will be able to match their depreciation (buildings) and maintenance costs for the assets to the economic value generated through the use of the assets in line with the accrual basis IPSAS.

Decisions on revaluations, maintenance and general management of the assets are entity level decisions backed or guided by GoR policy and entity level fixed asset register management makes this more efficient.

Timely reporting of the period end results as the entity maintain their own books which they easily update and feed into IFMIS.

Sometimes the central government acquires assets under its budget for the use or benefit of the local authorities (refer to section 4.1.2 of this report below). The treatment of such assets is facilitated under the entity level fixed asset register more efficiently in line with IPSAS requirements than under the central level fixed asset register.

To sum up an entity level asset register provides ‘fine-tuned’ information about fixed assets and the value the assets create through their continuous use by the individual GoR entities. Entities such as RHA and RTDA can be given access rights where such entities are made super users on the IFMIS fixed assets registers and ensure that the




register has got all values that are required to enable them obtain the information required. At the level of consolidation it is more appropriate and convenient to maintain central fixed asset register. Therefore, for the GoR it is more feasible to allow RHA to maintain the fixed asset register centrally and then have the fixed asset register embedded in IFMIS so as to facilitate on time update of the asset information. The following table defines the key roles of the GoR entities as far as the maintenance, updating, accounting and reporting of assets are concerned:

User entity RHA MINECOFIN Central level fixed asset register Maintenance of assets register

N/A RHA database interfaced with IFMIS where the data maintained at RHA can be fed into IFMIS for purposes of reporting.

Ensure asset information relevant for accruals IPSAS reporting is retrieved from the RHA system. MINECOFIN to maintain and update the fixed asset module in IFMIS.

Updating of asset register

Entities to promptly report movements and events triggering movements in the fixed asset balance to RHA to ensure timely update of the fixed asset register.

RHA to coordinate with GoR entities at the various levels of the GoR entities to ensure that the updates relating to the assets in the custody of the GoR entities are captured in IFMIS timely.

MINECOFIN to pass all bulk adjustments in IFMIS upon receiving the basis information bringing about the adjustments from RHA.

Accounting and reporting

For entities which are directly incurring maintenance costs for buildings they should record those costs in their general ledger in IFMIS.

RHA to maintain the fixed asset register in line with the accruals basis IPSAS principles e.g. capitalisation and treatment of borrowing costs.

MINECOFIN to ensure routine reporting on land and buildings is done in good time and as demanded by the GoR policies.

Coordinate with MINECOFIN on link to IFMIS Fixed assets module so as to get real time updates on the fixed assets under RHA’s mandate and also ensure completeness of the information.

Rwanda Transport and Development Agency (RTDA)

Have records/database of all roads; its length and nature of such roads.

Compile information on costing of those roads using existing information such as the costs incurred for construction.

Engage valuers to determine the initial recognition value of the assets under its custody.




Devolve the management of the fixed asset register for roads and structures under the districts to the local authorities who then report to both MINECOFIN and RTDA through IFMIS fixed asset module. This is due to similar reasons given above in the case of RHA.

Strengthen the relationships and coordination with the local authorities in order to efficiently execute the reporting responsibilities.

Local authorities Engage valuers to determine the initial recognition value of the assets in their custody. This should be guided by the valuation policy developed by MINECOFIN in conjunction with the RDB, RHA and RTDA among others.

Coordinate entity level resources and systems (including pushing for access to IFMIS fixed assets module) in readiness for reporting requirements under the IPSAS framework.

2.2.2 Intangible assets

2.2.2.1 Overview

The main intangible assets identified are: computer software which are either externally purchased (Such as Sage,

Pastel, QuickBooks etc.) or internally developed (such as IFMIS, IPPS etc.), licences, operating rights or rights of use, acquired patents and copyrights, etc. Classification of intangible assets throughout the general government sector is based on the chart of accounts. The purchase cost and other relevant costs relating to the software are governed by the approved finance law. There is no specific department as well as full time employees responsible for the operational management of intangible assets except for computer software. However, for internally/externally developed or purchased software, the ICT department in respective reporting units is responsible for their operational management.

The reporting units do not have a database/register with respect to externally or internally developed software. There is no clear guidance on management of software owned by the government.

All intangible assets acquired or developed internally are expensed to the statement of revenue and expenditure.

The internally developed software has not been valued because the cost related to the software is expensed. Typically, the expensed amount in aggregate should be the value to attach to the specific software developed.


For the purpose of identifying the gaps in the current reporting framework, the following IPSAS were considered in the analysis:

IPSAS 5: Borrowing costs; IPSAS 21: Impairment of non-cash generating assets; IPSAS 26: Impairment of cash generating assets; and IPSAS 31: Intangible assets.

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews and the following gaps were identified:




Policies The fixed assets management policy and framework covers intangible assets but was developed in 2013 and needs to be reviewed and updated with changes to IPSAS requirements.

Under the current modified cash basis of accounting, intangible assets are expensed and will require to be recognised, measured, presented and disclosed in line with IPSAS requirements.

People There will be need to allocate a staff under each entity to be in charge of intangible assets. This role can be assigned to the staff currently in charge of fixed assets and train the staff on accounting for intangible assets.

Systems IFMIS needs to be enhanced to capture the costs of internally developed software and also capitalising costs of externally purchased software.

Processes There is no process in place for capturing costs of internally developed software. In addition, there is no complete database/register of intangible assets for the Government.

2.2.2.3 Recommendations

Identify all intangible assets owned by the GoR and its related entities and update the intangible asset register.

Establish a specific department or staff that will be responsible for the intangible assets.

Develop a policy on recognition, measurement, presentation and disclosure of intangible assets.

IPSAS 31 requires all intangible assets to be recognised as an asset and amortised. However, items initially recognised as an expense cannot be reinstated (i.e. capitalised at a later date). As the current intangible assets of GoR were expensed (based on the current accounting framework on modified cash basis of accounting), a process will need to be developed to recognise future intangible assets as assets if it meets the criteria set i.e. if identifiable, the public sector entity has control over it, it is probable that future economic benefits or service potential will flow to the entity and the cost of the asset can be measured reliably

Develop or insert code for intangible assets on the CoA as outlined in section 5.1.5.4 of this report.

2.2.3 Inventories

2.2.3.1 Overview

The PFM manual defines inventories as assets in the form of materials or supplies to be consumed in the production process or in the rendering of services. The government has the following major types of inventory items: finished goods, work in progress, raw materials, stationaries, packaging materials and ammunition.

Under the current modified cash basis of accounting, public entities expense inventory when purchased rather than when used. The purchase cost of inventory items should be aligned to the finance law as approved by parliament.

Most of the reporting entities in the consolidated financial statements have a permanent inventory system (off-the-shelf) which is maintained by the logistics department. However, there is no standard module to keep track of inventory as entities use either a manual or an automated system.

Inventory is measured at cost not taking into consideration impairment. This is because there is no clear guideline in relation to measurement of inventory.

The information recorded under current systems include; inventory number, number of items by article, acquisition cost, acquisition date and prevailing cost. However, most inventory items are not valued at cost in the system or rather have no value attached to them.



The government through MINECOFIN has documented year-end procedures for stock take. The stock take exercise is performed at least monthly or annually. However, there is no process in place for identifying and accounting for obsolete stocks.


For the purpose of identifying the gaps in the current reporting framework, the following IPSAS were considered

in the analysis:

IPSAS 12: Inventories

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, the following gaps were identified:


Policies Under the current modified cash basis of accounting, inventory is expensed. The inventory policies and procedures in the PFM Manual need to be updated in line with IPSAS requirements for recognising, measuring, presenting and disclosing inventory.

People The staff in charge of inventory will require training on:

IPSAS requirements over inventory

Updated policies and procedures for inventory

Identifying and accounting for obsolete stocks

Valuing inventory items

Inventory count procedures and controls

Year-end processes over inventory stock takes.

There will also need to have close coordination between staff in accounting and stores management to ensure inventory is properly captured and accounted for.

Systems IFMIS does not have an inventory module that can capture inventory items in line with IPSAS requirements.

Processes The following processes need to be updated in line with IPSAS requirements over inventory:

Capturing and maintaining complete records of inventory items

Stock count processes and reconciling with accounting records

Valuation of inventory items

Identifying obsolete stocks

2.2.3.3 Recommendation

Develop policies and procedures over inventory in line with IPSAS requirements.

Develop processes for identifying obsolete inventory.

Develop a policy and processes for valuing inventory.

Ensuring timely recording and completeness of the physical inventory at reporting date.

Develop an inventory module under IFMIS.



2.2.4 Revenue

2.2.4.1 Overview

The main sources of government revenue include:

a) Revenue from taxes

This mainly includes domestic taxes, VAT, excise duty, international trade and transactions as summarised below.

Income, profits and capital gains

1 Corporate Income Tax (CIT)

Annual tax declaration must filed with Rwanda Revenue Authority by 31 March of the following tax period. Any tax payable is also due at the same time. In case of companies with a special year end, the return is due within three months of the following year after the year end. Companies also file quarterly tax returns and make relevant payments by 6th, 9th and 12th month. The quarterly tax payments are calculated as 25% of the prior year tax liability declared. The corporate income tax rate is 30%.

2 Personal Income Tax (PIT)

Individuals must also file their annual tax declaration by 31 March of the following tax year, except (i) where the only income is employment income or (ii) investment income which has been taxed under withholding tax system.

3 Pay-as-you-earn (PAYE)

The tax returns and payments are done on a monthly basis and due by 15th of the following month i.e. deadline for PAYE for January 2018 is 15th of February 2018. Small business are allowed to file and make tax payments on a quarterly basis.

4 Withholding taxes

The tax returns and payments are done on a monthly basis and due by 15th of the following month i.e. deadline for PAYE for January 2018 is 15th of February 2018.

Where there is no withholding tax due, a nil return should be submitted where the WHT system has been activated.

Goods and services

1 Value Added Tax (VAT)

The tax returns and payments are done on a monthly basis and due by 15th of the following month i.e. deadline for VAT for January 2018 is 15th of February 2018. Small business are allowed to file and make tax payments on a quarterly basis. The VAT rate is 18%.

2 Excise Filed and processed every 10 days (decades) and returns/payments are due within 5 days after the decade. The excise duty rates varies per various excisable items.

3 Mining royalties The tax returns and payments are done on a monthly basis and due by 15th of the following month. The base for computing the minerals tax is based on the customs declarations for exports. The filing is done online similar to that for withholding taxes.

4 Strategic reserve levy

Filed and processed at Customs.

The tax is paid on declaration at the point of importation.

International trade and transactions

1 Import duty Filed and processed at Customs.



The tax is paid on declaration at the point of importation.

2 Infrastructure development levy

Filed and processed at Customs. The tax is paid on declaration at the point of importation.

Taxes are recognised when received. Under domestic taxes, tax payers pay CIT and PIT on a quarterly basis depending on the previous year’s performance. Other taxes such as VAT, withholding tax, PAYE are filed on a monthly basis making it easier to accrue for taxes which are due. Under customs, importers pay advances on all custom duties and taxes on a prescribed account and then use the money to clear the goods once they arrive.

The tax collection process is computerised which further facilitates the process. The following systems are in place:

E-tax for domestic taxes

Rwanda Electronic Single Window for Customs

Local Government Taxes and Fees System

Non - Fiscal System

b) Revenue from transfers

The main revenue from transfers includes:

Budget support which is the transfer of resources (bilateral or multilateral) from development partners to the Rwandan budget. These transfers are recognised when cash is received.

Project support where transfers are made to projects which may stand alone (without using government systems) or embedded in Single Project Implementation Units or using government systems. These transfers are recognised when cash is received.

Grants from individuals, local organisations and philanthropists. These transfers are recognised when cash is received.

The grants are supported by financing agreements that specify the terms and conditions to be fulfilled. Examples of terms include review missions, audits, reporting requirements and meeting agreed targets or benchmarks.

A Development Assistance Database (DAD) records aid commitments and disbursements made to Rwanda by international donors. The External Finance Division (EFD) under MINECOFIN is responsible for oversight and management of external aid. Donors report to the DAD on a quarterly basis, and have direct access to it, where they enter their Official Development Assistance (ODA) data through a web interface. The DAD is structured with a donor profile and project profile. The donor profile includes summary information on the agency, their total budget for Rwanda, total commitments and disbursements per year and documents. The project profile for each donor then contain typical information on all projects, including commitments, disbursements, expenditure, sector, location and details of implementing partners.

c) Other revenue

These includes:

Fines and penalties collected by Rwanda National Police (Traffic Offences) and Rwanda Revenue Authority (Non-compliance with tax obligations and fines collected on behalf of the districts). These are recognised when received.



Dividends from investment in shares which are collected by Rwanda Development Board and MINECOFIN. These are currently accrued.

License fees for areas such as intellectual property, telecommunications and other areas are collected by Rwanda Development Board (RDB) and Rwanda Utility and Regulatory Authority (RURA). These are recognised when received.

Other revenue including rents, royalties, inter-entity transfers, foreign aid/donations and loans, in kind contributions, income from exchange transactions and revenue from internal operations are recognised when cash is received. Inter-entity transfers are adjusted during consolidation. In kind contributions may not be recognised in the financial statements as no cash is received.

Government borrowings are monitored centrally by the Debt Management Unit (DMU) at MINECOFIN. Proceeds from loan borrowings are recognised as revenue during the year of receipt at cost and repayment as expenditure in the year of repayment.

d) Biological assets and agricultural produce

As previously mentioned, there is no central database of biological assets. Biological assets are under the University of Rwanda (College of Agriculture, Animal Science and Veterinary Medicine) and entities under the Ministry of Agriculture such as Rwanda Agriculture Board (RAB). Proceeds from sale of biological assets and agricultural produce are recognised when received.

Currently there is no policy for accounting for biological assets but the University of Rwanda has developed a policy in line with IAS 41. Nonetheless, the University has not adopted the policy as its currently applying modified cash basis of accounting. A comprehensive policy should be developed in line with IPSAS requirements.


For the purpose of identifying the gaps in the current reporting framework, the following IPSAS were considered

in the analysis: IPSAS 9: Revenue from exchange transactions; IPSAS 11: Construction contract; IPSAS 23: Revenue from non-exchange transactions (taxes and transfers); and IPSAS 27: Agriculture.

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, the gaps are as below:


Policies

Revenue is accounted for when cash is received which is not in line with the requirements of accrual basis IPSAS.

The main revenue stream is revenue from non-exchange transactions and specifically taxes and there is no policy in place to guide on accounting for taxes on accrual basis.

The second largest revenue stream is grants and there is no policy in place to guide on accounting for grants in line with IPSAS requirements.

Borrowings are also recognised as revenues, and there is need for a policy on accounting for borrowings in line with IPSAS requirements.

People Staff in charge of the different revenue streams need to be trained on IPSAS requirements.




External Finance Division – capturing grant revenue and foreign aid.

Debt Management Unit – capturing loans and borrowings.

Rwanda Revenue Authority – capturing tax revenue in line with IPSAS 23.

University of Rwanda and agriculture entities – capturing revenue from biological assets and agricultural produce.

Staff handling exchange transactions – capturing revenue in line with IPSAS requirements.

Systems RRA has different IT systems for capturing tax revenue on cash basis. There is need to review these systems to determine how to accrue for tax revenue not received as at year end. This is not a challenge for taxes that are collected monthly or quarterly, in the month following the month or quarter assessed for tax. However, a system needs to be developed for capturing CIT and PIT due as at year end as this is filed on a quarterly basis depending on the previous year’s performance exchange transactions.

RRA is currently implementing a new accounting system called Sage, which will be on accrual basis of accounting. They had also planned to continue using IFMIS which is on modified cash basis of accounting. However, as IFMIS will be enhanced in line with accrual basis IPSAS, there is need to review whether RRA should move to the enhanced IFMIS in the future and during the IPSAS implementation period, use Sage to report on accrual basis. The other option would be to download information from Sage in excel and import into IFMIS.

Revenue from other non-exchange transactions such as transfers and revenue from exchange transactions will need a system to accrue amounts receivable. IFMIS will need to be expanded to enable entities to capture these transactions on accrual basis. Refer to section 8 on the enhancements required to IFMIS.

Processes There is a need for processes to be put in place to enable revenue from both non-exchange and exchange transactions to be accrued. Tax revenue should be accounted for considering the specificities of the applicable tax requirements. Grant agreements should be analysed against IPSAS requirements and the necessary processes should be implemented to capture information needed for IPSAS reporting.

2.2.4.3 Recommendation

The current PFM manual should be updated regarding revenue recognition to be in line with the requirements of IPSAS. While updating the manual, the following should be considered:

o Criteria to recognise, measure and present non-exchange transactions and exchange transactions.

o Accounting methods per key revenue flow based on available information and micro economic considerations in line with accrual IPSAS. This will involve identifying and defining the triggering events for revenue recognition per type of tax and grants received (i.e. defining method to determine fulfilment of the performance obligations embedded in the grants).

o Review the business flow for the different types of revenue to incorporate accrual aspects. o Develop an accounting policy for recognition, measurement and presentation of goods in kind,

capital receipts, grants and transfers as well as borrowings and borrowing costs.

There is need to upgrade the receipts module in IFMIS to bring in the requirements of IPSAS as is detailed under section 8.2.2 of this report. The upgrade should accommodate:

o Accrual basis of accounting in revenue recognition. o Configuration with other revenue accounting systems such as the RRA IT system, Sage Pastel

and QuickBooks.



o Separation of the revenue collected on behalf of the local governments and the central government.

o Interfaces with other standalone IT systems used by different reporting entities. o A system needs to be developed for capturing CIT and PIT due as at year end as this is filed on a

quarterly basis depending on the previous year’s performance exchange transactions. o Revenue from other non-exchange transactions such as transfers and revenue from exchange

transactions will need a system to accrue amounts receivable. IFMIS will need to be expanded to enable entities to capture these transactions on an accrual basis.

There is need to update the processes and flows for revenue transactions which are in line with accrual IPSAS. These processes should consider tax flows with a significant model and year-end procedures does not consider cut-off issue.

Define accounting system requirements for the different systems currently in use for capturing both revenue from non-exchange and exchange transactions.

RRA will need to carry out a number of preparatory activities including complete identification and classification of revenue streams, review of laws governing the various taxes and incorporate revenue recognition points, interfacing of the revenue collection systems with IFMIS and training of staff in accrual accounting concepts.

2.2.5 Accrual and expenses

2.2.5.1 Overview

The main expense line categories at consolidation level include:

1. Compensation of employees – including salaries, wages and employee benefits. 2. Use of goods and services – this includes all government payments for goods and services, excluding

purchases of capital (fixed) assets. 3. Grant and other transfer payments - all payments made by an entity when it does not expect to receive value

equal to the transfer to the other party. 4. Social assistance - includes social assistance benefits such as pooling risk for health insurance, assistance to

refugees, assistance to orphans and other vulnerable groups. 5. Finance cost – includes interest payments on instruments such as debt, bonds and bills. 6. Other expenses – miscellaneous expenses and any other expense transaction not elsewhere classified. 7. Repayment of borrowings – relates to repayment/settlement of loan principal but excludes interest payments

on the loans. 8. Acquisition of fixed assets – relates to purchase of goods that are expected to be used for more than one fiscal

year and their value exceeded the capitalisation threshold of Rwf 100,000.

IPSAS allows classification of expenditure by nature of expense or by functional area. The above classification is by nature of expense. The main expenditure that is not included is depreciation and amortisation and this is because costs relating to purchase of fixed assets are expensed. The above lists includes cash out movements, not only expenditure which are considered as expenses under IPSAS but also reimbursements of liabilities and acquisition of assets.

Expenditure relating to compensation of employees, purchase of goods and services, acquisition of capital assets and inventories is accounted for on an accrual basis and recognised in the books of accounts when an expenditure is incurred regardless of the time the associated cash and cash equivalent are paid out.

Expenditure relating to grants and transfers, subsidies, principal loan repayments and interest, investments, lending and on-lending, social benefits as well as other expenditure is accounted for on cash basis and recognised in the books of accounts when cash and cash equivalent is paid out.

The procurement and contracting process is handled through the e-procurement system of government (Umucyo) and is integrated with IFMIS. However, the system is being implemented in phases. Purchase orders



are generated through IFMIS. The Goods Received Note (GRN) which is dated on a real time basis, is also issued from IFMIS upon delivery of goods/services.


After the review of background information, analysis of the populated questionnaire and stakeholder interviews,

the gaps identified are as below:


Policies

The policies under expenditure need to be updated in line with IPSAS requirements. The main change will be accrual of expenses when good or services are received. There will also be expense categories that will be included such as depreciation and amortisation expenses and impairment of property, plant and equipment once the government moves to accrual basis IPSAS.

There will also be need to review presentation and categorisation of expenditure on the financial statements to ensure they are in line with IPSAS requirements.

People

Staff involved in capturing expenses will need training for each category of expenditure to ensure accrual basis is properly applied.

Staff will also need training on the new procurement workflow.

There will be need for close coordination between the IPSAS project team and the IFMIS team.

Systems The procurement process particularly under IFMIS needs to be revisited. Currently, there is no distinction between the nature of procured items (such as normal supplies and capital assets). Hence, the procurement workflow under IFMIS should be reviewed to enable fixed assets to be capitalised and also to ensure expenditure is recognised upon receipt of goods.

There will also be need to consider duality between budget execution and financial reporting to enable budget execution to be captured on cash basis and financial reporting on full accrual basis until the government moves to accrual basis budgeting.

Processes Year-end procedures are issued by MINECOFIN as required by law. The procedures need to be updated in line with IPSAS requirements and also automated.

The procurement flow should comply with IPSAS requirements.


Update the policy and manual to incorporate the following:

o Presentation of expenditure on the face of the financial statement should be done in compliance with IPSAS 1.

o Tailored procurement flow for both goods and services to identify the triggering events for expense recognition (which should be either on goods or service receipt).

o Year-end procedure and template to ensure proper year-end cut-off for main classes of expenditure. o Recognition of interest expense on the GoR domestic and external borrowings. o Identification of all non-exchange transactions giving rise to accruals and expenses under the IPSAS

framework.



For exchange transactions there will be need to:

o Design a procurement flow in compliance with IPSAS; and o Embed the IFMIS in relation to goods/service receipt and automate the year end cut-off.

For non-exchange transactions:

o Embed in IFMIS functionalities to enable determination of accruals and expenses arising from fines, fees and penalties as these are currently not recognised.

Define system requirements to embed the point of good receipt/service receipt in the system

2.2.6 Employee benefits

2.2.6.1 Overview

For the purpose of identifying the gaps in the current reporting framework, considered are the following IPSAS in the analysis:

IPSAS 25: Employee benefits; and IPSAS 39: Employee benefits (New).

RSSB currently administers pension benefits and other long-term employee benefits for the employees of the GoR. RSSB also administers social security benefits for the citizens of Rwanda as well as pensions, medical benefits and occupational hasards schemes for private sector entities other than government enterprises.

Broadly, there are four categories of employee benefits per IPSAS 39 guidance: o Short-term employee benefits: Those employee benefits (such as salaries, annual leave and sick

leave) which fall due, wholly, within twelve months from 1 July after the end of the specific GoR fiscal year in which the employees rendered the related services. Under the current modified cash basis accounting used by the GoR, short-term benefits are accrued in the reporting period and paid in the subsequent period as recorded under account number 4122 under the current CoA.

o Post-employment benefits: This relates to employee benefits other than termination benefits

which are payable after the completion of employment and examples include pension plan and death benefits. Currently, the contributions for the reporting period are accrued for at the end of the period and also recorded under account number 4122 of the current CoA.

o Other long-term benefits: This relates to long-term benefits such as seniority premiums and

extra holidays depending on allocation per grade of the staff which do not fall due wholly within twelve months after the end of the period in which the employees render the related service.

o Termination benefits: These are employee benefits payable which are as a result of either:

An entity’s decision to terminate an employee’s employment before the normal retirement date; or

An employee’s decision to accept voluntary redundancy in exchange for those benefits.

Currently there is no IPSAS covering social benefits. In this case, there is need to isolate employee benefits from the RSSB GoR portfolio of benefits for purposes of reporting under IPSAS.


After the review of background information, analysis of the populated questionnaire and stakeholder interviews,

identified are the gaps below:


Policies Currently, there is no comprehensive accounting policy for employee benefits. The current policy in the draft PFM manual mainly covers short-term employment benefits.




There is no policy on accounting for defined benefit plans. Hence, not all potential employee-related expenses and liabilities are presented on the face of the financial statements. Under defined benefit plans, IPSAS requires a liability to be recognised in the statement of financial position.

People The current accounting and HR staff may not have an understanding of the basics of IPSAS 39.

Systems Data is readily available in the system through RSSB (and payroll system of government). However, a system/procedure may not be available at RSSB to distinguish government employees from the rest of the employees.

The RSSB system has not been interfaced with IFMIS and the current information can only be captured manually.

Processes The year-end procedures for employee benefits are not in line with the requirements of IPSAS 39.

The current process for identifying data, collecting data and maintaining databases may not be in line with the requirement of IPSAS 39.

Year-end procedures must be set up to ensure employee benefits are accounted for in compliance with IPSAS 39. These benefits will require an actuarial assessment. Data will need to be provided to the (external) actuary. Analysis will need to be made at MINECOFIN (possibly in collaboration with RSSB) to define assumptions to be used in the actuarial valuation.


Develop an accounting policy for the management of employee benefits which is in compliance with IPSAS 39. The accounting policy should incorporate:

o The different types of benefits. o A complete inventory of all employee benefits. o Describe and illustrate the accounting policy for employee benefits in the accounting manual by

type of benefits including disclosure requirements. o Define the data requirements to calculate the year end postings for the post-employment

benefits. This should include pensions + define input for actuary including the disclosure requirements (sensitivity, actuarial assumptions, etc.).

o Identify all potential employee-related expenses and liabilities, documenting the relevant authorities, entitlement criteria, entitlement and payment dates, and existing liabilities.

o Identify the mechanisms for determining the liabilities at the end of each reporting period and the information required to calculate relevant amounts.

Develop a training programme for all accounting, HR and RSSB staffs who are involved in management of employee benefits. The training should cover both operations and accounting staff so that both are conversant with IPSAS requirements on employee benefits. There is also need to determine the necessity to use of experts (in-house or external) for actuarial computations.

Develop the process of data identification, collection and maintenance of databases.

Define the IT system requirements for the different types of benefits and develop an interface between payroll system and accounting system.

The RSSB accounting system needs to be developed to identify and distinguish the government employees from the rest of the employees in the RSSB portfolio and interfaced with the IFMIS for recording of expenses and liabilities. In terms of consolidation of the GoR, the interest is to determine



the GoR expenses and liabilities in relation to the GoR employees’ benefits. If this is done then the issue becomes how then should the rest of RSSB be consolidated in the GoR financial statements? The GoR has the following options:

o Consolidate RSSB as a GBE and include disclosures of the breakdown and performance of the GoR employees’ portfolio held at RSSB indicating the expenses and liabilities forming part of the consolidated financial statements and that the results of the GoR employee benefits portfolio also includes social benefits which currently have no IPSAS providing guidance on their accounting treatment.

o Consolidate RSSB as a central government entity. This also requires that the disclosures highlighted above to be included in the financial statements as well as RSSB to transition to the IPSAS reporting framework. This is because RSSB has an equivalent general population mandate through provision of services to GoR employees, some private sector employees as well as social security benefits for Rwanda citizens. This general population mandate makes RSSB incline more towards being a central government entity/agency rather than being a GBE.

2.2.7 Provisions

2.2.7.1 Overview

Corporate services and finance & administration units are responsible for assessing outstanding claims. For legal

claims, legal counsel/unit are involved in assessing claims. However, per the current accounting policy, no provisions are made in the financial statements.

All financial claims are included in a register of received and outstanding claims. Contingent liabilities including legal claims are disclosed in the financial statements as required by the accounting and reporting procedures in place.

Currently, there is no information on decommissioning obligations in respect of assets. There is also no information available in relation to onerous contracts within the government. Contracts are also not analysed annually to determine if provisions are required.


For the purpose of identifying the gaps in the current reporting framework, considered in the analysis are the following IPSAS:

IPSAS 19: Provisions, contingent liabilities and contingent assets.

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, we identified the gaps below:


Policies There is no accounting policy covering provisions. The current basis of accounting which is modified cash basis does not enable provisions to be made. All costs are accrued when an invoice has been received for services and goods received.

People The current finance department staff responsible for operation and management of expenses may not have the necessary skills to identify the triggering events for recognition of provisions and contingent liabilities and assets.

Systems The current IFMIS does not have functionalities to capture needs to be expanded to enable provisions to be captured.




Processes Lack of a process for identification of provisions, contingent assets and liabilities, data collection and maintenance of databases.

There is no process in place for capturing information on decommissioning obligations on assets and onerous contract within the government to enable provisions.

In addition, there is no process for capturing information on guarantees. However, there is a requirement to disclose guarantees in the financial statements of the individual entities but the disclosure is limited to bank loans of which each entity is required to disclose the name of entity guaranteed, bank that provided the loan and date when loan was received, period/term of the loan and year/date when the loan will be settled.

As explained, the disclosure is restricted to bank loans while there are different types of financial guarantees. Entities should therefore disclose all contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment in accordance with the original terms of a debt instrument.

The draft PFM manual requires all entities to maintain a register of contingent liabilities which should be accounted for and disclosed in line with IPSAS 19 requirements. Key disclosures should include a brief description of the nature of the contingent liability, an estimate of the financial effect, an indication of the uncertainties relating to the amount or timing of any outflows and the possibility of any reimbursement.


Develop an accounting policy for recognition, measurement, presentation and disclosure of provisions, contingent liabilities and assets which is line with the requirements of IPSAS. Refer to section 4.1.2.6 for the treatment of contingent assets and liabilities as well as the disclosures to include in the financial statements.

Develop a training programme which is in line with IPSAS for all employees in the finance department and the legal department on identification of events that would lead to recognition or disclosure of provisions or contingent liabilities respectively.

Update the payment module in IFMIS to accommodate data collection and maintenance of information relating to provisions and contingent liabilities and assets.

Develop a process; o For identification of provisions, contingent assets and liabilities, data collection and maintenance of

databases. The process should also include, functionality for capturing information on decommissioning obligations on assets and onerous contract within the government to enable provisions

o To identify all events which trigger the recognition of provisions o To identify and maintain information on onerous contracts within the government o To identify and maintain information related to decommissioning obligation in respect to assets. o To identify and disclose information about guarantees and long-term agreements. The disclosures

should include a brief description of the nature of the contingent liability inherent in the guarantee and, where practicable:

An estimate of its financial effect of the guarantee. An indication of the uncertainties relating to the amount or timing of any outflow; and The possibility of any reimbursement.

2.2.8 Financial instruments

2.2.8.1 Overview

The main financial instruments include:



Financial instrument

Description

Loans Public debt (bilateral, multilateral, local banks, treasury bills/bonds, euro bonds)

Financial investments (shares or bonds bought)

Shares in public enterprises and in companies with private shareholding with majority and also minority shareholding

Bonds issued Treasury Bonds/ Euro Bond

Student loans These are loans given out to students and currently managed by the Rwanda Development Bank (BRD). The students are expected to start making repayments once they get employed on completion of their studies. The loans are therefore long-term receivables in the consolidated financial statements of the GoR.

Financial guarantees given

These are authorised by the Minister of Finance. In addition, the Ministry of Finance can borrow and then on-lend giving rise to subsidiary loan agreements. The GoR provides financial guarantees to several reporting entities such as Rwanda Energy Group (REG) holding and Water and Sanitation Corporation (WASAC).

Financial instruments are currently not recognised, measured, presented and disclosed in line with IPSAS requirements. In addition, the government’s financial statements include limited information on financial instruments.

There is also lack of comprehensive disclosures on long-term borrowings and measurement of public debt (treasury bills) is at face value. IPSAS requires disclosures on categories of financial assets and financial liabilities, reclassification of financial instruments, derecognition, collateral among others.

Debt Management and Financial Analysis System (DFMAS)

The GoR currently uses DMFAS, a debt management software developed by the United Nations Conference on Trade and Development (UNCTAD), for analysis and management of its debt.

The software is currently not interfaced with IFMIS.

The software was built for debt management for governments rather than meeting the accounting requirements of accounting standards such as IPSAS. In this regard the software focuses on debt instruments and leaves out other financial instruments such as financial assets, loans given out by the GoR to GoR entities (e.g. RwandAir) and receivables. Additionally the software is used for analysis of debt instruments and monitoring of the debt instruments in general.

The main instruments managed in DMFAS at MINECOFIN include Euro bond (USD) issued on the international capital market and domestic debt. There are currently no swaps and derivative instruments issued.

For some instruments the lending is done at below market rate. For instance, currently, REG and RwandAir have loans with MINECOFIN at below market rate.

Debt securities on the local market are issued every week.


For the purpose of identifying the gaps in the current reporting framework, the following IPSAS were considered:

IPSAS 4: The effects of changes in foreign exchange rates; IPSAS 28: Financial instruments: presentation;



IPSAS 29: Financial instruments: recognition and measurement; and IPSAS 30: Financial instruments: disclosure.

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, the following gaps were identified:


Policies Lack of a comprehensive accounting policy covering recognition, measurement, presentation and disclosure of financial instruments.

Public debt is currently not recognised on the financial statements. The statement of financial assets and liabilities mainly captures cash and cash equivalents, accounts receivable and payable. In addition, borrowings are recognised as revenue while payment of debt is expense. The effective interest rate is also not applied for public debt.

Investments are expensed and concession loans are not in line with IPSAS requirements. Similarly, disclosures are not in line with IPSAS requirements.

People Training on accounting for financial instruments in line with IPSAS.

There will be need for coordination between the public debts unit and the public accounts unit.

Systems Expand IFMIS to enable users to capture and record financial instruments in line with IPSAS requirements. The system should also enable effective interest rates to be captured.

DMFAS, the debt management system is currently not interfaced with IFMIS and does not compute accrued interest for debt securities. DMFAS also focuses on debt instruments and leaves out other financial instruments such as financial assets, for instance, loans given out by the GoR to GoR entities (e.g. RwandAir) and receivables. As DMFAS has a wider purpose of debt management for government and is specifically developed for this purpose by UNCTAD, the most efficient option is to download the required information from DMFAS and passing accounting entries to capture the information under IFMIS instead of interfacing the two systems. However, IFMIS should be enhanced to capture information on the other financial instruments. Refer to section 8 on enhancements required to IFMIS.

Processes Update processes to ensure financial instruments can be identified and accounted for in line with IPSAS requirements. Currently, under cash basis of accounting, financial instruments are not properly accounted for.

There is also need to put in place processes for identifying, capturing and maintaining complete records of financial instruments including financial guarantees, concessionary loans (such as student loans) and other financial instruments.


Develop a policy for identification, recognition, measurement and presentation of financial instruments.

Identify all items which should be classified as financial instruments.

Create a financial instruments register for all government entities.

Measure and value all financial instruments identified.

Develop disclosure notes for financial instruments identified in accordance with accrual basis IPSAS.

Define the amortisation methods for loans and borrowings.

Develop a valuation method of complex financial instruments such as financial guarantees.

Student loans to be captured as a long-term receivable at the point the loan is issued. Refer to section 4 for further guidance for guidance on accounting treatment and recognition points.



DMFAS should be maintained separately and relevant information downloaded and entered into IFMIS. However, IFMIS should be enhanced to cover the financial instruments not captured under DMFAS as explained in chapter 8.

2.2.9 Reporting

2.2.9.1 Overview

The Government of Rwanda prepares a set of consolidated financial statements which comprise of the

following: A consolidated statement of revenues and expenditure; A consolidated statement of financial assets and liabilities; A consolidated statement of cash flows; A detailed consolidation financial statements by cluster/segment; and Notes to the consolidated financial statements.

The consolidated financial statements discloses the following information on the face of statement of revenues and expenditure and statement of financial assets and financial liabilities:

Revenues: tax revenues, administrative fees, fines, penalties and licences, borrowings, grants, capital receipts and other income;

Expenditure: compensation of employees, use of goods and services, grants and other transfer payments, social assistance, finance cost, other expenses, repayment of borrowings and acquisition of fixed assets;

Financial assets: cash and cash equivalents and accounts receivables; Financial liabilities: accounts payables; and Financed by accumulated surplus/ (deficit) from previous years, adjustment to opening

balances, prior year adjustments and net surplus/ (deficit) for the year.

The detailed consolidated financial statements by cluster/segment discloses the following information on the face of it:

Classifies the segments as follows: central treasury and Rwanda Revenue Authority (RRA); Central Government; Local Government and development projects.

The statement also discloses information relating to revenues, expenditure, cash and cash equivalents, accounts receivables and accounts payables as presented in the statement of revenues and expenditure and statement of financial assets and liabilities.

The notes to the financial statements presents and discloses the following information; A summary of the accounting policies; and Disclosure of entities included in consolidation.

The GoR prepares its financial statements on modified cash basis of accounting.

The GoR prepares its fiscal year budget on a cash basis and is made available for the public.

The GoR and its entities prepares a reconciliation of the budgeted and the actual amounts on a budgetary basis. The reconciliation is done semi-annually and monthly for the GoR and the agencies respectively.

From the above, the financial statements need to be enhanced to be in line with IPSAS requirements. In addition:

The set of consolidated financial statements prepared by the GoR do not include the following: The statement of changes in net assets/equity; A comparison of budget and actual amounts given that the government makes available the

approved budget to the public; and Detailed disclosures notes to the financial statements.

The consolidated financial statements of the GoR presents and discloses limited information relating to the following classifications:



Assets: items of property, plant and equipment, intangible assets, investment property, inventories, receivable from exchange transactions, receivable from exchange transactions etc.

Liabilities: taxes and transfers payables, payables under exchange transactions; provisions etc. Net assets/equity: minority interests, capital and reserves attributable to owners of equity. Revenue: transfers from other government entities. Expenditure includes acquisition of fixed assets, repayment of borrowing which should be items

of the statement of financial position.

The budget is prepared on cash basis hence a reconciliation between financial statements prepared in line with accrual basis IPSAS and the budget will be required. In addition, the budget is prepared at the level of central government budgetary entities while the consolidated financial statements are prepared for the general government including extra budgetary information and the local government own resources.


For the purpose of identifying the gaps in the current reporting framework, the gaps IPSAS considered are:

IPSAS 1: Presentation of financial statements; IPSAS 2: Cash flow statements; IPSAS 3: Accounting policies, changes in accounting estimates and errors; IPSAS 14: Events after the reporting date; IPSAS 18: Segment reporting; IPSAS 20: Related party disclosures; IPSAS 22: Disclosure of financial information about general government sector; and IPSAS 24: Presentation of budget information in financial statements.

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, identified gaps are as below:


Policies The current financial statements have been prepared on modified cash basis of accounting and hence the financial reports are not in line with IPSAS requirements.

The accounting policies have also been developed in line with the modified cash basis which are fundamentally different with the accrual basis of accounting.

People

The reporting entity’s accountant may not have the necessary skills in preparation of financial statements on accrual basis and in compliance with IPSAS requirements.

Accounting staff will need be trained on preparing financial statements in line with accrual basis IPSAS.

Systems IFMIS reporting module would need to be enhanced to enable financial statements prepared in line with IPSAS are generated.

Processes The current process of financial reporting has not been anchored on accrual basis of accounting.

The process flow of identifying, collecting and capturing financial reporting data is not in line with IPSAS.


Financial statements are currently prepared in line with modified cash basis of accounting which is not in line with accrual basis IPSAS. Hence, comprehensive accounting policies in line with IPSAS need to be developed



covering each of the areas discussed above. Significant accounting policies will need to be disclosed in the consolidated and entity level financial statements.

Some amendments will be required in laws and regulations to enable both accrual basis IPSAS and accrual basis budgeting. Article 62 of Organic Law N° 12/2013/OL of 12/09/2013 on State Finances and Property stipulates that an Order of the Minister shall determine the accounting standards and policies applicable to all public entities. The format, content and frequency of reporting by public entities shall be prescribed in the financial regulations. By this requirement, the Organic Law is sufficient to support IPSAS implementation but some changes will need to be reflected in the organic law for accrual basis budgeting and other changes adopted in the financial regulations to enable implementation of accrual basis IPSAS. Refer to appendix 5 for the analysis of areas of possible amendment.

Prepare revised templates for financial statements which comprise; o The statement of financial performance – this will require the design of a standard format which

complies with the requirements of IPSAS 1 and defining level of granularity for mandatory line items;

o Statement of financial position – this will require the design of a standard format which complies with the requirements of IPSAS 1 and defining level of granularity for mandatory line items;

o Statement of cash flows in accordance with IPSAS 2; o Statement of changes in net assets/equity; o A comparison of budget and actual amounts given that the government makes available the

approved budget to the public; and o Notes, comprising a summary of significant accounting policies and other explanatory notes.

The template should enable disclosure of key information relating to the following classifications items; o Assets: items of property, plant and equipment, intangible assets, investment property,

inventories, receivable from exchange transactions, receivable from non-exchange transactions etc.;

o Liabilities: taxes and transfers payables; payables under exchange transactions; provisions, employee benefits, borrowings, etc.;

o Net assets/equity: minority interests, capital and reserves attributable to owners of equity; o Revenue: transfers from other government entities, revenue from taxes and revenue from

exchange transactions; o Expenditure includes employee benefits, goods and services received, amortisation and

depreciation, and other major expense categories; and o But important to tailor it to the activities of the government to ensure relevance and avoid

unnecessary costs.

Prepare segment disclosures which are in compliance with IPSAS 18. The criteria for the preparation of segment report should be aligned with the IPSAS requirements.

The notes to the financial statements should be presented comprehensively and the disclosures to the statements should provide information to the users of the financial statements which makes the financial statement be understandable, relevant, reliable and comparable.

The consolidated financial statements should be prepared using an accrual basis.

Provide detailed information relating to related parties.

Prepare and include a reconciliation for the budget amount and the actual amount on a budgetary basis (budget execution).

There is need to develop a training programme for the accounting staffs responsible with preparation of financial reports.

The IFMIS system should be upgraded to accommodate full financial statements which are in compliant with the requirements of IPSAS.



The process for data identification, collection and collaboration should be compliant with the requirements of IPSAS. There is need to prepare new reporting templates.

Before transitioning to accrual basis budgeting, a process should be put in place to reconcile the budget with the financial statements in line with IPSAS requirements.

A common chart of accounts will be key to enable entities capture transactions in line with IPSAS requirements.

2.2.10 Consolidation

2.2.10.1 Overview The government’s consolidated financial statements include the general government sector entities in the scope of consolidation namely: all government ministries/departments; all government agencies and other related entities, development projects and local governments. Other entities controlled by the government (though not necessarily part of the general government sector - e.g. government business entities) are included in the government's consolidated financial statements at the net asset value (and not consolidated line by line). These entities include: RSSB, National Bank of Rwanda, and other GBEs. The accounting policies of all entities included in the scope of the government consolidated financial statements (reporting units) are not harmonised. The general government and budget entities uses modified cash basis whereas the GBEs uses IFRSs. The government uses standardised reporting formats to prepare consolidated financial statements. Most of the reporting entities uses a standard chart of accounts under the SmartIFMIS. The consolidated financial statements for the GoR are aggregated on a line by line basis with the inter-entity transactions of revenue and expenditure being eliminated at the national consolidation level to avoid overestimation of revenue or expenses. The consolidation includes a total of 128 Central Government Budget Agencies, 135 Self Accounting Development Projects and 31 Local Government entities which include City of Kigali. The consolidated financial statements excludes 6 public financial corporations and 13 public non-financial corporations in which the government has majority holdings (more than 50% ownership) and 27 trading companies where the government owns a minority interest (less than 50% ownership). Subsidiary entities affiliated to Districts (Non-Budget Agencies) are not consolidated but are disclosed in the consolidated financial statements. There are around 4,000 units and there are challenges in defining government control since most of these units belong to religious groups but government provides support in terms of remuneration of staff and providing funds for operations and infrastructure. This requires the government to determine the entities where it has control for consolidation. Under IPSAS 35, the government should consolidate the non-budget agencies where (i) it has power over the other entity, (ii) it has exposure or rights to variable benefits from its involvement with the other entity (iii) it is able to use its power over the entity to affect the nature or amount of it is benefits of its involvement in the other entity. Transfers to entities where the government does not have control should be treated as grants. Development projects are administratively aligned to a parent Ministry or agency and administratively operate under the Single Project Implementation Unit. There are many projects in line with the number of development partners supporting the country and this makes reporting arrangements complex particularly if development partners require reports to be submitted with different content and formats that meet their reporting requirements. Progress has been made to have a uniform and harmonised reporting and adherence to government procedures but in some circumstances it is difficult. Whereas some projects are regarded as reporting units based on their complexity, other development projects are considered as developmental outputs and hence reported for by their respective ministries and agency.



Having two different treatments or interpretations of projects between financial reporting (reporting unit) and budgeting (a developmental output) complicates the reconciliation process between statistical units as per budget and financial reporting. In addition, some of these projects implement loans and grants which are directly disbursed from development partners (without prior transfer to main treasury account). There are also direct payments (complicating fiscal reporting further) where reporting units contract and request for a payment which is directly done by the development partner to the supplier. Other challenges faced are direct execution as a form of payment and in kind support which complicates accounting and reporting due to the lack of detailed information about the cost of the items paid. Other unusual transactions include privatisations, merging of entities, demergers and creation of new reporting units. Recently, the government set up an Investment Holding Company that will manage all government investments.


For the purpose of identifying the gaps in the current reporting framework, we considered the following IPSAS

in the analysis:

IPSAS 6: Consolidated and separate financial statements; IPSAS 35: Consolidated financial statements; IPSAS 36: Investment in associates and joint ventures; IPSAS 37: Joint arrangement; IPSAS 38: Disclosure of interest in other entities; and IPSAS 40: Public sector combinations;

After the analysis of the populated questionnaire and information gathered from review of background information and stakeholder interviews, the gaps identified are as below:


Policies The current consolidation policy is based on a modified cash basis of accounting which is not in line with the accrual basis of accounting.

The accounting policies for all entities in the scope of consolidation are not harmonised.

The consolidated financial statements do not include all entities within the general government.

The consolidated financial statements are not prepared based on any financial reporting framework.

People Staff involved in consolidation should be trained in consolidation requirements in line with accrual basis IPSAS.

Systems IFMIS as configured does not have the capacity to consolidate all entities of the general government.

IFMIS has not been rolled out to all entities which are in the scope of consolidation.

IFMIS should be enhanced to enable reports to be generated in line with accrual basis IPSAS.

Processes The process for identifying entities to be consolidated should be aligned to IPSAS requirements. Under IPSAS 35, the government should consolidate the non-budget agencies where (i) it has power over the other entity, (ii) it has exposure or rights to variable benefits from its involvement




with the other entity (iii) it is able to use its power over the entity to affect the nature or amount of it is benefits of its involvement in the other entity.

Updated guidance, procedures and processes for consolidation of government financial statements in line with IPSAS requirements need to be rolled out.


The accounting policy for consolidation of financial statements should be updated and aligned with the requirements of IPSAS. In particular the policy should include:

Harmonised accounting policies for all entities identified for consolidation based on IPSAS guidance. This means that the same rules should be applied for similar transactions under similar economic circumstances. When economic circumstances differ, different accounting policies may be justified.

Guidance on preparation of consolidated and entity level IPSAS compliant financial statements.

Guidance on the consolidation criteria and process according to IPSAS 35 for the various GoR entity

types across typical central government entities and GBEs (including their various combination of subsidiaries, associates and joint ventures). Consolidation process should take into account materiality as well as inclusion of a procedure to eliminate intra-government balances and transactions on consolidation.

Guidance on the scope of consolidation of Non-Budget Agencies which should be governed by IPSAS 35 requirements. Determining which entities to consider in the consolidation scope is based on the concept of control. Under IPSAS 35, the government should consolidate the non-budget agencies where (i) it has power over the other entity, (ii) it has exposure or rights to variable benefits from its involvement with the other entity (iii) it is able to use its power over the entity to affect the nature or amount of it is benefits of its involvement in the other entity. Control can be established through law or a regulatory framework and may not involve having a financial stake in the controlled entity. Other indicators of control are strong presence in decision making, rights over strategic decisions or budget approval. Once this guidance is developed, a detailed review should be conducted to determine which entities are within the scope of consolidation

All information in relation to the all government controlled entities on a consolidated basis. This information should include:

The accounting policy for valuing minority holding investments and recognise such investment in the consolidated statement of the financial assets and liabilities.

The accounting policy for including entities in the consolidated financial statement where the government has control and have different reporting periods.

There is need to develop a training programme for the Public Accounts Unit staff who are responsible for consolidation of the financial statements. The training should include all the aspects of consolidation in line with IPSAS requirements.

The current IFMIS system should be enhanced to enable consolidated financial statements which are in line with accrual basis IPSAS requirements to be generated. IFMIS should be rolled out to all reporting entities in the scope of consolidation.

Present in the financial statements (if cash based budgeting is maintained by the GoR), a reconciliation between the budget information and the cash flow information to address the challenges of reconciliations between budget and the financial reporting units.



Improvements to budget preparation and format



3 Improvement to budget preparation and formats

3.1 Gap analysis between the current budget practices and accrual IPSAS

This section involves analysing the current budget preparation process including the templates in use and provides recommendations on improvements to the process including the template(s). In the analysis of this section, guidance is drawn from GFS Manual 2014 and IPSAS 24: Presentation of budget information in financial statement.

3.1.1 Overview/Main findings

Currently the budget preparation process is governed by two main pieces of legislation: the Organic Law

chapter III Planning, Budget Preparation and Approval and the Ministerial Order chapter III Planning, Budget Preparation and Approval.

The PFM cycle starts with the planning process. Planning entails identification and prioritisation of programmes and activities to achieve optimum balance of needs with the available resources. The planning function is coordinated by the National Development Planning & Research (NDPR) department at MINECOFIN. The department is responsible for ensuring that the planning function in both Central and Local Government is aligned to national priorities and informs the budgeting process. The department is also in charge of monitoring and evaluation to assess achievement of the National Strategy for Transformation – 1 (NST-1) targets. In turn, each Ministry and some of the large agencies have a planning department.

Budget is a sub-component of the planning process which specifically deals with turning qualitative and quantitative plans in monetary terms. Budgeting quantifies the prioritised programmes within a definite time period and shows the government’s plan to mobilise revenues and how it intends to spend in accordance with objectives, needs and priorities. The budget preparation process is coordinated by the National Budget Department at MINECOFIN and all the budget related documents are posted at the website http://www.minecofin.gov.rw/ministry.

The hierarchy of planning instruments range from the longer term VISION 2020 to medium term. These planning instruments are as summarised below:

VISION 2020 - sets the longer term perspective and objectives for Rwanda and therefore

represents the overarching framework for all government activities. Government 7 year programme – provides key highlights and priorities to be implemented

by the Government for a 7 year period upon its election. National Strategy for Transformation – 1 (NST-1) - The NST-1 is a seven year strategy

that runs from 2017 to 2024. The National Strategy for Transformation is built on 3 pillars: Economic Transformation, Social Transformation, and Transformational Governance.

Sector Strategic Plan - A key planning document that spells out the broad orientations for the

sector based on national documents such as Vision 2020 and the NST-1. Both the NST-1 and the Sector Strategic Plan define the medium term (5 years) objectives and priorities of the Government at national and sector level respectively.

District Development Plans - District Development Plans are the districts’ 5 year plans. They

make the link between local priorities and national priorities as outlined in the NST-1 and sector strategies.

The Medium Term Expenditure Framework (MTEF) - The Medium Term Expenditure

Framework (MTEF) is the key instrument linking planning and budgeting since its roll-out in 2002. Its objective is to ensure that the National Budget is an efficient and relevant tool to

http://www.minecofin.gov.rw/ministry



implement the plans and reach the objectives defined in the NST-1, sector strategies and district development plans.

Annual Action Plans - The Annual Action Plans are prepared annually by all public entities

and identify activities to be carried out each year by the public entities.

The planning and budgeting process involves 4 key steps which are: (1) Determination of national priorities, (2) Preparation of national MTEF, (3) Preparation of agency MTEF and budget and preparation and (4) Preparation of the Finance Law which is later submitted to parliament for approval.

The annual planning and budgeting process can roughly be divided into three consecutive phases: national priority setting (months 1-4), strategic planning (MTEF) (months 4-8) and development of the National Finance Law (months 9-12).

The government applies cash budgeting. The current budget format models the layout of the current CoA (the CoA was adapted and developed from GFS Manual 2014).

Expenditure in the budget is analysed and presented on a number of parameters from the five segments of the CoA classification e.g. expenditure by programme and sub-programme and expenditure by agency.

The budget contains forecasts for the next two years from the year being budgeted for.

The legal and regulatory framework for financial management has also been updated with the introduction of Organic Law on State Finances and Property, 2013 and the Financial Regulations 2016.

The revision of the budget is done after six months of implementation based on the provisions of Article 41 of the Organic Law and Article 20 of the Financial Regulations of 2016. This is done at both the national and district level and based on guidance from the legislation above. The proposed changes should be consistent with the approved medium-term strategies and budget framework; and if they are different from the approved budget framework, the reasons for the differences should be notified to the Parliament or to the Local Council as appropriate.

3.1.2 Gaps identified

IPSAS 24 does not require budgets to be presented on an accruals basis or prescribe any suitable budgeting basis but requires that a reconciliation of the budget and accrual basis IPSAS compliant financial statements be prepared. The following are the gaps identified:


Policies Budgets are prepared and presented on cash basis. The budget format is modelled against the current CoA classification as opposed to accrual basis IPSAS. The GoR with assistance from the IMF AFRITAC team has however developed a revised draft CoA as part of the preparation works for transitioning to accrual basis IPSAS. As the government transitions to accrual basis IPSAS, a reconciliation of the cash basis budget and the accruals based financial statements will have to be prepared as per IPSAS 24 provisions.

In the CoA, the differences between GFS Manual 2014 reporting and IPSAS reporting requirements (as explained in the sections 5.2 and 5.3 below) affect the budget format when it comes to adopting IPSAS. The current financial statements do not explain the accounting basis used in the preparation and presentation of the budget. The financial statements also do not disclose in notes the period of the approved budget. The financial statements also need to incorporate explanations on the changes between:

The original (initial) and final budget (planning variance analysis), whether there are anomalies in the planning and budgeting process or not and in which areas those anomalies lie; and

The final budget and the actual amounts (implementation variance analysis), to identify factors slowing down implementation and areas of low absorption of the budget.




People A training will be required for accountants and budget officers on IPSAS 24 requirements, including preparing a reconciliation between the cash basis budget and accruals basis financial statements. The current budget officials do not have the necessary skills required for implementation of accrual basis budgeting. As the government transitions to accrual basis budgeting, a training will be required on how to prepare accrual basis budgets and use of the revised budget templates. For budget officers, the training should include accrual concepts of accounting.

Systems IFMIS currently does not have the functionality to accommodate reconciliation of cash basis budgeting information and accrual basis IPSAS financial information.

Processes Processes will require to be in place at both entity level and consolidation of public accounts to enable a reconciliation of accrual basis financial statements and cash basis budgets. This will also require providing entities with templates for the reconciliation.

3.1.3 Recommendations

All entities will be required to:

Provide a comparison of the original and final budget and actual amounts. Refer to the table below for a sample of the template to be used.

Provide explanations of the material differences between actual and the budget amounts. Materiality of the difference in this case means any explanation for a difference between the actual and budget amount which if absent would result in the GoR entity making wrong decisions. Materiality in this case may not necessarily be monetary but dependent on the value with which the GoR or a GoR entity attaches to a particular programme of expenditure. For instance for a programme meant to create employment for the Rwandan citizens such as a business incubator, material information would be how many business ideas are brought forth rather than how much money is spent on running the incubator.

Provide an explanation of whether changes between the original and final budget are as a consequence of reallocation within the budget, or other factors.

Explain in the notes to the financial statements the budgetary basis and classification basis adopted in the approved budget.

Disclose in the notes to the financial statements the period of the approved budget.

Reconcile cash basis budgets and the IPSAS based financial statements information. Once the government transitions to accrual basis budgeting, the following should be done:

Link the budget preparation process to financial accounting processes. The budgeting module in IFMIS should be enhanced to closely collaborate with other modules such as accounting, payment and receipts module so that detailed budget vs actual reports can be run across various levels of GoR entities with access to IFMIS.

Ensure proper mapping between budget execution and IPSAS financial reporting.

Ensure dual reporting in IFMIS for both budget reporting purposes and IPSAS financial statements.

Prepare a readiness assessment for accrual basis budgeting including key stakeholders (Minister of Finance, Parliament and Development Partners) and report on benefits, challenges and risks.

Roll out accrual basis budgeting templates.



Template for comparison of the budget and actual amounts:

Account balance

Notes Budgeted amounts

Actual amounts on comparable basis

Comments

Initial Revised Actual

Revenues

XX XX XX Currently this is presented on the basis of the Economic segment of the current CoA. It is also possible to present information on the basis of the funding segment and IFMIS reports are available for that purpose.

Expenditure

XX XX XX This is presented through the following nine separate reports or budgets to suit various uses and users:

1. Detailed expenditure by budget agency

2. Budget by program and sub-program

3. Development budget by agency, project and funding type

4. Budget by agency and by economic classification

5. Budget by agency, program and sub-program

6. Budget by budget agency 7. Budget by budget agency and by

economic category 8. State expenditure by division and

groups 9. State expenditure by NST-1

initiatives

3.2 Format to reconcile budget information to financial statements as stipulated under IPSAS 24

IPSAS 24: Presentation of budget information in financial statements provides that where the basis of preparation of the budget is different from the IPSAS compliant financial statements, a reconciliation of the information in the financial statements and the budget prepared on other basis should be presented in the financial statements.

3.2.1 Considerations for reconciliation of budget and IPSAS prepared financial information

Typically the reconciling items between the IPSAS compliant financial statements (cash flow information) and the cash basis budget information can be classified into three categories as follows:

1. Basis differences 2. Timing differences 3. Entity differences



3.2.1.1 Basis differences

Basis differences arise because financial statements are prepared on accrual basis under IPSAS while the budget

is prepared on cash basis. Some of the reconciling items identified based on the detailed discussion in Section 4 of this report are:

Ref Reconciling item Comment

1. Provisions to be expensed during the budget year

Doubtful debts on receivables from non-exchange transactions

Examples include doubtful tax receivables and receivable from fees, fines, penalties and licences receivable.

Obsolete and damaged inventory

This relates to provisions to be recognised for the year and revisions in the already existing provisions.

Employee benefits This relates to pay-outs expected to be made during the year for the annual performance based bonus, pension scheme, post-retirement medical insurance (formal format) organised through the RSSB. Estimates will have to be made for the amounts to be made during the year i.e. how much of the provisions in the Statement of Financial Position would be released to the Statement of Financial Performance during the year.

2. Depreciation and amortisation Intangible assets Included to be amortised is computer software both externally acquired

(Such as Sage, Pastel, QuickBooks etc.) or internally developed software (such as IFMIS, IPPS etc.), licences, operating right or right of use, acquired patents and copyrights, etc.

Tangible assets This includes the following:

Land and buildings under Rwanda Housing Authority

Infrastructure assets such as roads and buildings under Rwanda Transport Development Agency

Military assets under Ministry of Defence

Office furniture, motor vehicles, IT and other office equipment under the respective entity

Agriculture, health and sports assets under the respective government ministry and budgetary entity

3 Gains/losses from disposal of property, plant and equipment

This relates to the difference between the Net Book Value of an asset and the scrap or residual value. This is purely an accruals concept and will need to be adjusted for to move from the cash budget to the information in the financial statements.

4 Revaluations of non-depreciable assets

Assets such as land are not depreciated but carried under principles of the revaluation model. The changes in the value of the assets from the opening carrying amount are adjusted for on this line.

5 Impairment losses This is for assets whose value is expected to fall below the carrying amount.

6 Accruals and prepayments These items are recognised in the financial statements because the transactions are made in the reporting period but their effects cross over to subsequent periods as opposed to cash budgeting which only takes note of the point at which there is a movement of cash. Refer to sections 2.2.5 and 4 below for a detailed discussion on these.



Ref Reconciling item Comment

7 Goods or services received but not invoiced

Considering the magnitude of government procurements, goods or services received but not invoiced is a significant area. These will not be in the cash basis but will be part of the financial statements information as payables.

8 Grants Funds received from grants are recorded and considered as revenue in the cash budget. However, under accruals accounting, grants spanning more than one accounting period are recognised as long-term payable from non-exchange transactions in their entirety and every year a portion relating to the reporting year is released to the Statement of Financial Performance as revenue.

9 Loan repayments Similar to grants above, the portion of the payable to be paid (annual repayment) during the year is released to the Statement of Financial Performance.

3.2.1.2 Timing differences

These reconciling items occur when the budget period differs from the reporting period reflected in the financial statements. A timing difference arises for example, when an entity prepares a budget covering 2 years but presents its financial statements every year.

3.2.1.3 Entity differences

Entity differences occur when the budget omits programs or entities that are part of the entity for which the financial statements are prepared. For instance, GBEs typically do not have allocations under the national budget.

GBEs are on accrual basis and as such will have all the transactions listed above including depreciation for transport and aviation assets and energy and water assets under the relevant GBEs as the entity reconciliation items. Additionally, GBEs will have dividends paid to the GoR adjusted for here as entity differences.

3.2.2 Reconciliation template

Thus prescribed is the following template to use for reconciling execution of the budget (actual amounts presented on a comparable basis as the budget) of the GoR and the IPSAS compliant financial statements (cash flow information included in the IPSAS financial statements) of the GoR.

Notes Operating Investing Financing Total

Actual Amount on Comparable Basis as Presented in the Budget and Actual Comparative Statement

XX XX XX XX

Basis differences XX XX XX XX

Timing differences (GBEs) XX XX XX XX

Entity differences XX XX XX XX

Actual Amount in the Statement of Cash Flows

XX XX XX XX



3.3 Assessment of the possibility of moving to accrual basis budgeting

In this section, highlighted and analysed are the implications of a move to accrual basis budgeting by the GoR in light of the gaps between the current practices by the GoR and the requirements of IPSAS (as identified in the above sections). Guidance is sought from IPSAS 24.

3.3.1. Overview

Accrual budgeting consists of the use of accrual accounting measures in the budgeting process and it entails

planning on an accrual basis i.e. budgetary spending authorisations and income forecasts are formulated in accrual terms.

Under accrual basis of accounting, the effects of transactions and other economic events are recognised when the underlying economic events occur, regardless of the timing of related cash flows. Following this basis, revenues are recognised when income is earned and expenses are recognised when liabilities are incurred or resources consumed. Accrual budgets incorporate in addition to cash flows, all projected non-cash transactions and stocks of assets and liabilities as opposed to cash basis budgeting where the point of inclusion in the budget is whether cash is expected to go out or come in.

3.3.2. Accrual basis budgeting vs cash budgeting

IPSAS 24 provides that where the budget is prepared on a different basis from the basis on which the financial information is prepared, a reconciliation between the cash flow information and the budget should accompany the financial information. To get there, it is imperative to assess the two methods of budgeting in light of the GoR context. The following are the outstanding differences between the two methods of budgeting:

Treatment of liabilities and provisions

Under accrual basis IPSAS the GoR will be required to recognise a number of liabilities and provisions as detailed under section 4 of this report. Under IPSAS accrual basis budgeting liabilities or provisions are generally included in the budget as opposed to the current GoR modified cash basis budgeting practice where cash resources only move when the employees resign and pension payments have to be made.

In the case of the GoR, the provisions for employee benefits as discussed in section 4 of this report, for instance, must be included in the accrual basis budget but would not be included in the current modified cash based budget under the current budgeting practices by the GoR. It means all employee related expenses expected to be paid in the following financial year should be identified, and where reasonable estimates can be obtained, and included in the budget. Estimation of the payable amounts in the case of pension costs usually requires an actuarial valuation.

Goods received but not invoiced

Under accrual basis budgeting, goods or services received but not invoiced should be accrued in the budget. This involves making an estimate now for the value of the goods and services expected to be received without invoices as at the end of the reporting period in the following year. This is because when the goods or services have been received in the current period, an expense is recognised relating to that particular period and this expenditure should be budgeted for the same way the other expenses in the budget are budgeted for. Non-cash items of income and expenditure Depreciation, amortisation and other non-cash items should be budgeted for under accrual budgeting. These items increase GoR expenditure for the budget year and this becomes a challenge when presenting the budget to policy approvers such as parliamentarians who participate in the approval of the budget. Politicians (policy



approvers) are typically more interested in the ‘real’ income and expenditure in the budget as opposed to an accrual basis budget which includes non-cash items such as depreciation and/or amortisation, profit or loss on sale of fixed assets, incomes or expenditure arising from the reductions or increases in the provisions. The non-cash items (depreciation being the largest of them all in the context of the GoR due to the bulk of fixed assets maintained across GoR entities) are as a result of accounting treatment and may be irrelevant to the policy approvers and the general public considering that the national budget is a public document. Accruals based budgeting in this sense then becomes more useful, where making informed decisions is concerned, to accountants and stakeholders with accounting knowledge rather than the politicians and the general public who are the largest group of stakeholders in the national budget. This is one of the main reasons most governments transitioning to the IPSAS framework opt to maintain cash budgeting and then reconcile the cash flow information in the accrual basis IPSAS financial statements and the cash based budgets. Ease of preparation

Cash budgets are easy to prepare. They are less resource and time consuming than accrual basis budgets. Cash budgets however do not reflect the substance or economic reality of the transactions of the GoR and public entities as they only consider the amount of cash inflow or outflow for the year of budgeting. In other words, cash budgets give a better (realistic) cash position than accrual budgets through the capture of only cash items. Accrual basis budgeting may delay implementation of a number of GoR programmes earmarked for the year of budgeting through its preparation complexities, considerations and subsequent estimation of non-cash items as outlined above.

The other downside of accruals budgeting over cash budgeting is that accruals based budgeting introduces a great deal of technical complexity into budgeting thus making it less transparent and less understandable. Accruals budgeting also offers new opportunities for manipulation of the budget in terms of items that are of different nature than in cash budgeting (capitalising expenses, use of depreciation, valuations and revaluations, etc.). Opportunities for manipulation exist in cash budgeting as well but they mainly concern timing issues – i.e. delaying expenses beyond the reporting period and accelerating revenue collection from the next reporting period.

Other considerations

Accrual basis budgeting corresponds with the Generally Accepted Accounting Principles (GAAP) such as IPSAS used in financial reporting, thereby allowing comparison of budget and actual financial information prepared on a consistent basis.

Given that accrual basis budgeting charge costs to the time period in which they will be consumed, a more accurate and complete estimate of the cost of GoR functions is available. Further, a more complete and detailed estimate of GoR obligations is provided when accurate and complete budget information is included. An example of this would be when provisioning for employee leave and severance benefits which under the current modified cash basis accounting/budgeting would not be included.

Accrual basis budgeting will allow for easier and more accurate comparisons with other governments because this practice is becoming the standard throughout the public sector worldwide.

Accrual basis budgeting provides improved cost information to decision makers and improved discipline for budget execution purposes.

Budgeting on accrual basis improves the long-term sustainability of public finances by highlighting the long-term consequences of current decisions, thereby allowing informed forecasting of expenditure.

Accrual budgeting is involving in terms of resources and as such serves as a catalyst for other

management reforms in the public sector including reducing input controls, increasing flexibility and focusing on outcomes.

When it comes to fiscal policy setting, assessment of the impact of the budget on the economy is more likely to be driven from the cash flow statement than from the operating (profit and loss) statement.



3.3.3. Implications of the GoR adopting IPSAS accrual basis budgeting (summary)

Summarised in this section are the gaps and implications of the GoR adopting IPSAS accruals based budgeting

as below:


Policies The planning and budgeting policies and procedures in the PFM Manual need to be updated in line with accrual basis IPSAS requirements for recognising, measuring, presenting and disclosing budgetary information.

Some amendments will be required to current laws and regulations for both accrual basis IPSAS and accrual basis budgeting. The possible areas of amendment identified to current laws and regulations under the Organic Law and Financial Regulations are outlined in Appendix 5 and 6.

There will also be need to update budgeting tools in Section 3 of this report so as to align them with accruals basis budgeting.

People Understanding of accruals based budgeting principles from the level of MINECOFIN down to the implementers at grassroots level.

Intensive sensitisation among parliamentarians, GoR entities and key stakeholders on the new budgeting principles and implications for them.

Resources and technical skills to pioneer the accrual basis budgeting process.

Training for the current staff in accrual accounting.

Enhance coordination of the key staff in the planning and budgeting processes.

Systems Updating of the budgeting module in IFMIS to accommodate changes relating to accrual basis budgeting. In Section 4 of this report, proposals have been made to amend the CoA in light of the accrual basis IPSAS requirements. In this regard, the budgeting and planning module of IFMIS should be designed in such a way that when it comes to budgeting which is currently on a cash basis, only those codes capturing cash items are pulled into the budget.

Processes There will be need to assess the impact of the requirements of accrual basis IPSAS budgeting on GFS Manual 2014 reporting.

Development of new budgeting templates and other budgeting tools to accommodate the new budget lines (as partly outlined above) as a result of the use of accrual basis IPSAS budgeting.

Assessing impact of accrual budgeting on the internal budgeting procedures as well as consultations from the key stakeholders such as parliamentarians, the general public and developmental partners that take place before the issue of the final budget.

Costing the move to accruals budgeting and assessing whether or not the move’s benefits outweigh the costs. The GoR could also consider the move to accrual basis budgeting in a second step, after accrual basis IPSAS is implemented and stable.



The decision to move to accrual basis IPSAS budgeting by the GoR is still open. As highlighted in the sections above, accrual basis budgeting is undoubtedly a better method of budgeting where economic reality is concerned than the current cash based budgeting being used by the GoR. However, moving to accrual basis budgeting is more of a political decision than an accounting one because the policy approvers (i.e. the politicians) are not accountants with accruals accounting principles embedded in their day to day activities. Therefore, the GoR can consider to adopt accruals based budgeting at a later stage when accrual basis IPSAS accounting or budgeting is stable and well embedded in the systems, processes and the mind-set of the GoR staff, parliamentarians and the general public.



Improvements in preparation of financial statements including reporting templates



4 Improvements in preparation of financial statements including reporting templates

4.1 Government’s main transaction types mapped to the relevant IPSAS and accounting entries passed thereof

In modified cash accounting transactions are captured when there is a cash inflow or outflow and at the end of the period, payables or receivables are accrued. Under accrual accounting, transactions are captured when events occur regardless of whether there is a cash inflow or outflow. For the GoR, moving to accrual accounting from cash accounting will give rise to both new items and old items treated on accrual basis on the Financial Statements. Below is a summary of the main gaps between the current treatment of financial statement line items affected by the move to accrual basis IPSAS gauged against IPSAS requirements.

Area Current accounting treatment

Gap Section

Revenue This is recorded at the point when cash is received

Broadly, under the current modified cash basis accounting the recognition criteria of both revenue from exchange and revenue from non-exchange transactions is when cash is received regardless of the period to which it is relating to. Accrual basis IPSAS recognises revenue at the point the GoR has a valid right that future economic benefits or service potential will flow to the GoR and that those benefits can be measured reliably. The following are not currently recorded under the current modified cash basis accounting:

Receivables arising when the tax revenue trigger events occur and there is no cash received. For instance, on 30 June, the end of the GoR FY, tax such as PAYE which is due on or before 15 July should be recorded as a receivable in the books of the GoR. This calls for close collaboration between Rwanda Revenue Authority and the tax payers. The tax payers should be required to communicate the tax due or best estimates where final computations are not ready.

Transactions detailing the financial implications or substance of such events as goods and services received in kind, grants received (with various entitlements and conditions attached), debt forgiveness, receivables arising from revenue from fines, fees, penalties and licences - under accrual basis IPSAS the trigger point for recording these transactions is when the event occurs rather than when there is a movement of financial resources. For instance, a grant received from a development partner should be recorded (i.e. credit revenue and debit receivable) when the grant agreement is signed by both the GoR and the particular development partner

4.1.1.1




Gap Section

even when there is no immediate flow of the grant funds to the GoR. This then means that when the grant funds are received the receivable previously recognised should be derecognised (i.e. credit receivable by original recognition amount) and a cash receipt recorded (i.e. debit cash and cash equivalents).

Other gaps with respect to revenue for the GoR include:

The accounting policy for fees, fines, penalties and licenses needs to be aligned to IPSAS requirements and property income and sale of goods and services should be reported under revenue from exchange transactions.

Tax collection systems are on cash basis. Taxes should be recognised when a taxable event occurs in line with IPSAS 23 – Revenue from non-exchange transactions.

Property income and sale of goods and services are currently incorrectly captured under administrative fees, fines, penalties and licences

Refer to appendix 3 for the detailed gaps.

Expenditure This is currently presented by ‘nature’

IPSAS prescribes expenditure to either be presented by ‘nature’ or ‘function’. A choice between the two resides with the entity and is normally dependent on the needs of the users of the financial information. Under accrual basis IPSAS accounting, both presentation formats have new types of expenses which arise from the new transactions recorded. Typical examples on new transactions include tax receivable written off during the reporting period, depreciation, impairment losses, losses on disposal of fixed assets etc. Under accrual basis IPSAS, expenses are strictly matched to the period in which they are incurred and any expenses paid for but not relating to the current reporting period are considered as prepayments and any goods or services already received but not yet paid for are recognised as accruals (i.e. payables at the end of the reporting period.

4.1.1.2

Fixed assets (including intangible assets)

Currently expensed at the point of purchases

Fixed assets are not recognised in the Statement of Financial Position.

4.1.2.1 and 4.1.2.2

Inventory Currently expensed in the Statement of Financial Performance

This is currently not recognised in the Statement of Financial Position. This is recognised at the point when the costs of bringing the inventory to its present location and condition are incurred; at this point the GoR should demonstrate having control over the inventory, that future economic benefits will flow to the GoR as a result of that control over the inventory

4.1.2.3




Gap Section

and that the value of the inventory can be measured reliably.

Borrowings Currently expensed (repayments and inherent interest payments) and proceeds recorded as revenue in the Statement of Financial Performance

Borrowings are not recognised in the Statement of Financial Position. Under accrual basis IPSAS accounting framework, borrowings are generally recognised when it becomes probable that future economic benefits will flow from the GoR as a result of a trigger in the past events and that the economic benefits outflows can be measured reliably. The past trigger event is an event which makes the GoR liable to settle an obligation in future e.g. a loan contract signed with clauses expressly or impliedly stating the GoR obligations in relation to the loan. The GoR currently has a stock of public debt which is recognised/treated in line with modified cash basis accounting under the current accounting policies, loan proceeds are treated as revenue in the period they are received and repayment are expensed when paid. IPSAS takes a retrospective approach on coming up with the first IPSAS compliant opening statement of financial position. In this regard, the current stock of public debt has to be ‘removed’ i.e. recognised from the books of accounts by passing reversing journal entries. The GoR should then treat the public debt the way it would have treated them under accrual basis IPSAS at the time of contracting. For instance, a five year debt instrument whose proceeds were recognised in full at the time of contracting the debt under the modified cash basis accounting should now have the initial proceeds spread over five years and all proceeds relating to prior years totalled and posted accordingly to the net assets account because they relate to prior years. On the regular payments (comprising principal repayments and interest) a re-computation should be done and the annual interest computed matched against the actual interest paid in the prior years. Any excess or deficit between the two amounts should be posted to the net assets account and to the finance cost account. If it is discovered that the GoR had overpaid interest in prior years then the amount of the overpayment is recorded as income in the statement of financial performance (i.e. by crediting the statement of financial performance and a debit entry of the same amount posted to the net assets account). If it is discovered that the GoR had underpaid the interest then the opposite entries are passed to recognise the paid amount.

4.1.2.4

Employee benefits

Short-term benefits are currently expensed and amounts not paid at

There is currently no split between social benefits and employee benefits.

There are no provisions made for employee benefits not yet settled by the GoR. At the end of the reporting period only accruals for employee benefits in the last

4.1.2.5




Gap Section

period end are accrued

month remaining outstanding are recognised and these are paid in the subsequent month.

The following will be the main transactions which will make up the Consolidated Financial Statements of the GoR when accrual accounting is adopted. The analysis below also highlights the lines in the Statements of Financial Performance which will have to move to the Statement of Financial Position on the adoption of accrual basis accounting.

4.1.1 Specific transactions in the consolidated statement of financial performance

4.1.1.1 Revenue 4.1.1.1.1 Taxes revenue

These include taxes on income, profits or capital gains, taxes on payroll and workforce, tax on property income,

taxes on goods and services and taxes on international trade and transactions. These are regarded as non-exchange transactions because the government through RRA receives value without directly giving approximately equal value to the tax payers. Taxes are embodied under IPSAS 23 – Revenue from non-exchange transactions.

Tax revenue is the biggest source of income and therefore is a significant amount in the financial statements of the government. Under the current cash basis accounting, tax revenues are recorded as and when cash is received regardless of when the taxable event occurred.

IPSAS 23 requires that the tax revenues are recognised in the period in which the taxable event occurs. This therefore gives rise to recognition of assets and liabilities because the tax revenue recognised should be matched to the period over which the revenue was earned. Furthermore, taxes such as PAYE, PIT and CIT have various due dates which do not align seamlessly with the year end for the GoR. Accrual accounting comes in handy as it allows the effect of the due dates on the financial statements as well as the substance of the transactions to be captured.

Taxpayers sometimes pay in advance and where that is the case, the tax revenue should be split between that which relates to the reporting period and that which relates to the subsequent period. For tax relating to the reporting period, revenue is recorded in the Statement of Financial Performance and an equal amount of cash recorded in the Statement of Financial Position whereas for tax relating to the subsequent period cash received is recorded and an equal payable recognised in the Statement of Financial Position. The payable recognised (advance payment from tax payer or deferred tax revenue) is then periodically released to the Statement of Financial Performance as and when the revenue is earned by the GoR. This involves gradually reducing the payable by debiting the payable account and equally crediting the Statement of Financial Performance (Tax revenue) with the same amount.

Sometimes the taxpayers owing RRA default on payments or even worse some businesses may be wound up for various reasons. This essentially means that the tax receivable may not be recovered by RRA in which case the tax receivable ceases to meet the definition of an asset as there will not be economic benefits flowing to RRA in future. Therefore, a provision (further discussed below under Provisions) to the extent to which RRA expects the debtor to default is recognised and ‘netted off’ with the tax receivable.

There are times when the debt previously provided for is recovered i.e. where a debtor not expected by RRA to settle their tax obligations suddenly settles the amounts outstanding. This generates other income in the period in which the debt is unexpectedly recovered. The cash received is recorded and a corresponding other income amount recognised.



Furthermore, based on experience with the taxpayers, RRA may determine that the risk some tax payers may not pay has increased in which case the provision for default also has to increase to reflect the new level of default risk. Conversely the level of risk may as well reduce on debts previously provided for based on the assessment of the debtors by the RRA or where RRA grants tax amnesty to the taxpayer. At this point the reduction in the provision is recognised as other revenue in the period in which the reduction is made.

The table below depicts the double entry for all the scenarios above.

1. Recognition of tax revenue (typical revenue transaction)

Being recognition of revenue tax revenue (i.e. revenue from non-exchange transactions). If no cash is received immediately, a receivable of the amount of the revenue is recognised and where cash is immediately received, the cash is recorded by debiting the cash/bank account with the amount of the revenue received. Where the revenue is received partly in cash, the cash amount received is debited to the cash/bank account and the difference between the revenue amount and the cash received is recognised as a receivable. Therefore the cash amount received and the amount of the receivable recognised should be equivalent to the total revenue amount. Statement of Financial Position

Dr – Cash/bank (where cash is received) XX

Statement of Financial Position

Dr – Tax receivable (where no cash received) XX

Statement of Financial Performance

Cr – Tax Revenue XX

2. Recording of advance payments received from taxpayers

Being advance tax payments (such as provisional tax paid by a tax payer as an estimate for tax expected for that business year) received by RRA from tax payers. The tax is split between the tax due to the GoR for the current reporting period and the tax which the GoR is yet to earn (which is due to the GoR subsequent to the current reporting period). The full amount received is recorded (debited) in the cash/bank account and the corresponding credit entry split as outlined above. Where the tax payer makes an advance payment only for the period subsequent to the current GoR FY then the full amount received is credited to the Deferred tax revenue account and the funds received debited to the cash/bank account. Statement of Financial Position

Dr – Cash/bank XX


Cr – Tax Revenue (component relating to reporting period) XX


Cr – Deferred tax revenue (component relating to period subsequent to reporting period).

XX

3. Recognition of previously deferred tax revenue

Being the transfer of revenue from the Deferred tax revenue (in scenario 2 above) account to the Tax revenue account once the GoR earns the tax revenue which was deferred in the prior period to the current reporting period.

The Deferred tax revenue account is reduced by debiting the amount of revenue applicable to the current reporting period and posting the corresponding credit entry to the Tax Revenue account, thereby increasing the revenue for the current reporting period by the same amount.




Dr - Deferred tax revenue (component relating to period subsequent to reporting period).

XX


Cr – Tax revenue XX

4. Provision for default or bad debt

Being provision for doubtful tax debts i.e. where the GoR has valid grounds that the tax payer will default but the amount and time of default is not known at the time. The expense for the current year is recognised by debiting the Statement of Financial Performance and the tax revenue due from the tax payer is reduced by the amount of the provision recognised. The amount the provision is an estimate made by following the guidance under IPSAS 19. Statement of Financial Performance

Dr – Bad debt expense XX


Cr – Allowance – tax receivable XX

5. Tax debt previously written off

Being tax receivable written off in the prior period (as in scenario 4 above) but unexpectedly settled by the tax payer who previously defaulted. The amount received is debited to the cash/bank account and the corresponding credit posted to Other revenues account. Statement of Financial Position

Dr – Cash/Bank XX


Cr – Other revenues XX

6. Increase in provision for default or bad debt

Where it is assessed that the already defaulting tax payer (as in scenario 4 above) will default further, an extra provision is made as per the journal entries below. Statement of Financial Performance

Dr – Bad debt expense (amount of increase only) XX


Cr – Allowance tax receivable XX

7. Reduction in provision for default or bad debt

Being amount of reduction in the previously assessed extent of default by a tax payer. Therefore, the provision or allowance made for default is debited to effect the reduction and the amount of the reduction further recognised as revenue by crediting the revenue account. Statement of Financial Position

Dr – Allowance – tax receivable XX


Cr – Other revenues XX

Taxpayers sometimes dispute the tax amounts determined by RRA and in several instances these disputes result in litigation. In such cases, the tax revenue recognised by the GoR and the receivables thereof, may not be recoverable. Consequently, according to IPSAS 21—Impairment of non-cash-generating assets, the carrying amount of the receivable exceeds its recoverable service amount. In this regard, the GoR should recognise an allowance for impairment with respect to the receivable. Refer to the section below on fees, fines, penalties and licences for the treatment of such items.



4.1.1.1.2 Grants received, donations, goods received in kind and debt forgiveness

IPSAS 23 classifies grants received, donations, goods received in kind and debt forgiveness as non- exchange

transactions. Based on the current cash basis GoR Consolidated Financial Statements, this is the second largest revenue stream for the GoR. This includes grants and donations from foreign governments, international organisations and transfers between general government units which includes Treasury transfers, Inter-entity and intra-entity transfers. Intra-entity transfers refers to transfers between cost or revenue centres within a public entity.

Under IPSAS, transfers (grants received, donations, goods received in kind and debt forgiveness) are recognised when the trigger event such as signing of enforceable grant agreement in the case of grants or the transfer of legal title in the case of goods received in kind occurs. In the case of treasury transfers, these should be recognised by the receiving entity at the earlier of when a notification of the transfer is received and when the actual transferred funds are received in the GoR entity bank account. As for the transferring GoR entity, the recognition point is when the transfer is authorised.

On consolidation of the accounts of GoR entities, inter-entity and intra-entity transfers should be eliminated as they are not an ‘injection’ into or a ‘leak’ from the GoR financial system i.e. when we consider the whole (GoR) the transactions are a mere movement of resources from one entity to the other within the same system.

4.1.1.1.3 Grants from other governments and grants from International organisations

Grants from other governments come in form of budget support and are often tied to a particular sector such as education, transport, health etc. Similarly grants from international organisations are often also tied to a particular government sector and time period. The time period may not always align with the GoR year end of 30 June and for that reason recording of transfer transactions gives rise to assets, liabilities and deferred revenue.

Initially, the grants are measured at the extent to which they increase the net assets of the GoR. An asset in relation to the grant revenue is recognised when the resources under the grant meet the criteria of an asset i.e. if it is established that it is probable that the economic resources embodied in the grant will flow to the entity and that the fair value of that asset can be measured reliably.

Where a grant is signed between the GoR and a foreign government or international organisation for a period going past the GoR year end, the revenue from that transactions is only recognised to the extent of the period between the dates of the grant agreement to the year-end date. In this case, a liability (Deferred grant revenue) is created to capture the revenue going past the year-end date and this revenue is released to the Statement of Financial Performance gradually (typically every month end reporting) to match the period to which it relates.

The double entries capturing these scenarios are given in the table below.

1. Recognition of revenue from grants (at the point when there is an enforceable claim)

Being grant revenue recognised when the GoR has a valid ground (such as a signed grant contract) to claim entitlement to the grant. Where the full amount of the grant is received in cash the cash/bank account is debited by the amount received and the corresponding credit posted to the Revenue from grant account. Where there is no cash received with respect to the grant, a receivable is recognised by debiting the Grant receivable account and the corresponding credit posted to the Revenue from grant account. Where the amount of the grant is received partly in cash then on the assets side of the Statement of Financial Position the Cash/bank account and the Grant receivable amount are both debited to the extent that the total of the two debit entries is equivalent to the corresponding credit entry posted to the Revenue from grant account.






Dr – Grant receivable (where no cash received) XX


Cr – Revenue from grant XX

2. Recording of deferred revenue from grants (first year of a multiyear grant)

Being full entries recording revenue from a grant spanning more than one accounting period.

In addition to the journal entries in scenario 1 above, the following key issue under scenario 2 is the split between the portion of the grant relating to the current financial year and the portion relating to the subsequent financial year.

On the debit side the respective amounts relating to what has been received in cash and what is yet to be received (grant receivable) are debited appropriately. On the corresponding credit side, the total credit is split between the portion of the grant relating to the current financial year and the portion relating to the subsequent financial year.

The basis of the split is a case by case basis consideration. Some grant agreements will state explicitly the cash flows for each of the years across the duration of the grant. Where the period of the grant does not fetter into the GoR FY, the split between the portion of the grant relating to the current financial year and the portion relating to the subsequent financial year will be made on a pro rata basis. Statement of Financial Position

Dr – Cash/bank (where cash/part cash is received) XX


Dr – Grant receivable (where no cash received) XX


Cr –Revenue from grant (for portion relating to current reporting period)

XX


Cr – Deferred grant revenue (for component relating to period subsequent to reporting period).

XX

3. Release of deferred grant revenue to the Statement of Financial Performance (second year of grant)

Being release of revenue due, in the second year of the grant from the total amount of grant revenue held in the Deferred revenue account for the duration of the grant. Statement of Financial Position

Dr – Deferred grant revenue (portion relating to second year) XX


Cr – Revenue from grant (portion relating to second year) XX

Grants should not only be recognised in Statement of Financial Performance in the periods covered by the grants. A more in-depth analysis of the terms of the grant agreements should be made. If conditions are attached to the grants, these should be identified and revenue can only be recognised when the conditions attached to the grant are fulfilled.

When the grant is received/(receivable) and a condition is attached to the grant, the entries below should be

passed:

4. Grant received/(receivable) and a condition is attached to the grant

Being journal entries to record a receipt of grant funds for a grant with a condition attached.




Dr – Cash/grant received XX


Cr – Liability XX

5. Condition on grant is fulfilled

Being journal to recognise revenue from a grant once the grant conditions are met. Statement of Financial Position

Dr – Liability XX


Cr – Revenue XX

4.1.1.1.4 Goods and services received in kind

Goods received in kind according to IPSAS 23 should be recognised at the fair value of the goods at recognition date. However, IPSAS 23 does not require public entities to recognise revenue from services in kind and entities can elect to either recognise or not recognise in the financial statements. Based on the latest GoR Consolidated Financial Statements, goods and services received in kind are not a significant area of revenue. This is because they are not tracked and recorded.

4.1.1.1.5 Fees, fines, penalties and licences

Based on the current Consolidated Financial Statements of the GoR, this is the third largest source of revenue.

This relates to fees, fines, penalties and licences fees charged by government institutions such as the courts, RRA, Police Service and others for breaking of laws and other provisions administered by those institutions.

These are classified as revenue from non-exchange transactions under IPSAS 23. Revenue from this stream will be recognised at the point when it is established that a law or the relevant provision has been broken. Revenue from this stream will then be measured at the GoR stipulated rates. This will result in the following double entry in the accounts of GoR:

1. Recognition of revenue from fees, fines, penalties and licences

Being revenue from fees, fines, penalties and licences recognised when the GoR has a valid ground (such as a law is broken or an offender has been convicted of an offence attracting a fine or penalty) to claim entitlement to the revenue. Where the full amount of the revenue is received in cash the cash/bank account is debited by the amount received and the corresponding credit posted to the revenue from fees, fines, penalties and licences account. Where there is no cash received with respect to the revenue, a receivable is recognised by debiting the Fees, fines, penalties and licences receivable account and the corresponding credit posted to the revenue from Fees, fines, penalties and licences. Where the amount of the revenue is received partly in cash, both the cash/bank account and the fees, fines, penalties and licences receivable amount are debited under the assets side of the Statement of Financial Position to the extent that the total of the two debit entries is equivalent to the corresponding credit entry posted to the Revenue from Fees, fines, penalties and licences. Statement of Financial Position



Dr – Fees/fines/penalties/licences receivable (where no cash received)

XX


Cr – Revenue from fees, fines, penalties and licences. XX



Fees, fines, penalties and licences attract interest when not settled within the stipulated timeframe. The interest gives rise to a new revenue stream for the government, interest accrued on fees, fines, penalties and licences. The GoR has an option to record this as an increase on the initial fees, fines, penalties and licences receivable or to record the interest receivable on its own i.e. in a separate account. Whichever option is selected, the credit entity of the interest receivable is recorded in the Interest accrued on fees, fines, penalties and licences. The full double entry is as follows:

2. Recognition of interest income accrued on fees, fines, penalties and licences

Being recognition of interest accrued on overdue fees, fines, penalties and licences. The treatment of the interest accrued on fees, fines, penalties and licences is the same as the treatment applied on revenue for fees, fines, penalties and licences in scenario 2 above. Therefore the journal entries are as below. Statement of Financial Position



Dr – Fees/fines/penalties/licences receivable (where no cash received)

XX


Cr – Interest accrued on fees, fines, penalties and licences. XX

This stream of revenue is affected by the activities of the courts. It is common for, especially, fines and penalties to be disputed by the offending parties and where that is the case, there is a likelihood that the receivable from fees, fines, penalties and licences and the interest accrued for default altogether may not be recoverable. Based on guidance from IPSAS 21—Impairment of non-cash-generating assets, when the carrying amount of the receivables exceeds its recoverable service amount, the GoR should recognise an allowance for impairment.

The amount recognised as an allowance for impairment is the best estimate of the extent to which the carrying amount of the receivable exceeds its recoverable service amount:-

3. Recognition of allowance (for impairment) on fees, fines, penalties and licences receivable

Being recognition of impairment allowance for Interest fees/fines/penalties/licences receivable whose carrying amount is more than its recoverable amount. Statement of Financial Performance

Dr – Impairment expense - Fees/fines/penalties/licences or interest accrued on outstanding fees/fines/penalties/licences

XX


Cr – allowance (for impairment) – Interest Fees/fines/penalties/licences receivable

XX

4. Reversal of previous allowance (for impairment) interest on fees, fines, penalties and

licences receivable (in the year of reversal)

Being reversal of allowance previously expensed in the prior FY. Statement of Financial Position

Dr – allowance (for impairment) – Interest Fees/fines/penalties/licences receivable

XX


Cr – Other income - Fees/fines/penalties/licences receivable XX

4.1.1.1.6 Grants given to local authorities by the GoR

Sometimes the central government makes expenditure centrally on behalf or for the benefit of a local authority

e.g. a construction contract price settled by the central government for a school in a particular locality. In such



cases, the amount spent by the GoR is accounted for as a normal expense i.e. the cash/bank account is credited by the contract price and an expense of the same amount created by debiting the Statement of Financial Performance.

In the accounting records of the local authority, an asset is recognised (i.e. the school building and accounted for according to IPSAS 17) by debiting Property, plant and equipment – buildings and the corresponding credit journal entry posted to Deferred revenue. The Deferred revenue is the released (credited) annually to the Statement of Financial Performance to extent of the amount commensurate as grant revenue relating to that reporting period over the useful life of the building. The full journal entries are as follows:

1. Recognition of expense made by a central government entity on behalf of a local authority

Being recording (in the books of a central GoR entity) of expenditure made on behalf of a local authority. Statement of Financial Performance

Dr – Expense account XX


Cr – Cash/bank account XX

4.1.1.2 Expenses

IPSAS 1 – Presentation of financial statements provides that expenses can be presented in two ways i.e. either by ‘nature’ or by ‘function’. The choice in this case will depend on the needs of the GoR and other users of the consolidated financial statements. Both formats are achievable based on the current GFS Manual 2014 influenced coding of accounts on the CoA. The presentation of the GoR expenditure in the current Consolidated Financial Statements combines both ‘function’ and ‘nature’ as shown below. IPSAS 1 only provides for use of one of the methods and not both methods. GoR has selected to continue to present its statement of financial performance by nature of expenditure.

The following table shows the presentation of expenses by ‘Nature’. Under IPSAS 1.

Expenditure Notes 20X2 20X1

Wages, salaries and employee benefits

(X) (X) Grants and other transfer payments

(X) (X)

Suppliers and consumables used

(X) (X) Depreciation and amortisation expense

(X) (X)

Impairment of property, plant and equipment

(X) (X) Other expenses

(X) (X)

Finance costs

(X) (X)

The following table shows the presentation of expenses by ‘Function’. Under IPSAS 1.

Expenditure Notes 20X2 20X1

General public services

(X) (X) Defence

(X) (X)

Public order and safety

(X) (X) Education

(X) (X)

Health

(X) (X) Social protection (X) (X) Housing and community amenities (X) (X) Recreational, cultural and religion (X) (X) Economic affairs (X) (X) Environmental protection (X) (X) Other expenses

(X) (X)



Finance costs

(X) (X)

Under the IPSAS accruals framework, expenses will be recognised at the point when the trigger event occurs regardless of whether cash has been received as opposed to the current cash basis treatment where the expenses are recognised when there is a cash outflow from the GoR resources. The expenses will be recorded in the period in which they are incurred rather than where there is an outflow of resources to settle the expense i.e. under accruals framework the expenses have to be matched with the revenue they generate (‘matching concept’).

The typical double entry for recognising an expense is as shown in the table below.

1. Recognition of expense

Being recognition of expense in the Statement of Financial Performance (typical expense journal entry)


Dr – expense XX


Cr – cash (where cash is paid out)/specific liability or obligation bringing about the expense.

XX

4.1.2 Specific transactions in the consolidated statement of financial position

Under the current modified cash basis of accounting used by the GoR, the statements of financial position comprises:-

cash on hand and bank balances;

receivables mainly consisting of taxes receivable, advances given out to employees, recoverable from government, prepayments to suppliers and prepaid expenses, bursaries given out to students, institutions and receivables from third parties among other receivables taken stock of when closing the accounts at year end;

payables, mainly tax liabilities (in refunds), payroll liabilities and other third party payables; and

reserves i.e. the accumulated surplus or deficit.

Under accruals accounting, a number of FSLIs will come in such as borrowings (currently accounted for as revenue by the GoR), property, plant and equipment, intangible assets and deferred income among others. Presented below are the main and significant FSLIs under the proposed Statement of Financial Position based on the accruals accounting framework.

4.1.2.1 Infrastructure, plant and equipment

This includes the GoR infrastructure across the country i.e. transport, energy, water and sanitation, urbanisation, human settlement and housing development as classified by the Ministry of Infrastructure (MININFRA). Plant and equipment includes equipment in hospitals, schools, military, computer hardware, fixtures and fittings, furniture, production plants and other assets of similar nature in government institutions as well as entities where the GoR has a majority stake or control.

The above assets are covered under IPSAS 17 – Property, plant and equipment. The standards does not cover Assets held for sale and Investment properties.

When accounting for infrastructure, plant and equipment under IPSAS 17, it is important to consider four areas: Recognition, initial measurement, subsequent measurement and de-recognition as arrayed below:



4.1.2.1.1 Recognition and initial measurement of infrastructure, plant and equipment

The key element in any asset recognition is that it should be controlled and not necessarily owned by the GoR.

Therefore, once ‘control’ is established the asset is then recognised (introduced into the Statement of Financial Position) as an item of infrastructure, plant and equipment when:-

It is probable that future economic benefits or service potential associated with the asset will flow to the GoR. This requirement qualifies finance lease arrangements into the infrastructure, plant and equipment as further discussed under leases below.

The cost of the asset can be measured reliably. For the GoR and for certain types of assets like roads, bridges, railways and airports, measurement is a very involving procedure. The GoR will have to work hand in hand with the custodians of such assets at the entity level as well as involve valuation experts to determine the recognition amount for the assets.

IPSAS 17 provides that meeting the above recognition criteria, the asset should be introduced into the Statement of Financial Position at its cost. Cost comprises mainly three components:-

Purchase price of the asset, net of discounts and rebates but including import duties and non-refundable purchase taxes.

Estimated costs of dismantling the asset and removing the asset from the site in order to restore the site on which the asset is located. Typical examples include a factory plant constructed or a mine commissioned. The land on which such are constructed has to be restored to usable condition after the mineral deposits or factory is closed. The estimated cost is normally measured at present value by discounting the future cost estimated over the useful life of the asset. This is in line with IPSAS 19 - Provisions, Contingent Liabilities and Contingent Assets as partly highlighted in section 2.2.7 above.

Any costs incurred in bringing the asset to its present location and condition. Examples of such costs are transport and freight of the piece of asset, preparation and pre-inspection costs. In a nutshell, the costs considered are all those without which the asset cannot operate and serve its purpose if the costs are not incurred.

Where the GoR receives an asset in kind or as a grant, for instance from other government or development partners, IPSAS 17 provides that the asset should be measured at cost and where the cost information is not available the asset should be measured at fair value. Fair value in this case is what an informed party would pay for the asset in an arm’s length transaction in the normal course of operations.

The typical double entry for recognition is then:

1. Recognition of asset (initial measurement)

Being recording of asset at initial recognition in the accounting records of the GoR

Where the asset is fully paid for in cash, a credit of the value equivalent to the purchase price is posted to the cash/bank account and a corresponding debit entry posted to the Cost – asset account. Furthermore, where the asset is acquired in kind i.e. through a grant, a credit equivalent to the fair value of the asset at the date of acquisition is posted to the Deferred income account. Which is subsequently treated as per the journal entries under scenario 3 in the Grants from other governments and grants from International organisations subsection of section 4.1.1.1 above. Statement of Financial Position

Dr – Cost - Asset XX


Cr – Cash/bank (where cash is paid out) or XX


Cr – Deferred income (for assets in kind or granted) XX

Borrowing costs incurred are recognised as an expense in the period in which they are incurred but under IPSAS 5 alternatively, borrowing costs incurred in the construction of qualifying assets (i.e. assets that necessarily take



a substantial period of time to get ready for their intended use or sale) can be capitalised as part of the initial cost of the asset when it is probable that they will result in future economic benefits or service potential to the entity and the costs can be measured reliably.

Therefore, the GoR has a choice to expense borrowing costs incurred where it is demonstrated that the costs were incurred in connection with the construction of infrastructure assets or to capitalise the costs up to the extent to which they are directly attributable to the construction of assets (i.e. qualifying assets).

4.1.2.1.2 Subsequent measurement

After initial recognition of the assets, the GoR under IPSAS has an option either to use the Cost model or the

Revaluation model. The choice between the two models depends on how the GoR acquired the asset. For assets which are purchased, the cost model should be used and for those assets which are either given in kind or as a donation from third parties, the revaluation model should be used.

After recognition, the asset is now being used in the operations of the GoR and wear and tear comes in. The measure of the wear and tear of the asset is called depreciation and is determined as the asset is being used. Depreciation is spread across the useful life of the asset and every reporting period (in this case, one year) a portion of the period elapsed is deducted from the cost of the asset to represent the use of that asset over that particular period. Therefore, at the end of the year a deduction is made to the cost of the asset and transferred to the accumulated depreciation account.

In the year of recognition, the accumulated depreciation and the depreciation expense will be the same and during the second year another portion of the depreciation on the asset for the period is transferred to the accumulated depreciation account. That way the accumulated depreciation account increases with the depreciation on the asset transferred so far and the cost (Net Book Value - NBV) reduces to reflect the extent of use of the asset.

The accounting entries in with respect to the above are as follows:

2. Recognising depreciation

Being recording of depreciation expense in the period in which the expense is incurred Statement of Financial Performance

Dr – Depreciation expense XX


Cr – Accumulated depreciation XX

IPSAS does not prescribe the most suitable method of depreciation but recommends the use of a method that best reflects the wear and tear of the asset under consideration. Common methods of depreciation include straight-line method in which a fixed portion of depreciation is charged every year until the useful life of the asset is achieved and reducing balance method where a fixed percentage of the NBV is charged as depreciation i.e. more depreciation is charged in the earlier years than in the later years as the NBV keeps reducing year to year hence the name, reducing balance.

4.1.2.1.3 Derecognition

Once the asset’s useful life has been attained or it becomes probable that the economic benefits or service

potential relating to the use of the asset will not flow to the GoR the asset is derecognised or removed from the Statement of Financial Position. The assets carrying amount (NBV) is gauged against disposal proceeds, if any, and the difference results in either a loss or gain on proposal. The accounting entries are as follows:

3. Derecognising (where there are no proceeds – fully depreciated)

Being removal of the asset from the accounting records of the GoR.



The total depreciation accumulated to date is removed by debiting the Accumulated depreciation account and the cost of the asset eliminated by the crediting the Cost – asset by the total depreciation accumulated as at the date of derecognition. Ideally, when an asset is fully depreciated it means that the wear and tear over the life of the asset is equivalent to its initial recognition value i.e. the asset has exhausted its useful life. Statement of Financial Position

Dr – Accumulated depreciation (all) XX


Cr – Cost - asset XX

4. Derecognising (loss on sale)

The loss on disposal of the asset is basically the difference between the NBV (i.e. Cost of asset - accumulated depreciation) of the asset at the date of disposal and the proceeds received as consideration for the sale of the asset. Where the proceeds received are less than the NBV of the asset then the shortfall between the two amounts is the loss on disposal. In this regard, the NBV is achieved by debiting the Accumulated depreciation account and crediting the Cost – asset by the total depreciation accumulated as at the date of the disposal.

The proceeds received from the sale of the asset are recorded in the cash/bank account by debiting the account and the corresponding credit journal is posted to the Cost – asset account. To balance the Cost – asset account, a balancing credit entry is posted to this account and the corresponding debit posted (i.e. expensed) to the Statement of Financial Performance as a loss on disposal. Statement of Financial Position

Dr – Cash/Bank (proceeds received) XX




Dr – Loss on sale of asset (expense) XX


Cr – Asset (cost) XX

5. Derecognising (profit on sale)

A profit on disposal arises where the proceeds received exceed the NBV of the asset. This is basically the same journal entries posted when recording the loss on disposal above except that the balancing figure in this case is a debit to the Cost – asset account. Statement of Financial Performance

Dr – Cash/Bank (proceeds received) XX




Cr – Gain on disposal (income) XX


Cr – Cost – asset (cost) XX

It is important to distinguish between the economic value of the asset and the Net Book Value. The asset can still be there physically but is fully depreciated in the books of accounts. This depends on the policies set by the GoR. Normally governments dispose of fixed assets especially motor vehicles before their economic value elapses to cut down on maintenance costs for the vehicles as these rise with the passage of time of use of the asset.



4.1.2.2 Land and buildings

Land and buildings is another significant area considering the asset base of the GoR both within the country and

abroad. This includes state land and buildings such as schools, hospitals, office buildings, heritage sites, factory sites among others.

Under IPSAS 17, land is considered to have an infinite useful life and is not depreciated for that reason because the future economic benefits are assumed to continue to accrue to the GoR indefinitely. For buildings, the depreciation rates between 1% to 3% are considered as reasonable (depending on the use to which the building is put) useful life ranges between 30 years to 100 years. GBEs normally make a distinction between office buildings and commercial buildings of which the latter are said to have a shorter useful life than the former and are as such depreciated at a faster rate than the former.

GBEs in Rwanda are already using IFRS accrual framework and for that reason are expected to have land and buildings on their Statement of Financial Positions. The GoR and its institutions will need to take stock of the land and buildings under their mandate. This is expected to be an involving process and close collaboration with institutions like the Rwanda Development Board (RDB) and the Rwanda Housing Authority (RHA).

The revaluation model as per guidance under IPSAS 17 is normally applied on land and buildings due to their nature as highlighted above. Land is revalued from to time to reflect its true value over time. The decrease or increase in value of the land is recorded as follows.

1. Recording increase in value of land

Being recognition of revalued amount of land


Dr – Land (assets) – with increase in value XX


Cr – Revaluation reserve/surplus – with increase in value XX

Based on IPSAS 17 guidance, the increase (or decrease) in the value of the asset will only be recognised to the extent that it reverses a previously recognised decrease (or increase) in this particular class of asset. Furthermore, when there are conditions necessitating a revaluation (increase or decrease in value) of the asset, the revaluation should be applied across all the assets in that particular class.

The accounting entries to record a decrease are as follows:

2. Recording decease in value of land

Being reversal of previously recognised revaluation. Statement of Financial Position

Dr – Revaluation reserve – with decrease in value XX


Cr – Land (assets) – with decrease in value XX

The accounting entries highlighted above also apply to buildings.

4.1.2.3 Inventories

Inventories can be a significant area depending on the items the GoR classifies as inventory. Generally, inventory

is classified as finished products, work in progress (WIP) and raw materials. Typical examples of inventory for the public sector are ammunition, consumables, maintenance materials, strategic, stockpiles (e.g. energy reserves), stocks of unissued currency, postal, service supplies held for sale (e.g. stamps), reference materials,



publications and supplies awaiting for distribution to other parties for free or for a nominal charge, land/property held for sale.

Currently, the GoR accounting policy on inventory is that all public entities charge inventory acquisitions as expenditure when purchased rather than when used. Inventory is measured at cost not taking into consideration impairment. This is because there is no clear guideline in relation to measurement of inventory.

Under IPSAS 12 – Inventories, the GoR should initially recognise inventory when the following are satisfied:

The GoR has control over the inventory;

When it becomes probable that the future economic benefits or service potential will flow to the GoR; and

The cost of the inventory can be measured reliably.

IPSAS 12 further provides that inventories should be measured at the lower of cost and net realisable value, except in the following circumstances:

When inventories are acquired through a non-exchange transaction, their cost is measured at their fair value at the date of acquisition; and

When inventories are to be distributed at no charge or for a nominal charge, they are measured at the lower of cost and current replacement cost.

Cost of inventory in a nutshell relates to all costs (typically purchase costs, conversion costs, and other costs) incurred in bringing the inventory to its present location and condition. The accounting entries for inventory in the public sector set up is as follows:

1. Inventory – initial recognition

Being initial recognition of inventory in the accounts of the GoR. The asset (inventory) is created by debiting the Inventory account and crediting the cash/bank by the same amount. Statement of Financial Position

Dr – Inventory XX


Cr – Cash/Bank XX

2. Inventory (in kind) – initial recognition

Being recognition of inventory acquired through means other than cash payment. The inventory is recognised at fair value as opposed to the lower of net realisable value and cost in scenario above.

A debit entry is posted to the Inventory account to recognise the inventory. A credit entry is posted to the Other revenue account. This credit entry is due to the fact that inventory is a current asset and as such is expected to be used up during the year i.e. within 12 months. Therefore the credit journal is posted to Other revenue rather than Deferred income as is the case with fixed assets. Statement of Financial Position

Dr – Inventory (fair value) XX


Cr – Other revenue (non- exchange transactions) XX

3. Issue of Inventory (Issuing entity)

Being the issuing of inventory by one GoR entity to another GoR e.g. between a Ministry and a Local government entity. The inventory is issued at cost with no mark-up added.




Dr – Expense XX


Cr – Inventory XX

4. Receipt of inventory (Receiving entity)

Being the receipt of inventory by one GoR entity from another GoR e.g. from a Ministry to a Local government entity. The inventory is recognised (recorded) at cost with no mark-up added. Statement of Financial Position

Dr – Inventory XX


Cr – other income XX

The major gap under inventory is that whilst the GoR will stipulate the valuation method (e.g. FIFO or Weighted Average Cost) to use for core GoR entities, GBEs with inventory have already established their methods. This will bring valuation problems when it comes to consolidation of the accounts of GoR as the valuation will not be consistent. Considering the number of entities being consolidated and the various types of inventory across the entities being consolidated from core GoR entities to GBEs, Weighted Average Cost valuation method is recommended as opposed to FIFO.

4.1.2.4 Borrowings (Long-term)

In the current Consolidated Financial Statements of the GoR, borrowings are treated as Revenue and divided into

domestic and external realms.

Public debt and associated interest is recognised on cash basis. Proceeds from loan borrowings are recognised as revenue during the year of receipt at cost and repayment as expenditure in the year of repayment. Cash is considered as received when the recipient entity receives a transfer advice from the lender rather than when cash is received in the bank account of the receiving entity. Other loans (principal and any associated interest) acquired directly by a public entity (e.g. those acquired by Decentralised Entities) are treated on an accrual basis and recognised as liabilities.

Based on the provisions of IPSAS 29 - Financial Instruments: Recognition and Measurement, the borrowings currently recognised as revenue have to move to the Statement of Financial Position. The full loan amount is recognised as a non-current liability and the proceeds received recorded in the cash or bank account. The total repayment amount for typical government to government loans mainly consists of the principal amount and interest payments across the period of the loan. Under IPSAS, on recognition of a loan in the Statement of Financial Position, two payables arise; long-term (the remaining portion of the loan across the period of the loan) and short-term (the next repayment comprising a portion of the principal amount and the interest computed for that period.

For GBEs which are under the IFRS framework loans contracted at below market interest rates are matched against the market rates. Therefore, the difference between the transaction price (below market) and the fair value of the loan on initial recognition is non-exchange revenue that should be accounted for in line with IPSAS 23.

1. Recording of loan receipts (on initial recognition)

Being recognition of funds received from a loan contracted by the GoR. The funds received are debited to the Cash/bank account and the corresponding credit is posted to the Loan payable account to create the liability. Statement of Financial Position

Dr – Cash/bank XX


Cr – Loan payable XX



2. Recording of repayment of borrowings (one instalment)

Being routine repayment of borrowing. The total repayment consisting of the finance cost portion and the principal payment is recorded by crediting the cash/bank account. The Finance cost portion and the loan principal payments are expensed in the Statement of Financial Performance. Statement of Financial Performance

Dr – Finance cost XX


Dr – Loan payable (long-term) XX


Cr – Cash/bank XX

3. Recording of income from below market rate loan on initial recognition (GBEs)

Being recording (in the accounts of the GBE) of the difference between the market interest rate and the actual interest rate of a loan issued by the GoR to the GBE. The difference under IFRS may be treated as either an addition to the subsidiary’s (in this case the GBE) equity or as income in the statement of financial performance, based on the economic substance of the transaction. The journal entry below assumes that the difference is treated as an addition to the subsidiary’s equity. Statement of Financial Performance

Dr – Finance cost (portion in excess of the original contract interest rate)

XX


Cr – Equity XX

4.1.2.5 Employee benefits

Employee benefits are currently covered under IPSAS 25 (reviewed as IPSAS 39). The GoR has devolved employee benefits management to the Rwanda Social Security Board (RSSB). RSSB currently applies IFRS framework and there is no accounting made for any of the employee benefits at MINECOFIN apart from the monthly pay consisting of basic pay, housing allowance, transport allowance and other monthly payments.

As partly outlined under section 2.2.6 above there are four categories of employee benefits per IPSAS 39 guidance:

Short-term employee benefits: These fall due wholly within twelve months after the end of the period in

which the employees render the related service. Under IPSAS accounting, a provision is only required for costs incurred but not yet paid at end of the reporting period.

Post-employment benefits: These are payable after the completion of employment and in relation to

these benefits under IPSAS 39, a provision is required for all post-employment benefits which are not considered ‘Defined Contribution’ plans.

Other long-term benefits: Examples include seniority premiums and extra holidays depending on

seniority of the employee which are paid after the period in which the benefits accumulated. In line with accrual basis accounting a provision is required for these benefits.

Termination benefits: These are benefits paid after the end of employment based on pre-agreed amounts

or percentages of pay with the GoR at the start of employment. The trigger events for end of employment are the GoR termination of the employment contract or voluntary termination by the employee. The GoR needs to make an estimate of how many employees are expected to terminate their employment or the number of employment contracts the GoR is expected to terminate. The government may terminate employment contracts based on a number of factors such as restructuring and national interest. As such during the reporting period a provision for the expected pay-outs in termination benefits should be recognised.



4.1.2.5.1 Short-term employment benefits

The Government payroll is managed through an automated system called the Integrated Personnel and Payroll

Information System (IPPIS) where each entity is responsible for its data through access rights. IPPIS is developed and maintained by the Ministry responsible for public service (MIFOTRA).

Employee contracts/data are currently maintained/kept up to date at entity level by the Director of Human Resources. These contracts are managed and maintained in IPPS. The system has information relating to every employee such as: name, starting date of the contract, current salary, and age/date of birth and list of benefits. The following short-term benefits are paid in the same year of the performance/vesting of the service and on a monthly basis with the exception of the annual performance bonus that is paid the following year after staff evaluation.

Benefit Description Payable

Basic pay This is determined by a Prime Minister's Order and is based on the job classification of each staff.

Monthly

Housing allowance This is paid to all staff and the amount depends on the level of staff.

Monthly

Transport allowance This excludes staff positioned on levels D, E, F, G, H and 3 whose transport is facilitated in line with the instructions issued by the Ministry of Infrastructure.

Monthly

Professional allowance for some entities

This is limited to some entities and paid in respect of special skills.

Monthly

Lump sum/transport allowance for senior managers upwards

This relates to vehicle benefit (custom taxes based on the engine capacity and is paid by the government depending on the staff level) and mileage allowance paid to Public Servants positioned at levels D, E, F, G, and H when they use their vehicles while on official duty in the country.

Lump sum for vehicle benefit and monthly for transport allowance.

Paid annual leave Paid leave is for 30 calendar days consisting of 2.5 days per month; New staff can only take leave after a period of 12 months including the probationary period. Incidental leave to cope with certain events can also be granted with full pay.

Any days not taken are lost. Therefore, there is no need for an accrual at year end.

Paid sick leave Short-term sick leave (paid) can be granted up to 15 days with advice from a recognised medical doctor; Long-term leave can also be granted up to six months in which case the concerned staff is entitled to a full salary during the first 3 months and two-thirds (2/3) of the salary for the last 3 months.

At year end, the days not used are lost. Therefore, there is no need for an accrual at year end.

Annual performance based bonus

Currently this is calculated as 5% of the basis pay for scores above 80% and 3% for scores 70% - 80%. The amount is determined after staff performance evaluation following the end of the financial year and is usually paid during the period August – October.

To estimate the cost to accrue, the ministry/entity must make a best estimate. This can be based on payments of the previous year.




Salary increment After 3 years of service excluding the probationary period, a horisontal promotion is automatic with a salary increment amounting to 15% of basic pay.

As this benefit is part of basic salary, payments are made each month.

Maternity leave benefits

Each employee contributes 0.3% of his/her gross salary while the employer also contributes another 0.3% to allow women on maternity leave to be entitled to their full salary during the 3 months period while on maternity leave.

Monthly

Other Fringe Benefits

Fringe benefits include communication allowances (telephone, wireless internet and mobile phone) and other entertainment allowance transferred to institution account.

Monthly - there are no benefits which require the set-up of a provision (expense accrual) at year end.

4.1.2.5.2 Post-employment benefits

The main post-employment benefits are pension benefits and post-employment medical which are managed by

Rwanda Social Security Board (RSSB).


Terminal benefits

At the moment when a civil servant leaves his position as a civil servant, a lump sum payment is made, depending on seniority. If the person leaves the current position to continue working as a civil servant in a different department, the seniority continues to evolve and no payment is made. It is only when a civil servant leaves the system (retirement, death, or departure to work as a private employee/self-employed person), there is payment.

After 5 years, people receive 1 month of salary, after 10 years 2 months of salary, etc. with a maximum of 6 months.

This is a typical example of a post-employment defined benefit scheme for which a full valuation must be made.

Pension scheme organised through the RSSB

The RSSB provides pensions not only to employees of the government, but also to members of the public. There is mandatory affiliation to all salaried employees and active political representatives. There is voluntary affiliation for other people by applying to join and by paying the necessary contributions.

IPSAS 39 only relates to employees of the government and as such it is imperative to make a distinction between social benefits and employee benefits.

Contributions are 3% for the individual and 5% for the employer. For people who are not employed, the individual needs to pay the full 8% of contribution.

This is a typical example of a post-employment defined benefit scheme for which a full valuation must be made.



Benefit Description Payable Payment is made as a defined benefit at retirement (60 years). The benefit depends on the years of contribution to scheme:

If people have contributed for less than 15 years (in total, it doesn’t have to be consecutive), they receive a lump sum payment at 60. The formula is defined by Law.

If people have contributed for at least 15 years, as of age 60, a monthly pension is paid out. The benefit is 2% for each year of contribution: If you have contributed for 15 years, you will receive 30% of the average last 5 salaries. If you have contributed for 20 years, you will receive 40% of the average of last 5 salaries.

If people leave the system, they need to wait until age 60 to receive the pension benefits.

Post-retirement medical insurance (formal format) organised through the RSSB

The RSSB provides medical insurance coverage not only to employees of the government (civil servants), but for all employees who have contributed to the system. There is continued affiliation for pensioners who have contributed to the system.

There is automatic affiliation to all civil servants. Private institutions can also join the scheme by applying to join and by paying the necessary contributions. Note that not all institutions are accepted.

Again, one must be careful. As such, IPSAS 39 only relates to employees of the government and therefore it is important to make the distinction between social benefits and employee benefits

Contributions are 7.5% for the individual and 7.5% for the employer. For pensioners, only the individual contribution remains and this is deducted from the monthly pension.

The benefits are not only provided during active service but also post-retirement. Benefits consist of 85% of medical treatment and prescribed drugs. The remaining cost is to be covered by the patient.

As the benefits are provided during retirement, these benefits are considered a post-employment defined benefit scheme for which a full valuation must be made.

Community Based Health Insurance (CBHI)

This health insurance system covers all people who are not affiliated to the formal format. Four categories are distinguished. Contribution depends on the category to which the individual belongs.

This is a typical example of a social benefit, which is not covered by IPSAS 39.

Based on the discussion above, provisions should be made for the following employee benefits:



1. Initial recognition of post-employment benefit (long-term)

Being recognition of post-employment liability and expensing the contribution for the initial year Statement of Financial Position

Cr – Post employment benefit payable (contribution to be accumulated and paid to employee in future).

XX


Cr – Cash/bank (expense only) XX


Dr - Post-employment benefit (total of expense for the year and contribution recognised)

XX

2. Recognition of performance bonus payable (accrual)

Being accrual for bonus payable to the employees at the end of the GoR FY. Statement of Financial Performance

Dr – Expense XX


Cr – Performance bonus payable XX

3. Settlement of performance bonus (in month of payment)

Being derecognition of the performance bonus at the date the payments are made. Statement of Financial Position

Cr – Cash/bank XX


Dr - Performance bonus payable XX

4. Settlement of Post-employment benefit (in month of payment)

Being payment or settlement of post-employment benefits Statement of Financial Position

Cr – Cash/bank (total contributions due) XX


Dr - Post-employment benefit (total contributions due) XX

Calculation of the provision for Defined Benefit Post-Employment Benefits

There are several methods used to determine the Statement of Financial Position liability in relation to post-employment benefits. As the valuation will be carried out by an external actuary who is qualified to perform actuarial valuations, the definitions in this section are limited to only the most common method of valuation. Furthermore, documented also are any special cases such as net assets, asset ceilings, etc.

Projected Unit Credit method:

o The first step is to identify any potential point of payment such as retirement (pension scheme), death (terminal benefits), departure from function as civil servant (terminal benefits) and medical expense post retirement. For each potential payment moment, an estimate must be made of the cash out. As most of these benefits are expected to be paid in the future, several assumptions will need to be defined to estimate the magnitude of the payment (expected seniority, will people continue to contribute to the pension scheme, expected salary, expected medical claim cost among others considerations).

o Once the point of payment and the amount of payment are estimated, there is need to define the part of the benefit which relates to past service. Under IPSAS 39, only the part related to past service will



define the liability. Generally, a multiplicator as applied based on current service divided by total estimated service (at moment of payment).

o Thirdly, there must be an assessment of the possibility that the event (payment of the benefit) will occur. Example: to receive the terminal benefit one must die, retire or leave the function of civil servant. Mortality tables, departure possibilities will be used to define the possibility that people reach the moment of payment.

o Finally, as all these payments occur in the future, a present value of these benefits will be defined.

Define the available assets: not all assets can be used to define the Statement of Financial Position liability. Only those assets that are held by a long-term employee benefit fund or assets held through qualifying insurance policies are considered plan assets under IPSAS 25.

Data needed and assumptions to be defined for the valuation of Defined Benefit plans

Based on the understanding of the employee benefits available and relating to the GoR staff at RSSB, the most basic data has been defined, to help perform the actuarial valuation for those benefits that have been identified above. It’s important to sit together with the actuary to define all data needed.

As indicated above, there is need to estimate the amounts of the payment, the point of payment and the possibility that that payment will be received.

Terminal benefits:

o The magnitude of the benefit depends on the seniority and the monthly gross salary. o The moment of payment is either retirement, death or departure. Therefore, individual data on date

of birth, gender (this will have an effect on mortality) is key. o Assumptions to consider here relate to mortality, possibility of people no longer being employed as

civil servants, salary increase, etc.

Pension scheme by RSSB:

o The magnitude of the benefit depends on the number of contributing years and the last 5 monthly salaries.

o The point of payment is limited to retirement. Therefore, individual data is needed on date of birth and gender as these will have an effect on mortality.

o Assumptions to consider relate to mortality, possibility of people no longer contributing to the scheme, salary increase, etc.

Post-retirement medical insurance (formal format) by RSSB:

o The magnitude of the benefit depends on the medical claims. An in-depth analysis will need to be made to assess the magnitude of the future medical claims. This will most probably need to be diverged depending on age, gender, number of family members in the household (spouse, dependent children), etc. This analysis may take time. Fortunately, a valuation is already being made for post-retirement medical scheme at the RSSB on an IFRS level. This can help MINECOFIN to assess the data/analysis required to define the expected medical claims.

o The moment of payment is post-retirement medical expenses. o Assumptions to consider relate to mortality, possibility of people no longer contributing to the

scheme, claim cost projections (increase with inflation) etc.

Assumptions to be defined

The Statement of Financial Position liability highly depends on assumptions made and the liability is very sensitive to assumptions. The IPSAS 39 standard remains relatively vague on the setting of assumptions. It’s important to know that the assumptions are the responsibility of the reporting entity and not the actuary. Therefore, it is crucial to be in close collaboration with the actuary when defining the assumptions.



Below are some tips on the setting of assumptions.

Discount rate: the discount rate must reflect the time value of money and reflects the estimated timing of benefit payments. Furthermore, it must be consistent with the currency and term of the benefits. The entity must decide itself whether the time value of money is best reflected by government bonds, corporate bonds, or any other financial instrument.

Mortality tables: generally, national mortality tables are defined which will be age and gender dependent.

Salary scales: one single rate can be selected, or a table can be set up which is age/seniority or function dependent. It may be necessary to perform an analysis of the salary increases based on the last historical 5-10 years. However, note that the assumption as such must be a best estimate of the future at the organisation. Therefore, if a change in remuneration policy is expected, this should be reflected in the salary increase assumption.

Departure behaviour: some benefits are paid at departure (from the government). Therefore, an assumption must be made on the possibility that people will no longer work as civil servants. Again, it may be necessary to look at historical data. But again, if there is any reason to believe that the future behaviour will be different than the past, this must be reflected in the assumption.

Assumption on whether people will continue to contribute to the pension scheme and the medical insurance. As RSSB is already performing actuarial valuations on a 5 year basis, MINECOFIN should maintain collaboration with RSSB on the valuations.

Other considerations

A valuation is not required on an annual basis. The IPSAS 39 standard requires entities to determine the Statement of Financial Position liability with sufficient regularity so that the amounts continue to reflect reality. If the population remains relatively stable, it can be agreed upon with the actuary to not perform a full valuation every year, but to limit full valuation to once every three years. During the other years, a roll forward valuation can be performed based on information provided in the full actuarial report. This information should allow to project the valuation for 2 years. Ideally, there would be an update of the discount rate as this assumption is based on market conditions. As indicated above, the discount rate is based on market conditions and is highly volatile. As the Statement of Financial Position liability is highly sensitive to a change in discount rate, it is best to update the roll forward to take into account the change in discount rate.

4.1.2.6 Provisions, contingent assets and contingent liabilities

A provision is simply a liability of uncertain timing or amount. To recognise a provision, the GoR has to

demonstrate that:

there is a legal or constructive obligation to settle;

it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and

a reliable estimate can be made with respect to the liability.

IPSAS 19 distinguishes between a provision and a contingency. A contingency arises where it is possible rather than probable that an outflow of resources embodying economic benefits or service potential will be required

to settle the obligation. A contingency is always tied to an event and is recognised in the financial statements as a liability on occurrence or non-occurrence of that event. A typical example of a contingency is a guarantee or cash flows tied to lawsuits pending verdict as liabilities or assets can only be confirmed on the verdict of such cases.

IPSAS 19 requires the GoR entities to disclose all contingent assets and liabilities during the financial year.

4.1.2.7 Transactions costs For the GoR, these relate mainly to costs incurred by the GoR entities due to movements in the rate of exchange between the Rwandan Franc and the major international currencies. Transactions leading up to this include



procurements in foreign currency, translation of foreign denominated bank balances and foreign currency denominated borrowings as well recognition or recording of grant revenue and receivables.

4.1.2.7.1 Realised exchange rate losses and gains

These are losses or gains arising when the initial transaction has been completely expended. A typical example is

the loss or gain which arises as a result of the exchange rate movement between when an invoice is booked in the system (typically when the goods are received or services have been rendered) and the point that the payment is made. If the goods are received and the payment thereof made before the reporting date, the losses or gains resulting are known as realised losses or gains i.e. the transaction has been completely expended.

Refer to the tables below for an example of how a realised exchange rate loss or gain arises.

1. Booking of invoice for goods received or services rendered

Assumptions

Invoice value = USD 10,000

USD/RWF = 850

Date of receipt of goods or services rendered is 20 April 20X1

Statement of financial position/performance

Inventory/PPE (goods) or expense (services)

8,500,000

Statement of financial position

Payable 8,500,000

2. Paying for goods received or services rendered (realised loss)

Assumptions


USD/RWF = 860

Payment date is 10 May 20X1 Statement of financial position

Payable 8,500,000


Bank 8,600,000

Statement of financial performance (balancing figure)

Expense (exchange loss) 100,000

3. Paying for goods received or services rendered (realised gain)

Assumptions


USD/RWF = 840

Payment date 10 May 20X1 Statement of financial position

Payable 8,500,000


Bank 8,400,000


Expense (exchange gain) 100,000

4.1.2.7.2 Unrealised exchange rate losses and gains



Unrealised losses or gains arise when at period end the initial transaction has not been fully expended. For instance in the example above, realised losses or gains would arise if by the 30 June 20X1 the GoR has not yet paid for the goods or services and the invoice value (payable) in the statement of financial position has to be valued at the closing exchange rate. Refer to the table below for the illustration.

1. Booking of invoice for goods received or services rendered

Assumptions


USD/RWF = 850

Date of receipt of goods or services rendered is 20 April 20X1

Statement of financial position/performance

Inventory/PPE (goods) or expense (services)

8,500,000


Payable 8,500,000

2. Period end – 30 June 20x1

Assumptions


USD/RWF = 870

Date is 30 June 20X1


Payable (initial) 8,500,000


Revaluation of payable at period end i.e. payable now stands at RWF 8,700,000 due to depreciation of the Rwandese Franc.

200,000


Expense (exchange loss) 200,000

3. Paying for goods received or services rendered (realised gain)

Assumptions


USD/RWF = 830

Date is 30 June 20X1 Statement of financial position

Payable (initial) 8,500,000


Revaluation of payable at period end i.e. payable now stands at RWF 8,300,000 due to appreciation of the Rwandese Franc.

200,000




Expense (exchange gain) 200,000

4.2 Development of reporting templates/formats of financial statements in line with accrual basis IPSAS

4.2.1 First time adoption of IPSAS considerations

The GoR has opted to apply a step-by-step (phased) approach towards adopting the accrual basis IPSAS framework. This generally means that financial statement line items and the IPSASs relating to them are introduced into the financial statements in a phased manner. At the level of consolidation, some entities are consolidated first and the scope of consolidation is increased in every financial year.

IPSAS 33 provides guidance on the key considerations when adopting IPSAS and gives a three year period by the end of which an entity should have transitioned to IPSAS. However, the GoR has opted for a phased approach to IPSAS implementation with a longer period of time than provided under IPSAS 33 due to the size and complexity of the government. Full adoption of IPSAS will be attained in the fifth year when the GoR is able to make an explicit and unreserved statement of compliance with other IPSAS.

There will be six phases or years as discussed in the implementation plan and the main activities under each phase include:

Phase Duration Main activities From To Phase 1

Q4 2017/2018 Q4 2018/2019 Updating of accounting policies.

Updating of laws and regulations.

Redesigning of key process flows

Set up of project management team.

Development of training material and training of trainers.

Upgrading of IFMIS and interfacing with other systems and data migration.

Transition and recognition of non-complex balances and flows e.g. cash and cash equivalents, short-term borrowings and payroll expense. Transfer less complex balances currently on accrual basis e.g. accruals and other payables.

Phase 2 Q1 2019/2020 Q4 2019/2020 Transition and recognition of more complex

balances and workflows e.g. financial investments and student loans of all public entities as well as revenue from exchange transactions.

Engagement of experts in technical areas such as valuation of fixed assets and treatment of financial instruments.

Phase 3 Q1 2020/2021 Q4 2020/2021 Transition of complex balances and flows including inventory, public debt and employee benefits.

Phase 4 Q1 2021/2022 Q4 2021/2022 Transition of complex and bulky balances and flows i.e. fixed assets and taxation revenue.

Phase 5 Q1 2022/2023 Q4 2022/2023 Engagement of the internal and external audit teams on the compliance with IPSAS as the adoption process progresses.



Phase Duration Main activities From To

Preparation of opening statement of financial position.

Transition of taxation revenue and land and buildings

Phase 6 Q1 2023/2024 Q4 2023/2024 Transition of heritage and biological assets.

Close out the IPSAS implementation project and handover

Below analysed is the current financial statement line items in the modified cash basis financial statements and determined the actions to take to transition to IPSAS.



Financial statement line items (current)

Current treatment IPSAS requirements Action to transition to IPSAS

1 Revenue

Tax Revenue This is recognised when cash is received.

Revenue from non-exchange transactions should be recognised when a taxable event occurs.

Recognise when the trigger event occurs whether or not cash has been received and:

Where there is no cash received recognise a receivable in relation to the revenue.

Where the revenue received spans more than the current accounting period recognise only the portion relating to the current period as revenue and the remaining amount as deferred revenue to be released to the statement of financial performance as revenue in the subsequent reporting period.

Grants This is recognised when

cash is received regardless of the duration of the grant and the actual timing the grant agreement was signed.

Grant revenue is recognised when a trigger event such as receipt of grant or enforceable claim to receive it occurs e.g. signing of a grant agreement between the GoR and a third party (typically a development partner or donor) and through that agreement the benefits embodied can be measured reliably or when the grant conditions are met. Some grants come with conditions and for such the revenue is recognised when the grant conditions are met.

Recognise when the trigger event occurs whether or not cash has been received and:

Where there is no cash received recognise a receivable in relation to the grant.

Where the grant received spans more than the current accounting period recognise only the portion relating to the current period as grant revenue and the remaining amount as deferred grant revenue to be released to the statement of financial performance as grant revenue in the subsequent reporting period.

Where the grant has conditions attached, only recognise revenue when those conditions have been met.

Other Revenues

This is recognised when cash is received.

Recognise when it becomes probable that the GoR has a valid right to receive future economic benefits and that those benefits can be measured reliably.

Recognise at the point the GoR has a valid right that economic benefits will flow to the government. Revenue should be recognised only to the extent that relates to the current reporting period.

Disposal of Assets

This relates to proceeds from the sale of assets and the proceeds are recognised

Recognised when the decision to dispose is made whether cash is received or not. This means that the GoR should have a valid right to determine that future

Recognise a gain/loss on disposal but the assets should be capitalised and accumulated depreciation charged. Proceeds on disposal to be recognised under cash once received.





as revenue in full when received as cash.

economic benefits will flow to the GoR e.g. where a buyer of the asset has committed to paying the disposal amount.

Proceeds from Loan Borrowings

Proceeds are recorded in the period in which they are received regardless of the duration of the borrowings.

The proceeds are recorded as a long-term liability in the statement of financial position and the corresponding entry as cash and cash equivalents. Then every reporting period repayments consisting of principal payments and interest computed are expensed in the statement of financial performance.

Recognise in the statement of financial position as a long-term liability. Refer to loans in the statement of financial position below.

2 Expenditure

Compensation of Employees

This mainly relates to salaries and wages. The expense is recorded when the salaries are paid usually monthly.

The expenses are recognised once the employees have provided the services to the GoR whether or not the payment has been made. The expense is prorated to the period to which it relates to.

Recognise expense when the services are provided and match the portion of the expense relating to the current year as an expense. Any excess or shortfall should be regarded as prepayment and accrual respectively.

Use of Goods and Services

Expense is recognised when payments are made.

Expense is recognised when the goods have been received or services have been provided. A split is made between the obligations relating to the current period and those relating to the subsequent or prior period.

Recognise when the goods are received or services provided to the extent that they relate to the current reporting period. Any amount falling outside the current reporting period should be regarded as prepayment or accrual based on nature.

Acquisition of fixed assets

Costs relating to acquisition of the fixed assets are expensed in the period in which they are made.

Costs relating to acquisition of fixed assets are capitalised and recognised in the statement of financial position.

Capitalise all eligible costs in relation to the acquisition of fixed assets and record in the statement of financial position. For assets already purchased in prior periods, IPSAS 33 allows the use of deemed cost as recognition where there is no accurate information to determine the recognition cost of the assets.





Interest This is recorded when

payments relating to the same are made. This is the interest due on borrowings.

The interest is recognised in the period in which it is incurred and prorated to the extent of that which relates to the current period only.

The interest is recognised in the period in which it is incurred and prorated to the extent of that which relates to the current period only.

Subsidies This is recorded when

payments relating to the same are made.

This relates to the expenditure made in subsidising goods and services for the country. The expenses are recognised when payment is made and matched to the current reporting period with any excess payments recognised as prepayments and any shortfalls on the total subsidy committed recognised as accruals i.e. payables.

Record expense to the extent that it relates to the current period. Any excess or shortfall should be treated as a prepayment or an accrual as applicable.

Grants This is recorded when

payments relating to the same are made. These are distributions by the GoR to other GoR entities down the administrative chain for implementation of various programmes.

The grants are recognised as expenditure at the point when the GoR has committed to release funds to an entry. This is normally at the point of signing a grant agreement or at the point when the commitment is formally communicated to the entity receiving the grant.

Record the following:

Expense to the extent that it relates to the current period. Any excess or shortfall should be treated as prepayment or accrual as applicable.

Disclose full amount as commitment when conditions tied to the grant have not yet been met by the receiving party and expense when the conditions are met to the extent that the expense relates to the current reporting period. Any excess or shortfall should be treated as prepayment or accrual, as applicable.

Social Benefits

This is recorded when payments relating to the same are made.

There is currently no standard under IPSAS governing the treatment of social benefits.

Expense in the period in which they are incurred to the extent that they relate to the current reporting period. Any excess or shortfall should be treated as prepayment or accrual, as applicable.

Other Expenditures

All other expenses are recognised when payments in relation to the same are made.

Recognised in the period in which they are incurred whether or not cash has been paid out towards settlement of obligations on them.

Expense in the period in which they are incurred to the extent that they relate to the current reporting period. Any excess or shortfall should be treated as prepayment or accrual, as applicable.





Repayment of Borrowing

This relates to scheduled principal payments on loans. The expenses in relation to these are recognised when the payment is made.

The scheduled payments are expensed in the period in which they are incurred to the extent to which they relate to that particular reporting period.

Expense in the period in which they are incurred to the extent to which they relate to the current reporting period. Any excess or shortfall should be treated as prepayment or accrual, as applicable.

3 Assets

Domestic Financial Assets

This mainly relates to cash and cash equivalents balances sitting with the GoR entities at the end of the reporting period both within the country and outside the country. The balances are determined at the end of the reporting period.

The balances are determined at reporting period end and recorded as asset.

Determine the year-end balance and record as cash and cash equivalents.

Foreign

Financial Assets

4 Liabilities

Domestic Liabilities

These are payables borne by GoR entities both within and outside the country. The payables are recognised at the end of the reporting period by taking stock of all obligations not yet settled.

Recognise during the period as the payables arise. These arise when it is probable that economic resources will flow from the GoR as a result of past events and that the outflows expected can be measured reliably.

Recognise as follows:

Split between short-term (falling due within the 12 months) and long-term (after 12 months).

Expenses the current portion when due in the statement of financial performance.

Foreign

Liabilities

Funds held on

behalf of third parties

At the end of the reporting period all funds held on behalf of other parties are totalled and recognised as liabilities.

Recognise as they arise during the period and reverse on transfer to the owners.

Recognise as they arise during the period and reverse on transfer to the owners.





Revenue

Collection Control Account

This is a control account. It can be a receivable account or payable balance at any one point depending on the direction of the contents of the account. When it is a liability at the end of the period it means that the GoR through RRA owes tax payers as at that date.

Receivable or payable recognised accordingly during at the statement of financial position date

At each statement of financial position date, recognise as appropriate.

Loans The full amount of the

proceeds from loans are recorded as payable on recognition and at the end of the period the repayments made during the year are deducted to arrive at the outstanding amount.

Recognise at the point it becomes probable that economic benefits will flow out of the GoR resources and that those outflows can be measured reliably.

Recognise the loan at fair value and compute interest plus schedule repayment on the loan.

5 Net assets

Accumulated Reserves

This relates to the opening accumulation of surpluses or deficits in the periods before the current year. This is the closing balance as at the end of the prior year period.

This is rolled down from the prior reporting period.

This is rolled forward from prior reporting periods and should agree to the statement of changes in net assets. This should transition if opening balances are properly transitioned

Accumulated

Surplus and Deficit

This is the excess or shortfall of revenues over expenditure in the current reporting period.

This is the excess or shortfall of revenues over expenditure in the current reporting period.

This should transition if revenue and expense items are properly transitioned



4.2.2 Consolidated statement of financial performance (IPSAS considerations)

Financial statement line item (FSLI)

Comments IPSAS standard applicable

STATEMENT OF FINANCIAL PERFORMANCE

Notes 20X2 20X1

Revenue

IPSAS categorises revenue into two main classes: (i) Revenue from exchange transactions (IPSAS 9) –revenues from transactions where a party directly gives the GoR approximately equal value (in the form of cash, goods, services or use of assets) in exchange for receipt of assets or services or has liabilities settled in exchange, and Revenue from non-exchange transactions (IPSAS 23) – where a party gives (in the form of cash, goods, services or use of assets) the GoR more value than they actually received. Currently the GoR Consolidated Financial Statements have six revenue streams namely: Taxes, grants, borrowings, fines and penalties, capital receipts and other income. Under the accrual basis IPSAS framework all are retained except borrowings which move to the Statement of Financial Position as liabilities under treatment of IPSAS 29 – Financial instruments.

See below standards

Revenue from non-exchange transactions

IPSAS 23

Taxes

This is the largest source of revenue for the GoR. This revenue stream also appears on the current Consolidated Financial Statements of the GoR. However, in the IPSAS framework the treatment of this stream changes from cash basis to accrual basis i.e. the revenue transactions are recorded whether or not there is a movement of cash. Revenue is recognised at the point it is established that a tax payer has a tax obligation to settle under the Rwanda income tax law as administered by the Rwanda Revenue Authority.

IPSAS 23





The entries needed to record this stream under the accruals framework are highlighted on section 4.1.1.1 of this report.

Taxes on Income

X X These are the taxes typically collected by the Rwanda Revenue Authority on

behalf of the GoR from the public and business entities. The accounting treatment of these is highlighted section 4.1.1.1 of this report as well as the possible scenarios leading to other double entry.

IPSAS 23

Taxes on Payroll and Workforce

X X IPSAS 23

Tax on Property Income

X X IPSAS 23

Taxes on goods and services and

X X IPSAS 23

Taxes on international trade and transactions.

X X IPSAS 23

Fees, fines, penalties, and licenses

X X These are fees and charges administered by government institutions such as the

courts, the Police Services and local councils. These are recognised typically at the point it is established that a law or government provision has been broken.

IPSAS 23

Grants X X Grants given to the GoR by foreign governments and international organisations should be recognised at the point where there is an enforceable claim by the GoR to receive economic resources from another government or international organisation. This is typically recognised at the point the grant agreement is signed regardless of whether the funds are received or not.

IPSAS 23

Revenue from exchange transactions

X X This stream does not currently appear under Consolidated Financial Statements

of the GoR due to the cash basis treatment. This stream relates to the revenue ‘generated’ from transactions which are commercial in nature between the government and the public as well as business entities. Revenue generated by Government Business Entities (GBEs) falls under this class. Currently, the GoR has a number of exchange transactions but the transactions are not explicitly indicated as such in the books of accounts and financial statements. IPSAS seeks to separate this type of revenue.

IPSAS 9





Transfers from other government entities

X X This relates to the transfers other government entities make to the GoR.

Examples include the proceeds from the disposal of tangible fixed and financial assets belonging to the government.

IPSAS 19/23

Other revenue

X X This is where all other revenues not categorised above are recorded e.g. miscellaneous and unidentified revenue or interest charged by defaulting on paying government fines and penalties.

IPSAS 19/23

Total revenue

X X

Expenses (by ‘Function’)

General public services

(X) (X) IPSAS 1 – Presentation of Financial Statements prescribes that expenses can either be classified by ‘function’ or ‘nature’. The GoR can select to use one method and the selection depends on the information needs of the users of the Financial Statements. Both methods are achievable under the current CoA adapted from the GFS MANUAL 2014 framework. Refer to the section 4.1.1 above. However, where expenses are classified by function, additional information should be disclosed on the nature of expenses including depreciating, amortisation expense and employee benefit expense.

Various

Defence

(X) (X)

Public order and safety

(X) (X)

Education

(X) (X)

Health

(X) (X)

Social protection

(X) (X)

Housing and community amenities

(X) (X)

Recreational, cultural, and religion

(X) (X)

Economic affairs

(X) (X)

Environmental protection

(X) (X)

Other expenses

(X) (X)

Finance costs

(X) (X)

Total expenses

(X) (X)

Share of surplus/(deficit) of associates

X/(X) X/(X) Share of surplus/(deficit) of associates (i.e. entities in which the government

typically has less than 50% stake) are under IPSAS 6 - Consolidated and Separate Financial Statements and IPSAS 7 – Investment in associates accounted for as one line insertion in this statement.

IPSAS 6,7 and

35





Surplus/(deficit) for the period

X/(X) X/(X)

Attributable to:

• Owners of the controlling entity

X X This relates to the GoR’s share of the results of the year on a consolidated basis.

• Minority interests

X X This relates to the minority stakes in GBEs as the government normally takes the majority stake with a minority stake owned by private partners.

X/(X) X/(X)

Expenses (by ‘Nature’)

Wages, salaries and employee benefits

(X) (X) IPSAS 1 – Presentation of Financial Statements prescribes that expenses can

either be classified by ‘function’ or ‘nature’. The GoR can elect to use one method and the election depends on the information needs of the users of the Financial statements. Both methods are achievable under the current CoA adapted from the GFS MANUAL 2014 framework.

Various

Grants and other transfer payments

(X) (X)

Supplies and consumables used

(X) (X)

Depreciation and amortisation expense

(X) (X)

Impairment of property, plant and equipment

(X) (X)

Other expenses

(X) (X)

Finance costs

(X) (X)

Total expenses

(X) (X)



4.2.3 Consolidated statement of financial position (IPSAS considerations)

Financial statement line item (FSLI) Comments IPSAS standard applicable

STATEMENT OF FINANCIAL POSITION

Notes 20X2 20X1

ASSETS

Non-current assets

Under the current modified cash basis of accounting, there are no non-current assets. Thus the items below under non-current shall be recognised in the statement of financial position for the first time under accrual basis IPSAS.

Intangible assets

X X For the GoR, this class mainly relates to various pieces of software in the government institutions and GBEs. Other types of intangible assets include goodwill (especially in GBEs or where GBEs make acquisitions), licenses, trademarks, patents, copyrights, rights and brand equity. These intangible assets are largely prominent in GBEs than other non-commercial government entities or they are expensed under the current accounting framework.

IPSAS 31

Land and buildings

X X This is covered under IPSAS 17 - Property, Plant and Equipment. Based on the size of the government, this is a significant area by value and includes land and building owned or controlled by the GoR countrywide and abroad.

IPSAS 17

Infrastructure, plant and equipment

X X This class is another significant asset area when it comes to the GoR. This

includes roads, bridges, machinery, vehicles, aircrafts, factory plants and all basic production tools.

IPSAS 17

Investments in associates

X X This is the cost of investment the GoR has in other entities where it has less than 50% equity stake or where it has significant influence as per the provisions of the equity method under IPSAS 7. This line will only appear in Consolidated Financial Statement of the GoR or the individual Financial Statements of GBEs which also have minority stakes in other entities.

IPSAS 7




Recoverables from non-exchange transactions

X X This is the receivable arising from the Revenue from non-exchange

transactions i.e. taxes, grants, fines and penalties as described above in the Statement of Financial Performance.

IPSAS 23

Receivables from exchange transactions

X X This is the receivable arising from the Revenue from exchange

transactions as described above in the Statement of Financial Performance.

IPSAS 9

Other financial assets

X X This relates to long-term financial assets which do not fall in any of the classes above.

Total non-current assets

X X

Currents assets

Inventories Inventory will be recognised for the first time in the central government

entities. GBEs inventory should be recorded on this line.

IPSAS 12

Recoverables from non-exchange transactions

This relates to the receivables arising from non-exchange revenue transactions, grants under agreement but funds not yet advanced to the GoR, tax receivable and fines and license fees receivable.

IPSAS 23

Receivables from exchange transactions

X X This is typically receivables for GBEs as GBEs engage in exchange

transactions mostly.

IPSAS 9

Prepayments and other current assets

X X This relates to prepayments and other assets not classified in the above

classes.

Cash and cash equivalents

X X

Total current assets

X X




TOTAL ASSETS XX XX

NET ASSETS/EQUITY Capital

This relates to all residual interests of the GoR.

Reserves

X X This relates to consolidated reserves across the classes: General vs specific and Revenue vs Capital reserve. Examples of reserves include all GoR invested capital in entities where the GoR has control and Accumulated surpluses/(deficits) or accumulated profit/loss in profit oriented entities such as GBEs.

Accumulated surpluses/(deficits)

X/(x) X/(x)

Minority interest

X X Minority interests (Non-controlling interests) relate to interests in associates or joint ventures where the GoR has significant ‘influence’ rather than ‘control’

Total net assets/equity

X X

LIABILITIES

Non-current liabilities

Employee benefits

X X This relates to the employee benefits payable by the GoR at least after the next 12 months e.g. pensions failing due in that period and pensions provided for the stock of the current GoR staff.

IPSAS 39

Long-term borrowings

X X This relates to the balance of the principal plus future interest payments on the stock of borrowings currently contracted by the GoR.

Long-term provisions

X X All provisions for payables due at least after the next 12 months from the current year are recorded under this line.

Payables

X X This relates to all other long-term payables which are not employee benefits, borrowings or provisions that are payable after the next 12 months of the GoR fiscal year.

X X Current liabilities




Current portion of long-term borrowings

X X This relates to the scheduled (annual) loan repayments comprising the

commensurate portion of the principal and the interest compounded for the year.

Short-term borrowings

X X This includes borrowings, trade credit and other borrowings due with 12 months.

Employee benefits

X X This relates to the employee benefits payable by the GoR within the next 12 months e.g. accruals for salaries for the month of June (the last month of the financial year).

IPSAS 39

Short-term provisions

X X All provisions for payables due at least after the next 12 months from the current year are recorded under this line.

Payables

X X This relates to all other short-term payables which are not employee benefits, borrowings or provisions that are payable after the next 12 months of the GoR fiscal year.

Total liabilities

X X TOTAL EQUITY & LIABILITIES

XX XX



4.2.4 Consolidated statement of cash flows

4.2.4.1 Indirect method

Financial statement line item (FSLI) Comments Notes 20X2 20X1 Surplus/(deficit) XX/(XX) XX/(XX) Non cash movements Depreciation X X These entries are as a result of the recognition of fixed assets and

investments into the statement of financial position. On adoption of accrual basis IPSAS by the GoR these items will be significant owing to the bulk of fixed assets owned by the GoR.

Amortisation X X

(Gains)/losses on sale of property, plant and equipment

(X)/X (X)/X

(Gains)/losses on sale of investments (X)/X (X)/X Changes in working capital - Payables X X These are the movements from prior year balances to the current year

balances of the operational capital of the GoR and its entities. IPSAS introduces liabilities such as loans and assets such as receivables from both exchange and non-exchange revenue as well as grants receivable into the Statement of Financial Position. These liabilities and assets give rise to the entries under this group.

- Borrowings X X

- Other current assets X X

- Receivables X X

Provisions relating to employee costs X X This relates to provisions arising from the treatment of employee benefits under accrual basis IPSAS as outlined under section 4.1.2.5 above.



Financial statement line item (FSLI) Comments Increase in investments due to revaluation X X Revaluations of investments result in non-cash gains which are

recorded here.

Net cash flows from operating activities XX XX CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of plant and equipment (X) (X) These lines are currently also being recorded under the current modified basis GoR financial statements. Under the transition to IPSAS compliance the GoR has opted not to recognise fixed assets in the financial statements going by the guidance from IPSAS 33. In the transition financial statements, the GoR should disclose that the cash flows recorded here are under the modified cash basis accounting rather than accrual basis IPSAS. The cash flows recorded here are from the fixed assets currently identified and recognised as opposed to the assets to be recognised under the full accrual basis IPSAS.

Proceeds from sale of plant and equipment X X

Proceeds from sale of investments X X Proceeds from sale of GoR investments will be recorded under this line.

Net cash flows from investing activities XX XX CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from borrowings X X Currently, borrowings are recorded as revenues and repayments made up of interest and principal payments are expensed in the period in which the repayment is made. Under accrual basis IPSAS borrowings are recorded as liabilities in the Statement of Financial Position and the repayments expensed over the period of the borrowings. The treatment under accrual basis IPSAS adheres to the matching concept of accruals accounting where the repayment expense is systematic across the duration of the borrowings rather than modified cash basis accounting which would not strict consideration for the period of the borrowings.



Financial statement line item (FSLI) Comments Repayment of borrowings (X) (X) Distribution/dividend to government (X) (X) Dividends from entities in which the GoR has controlling interests e.g.

GBEs are recorded under this line.

Net cash flows from financing activities XX XX Net increase/(decrease) in cash and

cash equivalents XX XX

Cash and cash equivalents at beginning of period

X X This relates to the cash balance brought forward from prior year

Cash and cash equivalents at end of period

XX XX

4.2.4.2 Direct method

Financial statement line item (FSLI) Comments Notes 20X2 20X1 Receipts Taxation X X The current consolidated Statement of Cash flows in the GoR

accounts has both elements of the direct method and the indirect method of presenting cash flows. Under IPSAS prescribed presentation, the difference between the two presentation methods is the presentation of cash from operating activities as can be seen from the templates in this section. Where the direct method of presentation is used, a reconciliation (as in the indirect method above) of Net Cash Flows from Operating Activities to Surplus/(Deficit) should accompany the financial statements.

Sales of goods and services X X Grants X X Interest received X X Other receipts X X Payments Employee costs (X) (X) Suppliers (X) (X) Interest paid (X) (X) Other payments (X) (X) Net cash flows from operating activities XX XX



4.2.5 Proposed reporting templates for the GoR

Refer to appendices 12 to 16 for the reporting templates developed.



4.3 Scope of consolidation for the Public sector

The Rwanda public sector is dichotomised into General Government and Public Enterprises (i.e. GBEs). The governance structures down the chain are as depicted in the figure below.

The GoR Consolidated Financial Statements will broadly comprise the financial results of both the General Government and the Public Enterprises. The consolidation of the results of the public enterprises is highlighted under section 6.2 of this report. Below, highlighted are the consolidation considerations of the general government entities.

Level of Governance

Entity Consolidation considerations

Central Government

Ministries These entities are fully budgeted for by the GoR and have fully established accounting departments to carry out accrual basis IPSAS accounting. Furthermore, these entities have IFMIS rolled out to all of them except for 11 projects which are yet to be integrated. These are core GoR entities and are wholly consolidated in the GoR consolidated financial statements.

Boards of Agencies

Constitutional Offices

Provinces

Embassies



Level of Governance


Development projects

Extra budget departments and agencies

Public Universities These are entities carrying out their usual day to day activities with their own resources supplemented by a budgetary allocation. These entities have a limited level of financial autonomy and are aligned to a ministry each. The entities have their own accounting departments within their own governance structures. These entities should be directed to use IPSAS. However, at the moment, for those that are using IFRS as their accounting framework, consolidation procedures are the same as for the GBEs wholly owned by the GoR. For those that are earmarked for using accrual basis IPSAS, consolidation should be carried out on a line by line basis in the financial statements.

Research and tertiary training institutes Referral hospitals

Subsidiary of central government entities

Prisons Prisons and courts are under the Ministry of Justice. The results of these entities should be consolidated on a line by line basis in the financial statements. The lower courts are pivotal in the collection of fines, penalties and fees and it is imperative that they have the necessary resources in terms of accountants who are competent in accrual accounting because the transactions for these institutions result in receivables, contingencies and liabilities for the GoR.

High court and intermediate courts Lower prosecution offices.

Districts 30 Districts plus Kigali The districts have assets such as roads and land mapped under them amongst other assets they are managing. All the 30 districts plus Kigali have IFMIS rolled out to them. Consolidation of their financial results should be done line by line in the financial statements. This is through the use of the SCoA and the reporting templates developed for the level of the district.

Sub district entities

Schools (Primary and Secondary)

Each district has schools, district hospital or health centres, pharmacies and Mutual Health Funds operating under it. All the entities under this bracket except schools, health centres and mutual funds have IFMIS rolled out to them. These entities financial results should be in the custody of the District under which they are mapped to the point that the results are consolidated on a line by line basis in the financial statements of the districts. They are expected to have non complex transactions and they should have an accrual basis accounting system under IFMIS as well as support from the district accounting departments. In the case of schools, the responsibility to ensure their financial results are captured should rest with the district level accounting department under which they are mapped. The schools do not have complex transactions and their transactions mainly include receipts of school fees and operational expenses which are captured in their books of accounts. On the assets side, schools mainly have furniture, school buildings and vehicles. There is need for engagement of the

District hospitals

Health centres

Sectors

Pharmacies

Mutual Health Funds



Level of Governance


district level accountants to offer assistance/guidance to the school accountants on record keeping and accrual accounting so as to ensure financial transactions for schools are captured in the district level financial statements. Some schools and hospitals are under faith based organisations and NGOs and yet they receive government funding. Those which are under government control per IPSAS definition should be consolidated and for those not under government control in the context of the IPSAS definition of control, the funds received should be treated as grants or transfers from the government. As discussed above, subsidiary entities under districts should report to the districts which should thereafter consolidate their financial reports within the district report.



Alignment and improvement to Chart of Accounts (CoA) and GFS Manual 2014



5 Alignment and improvement of Chart of Accounts (CoA) and GFS Manual 2014

Consistent with Article 97 of the financial regulations, the coding structure of the SCoA comprises five segments. When recording a transaction, a selection must be made from each of the five segments, meaning that all segments must be used for recording a single transaction as demonstrated in the diagram below:

5.1 Gaps between GFS Manual 2014 and IPSAS reporting

Generally, GFS Manual 2014 and IPSAS reporting use the same basis of information in many instances but differs largely on the classifications of the information.

In the sections below, firstly are the gaps arising between the two frameworks due to the inherent conceptual differences and then present an analysis of each of the five segments of the GFS MANUAL 2014 framework in light of the impending IPSAS requirements.



5.1.1 Gaps due to conceptual differences

This section provides a generalised description of differences between the Government Finance Statistics (GFS Manual 2014) reporting guidelines and the International Public Sector Accounting Standards (IPSAS). The current financial information presented by the GoR differs conceptually with IPSAS and GFS Manual 2014 reporting guidelines.

The conceptual differences will be analysed under the following topics: objectives; reporting entity; recognition criteria for some assets, liabilities, revenue and expenses; valuation (measurement) differences for certain types of assets and liabilities; and revaluations and other volume changes.

5.1.1.1 Objectives

GFS Manual 2014, evaluates economic impact of the financial statements and are used to:

Analyse and evaluate the outcomes of fiscal policy decisions;

Determine the impact on the economy, and

Compare national and international outcomes.

However, IPSAS evaluates financial performance and position. The general purpose financial statements are used to:

Evaluate financial performance and financial position;

Hold management accountable and

Inform decision making by users of the general purpose financial statements.

The gap is that the draft CoA that was recently developed with input from IMF is largely modelled against the GFS Manual 2014 framework and as such cannot fulfil the reporting objectives under IPSAS. The revised CoA will guide the recording of accounting transactions that will be the basis for preparing consolidated financial statements for GoR. In this regard, for financial reporting purposes under the IPSAS accounting framework, the CoA should be updated to facilitate IPSAS reporting to take place concurrently with the GFS Manual 2014 reporting considering that the two frameworks use the same basic information. For IPSAS reporting in particular, the CoA comes in largely under the Economic segment. Refer to section 5.1.5 below for the analysis of each segments.

MINECOFIN has developed a mapping table detailing how the classification of accounts in the current CoA being used under the modified cash reporting framework fairs with the GFS reporting requirements. The current scope of GFS reporting by the GoR is the scope agreed with the East African Community (EAC) and IMF AFRITAC. Reporting under the GFS manual 2014 framework will start after the GoR fully transitions to accruals basis IPSAS under IPSAS. This therefore means that the reporting under the GFS manual 2014 will be performed with the new CoA as developed under section 5.1.5 below.

The GFS manual 2014 and the IPSAS framework are both accruals based. This means that both the objectives of the two frameworks will be met as the CoA developed in section 5.1.5 below takes into account the requirements of the two frameworks. Refer to appendix 8 for the full gap analysis of the GFS 2014 manual and the IPSAS framework.

5.1.1.2 Reporting entity

Under GFS Manual 2014, the statistical reporting unit is an institutional unit, defined as an entity that is capable,

in its own right, of owning assets, incurring liabilities, and engaging in economic activities in its own name. Control and the nature of economic activities determine consolidation and the scope of the reporting entity. The general government sector does not include institutional units primarily engaged in market activities.



Under IPSAS, the reporting unit for financial statements is an economic entity, defined as a group of entities that includes one or more controlled entities. Control is the main criterion that determines consolidation. The whole of the government reporting entity, at the highest level of consolidation, may include, in addition to government departments, subnational bodies such as local government (districts) and government owned businesses that primarily engage in market activities.

The gap between the two frameworks is that, the GFS Manual 2014 mainly considers the financial autonomy of entities as the key criteria for reporting entities as opposed to IPSAS which seeks to report the financial results of the entire public sector and the definition of control under IPSAS 35 is not restricted to having a financial stake or investment in the entity. Hence, the GFS Manual 2014 has a narrower definition of reporting entities than accrual basis IPSAS.

Whilst the current CoA is modelled against the GFS manual 2014 requirements, at the minimum IPSAS financial reporting has much more to do with the economic segments than the other four segments in the CoA. Refer to section 5.3.4 below for the customisation of the CoA economic segment in order to simultaneously facilitate reporting under both the GFS Manual 2014 and IPSAS frameworks.

Furthermore, the MINECOFIN has defined the scope of reporting for GFS to be the Rwanda public sector. The scope of reporting is the same as the consolidation scope developed for the IPSAS reporting. Refer to appendix 17 for the scope of consolidation developed for the IPSAS reporting.

5.1.1.3 Recognition criteria

GFS recognise economic events on the accrual basis of recording when economic value is created, transformed, exchanged, transferred or extinguished. To maintain symmetry for both parties to the transaction, some provisions recognised in IPSAS reporting may not be recognised under GFS Manual 2014 reporting. While not recognised, those provisions may instead be disclosed as GFS Manual 2014 memorandum items, as is the case, with exposures to explicit one-off guarantees and provisions for doubtful debts.

As highlighted in section 4 above, the transition to accrual basis IPSAS by the GoR results in the recognition of various provisions into the financial statements which is not the case under the current modified cash basis accounting framework. IPSAS requires that a provision is made wherever the GoR can demonstrate that there is an obligation (either constructive or legal) and that because of the obligation there will be future economic benefits flowing out of the GoR. Those outflows should be reliably measured. These factors allow, in certain cases, recognition of items that do not involve a counterparty recognising a symmetrical amount. Examples of provisions which can be significant include provisions for site restoration and dismantling costs and employee benefits (pension) liabilities. Refer to appendix 8 for the full gap analysis between the GFS manual 2014 provisions and the IPSAS requirements.

5.1.1.4 Valuation (Measurement)

Under GFS Manual 2014, current market prices are used for all flows and stocks of assets/liabilities but allowance

is made for the use of alternative valuation methods where an active market does not exist.

Under IPSAS, fair value, historical cost, or other bases are used for the measurement of assets and liabilities. Similar assets and liabilities must be valued consistently and the bases disclosed. Where an entity reports an item using historical cost, IPSAS requires disclosure of fair value if there is a material difference between the reported cost and the item’s fair value. Often, IPSAS also allow entities to choose between fair value and historic cost.

Both IPSAS and GFS manual 2014 have leeway (options) to explain deviations from the use of current market price (the case of GFS manual 2014) or the choice between fair value and historic cost (in the case of IPSAS).

Fair value and current market price are not the same thing. Fair value arises when an item changes hands or ownership as a new owner may be able to fetch a higher price or leverage certain efficiencies that result from a



transfer of the property. Alternately, the item may be worth less if it changes hands. Thus the seller may wish to determine the ‘fair value’, being the price the seller deems the buyer should pay for the item as fair under the circumstances. Current market value on the other hand arises because one item has been sold in different locations and thus fetches different prices in the respective locations.

The differences between current market value and fair value are more explicit at entity level but are almost non-existent at the consolidation level of the GoR economic activities. Thus at the consolidation level, current market price and fair value are essentially the same and in that case the valuation gap between the two frameworks will be bridged.

5.1.1.5 Revaluation and other volume changes

Under GFS Manual 2014, all revaluations and changes in volume are recorded in the Statement of Other Economic Flows: Separating all these “other economic flows” is viewed as useful for fiscal analysis, on the basis that revaluations and changes in volume do not represent fiscal policy decisions directly within the control of government. GFS Manual 2014 distinguishes between value changes and volume changes.

Under IPSAS, realised and unrealised gains and losses due to revaluations or changes in volume of assets are reported in the Statement of Financial Performance, while others are reported directly in the Statement of Changes in Net Assets/Equity. Some other gains and losses—for example, market value changes for property, plant and equipment carried at historical cost—are not reported at all.

The gap is that IPSAS does not report on some market value changes e.g. market value changes for property, plant and equipment carried at historical cost. Under accrual basis IPSAS and in the case of property, plant and equipment the GoR has a choice between the cost and the revaluation models for use in their fixed assets valuation. For assets like buildings and land whose value tends to be volatile over time due to market forces, the revaluation model is recommended and for assets such as roads and bridges which are in constant use and with a much higher rate of wear and tear the cost model is recommended as it best reflects the wear and tear which the assets undergo. These provisions under IPSAS help to bridge the revaluation gaps between the GFS Manual 2014 manual and IPSAS reporting. Furthermore, as pointed out above, under valuation at the consolidation level, fair value and market value are essentially the same.

The need to bridge the revaluation gap significantly between the two frameworks by the GoR is a policy decision and this depends much on the gravity which the GoR attaches to such gains and the value it would add to the financial results if such gains are reported.

5.1.2 Overview/Main findings Below are the main findings from the review of the current budget, financial statements and revised CoA;

Currently, GoR’s budget is prepared on cash basis whilst the GFS manual 2014 and IPSAS framework are

accruals based. There is therefore a need to reconcile the accrual basis financial information with the national budget;

A revised CoA was recently developed with input from IMF but is yet to be rolled out. The revised CoA is anchored on the GFS Manual 2014 framework; and

The statistical information disclosed in the financial statements is provided as a disclosure under the cluster/segment consolidated financial statements.

5.1.3 Gaps identified The main gaps identified include:



Budget documents have not been harmonised with the GFS Manual 2014 as well as IPSAS framework. This will be done once the revised CoA is rolled out. Furthermore, the GFS manual 2014 reporting will commence once the GoR fully transitions to accruals basis IPSAS framework.

The chart of accounts is not harmonised with GFS Manual 2014 framework as items of non-financial assets, financial assets and liabilities have been included under the GFS 2014 framework. The GoR has maintained the same reporting units for both IPSAS and GFS manual 2014 reporting. Therefore, there will be need to develop mapping tables so that relevant codes can be retrieved from the CoA for GFS reporting and also for IPSAS reporting as the two frameworks benefit from the same basis information.

Lack of harmonised financial statements or reconciliation of the information in the financial statements under IPSAS and GFS manual 2014. Under IPSAS the financial information is reported in the statements of financial performance, financial position, changes in net assets and cash flows. On the other hand, under the GFS Manual 2014, the core of the analytics framework is a set of four financial statements:

Statement of operations which discloses transactions affecting net worth (the revenue,

expenses), transactions in non-financial assets, transaction in financial assets and liabilities (financing);

Statement of other economic flows which discloses the changes in net worth due to holding

gains or losses and changes in net worth due to other changes in the volume of assets and liabilities;

Statement of Financial Position which discloses non-financial assets, financial assets and

liabilities; and Statement of sources and uses of cash which discloses the cash flows from operating

activities, cash flows from transactions in nonfinancial assets and cash flows from transactions from financial assets and liabilities (financing).

Lack of comprehensive classification of revenue as per the GFS Manual 2014 modelled CoA. Accrual basis IPSAS brings in new classes of revenue i.e. revenue from non-exchange transactions. There is need to reconcile the classes of revenues under the two frameworks through the use of mapping tables.

Limited information on classification of expenses. The GFS manual classifies and reports flows in the statement of operations and statement of other economic flows. IPSAS reports all expenses in the statement of financial performance.

Inclusion of other classes of revenue and expenses not in the GFS Manual 2014 CoA such as provisions expensed during the year into the CoA.

While the CoA revised with IMF input is largely modelled against the GFS manual 2014 (accruals basis), it has not been harmonised with IPSAS framework in terms of classification of the financial statement line items e.g. the GFS Manual 2014 framework classifies items as non-financial assets, financial assets and liabilities in the balance sheet while IPSAS classifies them as either non-current or current assets/liabilities. The classification of assets and liabilities is not currently explicit on the face of the CoA as prescribed by the GFS manual 2014 and also in the format prescribed by IPSAS. Thus there will be need to develop mapping tables to ensure that the extraction of information from the CoA achieves the classification prescribed under each framework. The GFS manual classification of assets and liabilities is as follows:

Non - financial assets: fixed assets, inventories, valuables and non-produced assets; Financial assets: monetary gold and special drawing rights, currency and deposits, debt

securities, loans, equity and investment fund shares, insurance, pension, other accounts receivables, domestic debtors and external debtors, etc.; and

Financial liabilities: special drawing rights, currency and deposits, debt securities, loans, equity and investment in fund share, financial derivative, etc.

5.1.4 Recommendation

The budget documents should include a reconciliation of the accruals basis information in the financial

statements and the budget (Refer to section 3.2.1 above). As detailed under appendix 8, the gaps between the GFS manual 2014 and the IPSAS framework have been narrowed by the fact that the two frameworks will draw information from the same CoA and that the scope of the reporting entities sis the same for



both frameworks. Therefore, the accruals basis financial information under IPSAS, reconciled with the budget information will not vary significantly from the GFS manual 2014 information prepared;

Harmonisation of the classification issues i.e. non - financial assets, financial assets and financial liabilities under the GFS framework and non-current and current assets/liabilities under the IPSAS framework through the use of mapping tables to enable capture of relevant GFS manual 2014 information from the CoA at the same time facilitating IPSAS reporting. The mapping tables will also help explain the variation in the information presented under the respective financial statements under the two frameworks;

A common harmonised format through the use of mapping tables should be adopted to present financial statements. The mapping tables will highlight the variations or different classifications of the information under the two frameworks; and

The GoR should adopt a presentation of the estimated and operating statement that displays on the face of the statement both the net lending/borrowing and the operating results in accordance with IPSAS based accounting policies adopted for ex post financial statements.

5.1.5 Gaps in the context of the GoR per segment

5.1.5.1 Administrative Segment

The administrative segment seeks to allocate and account for responsibility over resource (financial and other)

inflows and outflows of the GoR and public entities. This relates to public entities to which budget allocations are made. The Administrative segment in the current CoA provides four levels of accountability i.e. Ministry/District, Public entity, Sub-public entity and revenue/cost centre as depicted in the CoA in the section above.

There are no changes needed on the CoA with respect to the GoR and public entities under both the GFS Manual 2014 and IPSAS reporting frameworks. Adjustments are needed when it comes to incorporating GBEs under the IPSAS reporting framework. GBEs, in most cases do not have allocations in the GoR national budget and based on this the GBEs are excluded from the administrative segment of the current CoA adapted from the GFS Manual 2014 framework. GBEs have administrative structures mainly suited to commercial conditions in line with their respective industry sectors.

Furthermore, GFS Manual 2014 focuses on evaluating the impact of the general government and public sector on the economy and the influence of government on other sectors of the economy. In this regard the GBEs are in essence operating in the sectors of the economy impacted by the policies of the GoR but under the GFS Manual 2014 framework information from the GBEs is captured as part of the analysis of the impact of the government policies on a particular sector in which a GBE operates.

GBEs will form part of the consolidated financial statements of the GoR and on consolidation the IPSAS framework highlights the concept of control as the determinant of which GBE is included in the GoR consolidated accounts.

The GoR like many other governments set up GBEs for a number of reasons such as: to supplement or sometimes lead the private sector in provision of essential goods and services where the government has assessed that the private sector cannot deliver such, to provide goods or services where there would be a significant void if the private sector pulled out due to a drop in profitability of a particular sector and generally to ensure the continued provision of essential services.

From the considerations above, GBEs should be incorporated into the administrative segment of the CoA at the level of Ministry because accrual basis IPSAS requires GBEs to be consolidated. This will also enhance the GoR oversight over GBEs as they are also impacted by public policy and also due to the fact that the GBEs respond to the needs of the general population whose welfare is the duty of the GoR. Currently, each GBE is aligned or tied to a line Ministry and reports to the Government Portfolio Unit at MINECOFIN. Under the GFS Manual 2014 framework there are no changes to be made to the SCoA.



The introduction of GBEs in this segment will strengthen the reporting currently happening between the respective GBEs to their line ministries. The integration of the GBEs into this segment of the CoA is much more critical at the ministry level as the GBEs typically or ideally do not have budget allocations with the exception of GBEs such as WASAC and EDCL with budgetory allocations, most GBEs receive subsidies through their line ministries. This will also facilitate the uploading of financial data of the GBEs in the IFMIS for reporting and consolidation.

Another case of interest in terms of the operations of the GoR is mergers, demergers and acquisitions. These arrangements too will not necessitate any changes to the CoA. For mergers, two entities’ operations are merged or combined and they become one entity benefiting from the structures, management and operations of both entities put together. This means that the new entity reports under the SCoA the same way as other GoR entities in the General Government bracket. The case of demergers is basically the reverse of a merger. The entities demerged take up the SCoA and if the demerger leads to incorporation of a GBE then the resulting GBE reports under the rules developed in section 6 of the blueprint.

Acquisitions arise when one entity takes over the operations of the other. This is mostly common with GBEs and as far as the CoA is concerned in this case there would be no need for any changes in light of the foregoing.

To sum up, where two or more entities separate or are put together by means of a merger, demerger or acquisition the resulting entities in the General Government bracket take up the SCoA developed in this section of the blueprint and report normally like the other entities in this bracket. Where the resulting entities are GBEs then the rules of reporting developed in section 6 of this report come into play.

5.1.5.2 Fund segment

The fund segment seeks to define the source and type of the funding inflows (revenue) and outflows (expenditure). On the current CoA, there are two broad sources of revenues - domestic (government or other local institutions and individuals) and external sources.

From this segment the GoR is able to track outflows e.g. committed funds in the case of outflows as well as inflows such as funds from donors, bilateral and multilateral and international sources.

The fund segment is mainly used as a ‘dashboard’ for the types and sources of inflows and outflows. However, the treatment of revenue under the GFS Manual 2014 framework is different from the treatment under IPSAS as elaborated under the economic segment in section 5.3.4 of this report. Similarly, the treatment of outflows under GFS Manual 2014 is different from the treatment under IPSAS. Refer to the Economic segment under section 5.3.4 below.

Thus under this fund segment it is important to look at the items of revenue and expenditure as inflows and outflows respectively. The two frameworks treat the above inflows and outflows differently owing to the inherent conceptual differences as discussed above. Furthermore, the treatment of revenues and expenditure under this segment and the economic segment are different e.g. revenues under the economic segment per accrual basis IPSAS treatment is made up of revenue from non-exchange transactions and revenue from exchange transactions. However, under the fund segment revenue includes the two foregoing types plus the proceeds from borrowings. IPSAS reporting is considerably catered for under the economic segment and revenue sources in particular are disclosed in the notes to the financial statements. Thus the classification issues noted here are resolved by the foregoing.

The GoR has a controlling interest in most GBEs and when it comes to consolidation in the IPSAS framework, the GoR receives a share of the GBE’s profit or loss i.e. profits are an inflow and the losses are an outflow to the GoR. In this regard, the profits or losses of the GBEs should be introduced into the SCoA under this segment. This aligns with the capture of GBEs under the administrative segment into the CoA for better decisional making information for the GoR. Apart from the other reasons GBEs are set up by the GoR, GBEs also pay dividends to the GoR through MINECOFIN. This is an important indicator of the GBEs financial performance under IPSAS



financial reporting framework earmarked for adoption by the GoR. The financial returns from the GBEs to the owners of the GBEs (the GoR) are a revenue item in the confines of the funding segment.

Additionally, IPSAS reporting introduces into the CoA several cash and non-cash inflows and outflows such as provisions, profit/loss on disposal of fixed assets, inflows from good received in kind (as well as services in kind if the GoR elects to recognise them, refer to the section 4 above) and depreciation. Capturing this information into the CoA is key especially in the move to accruals budgeting by the GoR as the information captured under this segment will be key in the budgeting process.

Where the GoR elects to maintain the current cash basis budgeting, the non-cash items form part of the reconciliation between the cash flow information in the accrual basis IPSAS financial statements and the cash based budgets currently being prepared by the GoR (Refer to the cash basis budget templates attached in the appendix 10). If the GoR decide not to adopt the combination of accruals based budgeting alongside accrual basis IPSAS, the non-cash flow information will elaborate the difference between the cash flow information in the accrual basis IPSAS financial statements and the information in the cash basis budget. To sum up, the users of information from the funding segment should be made aware of the implications on this segment (as explained above) of adopting accrual basis IPSAS.

5.1.5.3 Programme or function segment

This segment links directly to the government policy, goals and objectives. The segment defines the purpose of transactions by transforming the government policy, goals and objectives into a series of tangible programmes at the ministry level through to the actual activity level.

The programme segment has a rather indirect link to the reporting under IPSAS than a direct link. The focus of IPSAS is on reporting financial performance during the year and position at the end of the financial year (i.e. June 30 in the case of the GoR). Thus most of the information under this section will not be reflected on the face of the financial statements prepared under IPSAS but as part of the notes to the financial statements to elaborate to the users the programmes (effects of government policy measures) bringing about the changes in the financial information. As regards, GoR expenditure, at the movement the expenditure in the modified cash basis financial statements is presented on a ‘by nature’ basis and the ‘by function’ basis is partly included in the notes to the financial statements. IPSAS on the other hand prescribes the use of either ‘by nature’ or ‘by function’. Thus for the GoR if it is deemed that incorporating aspects of ‘by function’ in the notes to the financial statements will be useful to the users of the financial statements then they should proceed as such.

IPSAS financial statements reporting will be based on the economic segment. However the flexibility of the CoA should allow that the drill down capabilities allow the reports to be extended to any level according to the needs without compromising the requirements of IPSAS.

The main gap in relation to IPSAS reporting is incorporating GBEs. The GBEs have specific mandates which are set by the government from incorporation of the GBEs as partly indicated above. Most of the mandates of the GBEs differ from public policy and do not easily change over time. Therefore, including the GBEs under the program segment should only be done at programme level considering that every GBE at this stage is tied to a ministry as described above. The inclusion of the GBEs into the CoA is being done mainly for purposes of enhancing the GoR oversight over the operations of the GBEs considering that the entities are strategically incorporated to respond to specific public and state needs. As such the GoR will be interested in receiving information in relation to the operations of the GBEs together with the general public sector information. This is a matter of choice for the GoR because there are still options available on how oversight over GBEs can be achieved such through tightening financial reporting requirements for GBEs with the coming on board of accrual basis IPSAS. GBEs will be provided with reporting templates (reporting packages) and mapping tables to effectively report their financial results into the CoA for consolidation purposes. The GoR can include disclosure requirements on key programmes running with respect to the prevailing policies e.g. policies on job creation under a GBE like Business Development Fund which has job creation under its mandate.



Furthermore, the GoR is spearheading the National Strategy for Transformation – 1 (NST-1) that is part of Rwanda’s vision 2020 and guides medium term actions that will lead to the achievement of the vision’s goals. One of the strategies under this vision is a classification of the different sectors that are considered while prioritising resource allocation to achieve the desired and accelerated growth of the economy. Such synergetic results will be achieved with a clear understanding of what and how much each sector can contribute and it is at this point that the GBEs come in handy considering that from inception GBEs are special purpose vehicles used to achieve GoR sector specific program objectives.

5.1.5.4 Economic segment

In the move to accrual basis IPSAS reporting MINECOFIN has envisaged introduction or recognition of fixed assets, long-term borrowings and government investments into the Statement of Financial Position as the significant transactions of the migration process. With assistance of the International Monetary Fund (IMF) East AFRITAC, efforts had been made by MINECOFIN to update its CoA. The update introduced new chapters as well as reorganising some chapters to facilitate accrual accounting. In this section, a build up from the updated CoA is and proposal for further updates in light of accrual basis IPSAS requirements are outlined.

This Economic segment captures the accounting transactions and forms the basis of financial reporting for the GoR. The coding chronology of the current CoA under this segment is as follows:

Class --> Chapter --> Sub-Chapter --> Item --> Sub-Item.

This segment has the capacity to facilitate GFS Manual 2014 reporting as well as IPSAS reporting. The main issue is the classification of the recorded transactions against both GFS Manual 2014 and IPSAS frameworks. Due to the fact that the current CoA was developed to facilitate reporting under GFS Manual 2014 or modified cash financial reporting currently in place, new codes will have to be introduced to facilitate accrual basis IPSAS reporting.



In the move to accrual basis IPSAS reporting, this section builds up from the IMF MINECOFIN updated CoA and propose further updates in light of accrual basis IPSAS requirements.

The move to accrual basis IPSAS comes with a number of changes to the current CoA ranging from new classes of accounts to be introduced to mere amendments to the CoA across Class through to Sub-item. This is an involving process due to the fact that while identified are the key transactions giving rise to the amendments to be made to the CoA, it must be clear that the need to have more items introduced to the CoA the adoption of IPSAS is high.

Chapter Description Statement

12 Social Contributions Statement of Financial Performance 13 Grants

23 Depreciation Expenses

28 Other Expenditures

30 Current Assets Statement of Financial Position

31 Assets Cost Balance brought forward - Cost

32 Acquisition of Assets

33 Major Improvement/Overhaul of Assets

34 Disposal of Assets

35 Accumulated Depreciation of Assets

36 Revaluation of Assets

37 Impairment of Assets

38 Acquisition of Assets on merger

39 Other Adjustments of Assets

40 Current Liabilities

41 Opening Balances of Liabilities

42 New Borrowing

43 Repayments of Borrowing

44 Accrued Interest

45 Exchange Rate Conversion Differences

49 Other Adjustments to Liabilities

51 Classification of Reserves



At the moment, GoR entities make submissions (with justifications) to MINECOFIN to have new items introduced into the CoA. This will need to be expedited during the IPSAS adoption process to enable the capture of key financial reporting items in line with the GoR policies and also to influence policy makers with information from the ground.

Based on the discussion in the above sections of this report, below is an analysis of the changes that need to be made to the current CoA at the ‘Class’, ‘Chapter’ and Sub-chapter levels.



# Financial reporting area (IPSAS)

IMF – MINECOFIN CoA Proposed CoA Comments

Class Chapter Sub-chapter


Non-current assets 1 Infrastructure,

plant and equipment

3 31 to 39 Various 3 31 to 39 Various No update needed on the CoA with respect to this item. Under IPSAS, the Net Book Value (NBV) of the asset is what is posted on the face of the Statement of Financial Position. The NBV is determined as follows:

Cost of asset Add: Acquisitions Add: Major improvement/ Overhaul

Less: Accumulated depreciation Add/ Less: Revaluation

Less: Impairment Less: Disposals

Add: Acquisition of assets on merger of entities Add/Less: Other Adjustments

NBV XXX

This means that the fixed asset register should be updated as well to capture the cost of the asset through to NBV as demonstrated above.

2 Land and buildings

3 31 to 39 Various 3 31 to 39 Various No update needed on the CoA with respect to this item. At the moment, fixed assets are expensed on acquisition and proceeds from their subsequent sale recorded as revenue. It is worth noting that under IPSAS 17 land is considered to have an infinite useful life and is not depreciated for that reason because the future economic benefits are assumed to continue to accrue to the GoR indefinitely.







Therefore, the Net Book Value (NBV) of land will be computed as follows:

Cost of asset Add: Acquisitions

Add/Less: Revaluation Less: Impairment

Add: Acquisition of land on merger of entities

Add/Less: Other Adjustments NBV XXX

The NBV of building should be determined in the same way as Infrastructure, plant and equipment above.

3 Intangible assets

3 31 to 39 Various 3 31 to 39 Various No update needed on the CoA with respect to this item.

4 Investments in associates

3 31 to 39 Various 3 31 to 39 Various As a result of consolidation under the IPSAS framework this line should be introduced into the current CoA under Class 3. This relates to investments made by the GoR in entities where the GoR has significant influence rather than control or in entities where the GoR has a stake of less than 50%. The updated CoA should be adjusted for this line by inserting this line under class 3 and accounted for like normal tangible fixed assets. Currently the tangible non-current fixed assets have been allocated chapters 31 to 39. This therefore means that investments in associates should be accommodated within this range as chapter 40 is for liabilities. In this regard, the investments in associates will be brought in at cost and adjusted for in class 39 during the year to attain the closing balance.







5 Recoverables from non-exchange transactions

3 30 302 3 30 302 The long-term (beyond 12 months) receivables from non-exchange transactions such as taxes, grants from other government and international organisations, revenues from fines, fees, licences and penalties as highlighted in section 4.1.1.1 of this report are currently not recorded under the cash basis accounting used by the GoR. Other examples include National Scholarship Scheme Loans, civil servants’ loans, advances given out to employees and other returnable amounts which are expected to be received after 12 months. Under IPSAS framework the receivables emanating from the above non-exchange transactions should be accounted for in the books of the GoR. In the proposed CoA, this line will not assume new codes but mere a change in its description to read ‘Accounts receivable from non-exchange transactions’. This means that the items too under this line will not change but that only non-exchange transactions of the items will be recorded under this line.

6 Receivables from exchange transactions

3 30 302 3 30 303 Long-term (beyond 12 months) receivables from exchange transactions should be recorded as well in line with the IPSAS framework in the manner the recoverables from non-exchange transactions above are proposed to be recorded. GBEs as some public entities engage in exchange transactions and their receivables should be accounted for under this line on the CoA. The receivables under this line will be distinguished at the level of ‘Sub-chapter’ in the CoA. The key consideration for the GoR is that receivables under the accrual basis IPSAS framework will now be distinguishable by whether or not they arise from non-exchange or exchange transactions. In the IMF MINECOFIN revised CoA the items remain the same but on recording transactions in the books of accounts only those which are of exchange nature will be recorded under this line.







7 Other financial assets

3 30 302 3 30 304 This relates to all other receivables which do not fall in the classes above. The CoA should be updated for these receivables and these will be distinguished at the level of ‘Sub-chapter’ in the CoA. Some of the accounts under the current IMF MINECOFIN CoA will not have to be amended as they already fall in this Class but the treatment will now be under accrual basis IPSAS.

Current assets 9 Recoverables

from non-exchange transactions

3 30 302 3 30 305 This relates to receivables that are expected to be settled within 12 months from non-exchange transactions. Examples include taxes such as PAYE, import taxes and PIT which are expected to be settled within a year as well as receivables from fines, fees and penalties. Other examples under this line include the current portion of multi-year grant funds committed to be remitted to the GoR within a year, proceeds from privatisation receivable, dividends, National Scholarship Scheme Loans, civil servants’ loans, advances given out to employees and other returnable amounts which are expected to be received within 12 months.







Currently there are some receivables from exchange transactions already included on the CoA under Class 3. Therefore, the changes to be made include transferring those receivables from Chapters 31 and 32 to Chapter 36 and distinguishing them at the level of Sub-chapter.

10 Receivables from exchange transactions

3 30 302 3 30 306 This line relates to short-term receivables from exchange transactions. Chief on this line is the receivables from GBEs as most the receivables are expected to be collected within 12 months. The effect on the CoA is that some of the receivables already under codes 31 and 32 will have to be transferred to Chapter 36 and distinguished at the level of Sub-chapter.

11 Prepayments and other current assets

3 30 302 3 30 307 This relates to all payments made by the GoR and public entities for goods not yet received or services not yet utilised at the end of the year. Currently, these are not recorded based on the cash basis of accounting used by the GoR. The amount of cash outflow is recorded in its entirety and fails to recognise the portion of the cash resources flowing over the period subsequent to year end. The CoA should be adjusted to include prepayments and other receivables where the GoR expects an inflow of resources within 12 months.







12 Inventories 3 30 303 3 30 308 Under the current GoR financial statements inventory is expensed in the period of acquisition. Under IPSAS, inventory moves to the Statement of Financial Position as explained above. In this regard Sub-chapter 308 should be activated in the CoA to accommodate inventories. Most GBEs have inventory in their accounts and this is where it will be accounted for. The major gap under inventory as regards the preparation of the consolidated financial statements of the GoR, will be the use of different valuation methods of inventory as highlighted under section 4.1.2 of this report.

Net Assets/Equity 13 Minority

interest None None None 5 51 517 This relates to the share of profit/loss from entities where the

government has ‘control’ of the entity. Typical under this line will be the equity inflows and outflows from the Associates which will be distinguished in the CoA at the ‘item’ level.

Non-current liabilities 14 Employee

benefits None None None 4 46 461 To adopt IPSAS 25 (updated as IPSAS 39) significant amount of

dedication to this line will be needed as partly elaborated in the Employee benefits section 4.1.2 of this report. At the moment the GoR has devolved the management of its employees’ benefits to Rwanda Social Security Board (RSSB). RSSB also manages employee benefits for private entities and also social security benefits for the general population. Currently, under IPSAS there is no standard governing social security benefits as IPSAS 25 (and 39) only cover employee







benefits. In this regard, there is need to split employee benefits from social benefits under the portfolio at RSSB.

15 Long-term borrowings

4 41 to 45 various 4 41 to 45 various Currently under the modified cash basis framework used by the GoR, this comprises of revenues received from development partners and banks in form of loans. Under IPSAS there is a split in borrowings between those borrowings and commitments expected to be settled after 12 months (long-term) and those expected to be settled within 12 months by the GoR (short-term). These are covered under IPSAS 28, 29 and 30. This line relates to long-term borrowings only. This should be split between domestic and foreign borrowings to cater for the GFS Manual 2014 reporting.

16 Long-term provisions

None None None 4 47 471 Provisions are coming into the CoA for the first time as a result IPSAS adoption. As highlighted above, provisions arise where it is probable that there will be an outflow of economic resources from the GoR due to past events and that there exists an obligation (whether constructive or legal) which will result in the outflow of resources and that the obligation can be measured reliably. The restoration cost for industrial land used by GBEs is one example as it meets the above criteria. Accrual basis IPSAS requires recognition of such long-term provisions in the books of accounts. Thus the current CoA should be updated by inserting Chapter 47.

17 Payables None None None 4 48 481 Under IPSAS, this line will be used to record other long-term payables that are not ‘Long-term borrowings’ i.e. those which are expected to be settled or extinguished after 12 months.







As discussed under section 4.1.1.1 of this report, the grants spread or committed across periods of more than one accounting year are recognised as long-term payables. In every accounting year, a portion relating to that particular year will be released to the Statement of Financial Performance as revenue from non-exchange transactions. Other long-term payables to be recorded in a similar way are finance leases especially those under GBEs.

Current liabilities 18 Current

portion of long-term borrowings

4 40 409 4 40 409 This line is as a result of line 15 above – Long-term borrowings. The current portion (the portion to be paid within 12 months) of the borrowing will be recorded under this line. This is essentially the annual repayment on a particular loan. The current CoA should be updated for this line as proposed.

19 Short-term borrowings

4 40 Various 4 40 Various Under the current cash basis accounting this mainly relates to issuance of Treasury bill and bonds. Under IPSAS this will also include all short-term borrowings for GBEs and other GoR entities with such financial instruments as overdrafts, bills of exchange and certificates of deposit. The current CoA should be updated with the proposed codes. Short-term borrowings should be distinguished from the ‘Current portion of long-term borrowings’ at the level of ‘Item’ on the CoA.

20 Employee benefits

4 40 402 4 40 402 This relates to the employee benefits payable by the GoR within the next 12 months e.g. accruals for salaries for the month of June (the last month of the financial year).







21 Short-term provisions

None None None 4 40 407 This relates to provisions which are expected to be extinguished within the next 12 months. Typical examples of these include provisions for doubtful debts, provision for taxes (in the case of GBEs), provision for obsolete and slow moving inventory and any other provision made by the entities which is expected to be settled within one year. The CoA should be updated with the proposed codes and with the provisions split between domestic and foreign at the level of ‘Account’.

22 Payables None None None 4 40 408 Under the IPSAS framework this will include all short-term payables in the current CoA which do not fall in any of the classifications above. The major change is that the residue codes under this line will now be treated under accrual basis IPSAS rather the cash basis currently being used by the GoR.

Revenues 23 Taxes 1 1 Taxes on

Income, Profits or Capital Gains

1 11 111 1 11 111 Tax revenue lines under IPSAS treatment will not change on the CoA of accounts. However, the receivables relating to the revenues recorded here will have to be accommodated on the CoA as provided in section 4.1.1.1 of this report. The receivables relating to these lines should be recorded as proposed above (i.e. under the receivables from non-exchange transactions section) for activation on the CoA.


1 11 112 1 11 112


1 11 113 1 11 113

Taxes on goods and services and

1 11 114 1 11 114








1 11 115 1 11 115

24 Fees, fines, penalties, and licences

1 15 153 1 15 151 Based on the discussion in section 4.1.1.1 of this report, this line under IPSAS treatment will bring about both receivables and provisions. The provisions and receivables should be accounted for under the proposed for activation Chapters for Long-term receivables from non-exchange transactions and Short-term receivables from non-exchange transactions on the CoA.

25 Revenue from exchange transactions

None None None 1 14 141 Chapters for Long-term receivables from non-exchange transactions and Short-term receivables from non-exchange transactions will have to be activated as proposed to accommodate the receivables as a result of accrual basis IPSAS treatment of the revenues from exchange transactions. The GBEs fall in this category and under the consolidated financial statements their revenue from all streams should be recorded under this line.

26 Transfers from other government entities

1 13 131 to 135 1 13 131 to 135 This mainly relates to grants, both from foreign governments and GoR entities as well as other key partners locally. The grants received depending on nature and duration should be accounted for under IPSAS provisions as explained in under section 4.1.1.1 of this report. The CoA will not need to be updated from the revenue side but from the receivables and payables side.

27 Other revenue 1 15 151 to 159 1 16 161 to 169 This section will be used to record other revenues not classified above in the current CoA such as other sales of goods and services, voluntary transfers other than grants as well as miscellaneous and unidentified revenue.







Expenditure 28 Expenditure 2 21 to 28 Various 2 21 to 28 Various The current expenditure codes on the CoA have been coded

mostly to confirm to GFS Manual 2014 reporting requirements. The coding, though not seamless, is similar to the ‘classification of expenditure by nature’ prescribed under the IPSAS framework. The challenge comes in when GBEs are brought into the picture as they already have established their own classifications suited to the prime users of their financial statements. In this regard, additional codes should be activated at the level of Sub-chapter to incorporate the expenditure of the GBEs.



5.1.5.5 Geographic/Location segment

This segment seeks to account for where the authority of budget execution (expenditure) lies. The main conflicts under this segment are as follows:

Some expenditure is made centrally but benefits people at district level. For instance a construction contract granted to an engineering company to put up schools in different districts. The expenditure (payment to the contractor) will be made centrally while the implementation is happening at district level.

Assets like roads cross geographical boundaries and as such present challenges in coding the CoA on this segment.

5.1.6 Recommendations to address the gaps

In terms of expenditure made centrally, the gap is apparent at entity level and non-existent at the level of

consolidation. Under accruals basis IPSAS principles however, the expenditure made centrally is recorded as such (i.e. expenditure) in the books of the central GoR entity making the expenditure. Where, say building a school is the expenditure item in question, the receiving entity recognises the school building as an asset and depreciate it normally. On the liabilities side the school recognises a liability, deferred revenue, which is released to the statement of financial performance systematically and periodically.

RTDA database classifies roads as national, district class 1 and district class 2. This classification should be followed when coding assets like roads under this segment. A further option is to apportion the roads based on the length falling under each district and designating the code of the district \with the largest proportion of the road to that particular road under this segment.



Data needs for Government Business Enterprises (“GBEs”)



6 Data needs for Government Business Enterprises (GBEs)

6.1 Gap analysis between current reporting by Government Business Enterprises (GBEs) and accrual IPSAS

In this Section will be guided by the following IPSAS standards:

IPSAS 35: Consolidated financial statements; IPSAS 34: Separate financial statements; IPSAS 37: Joint arrangements; IPSAS 38: Disclosure of interests in other entities; and IPSAS 6: Consolidated and separate financial statements (superseded by the three standards above).

6.1.1 Overview/Main findings

The GoR has 7 public financial corporations and 14 public non-financial corporations in which the government has majority holdings (more than 50% ownership) and 27 trading companies where the government owns a minority interest (less than 50% ownership).

GBEs are not consolidated line by line with the accounts of other general government entities but are currently disclosed in the government consolidated financial statements in a note.

GBEs use International Financial Reporting Standards (IFRS) as a basis for preparing financial statements.

The disclosure notes in the financial statements for GBEs should include the entity name, percent of direct and indirect ownership, number of shares owned and the par value. These are not disclosed on GBEs.

There is no harmonised format for preparing the financial statements of GBEs as they are not

consolidated.


Lack of consolidation of GBEs in the consolidated financial statements of GoR.

Information on controlled GBEs and minority shareholdings is not included in the financial statements.

Lack of a harmonised format for preparation of Consolidated Financial Statements.

There are no detailed disclosure notes in the current GoR financial statements to provide sufficient information as required by IPSAS.

The GoR financial year runs from July to June but GBEs have varying financial years.

Lack of clear identification of entities qualifying as GBEs in line with IPSAS requirements.

No clear determination and definition of the nature of GoR’s interest in the government enterprises i.e. whether wholly-owned, subsidiary, joint venture (including type of joint venture) or associate.

Lack of consolidation approaches or policies according to the nature of the government enterprises e.g. the GBEs are operating in various sectors altogether and some GBEs are holding companies with entities under them operating in further sectors.


Identify all controlled GBEs and entities in which the government has interests based on IPSAS requirements. This analysis has to been done under section 6.2 below.



The GoR should ensure that all GBEs are presented on the face of the financial statements.

All information on controlled GBEs and minority shareholding should be disclosed in the financial statements.

Develop a harmonised format for presentation of financial information which will be used for consolidation purposes. For efficiency, GBEs can continue to use their CoA and reporting framework (IFRS) and provide financial information using the provided format for consolidation.

Reporting dates of the controlled entities should be aligned to that of the controlling entity. When they are different, additional information or adjustments should be made to the financial statements of the controlled entity to reflect its assets, liabilities, revenue, expenses and cash flows at the controlling entity’s reporting date. A recommendation is that, where necessary, the GoR considers requiring GBEs to align their financial years to the government’s financial year.

Develop a policy on recognition, measurement, presentation and disclosure of GBEs.

Develop consolidation instructions (specifying reporting templates) to be distributed to GBEs and all other non-budgetary entities which will be consolidated.

6.2 Overview of GBEs to be consolidated

Generally, there are two things to be considered:

GBE test: A GBE is an entity that has all of the following characteristics:

o Is an entity with the power to contract in its own name; o Has been assigned the financial and operational authority to carry on a business; o Sells goods and services, in the normal course of its business, to other entities at a profit or full

cost recovery; o Is not reliant on continuing government funding to be a going concern (other than purchases of

outputs at arm’s length); and o Is controlled by a public sector entity such as a line Ministry.

These are commercial entities across the country and abroad which the GoR of Rwanda has incorporated for a specific purpose such as to:

o Supplement or sometimes lead the private sector in provision of essential goods and services where the government has assessed that the private sector cannot deliver such;

o Provide goods or services where there would be a significant void if the private sector pulled out due to high operating costs and low profitability of a particular sector (e.g. RwandAir and the aviation sector in Rwanda); and generally

o Ensure the continued provision of essential services e.g. Water and Sanitation Corporation (WASAC), Rwanda Energy Group (REG) and King Faisal Hospital (KFH).

GBEs typically operate in private sector and compete with other players in private sector and, ideally, have no allocations from the national budget.

A key consideration under this test is that public entities generally offering goods or services which are for the benefit of the entire citizenry are considered to be general government entities rather than public enterprises. Examples under this consideration include Water and Sanitation Corporation (WASAC), Rwanda Social Security Board (RSSB) and Rwanda Energy Group (REG). In most cases, these entities are a monopoly in the market and as such will not fully exhibit the attributes of commercial entities which in a way dictates the type of accounting entries they have in their books.

However, in Rwanda a number of such entities are reporting under International Financial Reporting Standards (IFRS) which to an extent shortens the gap between their reporting and IPSAS earmarked for adoption by the GoR. The inherent differences between IPSAS and IFRS are harmonised by disclosures in the consolidated financial statements.



IPSAS consolidation test: IPSAS 6 postulates ‘control’ as the key element determining which entity

should be consolidated or not. The other relevant IPSAS governing this area are IPSAS 35 -Consolidated financial statements (supersedes IPSAS 6) and IPSAS 38 - Disclosure of interests in other entities.

6.2.1 The ‘control’ concept

Control in the context of IPSAS 35 is defined as ‘power to govern the financial and operating policies, and the ability of the controlling entity to benefit from the activities of the other entity’ or as per IPSAS 35 that ‘an entity controls another entity when the entity is exposed, or has rights, to variable benefits from its involvement with the other entity and has the ability to affect the nature and amounts of those benefits through its power over the other entity’.

A controlling entity is simply an entity that exercises control over another entity e.g. Rwanda Energy Group Limited (REG) maintains and operates the energy infrastructure in the Rwanda through its two subsidiaries the Energy Utility Corporation Limited (EUCL) and the Energy Development Corporation Limited (EDCL). In this case the REG is considered a ‘controlling entity’ and EUCL and EDCL as ‘controlled entities’. These three entities under IPSAS 35 together make up an ‘Economic entity’.

Similarly in the context of the structure of GoR public sector (based on the scope of the Manual of Public Financial Management - Policies and Procedures), the GoR is the controlling entity and the General government and the Public enterprises are the controlled entities. In this regard, to produce the consolidated financial statements of the GoR, all GBEs meeting the GBE test and where it is demonstrated that the GoR exercise control should be consolidated. On the other hand all entities where it is demonstrated that the GoR has no control should be accounted for in line with the equity method i.e. as a one line insertion into the Statement of Financial Position under the ‘Investments in associates’ under assets.

6.2.2 Determination of the scope of consolidation of GBEs

Considering that the GoR consolidated financial statement under IPSAS will be produced after 1 January 2017

the scope of consolidation in this section is limited to that outlined under IPSAS 35 which is effective for year ends after 1 January 2017.

According to IPSAS 35 the GoR is considered to exercise control over an entity if it can be demonstrated that the GoR:

has power over an entity;

has exposure, or rights, to variable benefits from its involvement with the particular entity; and

is able to use its power over that particular entity to affect the nature or amount of its benefits from its involvement with the entity.

Power arises from rights including voting rights (e.g. arising from shareholdings) or other types of rights conferred by binding arrangements (administrative or contractual arrangements, founding documents, rights conferred by a legislative or executive authority). Thus if the GoR has rights that give it the current ability to direct the relevant activities of another entity, such rights are indicative of ‘power’. Exposure or rights to variable benefits on the other hand relates to benefits that the GoR derives from its involvement with other entities. The benefits can be financial (e.g. dividends, exposure to increases or decreases in the value of an investment in another entity, residual interests in another entity’s assets and liabilities on liquidation, exposure to loss from agreements to provide financial support, cost savings, etc.) or non-financial (e.g. activities of the other entity that assist the GoR in achieving its objectives, more efficient or effective production and delivery of goods and services, higher level of service quality, improved outcomes, etc.).



Therefore, where power or rights to variable benefits are demonstrated in relation to a particular entity, the GoR is considered to have control over an entity. Additionally, the following can also be used to assess the element of control:

The existence of potential voting rights (e.g. purchased call options) that are presently exercisable should be considered in assessing the ability to control.

The power to establish the regulatory framework within which entities operate and to impose conditions or sanctions on their operations does not constitute control. For example, a pollution control authority that can impose sanctions on entities that do not comply with environmental regulations does not control them.

6.2.3 Types or nature of GBEs to be consolidated

Wholly owned (100%) or significantly (more than 50% controlling interest) owned by GoR

– In Rwanda most of the entities under this classification are holding companies 100% wholly owned by the GoR and are statutory entities. In most cases these entities have subsidiaries under them.

Subsidiary of entity wholly owned (100%) or significantly (more than 50% controlling interest) owned by GoR - The statutory entities set up by the GoR normally target several sectors or

provision of several goods and services. Therefore for operational efficiency the entities operate through subsidiary entities and that is where the entities under this classification fall.

Joint ventures – A joint venture arises when two or more entities pool their resources together to

deliver a product or service. In any such arrangement, three things need to be identified i.e.

o the legal form of the separate vehicle; o the terms of the binding arrangement; and o when relevant, other facts and circumstances such as rights to assets, obligations for liabilities,

allocation of revenues and expenses or share in the surplus or deficit and guaranties given to third parties in relation to the joint arrangement.

Associates – This relates to entities (GBEs) in which the GoR has ‘significant influence’ rather than

exercise ‘control’. Significant influence is the power to participate in the financial and operating policy decisions of another entity but not to control or joint control of those policies. Significant influence is presumed where the investor holds 20% or more of the voting power of the investee. The existence of significant influence by an investor is evidenced by: representation on the governing body, participation in policy-making, interchange of managerial personnel and provision of essential technical information among other factors.

Consolidation by type of entity (tentative classification)

Entity type How to consolidate Entities under this category

Wholly owned (100%) or significantly (more than 50% controlling interest) owned by GoR

Consolidate by adding line by line in the consolidated statement of performance and statement of financial position. Refer to the proposed templates in section 6.4 (as well as appendix 16) of this report on how to incorporate IFRS based information into the IPSAS based consolidated financial statements of the GoR. These entities may be required to prepare consolidated financial statements for their stakeholders use.

1. National Post Office (NPO) 2. Rwanda Civil Aviation

Authority (RCAA) 3. Aviation Travel and Logistics

Holdings Limited 4. King Faisal Hospital 5. Prime Holdings 6. Ngali Holdings Ltd 7. Horison Group 8. Rwanda Printery Company Ltd 9. Rwanda Energy Group (REG) 10. Muhabura Multi Choice

Limited




11. Rwanda Social Security Board (RSSB)

12. National Bank of Rwanda 13. Water and Sanitation

Company (WASAC) 14. Military Medical Insurance

(MMI) 15. Business Development Fund

(BDF) 16. Agaciro Development Fund 17. Rwanda National Investment

Trust (RNIT)

Subsidiary of entity wholly owned (100%) or significantly (more than 50% controlling interest) owned by GoR

These form part of the consolidated financial statements of the GoR wholly owned (100%) or significantly owned (more than 50% controlling interest) entities above. These entities maybe required to prepare separate financial statements if the needs of the users cannot be met by the consolidated financial statements above.

18. Energy Utility Corporation Limited (EUCL) and

19. Energy Development Corporation Limited (EDCL)

20. Horison Construction 21. Horison SOPYRWA 22. Horison Logistics 23. Ngali Institute (100%) 24. Ngali Energy (100%) and 25. Rwanda Online (partnership

with Mediheal Group of Hospitals in Kenya)

26. Ngali Mining (100%) 27. RwandAir (100%) 28. Airports Company Rwanda

Ltd (100%) 29. Akagera Aviation Ltd (100%) 30. Rwanda Tours & Events Ltd

(100%) 31. Rwanda Links Logistics Ltd

(100%) 32. Kinasi Cassava Plant Ltd

Joint ventures - Jointly controlled operations These entities involved own assets and other resources, with no separate assets or entities used.

Each venturer prepares its own separate financial statements, recognising its own assets, liabilities, expenses it incurs and revenue it earns as it would do in the absence of any joint venture. There is no requirement for financial statements of the joint venture. Under the GoR consolidated financial statements joint ventures under this type such as RITCO will be consolidated like all holding companies or subsidiaries above.

33. Rwanda Interlink Transport Company (RITCO)

Joint ventures - Jointly controlled assets

Under this joint arrangement each venturer recognises:

its separate share of the jointly controlled assets, and any liabilities

None identified




The assets are controlled by both ventures and are required solely for use in the joint venture.

incurred jointly with the other venturers;

Revenue earned from the sale or use of its share of the output of the joint venture, and its share of expenses incurred by the joint venture.

There is no requirement for separate joint venture financial statements.

Joint ventures - Jointly controlled entity These involve the establishment of a separate corporation, partnership or other entity in which each venturer has an interest.

Venturers have the choice to account for interests in jointly controlled entities in their consolidated financial statements, by either applying:

proportionate consolidation i.e. line by line consolidation with joint venture information capped at the % share as per the joint venture agreement; or

the equity method i.e. as a one line insertion in the statement of financial position (Investment on associates and joint ventures) and statement of financial performance (profit from investments in associates and joint ventures).

34. Rwanda Grain and Cereals Corporation (RGCC)

Associates The equity method as described above There are currently no GoR entities classified under this category.

MINECOFIN maintains a list of entities considered as GBEs. Assessed is the list below to determine the number of GBEs which should be consolidated based on guidance from IPSAS 35 as below:



Ref GBE

Nature of business GoR % ownership

Should the entity be consolidated based on control?

1 National Post Office (NPO)

The National Post Office was established in 1992 and has grown to diversify from providing traditional postal services to competing with other private entities on the financial services sector. NPO is currently governed by Law n°82/2013 of 11/09/2013.

100% Yes

2 RwandAir Though it is the only airline based in Rwanda, there are a number of other airlines operating flights to and from Rwanda such as Kenya Airways, Ethiopian Airlines and Turkish airlines among others. RwandAir operates in an international market where it faces competition from international airlines. The GoR has a 99% stake in RwandAir and thus controls the entity in terms of voting rights and the rights to variable benefits from the entity.

99% Yes

3 Rwanda Civil Aviation Authority (RCAA)

RCAA manages airport infrastructure and issues licences and provides navigation services. The company was set up as a complementary company to RwandAir.

100% No. Based on the restructuring program in the aviation sector, RCAA going forward will be purely a regulator of the aviation sector in Rwanda. This means that RCAA ceases to be a GBE and becomes a general government entity. RCAA will be consolidated like other general government entities. RCAA should also apply adopt IPSAS to conform to the accounting policies of all general government entities.

4 King Faisal Hospital This is the most advanced hospital in Rwanda. There are other hospitals in Rwanda including private hospitals offering similar services.

100% Yes



Ref GBE



5 Kinazi Cassava Plant Ltd

This company has operations from developing farmer capacity to packaging of cereals and animal feeds which are sold through the East Africa region. The company is owned by the Development Bank of Rwanda (56%) based on the audited financial statements for the year ended 31 December 2016.

56% Yes

6 Rwanda Interlink Transport Company (RITCO)

Currently this company manages inland transport systems. There are other private layers on the market as well which are competing with RITCO. RITCO is a joint venture between the GoR (52%) and the Rwanda Federation of Transport Cooperatives (RFTC).

52% Yes. This is a joint venture and the joint venture agreement is in such a way that the GoR stake keeps reducing until the entity is slowly transitioned into private hands.

7 Prime Holdings This company manages and develops hotel premises, modern office facilities and other multipurpose structures in Rwanda. The company owns 50% of Kigali Convention Centre (KCC).

100% Yes

8 Ngali Holdings Ltd The group (formerly Digitech Solutions) was founded in 2010 and currently has controlling interests in:

Ngali Institute (100%);

Ngali Energy (100%);

Rwanda online (partnership with Mediheal Group of Hospitals in Kenya);

Ngali Mining (100%;)

Decentralised Fees Collection Project (partnership with RRA); and

Afex Africa Exchange Holdings

100% Yes

9 Rwanda Grain and Cereals Corporation (RGCC)

RGCC is an autonomous joint venture partnership currently operating under a Public Private Partnership (PPP). This

53.7% Yes. This is a joint venture i.e. (joint entity) and choice of method of consolidation selected from the options given above.



Ref GBE



company manufactures grain mill products sold across the country and region. The GoR is a majority shareholder.

10 Horison Group Horison Group is an investment company that was created in 2007 with a mandate to incubate resources for Rwanda through creation of businesses that deliver on value and social impact. It owns three subsidiaries companies:

Horison Construction (100%) which focuses on infrastructure development;

Horison SOPYRWA (62.02%) which focuses on production, processing and export of pyrethrum and

Horison Logistics (100%), which specialises in peace keeping logistics, leasing of equipment, clearing and freight forwarding.

100% Yes. SOPYRWA is 62.02% owned and the other two subsidiaries are 100% owned by the government. The holding company is 100% owned by the government.

11 Rwanda Printery Company Ltd

The company offers printing services to the general public. The company operates under the Rwanda Development Board.

100% Yes

12 Rwanda Energy Group (REG)

REG is a government wholly owned holding company responsible for the import, export, procurement, generation, transmission, distribution and sale of electricity in Rwanda. REG operates through two wholly owned subsidiaries:

the Energy Utility Corporation Limited (EUCL) and

the Energy Development Corporation Limited (EDCL).

100% Yes

13 Agaciro Corporate Trust Ltd

This is the country’s sovereign and precautionary wealth fund that was proposed by Rwandans at the ninth National Dialogue Council in December 2011 and launched officially on 23 August, 2012. The Fund was set up to build up public savings to achieve self-reliance, maintain stability in times of shocks to the

100% Yes



Ref GBE



national economy and accelerate Rwanda’s socio-economic development goals. The Fund’s capital comes from voluntary contributions by Rwandans at home and abroad as well as friends of Rwanda. The Fund is registered with Rwanda Development Board and runs its operations in accordance with Law No20/2013 of 25/03/2013 regulating the creation of trusts and trustees.

14 Rwanda National Investment Trust

The trust promotes and manages funds including unit trusts with a view to encourage savings for investment in the capital market. It designs and markets financial products tailored to the local market investment needs in an effort to encourage wider participation from the public. The banks in Rwanda are operating in this area which comes as competition to the trust.

100% Yes

15 The National Bank of Rwanda

The central bank regulates the banking sector and is also a conduit of the monetary policy of the GoR through MINECOFIN. The bank has clearly defined revenue streams through the provision of regulatory services to the banks operating in Rwanda.

100% Yes

16 Muhabura Multi Choice Limited

The company was incorporated to reduce the burden on the GoR of feeding inmates in prisons. The company engages in business sectors such as civil engineering, surveying, architecture, property valuation and development, building contractors, dealers in building materials, estate agency, as well as roads and bridges construction. The company further aims to acquire controlling interest in other companies as one of the growth strategies.

100% Yes

17 Business Development Fund (BDF)

This ensures that MSMEs in Rwanda have access to funding, BDF encourages lending institutions to grant MSMEs the highly needed credit by applying different guarantee mechanisms and advisory services.

100% Yes



Ref GBE



18 Special Guarantee Fund (SGF)

This company compensates victims of accidents caused by animals in national parks and also accidents caused by unidentified or uninsured vehicles. The Fund is also responsible for compensating people whose agricultural fields have been destroyed by wild animals and to compensate families whose relatives lost their lives to wild animals from national parks, rivers and lakes.

100% Yes

19 Water and Sanitation Corporation Limited (WASAC)

This is Rwanda’s water utility company. The company is essentially a monopoly with no competition as regards provision of the main service; water, to the general population.

100% Yes

20 Military Medical Insurance (MMI)

MMI is a public institution established in 2005 charged with mainly the management, organisation and operation of Security Organs health insurance scheme. MMI has a legal personality, an administrative and financial autonomy and is governed in accordance with the laws governing public institutions in Rwanda.

100% Yes

21 Rwanda Social Security Board (RSSB)

The RSSB is tasked with managing the employee benefits of the civil servant. RSSB also manages employee benefits for employees from the private sector and also social security benefits. In essence RSSB is managing such benefits for almost the entire population which makes it not purely a public enterprise but a general GoR entity.

100% Yes. The GoR needs to make disclosures on the performance of the GoR employee benefits portfolio in line with IPSAS 30.

6.2.4 Steps for consolidation of the accounts of the GoR

1. Harmonise accounting policies throughout the economic entity. Restate the accounts of all entities included in the scope of consolidation using uniform accounting policies for like transactions and other events in similar circumstances.

2. Align reporting dates of controlled entities to that of the controlling entity. When they are different, provide additional information or make adjustments to the financial statements of the controlled entity to reflect its assets, liabilities, revenue, expenses and cash flows at the controlling entity’s reporting date.



3. Translate financial statements of foreign entities in which the GoR has interests into the presentation currency of the GoR.

4. Combine line by line the statement of financial performance and statement of financial position items of the controlling and controlled entities.

5. Eliminate balances and transactions between entities within the economic entity in full, including revenues, expenses and dividends or similar distributions. Intra-group surpluses or deficits that are recognised in assets (e.g. in inventory or fixed assets) are eliminated in full except where a deficit indicates an impairment that must be recognised.

6. Account for minority interests in the consolidated statement of financial position within net assets (equity), separately from the controlling entity’s net assets (equity), and disclose the minority interests in the surplus or deficit of the economic entity. Minority interest is the portion of the interest in the consolidated financial statements of the economic entity that is not controlled by the controlling entity.

7. Eliminate the investment of the controlling entity in the controlled entity against the net assets (equity) of the economic entity. Recognise any resulting goodwill or negative goodwill (please note that the project ‘Public sector combinations’ conducted by the IPSASB is currently addressing whether goodwill can arise in the public sector).



6.2.5 Significant disclosures on GBEs in the consolidated financial statements of the GoR

IPSAS 35 Consolidated and separate financial statements requires the consolidated financial

statements to disclose the following key information:

A list of significant controlled entities;

The fact that a controlled entity is not consolidated as it meets the presentation exemption (if applicable). A controlled entity shall be excluded from consolidation when there is evidence that (a) control is intended to be temporary because the controlled entity is acquired and held exclusively with a view to its disposal within twelve months from acquisition and (b) management is actively seeking a buyer.

Summarised financial information of controlled entities either individually or in groups, that are not consolidated, including the amounts of total assets, total liabilities, revenues and surplus or deficit;

The name of any controlled entity in which the controlling entity holds an ownership interest and/or voting rights of 50% or less, together with an explanation of how control exists. This may apply to NBAs run by faith based organisations; as government exercises control through the legal and regulatory framework;

The reasons why the ownership interest of more than 50% of the voting or potential voting power of an investee does not constitute control;

The reporting date of the financial statements of a controlled entity when such financial statements are used to prepare consolidated financial statements and are as of a reporting date or for a period that is different from that of the controlling entity, and the reason for using a different reporting date or period; and

The nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of controlled entities to transfer funds to the controlling entity in the form of cash dividends, or similar distributions, or to repay loans or advances.

Additionally, IPSAS 38 Disclosure of interest in other entities requires that the consolidated financial

statements should disclose the following:

The significant judgments and assumptions it has made in determining: o The nature of its interest in another entity or arrangement; o The type of joint arrangement in which it has an interest; and o That it meets the definition of an investment entity, if applicable.

Information about its interests in: o Controlled entities, o Joint arrangements and associates, o Structured entities that are not consolidated, o Non-quantifiable ownership interests, o Controlling interests acquired with the intention of disposal.

Further to the requirement of IPSAS 35 and IPSAS 38, interest in joint ventures, investment in

associates and joint ventures and joint arrangements requires disclosures of information as discussed below: Joint arrangements (IPSAS 37)

IPSAS 8 requires a venture to disclose the following information which should also feed into the consolidated financial statements:



the aggregate amount of liabilities, unless the possibility of any outflow in settlement is remote, separately from the amount of other contingent liabilities;

a brief description of the contingent assets and, where practicable, an estimate of their financial effect, where an inflow of economic benefits or service potential is probable:

the aggregate amount of the commitments in respect of its interests in joint ventures separately from other commitments;

a listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities; and

the method it uses to recognise its interests in jointly controlled entities.

Investment in associates and joint ventures (IPSAS 36)

IPSAS 36 requires disclosure of the following information which should also feed into the consolidated financial statements:

the fair value of the investments (if there are published price quotations);

summarised financial information of associates, including the aggregated amounts of assets, liabilities, revenues and surplus or deficit;

the unrecognised share of losses of an associate, both for the period and cumulatively, if the investor has discontinued recognition of its share of losses of the associate;

the nature of, and risks associated with, an entity’s interests in associates;

the effects of those interests on its financial position, financial performance and cash flows;

significant and judgments and assumptions in determining whether an entity has significant influence over another entity;

summarised financial information about the associate; and

information about non-quantifiable ownership interests

6.3 Overview of the current reporting formats for GBEs

GBEs currently are applying the IFRS framework from which the accrual basis IPSAS framework is developed. Below are the similarities and differences between the two frameworks so as to identify the gaps and the needed changes to align the GBEs to IPSAS reporting for the purposes of consolidation of the accounts of the GoR.

Analysed in this section is the line items in the proposed format of the consolidated financial statements of the GoR (as discussed in section 4 of this report) and:

Separated into areas which will bring about significant, moderate and minor differences between IFRS (as applied by GBEs) and IPSAS which the GoR will adopt.

From the separation, as above, then narrowed down to the specific differences between IFRS and IPSAS in the context of the GBEs of the GoR.

6.3.1 Differences between IPSAS and IFRS in the context of GBEs

6.3.1.1 General differences Overview

Fundamentally, IPSAS was developed from the already existing IFRS with a view to aligning public sector entities to accrual accounting. From this background the two frameworks have close similarities



and some differences owing to the diversion of the IFRS standards to achieve the IPSAS standards. There are also some standards in IPSAS which do not have an equivalent IFRS as outlined below:

Differences Areas covered

Minor difference Result from terminology differences and where the public sector standards have additional guidance

Cash flow statements;

Accounting policies, changes in accounting estimates and errors;

Construction contracts; and

Events after the reporting date.

Moderate differences

Result from classification, recognition, measurement and/or disclosure requirements

Presentation of financial statements;

Revenue;

Employee benefits;

Provision, contingent liabilities and contingent assets;

Group accounting or consolidation;

Financial instruments;

Fair value measurement;

Leases;

Inventories;

Investment property;

Property, plant and equipment;

Intangible assets;

Agriculture; and

Impairment of cash generating assets.

Significant differences

Results from classification, recognition, measurement and/or disclosure requirements

Revenue from non-exchange transactions (taxes, transfers and government grants);

Borrowing costs;

Employee benefits (after the effective date of the new standard)

Financial instruments: recognition and measurement (after the effective date of the new ifrs); and

Related parties.

Areas which do not have equivalent standards for comparison

Presentation of budget information in financial statements;

Non-current assets held for sale and discontinued operations;

Accounting for retirement benefits plan;

Interim financial reporting;

Income taxes;

Exploration for and evaluation of mineral resources;

Share based payments;

Insurance contracts;

Disclosure of financial information about the general government sector;

Earnings per share; and

Revenue for non-exchange transactions.



6.3.1.2 Specific differences

The differences identified from the areas identified above have been discussed below:

Difference area Comments

Control For consolidation purposes the definition of ‘control’ under IFRS is wider than IPSAS. This implies GBEs will be in a better understanding of consolidation requirements than the central government entities and for that reason should facilitate smooth consolidation of the accounts.

Heritage assets Recognition is optional under IPSAS 17.

Revenues from non-exchange transactions

IFRS is silent on non-exchange transactions which are mainly relevant to governments. GBEs typically deal in exchange transactions and thus it is more appropriate for them to apply/continue applying IFRS which is better suited to enterprises in the private sector dealing with exchange transactions (such as trading in goods and service).

Inventories IPSAS 12 includes ‘asset held for use in the rendering of services’ to the IFRS (IAS 2) definition of inventories. This however has no practical reporting effect on GBEs.

Componentisation of assets

This is narrowly defined under IPSAS 17 as opposed to IAS 16 provisions. Componentisation is generally not allowed for small assets under both frameworks but there is more emphasis under IAS 16 than IPSAS 17. IAS 16 considers capital and revenue expenditure in componentisation of assets adding that all revenue expenditure should be expensed and capital expenditure capitalised as part of the cost of the asset. This implies that GBEs will need more detailed analysis of componentisation than budgetary entities under the GoR.

Related party disclosures

There are differences in the related party disclosures required under IFRS and IPSAS. The definition of “close family member” is wider under IPSAS. IAS 24 Related Party Disclosures defines a close family member as being any of a person’s children, spouse/domestic partner and their children, the person’s dependents and those of their spouse/domestic partner. IPSAS 20 Related Party Disclosures also specifically includes: any relative living in a common household (for example if an elected member has an aunt or uncle living with them), a grandparent or parent, a brother or sister and a parent-in-law or a sibling-in-law. This means GBEs will have to meet the extended definition of related parties under IPSAS. On the other hand disclosures about transactions between GBEs are narrower under IPSAS than IFRS. IPSAS does not require disclosures of transactions that are on normal business terms – other than those with key management personnel.

Service potential as part of the definitions and recognition criteria

IPSAS introduces the concept of service potential into the definition of assets, liabilities, revenue and expenses. Service potential indicates the capacity of an asset to provide goods and services in accordance with an entity’s objectives, without necessarily generating any net cash in-flows. This largely impacts the central government entities which acquire assets or incur liabilities in order to provide services to the public as per their



Difference area Comments

mandate. Similarly GBEs as highlighted under section 6.2 above are incorporated mostly to fill a specific gap in the provision of goods and services and this regard, for IPSAS reporting purposes GBEs should as well consider the service potential of their assets though not as rigorously as it is in the central government entities.

Recognition of revenue from government grants

Government grants are generally released to income under IPSAS earlier than under IFRS. IPSAS critically distinguishes entitlement and obligation in the government grants. Any restrictions and conditions tied to government grants are recorded as liabilities in the Statement of Financial Position. However, GBEs typically do not (except WASAC and REG) currently receive funding directly from development partners.

Income tax IPSAS presumes that entities that operate within the public sector are generally exempt from income taxes and therefore does not cater for the accounting of income taxes. GBEs are commercially oriented entities and pay tax which is accounted for using IAS 12.

New IFRS standards While both frameworks are under regular update, IFRS has new standards already released for adoption such us IFRS 9 – Financial Instruments (replacing IAS 32), IFRS 15 – Revenue from contracts with customers (merging IAS 11 and IAS 18) and IFRS 16 – Leases (replacing IAS 17). The development of the new standards has been necessitated by conditions prevailing in the operating environment which does not spare public entities. GBEs will be moving to the new standards and for as long as there are no ‘equivalent’ standards developed on the IPSAS side then the gap between the two frameworks widens. This means that GBEs need to prepare for the new standards and align reporting under IPSAS for consolidation purposes.

Reporting of budgets vs actual

Due to the increased focus on stewardship, service delivery and budget management in the public sector, IPSAS 24 requires a comparison of the actual financial performance of an entity with the approved budget of that entity, where the budget is publicly available. There is no equivalent standard under IFRS and this gap in this case will be bridged by the ‘Entity differences’ section of the reconciliation between the cash flow information and the GoR budget as detailed in section 3.2.2.

Impairment of non-cash-generating assets

IFRS assumes that all assets will be cash-generating; whereas IPSAS assumes that the majority of a public sector entity’s assets are likely to be non-cash generating. Therefore, non-cash generating assets under GBEs will have to be identified and considered for impairment to report under IPSAS.

Private sector specific concepts

IFRS uses private sector specific concepts like share based payments which are excluded under IPSAS. For reporting purposes under IPSAS, GBEs should use IPSAS specific concepts for ease of consolidation of the accounts of the GoR.



6.4 Proposed reporting format for GBEs to submit financial data in line with the proposed accrual basis IPSAS financial statements

6.4.1 Overview

Presentation of IPSAS and IFRS financial statements do not have major fundamental differences and the basis of accounting basis is accrual accounting. Fundamentally, the two frameworks are similar. However, financial statements prepared under IFRS need conversion for the purposes of consolidation with IPSAS financial statements. The conversion will affect a number of areas where differences may be considered to be minor, moderate, significant or where there are no equivalent standards for comparison. These areas are as discussed under the section below:



Additionally, the following table identifies financial statement line items which will require conversion. The conversion arises from the scenarios discussed under section 6.3 above.

6.4.2 The consolidated statement of performance

IFRS

IPSAS Conversion need?

Notes to conversion

Revenue

Revenue

Revenue from non-exchange transactions Yes 1

Revenue


Transfers from other government entities Yes 1

Other revenue No

Total revenue

Total revenue

Cost of sales

Expenses from exchange transactions No N/A

Cost of sales of goods


Cost of providing services


Gross profit

No N/A

Expenses

Expenses

Administrative expenses

Wages, salaries and employee benefits No N/A

Grants and other transfer payments No N/A

Distribution costs

Supplies and consumables used No N/A


Depreciation and amortisation expense No N/A


Impairment of property, plant and equipment No N/A

Other expenses

Other expenses No N/A

Other income

No N/A

Other gains/(losses) – net

No N/A



IFRS


Notes to conversion

Operating profit

No N/A

Finance income

No N/A

Finance costs

No N/A

Finance costs – net

Finance costs No N/A

Total expenses

Total expenses

Share of net profit of associates and joint ventures accounted for using the equity method

Share of surplus of associates No N/A

Profit before income tax

Income tax expense

Yes 2

Profit from continuing operations

Profit from discontinued operation (attributable to equity holders of the company)

Profit for the period


Profit is attributable to:

Attributable to:

• Owners of the controlling entity

• Owners of the controlling entity No N/A

• Non - controlling interests

• Non - controlling interests No N/A

Other comprehensive income

Items that may be reclassified to profit or loss

Changes in the fair value of available-for-sale financial assets No N/A

Cash flow hedges

No N/A

Share of other comprehensive income of associates and joint ventures accounted for using the equity method No N/A

Exchange differences on translation of foreign operations No N/A

Other comprehensive income arising from discontinued operation No N/A

Net investment hedge

No N/A

Items that will not be reclassified to profit or loss

Gain on revaluation of land and buildings

No N/A



IFRS


Notes to conversion

Share of other comprehensive income of associates and joint ventures accounted for using the equity method No N/A

Remeasurements of post-employment benefit obligations No N/A

Income tax relating to these items

No N/A

Other comprehensive income for the period, net of tax No N/A

Total comprehensive income for the period

Total comprehensive income for the period is attributable to:

Owners of the entity

No N/A

Non-controlling interests

No N/A

6.4.3 The consolidated statement of financial position

IFRS IPSAS Conversion need?

Notes to conversion

ASSETS

ASSETS

Non-current assets

Non-current assets

Intangible assets

Intangible assets Yes 6


Land and buildings Yes 6

Infrastructure, plant and equipment Yes 6

Investments accounted for using the equity method

Investments in associates Yes 5

Receivables

Receivables from exchange transactions Yes 3 & 4

Recoverable from non-exchange transactions No N/A

Held-to-maturity investments

Other financial assets No N/A

Derivative financial instruments

No N/A

Investment properties

No N/A

Available-for-sale financial assets

No N/A

Deferred tax assets

Yes 2






Notes to conversion

Current assets

Current assets

Inventories

Inventories Yes 8

Trade and other receivables

Recoverables from non-exchange transactions Yes 3

Receivables from exchange transactions Yes 3

Prepayments and other current assets No N/A

Financial assets at fair value through profit or loss

No N/A

Derivative financial instruments No N/A

Cash and cash equivalents (excluding bank overdrafts)

Cash and cash equivalents No N/A

Assets classified as held for sale

No N/A



Total assets

Total assets

EQUITY

NET ASSETS/EQUITY

Share capital and share premium

Reserves No N/A

Other equity

No N/A

Other reserves

No N/A

Retained earnings

Accumulated surpluses/(deficits) No N/A

Capital and reserves attributable to owners of the entity No N/A

Non-controlling interests

Minority interest No N/A

Total equity

Total net assets/equity

LIABILITIES

LIABILITIES



Borrowings

Long-term borrowings No N/A

Payables

Payables Yes 3

Employee benefit obligations

Employee benefits Yes 7

Provisions

Long-term provisions No N/A

Deferred tax liabilities

Total non-current liabilities

Total non-current liabilities




Notes to conversion

Current liabilities

Current liabilities

Trade and other payables

Payables Yes 3

Borrowings

Current portion of long-term borrowings Yes 3

Short-term borrowings No N/A

Employee benefit obligations

Employee benefits No N/A

Deferred revenue

Deferred revenue No N/A

Provisions

Short-term provisions No N/A

Derivative financial instruments

No N/A

Current tax liabilities

Yes 2

Liabilities directly associated with assets classified as held for sale No N/A

Total liabilities

Total liabilities

Total equity and liabilities

Total equity and liabilities

Refer to the notes below to the conversion.



Notes on the conversion

Note Details of the conversion 1 Revenue from non-exchange transaction vs exchange transaction

IPSAS provides principles to guide the measurement and recognition of non-exchange transactions, whereas IFRS is generally silent on the matter. Some GoR GBEs e.g. WASAC and REG enter into grant agreements on their own with development partners and thus would need to recognise revenue from those grants as non-exchange revenue.

Recognition of revenue from government grants

IPSAS focuses on whether there is entitlement to the revenue from government grants (even though there may be restrictions on how the funds are spent), or an obligation to meet certain conditions, which is recorded as liability. The distinction between restrictions and conditions is crucial in determining whether or not to recognise revenue from a non-exchange transaction.

2 Income tax

IPSAS presumes that entities that operate within the public sector are generally exempt from income taxes and therefore does not cater for the accounting of income taxes. In the unlikely event that an entity reports using IPSAS but is liable for tax, reference should be made to IFRS (IAS 12 Income Taxes) for guidance.

Most of the GBEs within the GoR are liable for taxes since they are involved in business activities which are not exempt from taxation. There is need to identify circumstances where these effects arise and how they should be treated during consolidation.

3 Financial instruments classification and measurement With the introduction and ongoing development of IFRS 9 Financial Instruments, the classification and measurement of financial instruments under IFRS is changing from IAS 39. Prior to IFRS 9, the recognition and measurement of financial instruments were similar under IFRS and IPSAS. This has thus widened the scope of differences between IPSAS and IFRS 9.

4 Related Party Disclosures The requirement for related party disclosures have several differences between IPSAS and IFRS. These differences results from the different definitions from both frameworks. These differences may include definition of close family members.

The definition of close family members is defined as being any of a person’s children, spouse/domestic partner and their children, the person’s dependents and those of their spouse/domestic partner. However under IPSAS a close family member is wider and can be defined as:

any relative living in a common household (for example if member has an aunt or uncle living with them)

a grandparent or parent

a brother or sister

a parent-in-law or a sibling-in-law.

Due to the differences in the definition of the close family member, information disclosed regarding related parties on the GBEs financials statements may be limited in relation to disclosures required as per IPSAS. In this scenario more information will be required for consolidation purposes.

However, information disclosed regarding the transactions that are on normal business terms – other than those with key management personnel may not be required in IPSAS



Note Details of the conversion which may already be disclosed on the face of GBEs financial statements. This will need conversion during the consolidation process.

5 Consolidation and interests in associates and joint ventures

IFRS has new standards; IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of Interests in Other Entities. There are significant differences between IFRS and IPSAS. These are a move from the current standards IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures. IPSAS 35 to IPSAS 38 have been developed to align the consolidation rules under IFRS with IPSAS.

6 Impairment of non-cash-generating assets

In light of the assets recognised purely based on their service potential (as opposed to economic benefits), IPSAS additionally caters specifically for impairment considerations for non-cash-generating assets. IFRS assumes that all assets will be cash-generating; whereas IPSAS assumes that the majority of a public sector entity’s assets are likely to be non-cash generating. IPSAS 21 Impairment of Non-cash-generating Assets provides specific guidance on how to determine the value-in-use of such assets.

Therefore, when consolidating particular attention should be paid to the non-cash generating assets which should be isolated in line with IPSAS provisions. This applies to entities like REG and WASAC which will be consolidated under the IPSAS general government framework. The GoR should include a disclosure in the consolidated financial statements about entities like REG and WASAC and the treatment of their cash generating assets i.e. though they are considered general government entities under IPSAS rather than GBEs, they have cash generating assets as well as non-cash generating assets.

7 Elimination of private sector specific concepts

IFRS provides principles for certain economic phenomena that are irrelevant to the operations of a public sector entity, such as accounting for share-based payments and earnings per share disclosures. IPSAS excludes such guidance and refers reporting entities back to IFRS if and when applicable. Therefore, when consolidating the results of the GBEs with those the general GoR entities, there should be restraint in the use of private sector specific concepts because the reporting of the GoR financial results is being done under the accrual basis IPSAS framework.

8 Inventory

There are differences between IPSAS and IFRS which can be considered minor. These differences results from where:

inventories have been acquired via a non-exchange transaction – IAS 2 would see these measured at the lower of cost or net realisable value, IPSAS 12 requires fair value measurement as at date of acquisition; and

Inventories distributed for no or nominal consideration – IAS 2 requires measurement of replacement cost at date of acquisition, IPSAS 12 requires measurement at the lower of cost.

Therefore, during consolidation of the GBEs’ results with the central GoR entities’ results inventory should be valued on the principles of IPSAS and where that cannot be done disclosures should be included to highlight the variations in the valuation bases.



Audit implications



7 Audit implications 7.1 Internal audit

7.1.1 Overview of internal audit

Article 12 of Organic Law No. 12/2013/OL of 12/09/2013 regarding State Finances and Property requires the Minister in charge of Finance “to ensure adequate internal audit arrangements in Government”. Chapter III of Ministerial Order N° 002/09/10/GPIA of 12/02/2009 sets out Regulations for Internal Control and Internal Audit and establishment of internal audit units in Ministries, Districts and other government agencies (MDAs).

In line with the above law, the Office of Chief Internal Audit (OCIA) is set up within MINECOFIN and is headed by the Government Chief Internal Auditor (GCIA) with broader scope and mandate over budget agencies but also any other entities which benefit in any way from State resources.

The GCIA is responsible for supervising and supporting all internal audit units in government and reports administratively to the Permanent Secretary and Secretary to the Treasury (PS/ST) and functionally to the Minister in Charge of State Finances. There are three units within this office, namely, central government unit, local government unit and inspection and there are 16 staff that report to the GCIA.

Each budget entity is required to have an internal audit unit consisting of the head of internal audit and internal auditors. The size of the unit depends on the size, nature of operations and complexity of the entity. The Mission of the Internal Audit Units is to help Ministries, Districts and Agencies (MDAs) satisfy their statutory and fiduciary responsibilities and use public resources efficiently. Internal audit staffing at budget entity level depends on the complexity of the organisation.

Internal audits are conducted in line with International Standards for the Professional Practice Framework (IPPF). The types of internal audits conducted include:

Type of audit Purpose Financial Review To provide reasonable assurance on the correctness, entirety,

legitimacy, and regularity of financial reports and transactions as well as the soundness of underlying internal controls and accounting records.

Compliance Audit To verify adherence to laws, regulations, policies, standards, and pre-

scribed procedures.

Performance Audit To assess the degree of economy, effectiveness and efficiency of the entity’s operations. The emphasis is put on the assessment of both entity’s inputs and outputs.

Systems Audit To evaluate the design and operation of systems including internal con-trol, financial controls, accounting systems, IT Systems, etc.

Forensic Audit To consider specific cases of suspected irregularities such as fraud, theft, embezzlement, or mismanagement of public funds.

IT Audits Reviews of computer-based systems focusing on data security, disaster recovery, and effective use of resources.



The reporting structure of the internal audit office is through quarterly reports and an annual report. Once annual reports have been compiled for the whole government, they are presented to the Minister of Finance.

Currently, all internal audit staff are required to be holders of a bachelor’s degree in finance or accounting. However, a higher number of staff staffs under the department do not possess professional qualifications. Possessing these qualifications will require changes in the job profile.

7.1.2 Implications for internal audit The implications for internal audit are summarised below:

Area Implications

Policies Internal Audit in Government of Rwanda (GoR) has adopted ISPPIA through Ministerial Order N° 02/09/10/GP/A of 12/2/2009 establishing internal control and risk management in government, internal audit and Supervisory Boards.

The Standards comprise two main categories: Attribute and Performance Standards. Attribute Standards address the attributes of organisations and individuals performing internal auditing. Performance Standards describe the nature of internal auditing and provide quality criteria against which the performance of these services can be measured.

As explained above, internal audit conducts various types of audits. It is expected that financial reviews and compliance audits will be most impacted by IPSAS as they relate to review of financial reports and transactions as well as reviewing compliance with standards.

IPSAS implementation should not impact on application of International Standards for

the Professional Practice Framework (IPPF). However, financial audit guidelines

modelled on IPSAS will require to be developed as stipulated in chapter 2 of the internal audit manual in order to guide the audit of financial statements prepared in line with IPSAS.

Compliance reviews will be important during and after adoption of IPSAS and can assist in monitoring the transition to IPSAS and guiding the Accountant General on progress towards compliance with IPSAS.

People Internal auditors will need to be trained in order to effectively audit in line with IPSAS. This will mainly affect financial reviews and compliance audits. The areas identified for training are summarised below:

Accrual basis IPSAS (and audit approaches to adopt during the period for transitioning to accrual basis IPSAS).

Updated and new accounting policies in line with accrual basis IPSAS.

Revised processes in line with accrual basis IPSAS.

Changes in the internal control environment due to updates to policies and processes.

Enhanced IFMIS functions and new modules.

Audit of areas not under modified cash basis.

Differences and similarities between IFRS and IPSAS and impact on GBEs reporting.

Systems The internal audit department has an audit management system called TeamMate.



Area Implications

TeamMate implemented at MINECOFIN consists of 6 modules:

1. TeamRisk: advanced risk assessment system that enables your department to develop a risk-based audit plan;

2. TeamCentral: web-based access for tracking audit projects, issues and recommendations;

3. TeamStore: Knowledge base for standard work programs, reportable issues, risk libraries;

4. TeamSchedule: comprehensive tool for scheduling your staff and audits; 5. TeamTEC: web-based tool for capturing and reporting on time and expenses related

to audit projects and tasks; and 6. TeamEWP: electronic work paper and audit documentation system.

However, the review indicated that the current system is not being fully optimised as out of the above 6 modules in TeamMate, only 1 module - TeamMate EWP is being used by the Internal Audit Function. However, all the 50 user licenses procured are being used.

In addition, the version of TeamMate is an earlier version which needs to be upgraded to the latest version. The use and acceptability of the system at all levels also needs to be improved by ensuring all audits are documented using the system and all reviews take place through the system. If all modules are rolled out and effectively used, the audit process can be more efficient.

Processes As the government is moving to a more complex financial reporting framework, it will be imperative to develop tailored financial review procedures to cover:

Procedures for auditing financial statements prepared in line with accrual basis IPSAS.

Audit of computer based accrual accounting systems under an enhanced IFMIS.

Use of risk based audit approaches and applying TeamRisk (module under TeamMate).

7.2 External audit/Office of the Auditor General

7.2.1 Overview of external audit In respect of provisions of Article 165 of the Constitution of the Republic of Rwanda of 2003 revised in 2015, and Articles 6 of Law n° 79/2013 of 11/09/2013 determining the mission of Office of the Auditor General among as following but not limited to:

Government revenue and expenditure in the following organs: Central Government, local government, public and parastatal institutions, government projects, an organ or institution that receives State budget allocations for the purpose of conducting public activity;

Carry out financial and property management audit to ensure compliance with applicable laws and regulations, proper use of finances and property and ascertain if finance and property were managed appropriately;

Carry out the audit of accounts, efficient management of property and finance and that of functioning of all organs provided for in item 1° of this Paragraph;



Conduct forensic audit or special audit of all the organs provided for in item 1° of this Paragraph if the Office deems it to meet the public interest or if it receives a complaint or is requested to do so; and

Collaborate with other individuals and corporate bodies with similar responsibilities at both national and international level.

In accordance with Article 166 of the Constitution of the Republic of Rwanda of 2003 revised in 2015, the Office of the Auditor General of State Finances is required to submit to both Chambers of Parliament in joint session prior to the commencement of the session devoted to the examination of budget of the following year, a complete report on the balance sheet of the State budget of the previous fiscal year. The report shall indicate the manner in which the budget was utilised, unnecessary expenses which were incurred or expenses which were contrary to the law and whether there was misappropriation or general squandering of public funds. A copy of the report shall be submitted to the President of the Republic, Cabinet, President of Supreme Court and Prosecutor General. The Parliament, after receiving the report of the Auditor General referred to in this Article, shall examine it and take appropriate decisions within a period not exceeding six (6) months. Institutions and public officials to which a copy of the annual report of the Auditor General of State Finances is addressed shall implement its recommendations by taking appropriate measures as regards irregularities and other shortcomings which were disclosed. The Office of the Auditor General (OAG) is structured as follows: central government administration, local administration, performance audits, forensic, special and IT audit, quality assurance, external liaison and research, government business enterprises and department for public projects and programs. The planning of audits at the office of the OAG is guided by the risk profile of entities to be audited. The audit manual has been developed in line with the International Standards for Supreme Audit Institutions (ISSAI). Currently there are approximately 140 audit staff at the office of the OAG which is in line with the Auditor General’s instruction No.01/11/AG/16 OF 01/11/2016 Determining the Organisational Structure and Summary of Job Positions for the Office of The Auditor General of State Finances indicates 177 staff members including corporate and support staff. Less than 30% of audit staff are qualified accountants and most of the staff are in the process of qualifying. It is a requirement that all audit staff members are holders of bachelor’s degree in finance or accounting. Due to the increased complexity of audits under the accrual basis IPSAS reporting framework, there is need to review current staff skills and conduct trainings accordingly.

7.2.2 Implications for external audit

The following implications have been identified:

Area Audit implications

Policies The audit manual in use was issued by AFROSAI as part of an overall process to uplift Supreme Audit Institutions (SAIs) in the AFROSAI-E region to comply with the International Standards of Supreme Audit Institutions (ISSAIs). The manual provides an audit approach in accordance with the ISSAIs (1000-2999); which means full compliance with the International Standards on Auditing (ISA) and the additional guidance set out in the INTOSAI Practice Notes. The manual recognises general purpose financial reporting frameworks including IPSAS and provides guidance on auditing financial statements prepared in line with accrual basis IPSAS.




People The main implication for external audit is building the capacity of the team to audit accrual basis IPSAS financial statements. This will ensure that the OAG’s team has IPSAS skills and knowledge in order to identify deviations from the accounting standards and other discrepancies in the financial statements and provide recommendations on addressing the deviations and discrepancies.

Ensuring the OAG team has the right skills will require training on:

Accrual basis IPSAS standards and their application, and particularly gaining an in-depth understanding of recognition, measurement and disclosure requirements of each standard;

Training on audit approaches to adopt during the period for transitioning to accrual basis IPSAS to avoid qualifying audit opinions on transition elements;

Updated and new accounting policies in line with accrual basis IPSAS. New accounting policies will be issued due to the transition to IPSAS;

Revised processes and procedures rolled out by the Accountant General’s office in line with accrual basis IPSAS;

Changes in the internal control environment due to updates to policies and processes;

Enhanced IFMIS functions and new modules under accrual basis IPSAS. This should also include training on review of information technology general controls and systems, and relying on IT controls;

Audit of additional account balances under accrual basis IPSAS that were not previously under modified cash basis;

New reporting requirements and revised format of the audit report (due to the transition from modified cash basis of accounting which requires a special purpose audit report to accrual basis IPSAS that requires an audit opinion for general purpose financial statements); and

Differences and similarities between IFRS and IPSAS and impact on GBEs reporting.

There will be need to collaborate closely with the Accountant General’s office to avoid qualified audit opinions during the transition period.

Systems The external audit approach is governed by international standards on auditing and will not change on adoption of IPSAS. However, the audit team uses an audit management system called TeamMate similar to internal audit above that will need to be reviewed and upgraded.

It will be important to review TeamMate to ensure user acceptability and that all modules below are properly rolled out and that the latest version of TeamMate is in use.

TeamRisk: advanced risk assessment system that enables your department to develop a risk-based audit plan;

TeamCentral: web-based access for tracking audit projects, issues and recommendations;

TeamStore: Knowledge base for standard work programs, reportable issues, risk libraries;

TeamSchedule: comprehensive tool for scheduling your staff and audits;

TeamTEC: web-based tool for capturing and reporting on time and expenses related to audit projects and tasks; and

TeamEWP: electronic work paper and audit documentation system.

TeamStore will need to be reviewed and expanded to include a library for additional audit procedures for account balances not previously covered under modified cash basis of accounting such as property, plant and equipment, inventory, intangible assets,




investments, loans and grants, and other account balances. This will also impact on the TeamEWP module which enables documentation of audit work.

Processes The audit manual is prepared in line with International Standards on Auditing (ISA) and the additional guidance set out in the INTOSAI Practice Notes as mentioned above. It covers audit planning, evaluating the financial reporting framework, performing audits (including planning to audit fieldwork), audit reporting and auditing consolidated financial statements.

However, as the government is moving to a more complex financial reporting framework, it will be key to ensure:

The audit approach is risk based so as to focus on high risk areas

Shift from substantive testing to relying on internal controls

Use of CAATs (computer assisted audit tools) to interrogate data

Shifting from audit of manual records/systems to audit of computer based accrual accounting systems (enhanced IFMIS)

The OAG will be key in IPSAS implementation hence it will be important to involve the OAG from the start in order to provide input to the implementation plan and obtain buy in. During IPSAS implementation, there will be need for constant communication between MINECOFIN and the OAG to allow the AG to understand the rationale behind the decisions made during the implementation of IPSAS.

Another important role of the OAG is monitoring progress of IPSAS implementation in accordance with milestones set in the roadmap. This will also include following up on qualifications in audit opinion and recommendations in audit report enabling the audit to be a driving force behind the improvement of the financial statements and the ultimate achievement of full compliance with all IPSAS standards and an unqualified audit opinion.

The OAG will also audit the opening statements of financial positions which have to be audited on time (within 7 months after reporting date) and this will be key in determining that opening balances have been properly brought forward and reported in line with IPSAS requirements.

The additional roles and processes for the OAG have been incorporated in the implementation plan.

7.3 Recommendations The recommendations for both internal and external audit are summarised below:

It will be important to train both internal and external auditors on accrual basis IPSAS so that they can audit in line with this new accounting framework. They will be key in determining compliance with accrual basis IPSAS requirements during the implementation period. The trainings should take place at the start of implementation and during implementation to ensure they are constantly updated with changes in the standards. It will also be important that they are both trained on revised policies, processes and updates/enhancements to IFMIS.

The internal and external audit procedures (audit work programs) will need to be enhanced to include the additional areas to be audited under accrual basis IPSAS. This will also require a change in the audit methodology to ensure it is both risk based and control based. The methodology should also include procedures for reviewing IT controls under the enhanced IFMIS.

There is also a need to review the numbers of audit staff and align to the approved organisational structure, particularly for the OAG. Staff skills and qualifications should also be reviewed to ensure they



are aligned to requirements for the role and the complexity of the expected audit work. This may require restructuring of staff to ensure the right staff numbers and skills.

Close cooperation will be required between the Accountant General’s office and both internal and external audit, particularly during the transition period to minimise qualifications based on areas that are in transition, ensure buy in through incorporating their input and to also ensure they are updated on the implementation progress.



IPSAS requirements that will impact IFMIS



8 IPSAS requirements that will impact IFMIS

8.1 Gap analysis between current IFMIS modules and IPSAS requirements

8.1.1 Overview

The GoR uses a financial management system called IFMIS (Integrated Financial Management System). IFMIS is developed and maintained on a need basis. The system covers all the General Government entities with the implementation being carried out in a phased manner.

Main uses of IFMIS by the GoR

IFMIS currently serves as a platform through which:

the GoR financial management processes of planning, budget preparation, budget execution, accounting and financial reporting are hosted;

Preparation of financial reports in line with modified cash basis of accounting. These are prepared manually as IFMIS does not have a consolidated module. This is partly facilitated by the current CoA as discussed in Section 5 of this report;

Capturing of transactions is done. Transaction capturing across GoR central entities is made uniform through use of the SCoA;

Users can access the system from any location with the required authorisation details (i.e. On-line inquiries);

Controls for commitments, expenditure and budgetary adjustments are made possible; and

Special accounting needs such as for development projects and special funds are also provided. Current status of implementation of IFMIS

The GoR intends to rollout IFMIS to all general GoR entities and currently the status stands as per the following table:

# Budget Agency IFMIS Implemented To be implemented

Number of Budget Agencies/Projects

Number of Sites

1 Central Treasury 1 1 -

2 Central Government Agencies (Ministries) and Provinces

84 88 -

3 Kigali City 1 1 -

4 All Districts 30 30 -



# Budget Agency IFMIS Implemented To be implemented

Number of Budget Agencies/Projects

Number of Sites

5 Courts 1 15 -

6 Prosecution Authority Offices 1 14 -

7 Correctional Services 1 15 -

8 District Pharmacies and Health Insurance reporting entities

30 30 -

9 Embassies and High Commissions 34 34 -

10 Projects and SPIUs 94 94 11

11 District hospitals 44 44 -

12 Umurenge/Administrative Sectors 416 416 -

Total 321 366 427

There are currently ongoing efforts to increase the IFMIS coverage across the entities where the GoR has interests in order to account for all government interest in the country and abroad as a whole e.g. schools which are currently not covered. MINECOFIN in collaboration with MINALOC developed a simplified accounting system for subsidiary entities called SEAS and the system will be rolled out to all 416 sectors. It is expected that the software will assist to develop financial management capacity at the sector level, thereby improving financial management. The features of SEAS have been embedded into IFMIS to ensure that all the subsidiary entities are able to use IFMIS and the system is currently being extended progressively to subsidiary entities. Sectors have now been migrated to the IFMIS following this initiative. Furthermore, MINECOFIN has so far integrated IFMIS with key government institutions and the status is as per the table below:

# Entity/System Status

1 National Bank of Rwanda Ongoing – pilot phase commenced on November 2017. The full roll out is expected to be concluded by early May 2018.

2 E-procurement – Rwanda Public Procurement Completed

3 Integrated Payroll and Personnel Information System (IPPIS) - Ministry of Public Service and Labour

Completed

4 Rwanda Revenue Authority Ongoing



5 Key public infrastructure entities e.g. RHA and RTDA Ongoing

IFMIS building blocks

IFMIS currently has the following modules: Planning, Budgeting, Receipts, Payments, Accounting, Reporting, Security, Auditing and Monitoring modules as depicted in the figure below:

IFMIS-RWANDA

CORE

METADATA

ACCOUNTINGRECEIPTS

PAYMENT

BUDGETING

PLANNING

IFMIS

SECURITY,

AUDITING &

MONITORING

REPORTING

E-Procurement

IPPIS

RRA

(e-Tax)

BNR

(T24)

Core metadata – This is the configuration module and serves as the backbone to other modules as

most of the functionality managed in core module is a prerequisite for other modules. This module serves as the master file for the system.

Planning module – This module facilitates the key pre-budgeting procedures of the GoR. The GoR

action plans for the year and the strategic policies are managed under this module.

Budgeting module - The budgeting module coordinates the budgeting cycle of the GoR. This is a

database for budgetary needs of the various sectors, entities and geographical reach of the GoR operations. There is a strong link between this module and the planning module as the procedures and considerations in the planning module are utilised in the real budgeting environment in this module. The policies in the planning model are translated into realistic and implementable detail at this stage.

Payment module – This is used for cash plan management, contract management (linking contracts

to the payment process), commitment management, recording receipt of goods (goods received note), creating supplier systems so that they are available for payment, creating payment vouchers and processing of payments by the National Treasury (National Mode). Receipts management module - This is used to create and record all transactions related to cash

revenue/receipts, receivables, and deposit (Prepayments, Returns, Transit funds) and bounced payment transactions.

Accounting module - The accounting module is used to manage accounts (creating bank and cash

accounts), period’s management (closing/opening fiscal years and quarters and months within the fiscal years) and creating journals (passing adjustments or correcting errors outside the main sub ledgers such as accounts payable, payments and revenue) and performing bank reconciliations.



Reporting module – this enables financial reports to be generated. This is the module which is

currently generating the consolidated financial statements for general GoR which have sub operations under them e.g. Ministries with district offices. Consolidation of the GoR accounts currently is performed by the Public Accounts Unit (PAU) using a system called Electronic Working Paper (EWP).

Security, auditing and monitoring – this module covers access to IFMIS and the related security

features. IFMIS is a web based system, hence this feature is important in ensuring only relevant users access information.

The Government has also developed an accounting system for subsidiary entities affiliated to the districts called Subsidiary Entities Accounting System (SEAS). This system is tailored for the operations of the subsidiary entities and has been rolled out to all subsidiary entities. The features of SEAS have also been embedded into the IFMIS to ensure that all the subsidiary entities are able to use the IFMIS.

GoR payroll is run in the IPPIS software on two levels i.e. centralised and decentralised levels. At centralised level, the payroll data is uploaded into IPPIS in the Payroll unit – MIFOTRA and the decentralised level the payroll data is uploaded into IPPIS by the Head of the Administrative Unit. The payroll is then imported into IFMIS after which reviews and approvals are initiated and finalised to authorise the payment of the salaries to the GoR staff.


Overall, the following gaps were noted and more details are provided in the following sections where gaps are discussed for each module under IFMIS.


Policies

Current modules’ manuals and process charts are developed for use on modified cash basis of accounting IFMIS.

The current user manuals are standard across all GoR entities. Thus there is need to have the manuals integrated for IFMIS detailing use/procedures for different levels and types of government entities.

People

The current MINECOFIN staff will need training on the enhanced IFMIS modules once IFMIS is developed in line with accrual basis IPSAS.

Accounting staff of State Owned Enterprises operating as budget entities require training on IFMIS as well as conversions of accounting information to IPSAS reporting formats.

There is no harmonisation of the needs and expectations of the staff working in the various modules in line with the outputs expected under the IPSAS framework. There is need to have a holistic view of IFMIS rather than viewing individual modules in isolation. This can be achieved through training and the routine IPSAS awareness endeavours across the implementation timeline.

Systems

Update IFMIS with the new chart of accounts. IFMIS should only activate accounts that are needed as the accrual accounting rules are applied on an incremental basis. Those that are phased out must simultaneously be deactivated for any further transaction processing.

Some government entities are yet to have IFMIS rolled out to them as depicted in the current status of implementation of IFMIS section above. This also extends to GoR entities identified for inclusion in the IFMIS coverage due to their instrumental role in the IPSAS project implementation such as RHA, RSSB, RTDA and RRA.




The GBEs are not currently linked to IFMIS. The consolidation module once introduced will be resolve this.

The existing modules such as payments, receipts, accounting and reporting modules need to be updated to facilitate processing of accrual basis IPSAS transactions.

Missing modules - there are no modules for fixed assets, receivables and payables (as treated under accrual accounting), consolidation considering the move to accruals accounting and the inclusion of GBEs (which are IFRS based) into the consolidation.

Processes

Align economic segment through the CoA in line with IPSAS. This is to focus on the economic segment as it is the segment where the recording of accounting transactions directly impacting the financial statements is structured.

Need to review and update the procurement process flow to include separation of procurements into fixed assets, inventory and other supplies.

Need to review all business flows (work flows) and align with accruals under each module:

o The work flows in IFMIS e.g. current receipts and payments are cash based and need amendments to move to accrual accounting.

o Lack of disaggregated workflows to match up with the needs of the different levels of GoR entities, especially the lower level entities, facilitate seamless input of data in line with accrual accounting.

o Employee benefits needs to link to payroll system and revenue needs to link to the receipts and financial reporting processes. Procurement needs to link to commitments, payables, fixed assets and inventory.

o There is currently no consolidation workflow as part of the user tools for IFMIS.

Lack of data input templates at various reporting levels to facilitate data entry in line with IFMIS requirements under the accruals accounting framework.


MINECOFIN should develop harmonised or tailored work flows for IPSAS accruals accounting as well as work flows to facilitate the reporting of the financial results of the GBEs which are IFRS based.

Enhance the existing modules in IFMIS and develop the identified missing modules to pave way for IPSAS reporting.

Design disaggregated trainings for staff at MINECOFIN, GBEs and low level GoR entities on IFMIS and implications of accrual accounting.

Training and continuous circulation of IEC materials on accrual accounting and understanding of new work flows in IFMIS.

Developing of specialised integrated procedures manuals (i.e. the comprehensive IPSAS accounting manual) catering for all levels of reporting in the GoR entities.



8.2 Adoption of IPSAS and enhancements to IFMIS

8.2.1 Overview

IFMIS currently has ten modules as described under section 8.1.1 on page 122 of this report. In this

section, the current modules are analysed to understand the main transactions under each module and then identify gaps as regards moving from cash basis to accrual basis IPSAS. This means IFMIS needs to capture all the new transactions as a result of moving to accrual accounting as discussed under sections 4 and 5 of this report.

Under IPSAS and due to the basis differences with the current cash based configured IFMIS, there are new modules which need to be developed as per the gap analysis above. An outline of the new module to be developed is presented in section 8.2.2 below.

In summary, this section identifies the key changes required to current modules and additional modules required to develop an enhanced IFMIS in line with accrual basis IPSAS.

8.2.2 Existing modules and enhancements

8.2.2.1 Core metadata 8.2.2.1.1 Overview

The core module supports other modules in the IFMIS framework through its five key functionalities as depicted below:

Changes to current modules

Additional modules required

Enhanced IFMIS

Core Module

Master data

Categories of system set

up

Classification of the

Government (Chart of accounts

Configurations

Messages/ notification



Classification of the Government (chart of accounts) – this hosts the chart of accounts and the following classifications which users can navigate through and make necessary updates to the chart of accounts (as well as other classifications and information) as below:

o COFOG classification: This is the mapping of the CoA with international classification standards like the Government Finance Statistics (GFS) and Functional division of Government. User under this sub - module must be granted official permission as application administrator by the IFMIS Coordinator and the Accountant General. The responsibility of this platform rests with all users. Mapping is done once at the sub-program level of each entity and there is no need to decentralise.

o National Strategy for Transformation – 1 (NST-1: This is a key planning and strategic document of the GoR is based on in-depth participatory poverty assessments and broad consultation of Rwandese society and development partners. Access rights as application administrator to this sub-module are granted officially by the IFMIS Coordinator or the Director General of the National Development Policy and Research (NDPR) only. The responsibility of this platform rests with all users.

o Five segments of the GFS Manual 2014 framework prescribed CoA as discussed in Section 5 of this report.

o Other: The classification platform include details of debtors and suppliers, banks, positions of users and projects currently being undertaken by the GoR with development partners.

Categories of system set up - This is the interface which enables users to access the categories under the Core module.

Master data – This is the platform which hosts the information in other modules in IFMIS including the Core module itself.

Configurations – This is the platform for settings of the IFMIS system. The interface on this platform varies from user to user depending on the type of rights a particular user has. Administrators and super users have more options on this platform.

Message or notification – This is a system of notifications or various messages for the user logged in IFMIS.

8.2.2.1.2 Gaps identified

The current CoA needs need to be updated to accommodate accrual accounting under IPSAS as indicated under section 5 of this report. The updates in the CoA directly affect the existing modules which are linked to the economic segment of the CoA.

Master data will need to be updated with the changes in the other modules to move to accrual accounting.

Configurations of new users of the core module is needed given the changes in other modules and the new modules coming up to meet the demands of accrual accounting.

The user manuals need to be updated to reflect the changes due to the amendments in the core

module such as the new modules and updated chart of accounts.

There is need to incorporate outside the budget entities (GBEs) in the CoA for consolidation purposes under IPSAS. Alternatively, there is need to introduce mapping tables for the CoA developed in this report with the CoAs of GBEs so as to ease consolidation.

Master data needs the capability to upload key guidelines and manuals such as the IPSAS accounting manual, budgeting manuals and other important reference material which are relevant for the users of IFMIS.

8.2.2.1.3 Recommendations (enhancements)

The core module will need to be upgraded to capture the new chart of accounts (CoA) developed in line with accrual basis IPSAS in Section 5 of this report. While updating the CoA, consideration needs to be given to the GFS Manual 2014 requirements. From this functionality, it should be possible to define the classification of expenses by nature to align with the current format of the consolidated financial statements.



The core module needs to be configured with duality functionality to appreciate the demands of cash budgeting and accruals accounting whilst retaining GFS Manual 2014 reporting capabilities.

This module should be configured with information on GBEs (which are outside the budget entries) to facilitate consolidation of the GoR accounts under IPSAS. This can be done by embedding the mapping tables for the GoR CoA against the CoA of GBEs to ease consolidation.

Updating of the users manuals to reflect the changes made to the core module.

8.2.2.2 Planning module 8.2.2.2.1 Overview

Planning takes place before the actual budgeting process. It involves a number of oversight activities

and integration of public policy into meaningful and realistic plans (the budget). Planning involves collecting of information from the various sources and aligning the information with the GoR policies prevailing for the budget period.

This stage calls for a consideration of the GoR short-term, medium range and long range plans at the same integrating the central government plans down to the grass root level of administration. Key performance indicators in line with government policy and key targets agree under various agreements with development partners are set and input into the system. In a nutshell, the planning defines the path of the budgeting module.

As partly outlined under section 3 of this report, MINECOFIN employs a number of tools to gather information and interpret public policies. The planning module of IFMIS facilitates these processes. Below is the makeup of the planning module of IFMIS, highlighting the main activities of the module:

The planning module like the core module is accessed by users through the use of a Login ID and a password. Below are the main features of the module:

Planning dashboard – This is basically a snapshot of the data and progress of each activity in

the planning module. When there is no data in the module, the dashboard is blank. Users can

•Progress of planning tasksPlanning

dashboard

•Output (Indicator, baseline, target, activity)•Outcome•Costing activity tab

Manage action plan

•Project profile•M&E•Funding agreement•Statistics and reports

Project

•ReportsReport



navigate on various parameters such as output, outcome and indicator to view summary information on that parameter.

Manage action plan – This module allows users to create and edit outputs, outcomes and costing

of activities.

Project - Project hosts the key themes or areas the budget will cover. The themes are coined in line

with the public strategic documents as highlighted in section 3 of this report. Each theme, areas or sector is therefore called a project. The project profile captures a summary of key project information such as duration, title of the project, source of funding (local or foreign), objective and cost. This platform also shows the administration flows of the project i.e. the project manager and the contracts the manager as well as the budget agency. M&E information is also a key area of this platform. Users can monitor and assess performance of the project against the set targets.

Report – This platform allows users to generate reports on the three thematic areas i.e. COFOG

sectors, NST-1 and Single Action Plan.


This module benefits from the information generated from the CoA. An analysis of the changes to be made to the CoA to move to accrual basis IPSAS has been provided in section 5 of this report. In this regard, reports generated (and benefiting the CoA) in this module will now be affected and need to be assessed for consistency now that the CoA has been updated to facilitate accrual basis IPSAS reporting.

Conversance gap in the IFMIS users between the current module and the enhanced module i.e. when the accruals basis enhancements proposed in section 8.2.3 are implemented. A number of aspects will be introduced which are not currently in place in the move to accruals basis IPSAS accounting and users will need training and mind-set change to work with the enhanced IFMIS.


Comprehensive assessment of the impact of the changes in the CoA on the information displayed in this module gauged against the expected outputs of the module. The assessment is need for the aspects of the planning module which benefit from the information in the economic sector of the CoA.

Training of the key users of the module on the key changes and how their day to day activities are affected as a result of the changes in the module.

8.2.2.3 Budgeting module

8.2.2.3.1 Overview

This module links back to the planning module. In the budgeting module, the policy and on the ground information gathered in the planning module is converted into an implementable footprint in the budgeting module. The budget (which is extracted on various parameters to meet the needs of the users within the GoR as shown in the figure below) is the main output of this module.



Budgeting – this relates to the budgeting processing as described in Section 3 of this report.

Budget and reports – This budget is the main output of this module and is extracted on various

parameters as defined by the segments in the current CoA. The current budgets are cash based.


There is no functionality facilitating the reconciliation of the cash basis budget to the accrual basis IPSAS financial information as discussed under section 3 of this report. This module needs to be able to run cash basis-accrual basis IPSAS reconciliations. The system needs to have duality capabilities to enable preparation of the budget on cash basis and also produce reconciliations of budgeting information with accruals based financial statements information.

The module does not produce budgets with variances between the original (initial) and approved budget as well as the variances between (approved and actual budget) in line with IPSAS 24. Refer to section 3 of this report for more details.


Ideally, current budgeting processes do not need to be changed to align with accrual accounting basis. This is because, IPSAS 24 does not expressly require organisations that use accrual basis of accounting to move to accrual basis of budgeting. Therefore, the GoR can continue preparing its budget on modified cash basis for consistency and consider migrating to accrual budgeting in the future. However, IFMIS, may require a duality of the system functionality to ensure that the same information can be reported

under both cash basis budgeting and accrual basis financial reporting. This will involve a critical understanding and identification of the three types of differences (basis, timing and entity) in assessing the gap between accrual basis IPSAS information and the cash budgets. The proposed CoA in Section 5 of this report, includes new codes to facilitate accrual basis IPSAS reporting and a movement of other codes from the Statement of Financial Performance under the cash basis reporting to the Statement of Financial Position under IPSAS. It is from the new CoA that the budgets will be based and thus a clear understanding of which codes are applicable under either cash budgeting from the CoA designed to facilitate GFS Manual 2014 and IPSAS reporting is needed.

Despite the adoption of accrual basis of accounting, IPSAS does not assume that accrual basis will be used in budgeting. Specifically, IPSAS 24 Presentation of Budget Information in Financial Statements

Budgeting

•Dashboard•Budget sheet•Manage action

Budget

•GoR policy vs Revenue•GoR policy vs KPIs•GoR strategic focus•Key sectors

Reports

•Detailed budget balance•Annex ii-3: development budget by agency, project and funding•Annex ii-1: detailed expenditure by budget agency•MTEF detailed•Budget analysis by ministry and economic classification



provides the option to use either cash or accrual basis for budgeting. The ongoing process of convergence to international standards does not necessarily mean that the accrual basis must be adopted for the budget.

Further, the government will be required to prepare reconciliation between the cash basis budgeting and accrual accounting basis. This duality and reconciliation is covered under section 3 improvement to budget preparation and formats. The CoA also needs to be harmonised for

reporting purposes and easier reconciliation process.

8.2.2.4 Payment module 8.2.2.4.1 Overview

This module manages all GoR payments to external suppliers, employees and payments relating to employee expenses. This is the classification of the nature of payments processed in this module.

The payment module has a dashboard and six submodules. The sub-modules involved in the handling of the three main payment types are depicted in the figure below:

Below is a brief discussion of the sub-modules under the Payment module:

Contract management: This a database for contracts for the supply of goods and services

maintained by the GoR so that payments are linked to the relevant contracts.

Commitment management: Where there is a binding contract between a third party and the

GoR for the supply of goods or services; the amounts payable by the GoR which are locked in that particular contract for the duration of the agreement are commitments e.g. payments due for supply of goods or services, works, salary and other benefits payment, transfers, mission allowances, membership subscriptions for regional bodies, debt repayment, compensation for expropriation and taxes withheld by government entities are booked into this module at normally at period end.



Goods Received Note Creation/Issue of Certificates for services or work done: This is

where evidence of receipt of goods or performance of services contracted by the GoR is recorded.

Invoice listing and creation: This basically involves posting of invoices into IFMIS once the

goods have been received or the services have been performed as evidenced by the GRN or certificate for works done respectively.

Process (Create) payment order/voucher: This sub-module handles payment processing for

commitments and outstanding obligations at a particular point in time.

Cash plan management: this is the projection of expenditure to be incurred by a GoR entity for

the next of three months (quarter). The projections or allocations of cash flows are done by the central treasury and at local government level the allocations are approved by the District Executive Councils. This submodule links to the national budget.

Currently, all invoices (and contracts) are matched to GRNs before payment is processed i.e. a three way match is performed. 8.2.2.4.2 Gaps identified

o Overall, the submodules in the payment module do not have comprehensive accrual basis IPSAS accounting trigger points as detailed below:

o Contract management – Once a contract for supply of goods and rendering of services has been approved and notification made to the supplier, the obligations for both the GoR and the supplier should be identified and recognised in the accounting records. For instance, in a road construction contract where the GoR has contracted a vendor to construct a road, there are typically requirements that the GoR should advance a determined amount of funds to the contractor for mobilisation and that the contractor too should advance a determined amount of funds to the GoR as retention payment or performance surety. These two amounts should be identified and recognised at this point even without any movement of cash i.e. the GoR should firstly recognise a payable (because no funds have moved yet to the contractor) and a receivable of the same amount (because the contractor will have to pay the funds back to the GoR progressively) with respect to the advance payable to the vendor.

In the case of the retention payment, the GoR should also recognise a receivable (because the contractor has not yet made any cash payments to the GoR) and a payable because the GoR will have to pay the contractor back progressively as the construction activities run).

When there is movement of cash to settle the obligations by both the GoR and the contractor, the obligations booked should be extinguished i.e. with respect to the advance payment the GoR should credit cash/bank and debit the payable to extinguish it, thereby leaving the receivable recognised earlier standing in the system as the contractor is yet to pay back the funds advanced.

In the case of the retention payment, when the funds are received from the contractor a debit is posted to the cash/bank to record the receipt of funds and a credit is posted to the receivable earlier raised to extinguish it. Again this leaves the payable raised earlier standing in the system because the GoR will have to pay the contractor back progressively in tandem with the construction activities.

Furthermore, the contract price is at this point also identified and recognised as a long-term payable (because the GoR will have to settle the amount) and a long-term receivable (for the economic benefits embodied in the road and yet to flow to the GoR). Some construction contracts split the contact price into two parts i.e. a fixed and guaranteed part and a part which is dependent on the contractor meeting certain agreed upon requirements. The first part is a liability because it is probable that the GoR will in future release funds to settle the obligation and the second part at this point remains a contingent liability because



currently it is possible (rather than probable) that the GoR will release funds to settle the obligation as the triggering event is the contractor meeting the requirements locked under the contract, which they have not done at the moment.

It must be noted that the obligations in the construction contract in the example above, are identified simply by reviewing the construction contract even without any movement of cash at the time. Furthermore, the transactions identified demonstrate strong linkage with the other submodules like commitment, issue of certificates for services or work done and invoicing as well as the receipts management module in terms of the amounts identified in the construction contract as receivable by the GoR.

o Commitment management - Under the current cash basis accounting, commitments are recognised (accrued) at period end, however:

The PFM manual in relation to commitments is not updated with the accruals basis treatment of commitments i.e. commitments should be recognised at the point it becomes probable that economic benefits will flow out of the GoR resources to settle the obligations inherent in the commitments.

There is currently no split between long-term commitments and short-term commitments in the commitments submodule or contracts submodule.

The commitments submodule, contracts submodule and PFM manual do not recognise lease (finance) commitments as well as the substance of lease transactions in accrual accounting.

o The Goods Received Note Creation/Issue of Certificates for services or work done submodule has no capabilities to enable split between goods received (i.e. received and invoiced as well as received but not invoiced) or services performed as this functionality was not necessary under the modified cash basis accounting. Under accruals accounting, in instances where a GRN has been matched to a purchase order but with no corresponding invoice, an estimate should be made for goods received or services performed but whose invoice has not been received yet. For regular suppliers the best estimate is the last invoiced amount of the same type of goods. The key issue at any point when services have been rendered or goods have been received is to determine whether all the obligations have been satisfied i.e. have all the goods under the contract been received? If not how much is yet to be received? What is the amount determined for services rendered and services yet to be rendered. The answers to the foregoing questions all trigger accounting entries under accrual basis IPSAS.

o The Process (Create) payment order/voucher submodule currently does not:

Split between payments relating to the reporting period and those flowing over (prepayments) to the next period.

Spread payments made across the period of the obligation so as to determine still outstanding (accruals) GoR obligations.

o Currently there is no accrual accounting capabilities link across the commitments, contracts and Goods Received Note Creation/Issue of Certificates for services or work done submodules as partly demonstrated under the contract management example.

o The cash plan management submodule needs to be enabled with variance analysis

capabilities so as to analyse variances between the original (initial) budget and the approved budget (revised after six months) as well as the variance between the approved budget and the actual expenditure. This is to enhance budget execution monitoring at the central government and local government levels of administration.




Integration of the contracts management, commitments, GRN and process payment submodules to clearly determine trigger points for accruals, prepayments and long-term and short-term obligations of the GoR. This can be aided by a process flow indicating the possible scenarios to ease the identification of obligations for the various types of transactions hosted in the payments module.

Updating the accounting manual with details of the trigger points and the transactions or entries to pass in the IFMIS. We have outlined the main transactions in relation to GoR obligations under IPSAS treatment in section 4 of this report.

Upgrading the cash management plan submodule to install planning and implementation variance analysis capabilities.

Redesigning of the current workflows in this module so as to clearly depict the trigger points as well as mirror the provisions of the upgraded manual.

Integration of the submodules and identification of synergies across the submodules as well as other modules in IFMIS to appreciate the demands of accruals accounting.

8.2.2.5 Receipts management module 8.2.2.5.1 Overview

The receipt module supports four key functionalities as depicted below:

The above functionalities are as discussed below:

•Deposit creation•Deposit clearance

•Bounced payment

•Claim management

•Verify the claim

•Bill creation•Bill payment

•Creating cash revenue

•Uploading cash revenue

Cash revenuesReceivables and billings

DepositsBounced payment

management



Cash revenues

The functionality serves in recording of cash/money received by an institution. Under this functionality, there are two types of functionalities which are creating cash revenue and uploading cash revenue. These functionalities are as discussed below:

Creating cash revenue: The functionality enables recording of cash/Money received by an

institution when a service has been rendered and consumed. Revenue must have been duly certified before being captured in the system. As a process the money received must be banked intact before the receipts are captured on the system. Cash receipts is used for every transaction of cash receipt. The accounting entries for the cash receipts are as follows:


Dr - Cash/Bank account xxx


Cr - Revenue item xxx

Uploading cash revenue. The functionality facilitates populating into the system

cash/funds received by an institution that is recorded separately in excel sheet. It is required that revenue must have been duly certified before capturing on the system. As a process the money received must be banked intact before the receipts are uploaded in the system on the system. The accounting entries for the cash receipts are as follows:


Dr - Cash/Bank account xxx



Receivables/billing

The receivable/billing functionality is used to modify revenue receivable due to the central government agencies. The functionality has two capabilities as discussed below:

Bill creation: The process of recording/recognising the receivable and generating a bill of

individual debtor. It is required that the list of receivables/debtors should be known and created in the system. When a bill has been approved, it’s at this point when an accounting entry is effected. The accounting entries are generated in the GL as follows:


Dr – Receivables account xxx



Bill payment: The process of clearing the outstanding bills/receivable outstanding. It is

required that a bill should have been created before a payment is initiated. Upon approving payment, the accounting entries are generated in the GL as follows:


Dr – Cash/Bank account xxx


Cr - Receivables account xxx



Deposits

The deposit functionality is used to modify revenue received in advance and it’s owed to customers by the central government agencies. The functionality has two capabilities as discussed below:

Deposit creation: It’s the process of recording prepayments (money received before the

service or goods have been consumed), caution money and transit funds. (Local and foreign). It is required that money should have been received and services/refund not yet given. Upon approving the bill, it’s when the accounting entries are affected.




Cr - Liability account xxx

Deposit clearance: When money has been deposited to the budget agency account before

services have been rendered, it can in the end be consumed or refunded. This is handled in the clear deposit. Upon approving the refund, appropriate accounting entries are generated:


Dr – Liability account xxx


Cr - Cash/Bank account xxx

Bounced payment management

Bounced payment management in treasury payment and budget agency mode: This is the process of managing bounced payments. For any reason, the payment may bounce when it has reached BNR or any commercial bank for payment. The process of managing bounced payments and claims is done through bounced payment functionality. The bounced payment management process is available for national treasury payments and for budget agency payments.

Once a payment has bounced and registered by the treasury, a claim is filed by the budget agency having initiated the payment such that the bounced payment can be repaid. Once a processed claim by a budget agency has been approved by the delegated authority, treasury can access all the approved claim. Verifying a claim consists, in first instance, of matching the claim records with the bounced payment records. 8.2.2.5.2 Gaps identified

The main revenue and receivables transactions affecting the receipts module have been identified in

section 4 of this report. In explaining the gaps below, reference is made to the section 4 transactions:

Under the current modified cash basis accounting, the cash receipts submodule does not split between:

o Receipts relating to the current reporting period (revenue for the current reporting period) and the receipts flowing over to the next reporting period e.g. cash received from a grant running for five years should be split between that which relates to the current reporting period and the remaining four years recognised as deferred revenue from non-exchange transactions.

o Short-term (within the next 12 months or before the end of the current reporting period) and long-term (to be utilised in the coming periods i.e. deferred) receipts.

o Receipts from exchange transactions and receipts from non-exchange transactions.



The current revenue recognition point in the receivables and billings submodule is not in line with accrual basis IPSAS. The recognition of accounts receivable and revenue at period end is based on approved bills (when invoices issued are approved). Under IPSAS accrual basis accounting revenue should be recognised once the event triggering the revenue has occurred.

On deposits made by third parties (e.g. customers in government goods and services provision entities) into GoR accounts:

o The deposits submodule does not recognise the deposit as a payable. The deposit should be recognised as a payable until the point at which the GoR has delivered the goods or performed the service for the third party because it is at that point the obligation is extinguished.

o In relation to the above, the deposit submodule does not link the obligation inherent in the deposit to the commitments submodule under the payment module.

o The deposits submodule does not match the services performed or good delivered to determine whether there are still outstanding performance obligations (accrual not fully extinguished) for the GoR or whether there are resulting performance obligations for the third party (GoR prepayments).

The receipt module has not been fully integrated with RRA revenue collection system. The updating of the revenue collected by the revenue authority is updated manually into the IFMIS.

The current work flow under the receipts module needs to be aligned with accruals accounting taking into consideration the gaps identified under this module as above.


The accrual basis of accounting requires that revenue should be recognised when it is possible that the economic benefit s or services potential with the transaction will flow to the entity and that it can be measured reliably. In this event, revenue should be defined in accordance with IPSAS 9 Revenue from exchange transactions, IPSAS 23 Revenue from non-exchange transactions and IPSAS 11 Construction contracts. The recognition criteria have been discussed under Section 4 Improvement in preparation of financial statements. The following considerations should be factored in while

recognising revenue:

Cash received: Once an organisation receives cash from a customer of their services or from

the non-exchange transactions, it is necessary to identify from which period the cash revenue relates to. On enhancement of the IFMIS, a recommendation made is that the configuration be made possible for the system to split cash receipts among:

o Receipts relating to the current reporting period (revenue for the current reporting period) and the receipts flowing over to the next reporting period.

o Short-term (within the next 12 months or before the end of the current reporting period) and long-term (to be utilised in the coming periods i.e. deferred).

o Receipts from exchange transactions and receipts from non-exchange transactions.

The following double entry should be passed to fully record transactions under this submodule in line with accruals accounting

Cash received from non-exchange transactions (taxes). There is need to consider

whether cash received relates to the fiscal year of reporting. If cash received represent revenue for the fiscal year, the transaction should be captured in IFMIS as follows:







If cash received does not represent revenue for the fiscal year, the transaction should be recognised as follows:




Cr – Deferred revenue account xxx

Upon recognition of revenue previously deferred, the deferred revenue account should be cleared as follows:


Dr – Deferred revenue account xxx


Cr - Revenue account xxx

However, certain revenue from non-exchange transactions (such as grants with conditions attached) will be recognised through the following accounting entries:




Cr - Deferred revenue account xxx

Upon satisfaction of the conditions, revenue will be recognised using the following accounting entries:


Dr – Deferred revenue account xxx



Cash received from exchange transactions (sale of goods and services). There is

need to consider whether cash received for sale of goods or provision of services relates to the fiscal year of reporting. The consideration needs to identify when the risks and rewards have been transferred. If cash received represent revenue for the fiscal year or not, the transaction should be captured in IFMIS as described above under revenue from non-exchange transactions.

Under the receivable/billing as detailed in the current period needs to be enhanced as the

point of recognition is different under accrual basis accounting. The system needs to be configured in a way that it will be easy to identify the point at which a triggering event occurs as revenue and receivable should be recognised at the point the event is triggered.

This module needs to be adapted to be able to accommodate the bulk of receivables arising under the accrual basis IPSAS framework such as the following:



Long-term such as multi-year grants expected under already signed grant agreements and

where the funds have not yet been advanced to the GoR.

Short-term e.g. advance payments from tax payers and all other receivables from both

exchange and non-exchange transactions.

The following double entry captures some of the typical scenarios in relation to the GoR: Further, most of the revenue from non-exchange transaction (such as taxes) will continue to be accounted for as done at the moment by recognising the following accounting entries:





However, certain revenue from non-exchange transactions (such as grants with conditions attached) will be recognised through the following accounting entries: Statement of Financial Position



Cr – Deferred revenue account xxx

Upon satisfaction of the conditions, revenue will be recognised using the following accounting entries: Statement of Financial Position

Dr – Deferred revenue (liability) xxx



Revenue from exchange transactions (such as sale of goods), revenue should be recognised upon transfer of risk and rewards. This should be recognised using the following accounting entries:


Dr – Accounts receivable/cash and bank account

xxx



Upon the clearance of the debt, the following accounting entries will be recognised to clear the accounts receivable: Statement of Financial Position

Dr – Cash and bank account xxx


Cr - Accounts receivable xxx

The deposit management submodule should be enhanced to have functionalities that enable:



o Recognition of deposit as a payable. Deposit should be recognised as a payable until the point at which the GoR has delivered the goods or performed the service for the third party because it is at that point the obligation is extinguished.

o Linking the deposit submodule and the commitment submodule under the payment module.

o Linking/matching the services performed or goods delivered to provide a report of the list of outstanding obligations.

The receipt module should be fully integrated with the RRA revenue collection system.

The current workflows under the receipt module should be aligned with accrual accounting taking in the recommendations raised in section 3 of the report.

Additionally the receipts module, will need to be updated to accommodate other revenue and miscellaneous receipts arising as a result of accrual basis IPSAS accounting. Under this annex includes revenue from receivables previously provided for but now recovered, proceeds from sale of fixed assets (including profit or loss on disposal), increase or decrease in provision for doubtful receivables, donations, goods received in kind, debt forgiveness, interest accumulated on penalties and fees defaulted and other non-cash revenue transactions.

8.2.2.6 Accounting module 8.2.2.6.1 Overview

The accounting module has the following functionalities as depicted below:

Below summarised are the four key submodules and key transactions in this module:

Accounts management – This deals with management of GL accounts (i.e. creation, deletion

and updating of the GL) and the administration of the cash book and the bank accounts for the GoR and its entities. The module has capabilities of extracting balances on each account from the CoA.

Accountingmodule

Accounts management

Journal transactions

Perform manual bank

reconciliation

Period management



Journal transactions – This submodule plays a key especially during period end processing and

reporting when adjustments are passed and the accounts are closed in readiness for reporting. The module is used for passing adjustments or correction of errors that ordinarily cannot be generated from the sub-ledgers (Accounts Payable, Payments and Revenue Management). The module is also used for creating cash journals which are all journals affecting the cash book/bank accounts.

Perform manual bank reconciliations – bank reconciliations for all GoR banks accounts

across the various levels of administration are performed in this submodule.

Period management - This module manages the various reporting/processing periods in line

with the GoR financial management calendar.


The accounts management submodule platform is currently based on cash basis accounting and will need to be updated in line with IPSAS accrual accounting for the proposed CoA.

The cash book under the cash management submodule is not linked to GoR entities in the receipts cycle such as BNR and RRA.

The transactions with an impact on cash/bank account are triggered by events being recorded

in either the payment module or the receipts module. Thus, cash transactions are better recognised and recorded where they are triggered from.

Period end adjustments currently in the journals submodule are cash basis based and need to be updated to reflect accruals and prepayments, write off and provisions among other accruals accounting manual journals needed under IPSAS framework.

The current IFMIS does not have a functionality for automated journals such as depreciation, interest expense and amortisation.

The bank reconciliations platform is not yet linked to the RRA and BNR which are two key GoR revenue custodians as the integration of IFMIS with the two institutions is ongoing.


The accounts management module should be updated with accounts based on the accruals framework. This is partly depended on the new CoA developed in Section 5 of this report.

Updating of the journals log and functions to include manual journals under accruals accounting such as accruals, prepayments, write offs and provisions and automated journals such as depreciation and interest accrued. When enhancing IFMIS, consideration should be given to bring in functionalities regarding automated computation of depreciation and interest.

Expedition of the linking of RRA and BNR with IFMIS so as to enable smooth preparation of

bank reconciliations of significant GoR accounts and also enhance cash management.

Relate the cash journal functionality to the payments module (for cash payments) and receipt module (for receipts of funds) so that the accounting module is only left to mostly handle period end adjustments and transactions. This is partly because the bulk of period end adjustments under accrual basis IPSAS is larger than under the current modified cash basis.

8.2.2.7 Reporting module 8.2.2.7.1 Overview

The reporting module is used for reporting purposes at the different levels of administration of the GoR entities.

The main output of the module is the consolidated financial statements of the GoR which are currently produced under modified cash basis. The module also facilitates preparation of the annual budget execution reports and activity reports.



This module manages the financial information needs of the GoR and the key stakeholders such as development partners, government institutions, investors and the general public. The module depends on the other modules to produce reports in a timely manner. The module utilises the tailor templates for reporting at the various levels of administration of the GoR. The templates used have been developed in line with the current modified cash basis accounting framework.


The module currently produces modified cash basis consolidated financial statements of the GoR (not yet consolidated at GoR level) and does not have the functionality to issue accrual based financial statements.

The module currently does not have the functionality to carry out consolidation of the GoR entities and interests in line with accruals accounting.

The current reporting templates and tools are cash basis aligned and need alignment to accruals accounting.

The module has no link with some of the GBEs which will be included in the consolidated financial statements of the GoR.


Consolidation of the accounts of the GoR will now be under accrual basis IPSAS and also include the transactions of GBEs which are currently applying IFRS. In this regard, a module solely handing the consolidation of the accounts is needed. This module will link with GBEs and tailor their results for the year to IPSAS reporting requirements.

MINECOFIN needs to redesign the current reporting templates to match up with the demands of accruals accounting and also facilitate reporting from the low level government entities.

The ongoing integration of IFMIS with some of the key GoR entities like RRA should be extended to GBEs in the context of reporting and consolidation of the accounts of the GoR.

8.2.2.8 Security, auditing and monitoring 8.2.2.8.1 Overview

Under the security module, access to the SMARTFMS applications are defined under two different functionalities which are system log on and the security module. These functionalities are as depicted below:



System log on: This relates to the user interface of Login ID and User password. The submodule

manages the password recovery capabilities in IFMIS where users forget their passwords and also facilitates the change of passwords to enhance security of IFMIS.

Security management: This submodule has the following key sub-functionalities as described

below:

User management: The functionality enables the user to add/edit the user profile which

contains key details of the IFMIS user.

Role management: The functionality enables the administrator to update role, manage

permission for role, manage menus for role, manage actions for role and delete role.

Permission management: This enables the administrator to update any changes to the

permission granted and delete any permissions which are not yet in use.

Menu management: This is used to manage menu and deletion. The menu covered under

the functionality are the accounting, audit and budgeting menu.

User action management: The functionality is used by the administrator to update the user

action and delete user actions.


Under the user management, permissions and role management submodules, the scheduling

of access rights will have to be adapted to reflect the new roles of staff when IPSAS implementation takes off.


The remapping of the various staff and the various roles assumed in IFMIS under accruals accounting is dependent on the redesign of the work flows such as the payables and receipts in the other modules in IFMIS. Once the workflows are redesigned the remapping can be updated under this module.

Accessing the

SMARTFMS application

Security log on

Security management

1. User management

2. Role management

3. Perminssion management

4. Menu management

5. User action management



8.2.3 New modules and enhancements

8.2.3.1 Overview

This section identifies modules which should be incorporated in IFMIS to fully facilitate accrual basis

IPSAS accounting. The missing modules are mainly due to the financial statement line items which were under the statement of financial performance under cash basis accounting and are now moving to the statement of financial position under accrual basis IPSAS treatment.

The accounting manual and the IFMIS modules manuals should be updated with the accounting for the transactions under the modules proposed in this section.

In identifying the new modules to be included IFMIS to transition to accruals accounting, consideration is made of the financial statement line items in the IPSAS compliant financial statements and gauged against the current IFMIS modules and whether or not the line items have been covered under there as below:



Covered under (enhanced) existing IFMIS module

New IFMIS module proposed

Yes/No Module Yes/No Module Note


Revenue

Revenue from non-exchange transactions Yes Receipts management N/A N/A

Taxes Yes Receipts management N/A N/A

Fees, fines, penalties and licences Yes Receipts management N/A N/A

Revenue from exchange transactions Yes Receipts management N/A N/A

Transfers from other government entities Yes Receipts management N/A N/A

Other revenue Yes Receipts management N/A N/A

Expenses

Wages, salaries and employee benefits Yes Payment N/A N/A

Grants and other transfer payments Yes Payment N/A N/A

Supplies and consumables used Yes Payment N/A N/A

Depreciation and amortisation expense No N/A Yes Fixed assets 1

Impairment of property, plant and equipment No N/A Yes Fixed assets 1

Other expenses Yes Payment N/A N/A

Finance costs No N/A Yes Financial instruments 2

Share of surplus of associates No N/A N/A N/A


STATEMENT OF FINANCIAL POSITION

ASSETS

Non-current assets

Intangible assets No N/A Yes Fixed assets 1

Land and buildings No N/A Yes Fixed assets 1

Infrastructure, plant and equipment No N/A Yes Fixed assets 1

Investments in associates No N/A Yes Fixed assets 1

Recoverables from non-exchange transactions Yes Receipts management N/A N/A

Receivables from exchange transactions Yes Receipts management N/A N/A



Covered under (enhanced) existing IFMIS module

New IFMIS module proposed

Yes/No Module Yes/No Module Note


Other financial assets No N/A Yes Financial instruments 2

Currents assets

Inventories No N/A Yes Inventory 3

Recoverables from non-exchange transactions Yes Receipts management N/A N/A

Receivables from exchange transactions Yes Receipts management N/A N/A

Prepayments and other current assets Yes Receipts management N/A N/A

Cash and cash equivalents Yes Accounting N/A N/A

NET ASSETS/EQUITY

Capital

Reserves No N/A N/A N/A

Accumulated surpluses/(deficits) No N/A N/A N/A

Minority interest No N/A N/A N/A

LIABILITIES


Employee benefits Yes Payments N/A N/A

Long-term borrowings No N/A Yes Financial instruments 2

Long-term provisions Yes Payments N/A N/A

Payables Yes Payments N/A N/A

Current liabilities

Current portion of long-term borrowings No N/A Yes Financial instruments 2

Short-term borrowings No N/A Yes Financial instruments 2

Employee benefits Yes Payments N/A N/A

Short-term provisions Yes Payments N/A N/A

Payables Yes Payments N/A N/A

All financial statement line items No N/A Yes Consolidation 4



8.2.3.2 Note 1: Fixed assets module

Upon the GoR migrating the basis of accounting from modified cash basis to accrual basis accounting, it is expected that fixed assets will be presented on the face of the financial statements. In this respect, a fixed asset module is required for data collection in relation to the fixed assets and capitalisation policy.

MINECOFIN is currently developing a fixed asset module and the launch of the same is scheduled for 1 July 2018.

Proposed submodules

This module should comprise of the following submodules in order to fully capture the fixed assets transactions in line with the IPSAS framework.

Intangible assets (IPSAS 31)

This relates to assets with no physical presence such as goodwill on acquisition of other entities, patents, licences and customer lists and trade secrets.

According to IPSAS 31 the GoR cannot recognise ‘intangible assets acquired in an entity combination from a non-exchange transaction, and to powers and rights conferred by legislation, a constitution, or by equivalent means, such as the power to tax’.

Recognition rules and accounting entries

Intangible assets which are either created or purchased by the entity of the GoR are recognised if:

It is probable that the future economic benefits or service potential that are attributable to the asset will flow to the GoR; and

The cost or fair value of the asset can be measured reliably. Recognition of intangible assets generally excludes internally developed intangible assets. As an exception, development costs for intangible assets such as IFMIS can be capitalised only if the technical and commercial feasibility of IFMIS can be established or evidenced. Any items that do not meet the criteria above are expensed in the period in which they are acquired. Subsequent measurement IPSAS 31 also distinguishes between indefinite life (no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity) and finite life. Indefinite is not the same thing as infinite. Generally, according to industry practice computer software like IFMIS is amortised over 3 years. Intangible assets with indefinite useful lives are not amortised but are tested for impairment on an annual basis. The GoR should also review, annually, whether the intangible asset continues to have an indefinite life.

Amortisation and impairment losses are expenses in the period in which they are incurred.

The main accounting entries in relation to intangible assets include:

Recognition of asset (initial)


Dr – Intangible asset account xxx


Cr - Bank account xxx



Recognition of amortisation


Dr – Amortisation expense xxx


Cr - Intangible asset account xxx

Recognition of impairment loss (intangible assets with indefinite useful life)


Dr – Impairment expense xxx


Cr - Intangible asset account xxx

Tangible assets (IPSAS 17)

This includes land and buildings, plant and equipment, vehicles, infrastructural assets and furniture, fittings and computer hardware.

Accounting for fixed assets under accruals accounting involves detailing how the carrying amount of a particular assets has moved from the opening balance at the beginning of the period to the closing balance at the end of the reporting period. The components explaining the movement of the balance are new assets acquired during the year (additions), fully depreciated assets, impairment, and revaluation, assets disposed of during the year (disposals) and depreciation charge for the year. As the asset depreciates the depreciation relating to that asset is accumulated and matched against the initial cost of the asset. In summary, the submodule should include the following broad classifications of assets:

Intangible assets

Land and buildings


Under each class above the following classes of accounts should be maintained to enable the computation of the carrying amount or net book value (NBV) of the assets.

Cost

Additions

Depreciation (expense and accumulation)

Disposals

Impairment or revaluation (for land)

Outlined under section 4 of this report are the accounting entries relating to fixed assets. The submodules above will benefit from the CoA developed under section 5 of this report.

8.2.3.3 Note 2: Financial instruments module

This module largely deals with debt from the perspective of revenue for the GoR. This is because debt (foreign

and local) is one of the biggest sources of revenue for the GoR.

8.2.3.3.1 Proposed submodules



Submodule

Nature Features on features and treatment

Finance costs Expense This relates to the interest component of a periodic payment of a loan. This is recognised as an expense for the period in which it is incurred as below Recognition Debit: Finance costs Credit: Cash/Bank account

Long-term borrowings

Balance of principal plus interest payment

Accruals accounting gives rise to a number of payables by the GoR as outlined under Section 4 of this report. Currently the GoR recognises borrowings as revenue as per the modified cash basis. Under the accrual basis IPSAS borrowings should be recognised as liability and the subsequent repayments recognised as expenses in the statement of financial performance depending on the period in which they are made. Refer to section 4 of this report for the detailed discussion and the accounting entries relating to long-term borrowings.

Current portion of long-term borrowings

Annual (periodic) principal plus interest repayment

The current portion consists of the principal payment and commensurate interest component of the repayment for that particular period. The double entry in relation to recording this in the books of account is as follows: Debit: Loan repayment (expense) Credit: Cash/Bank account

Short-term borrowings

Short-term financing

This includes overdrafts and trade credit for especially GBEs. These are typically recognised as a short-term liability through debiting the cashbook/bank account and crediting the short-term borrowings account as: Recognition Debit: Cash/bank account Credit: Short-term borrowings Repayment Debit: Short-term borrowings Credit: Cash/bank account

8.2.3.3.2 Recommendations

This module should be closely linked with:

o The payments and accounting module in IFMIS. It has mainly been proposed as a separate module to cater for the needs of the GoR in keeping track of borrowings under IPSAS accruals accounting considering that the borrowings are now being recognised in the Statement of Financial Position as opposed to being expensed under cash basis; and

o The BNR accounting system as the national bank is the recipient of the proceeds of loans as the custodian of all GoR bank accounts.

8.2.3.4 Note 3: Inventory module

Currently the GoR expenses costs incurred in purchase of inventory and also maintain an inventory register for all expenses. Under IPSAS inventories are required to be measured at the lower of cost and net realisable value.



Where inventories are acquired through a non-exchange transaction, their cost should be measured as their fair value as at the date of acquisition.

Inventories held for distribution at no charge/for a nominal charge or for consumption in the production process of goods to be distributed at no charge or for a nominal charge should be measured at the lower of cost and current replacement cost. 8.2.3.4.1 Proposed submodules

Submodule Features on features and treatment

Finished goods This relates to inventory items in a finished state and which can be used in

the current state or with further value addition.

Work-in-progress These are intermediary items between raw materials and finished products. These normally occur in the course of production or provision of a service. This type of inventory is typical under GBEs which are operating in the commercial market place.

Raw materials This relates to inputs into the production process and the services provision.

The GoR should apply the same cost formula for all inventories having similar nature and use in the various GoR entities. Under IPSAS 12, a difference in geographical location of inventories by itself is not sufficient to justify the use of different cost formulas.

IPSAS 12 prescribes either a first-in, first-out or weighted-average basis and last-in, first-out is not permitted. For inventories with a different nature or use, different cost formulas may be justified.

The accounting treatment of inventory has been outlined under section 4 of this report. 8.2.3.4.2 Recommendations

The inventory module should be linked with the payments module and accounting module of IFMIS for the ease of recording inventory transactions as well as determining commitments.

There is need to develop and update an inventory accounting policy based on accrual accounting.

There is need to develop an IFMIS user manual for this module to detail the workflows and accounting treatment of the various inventory items of the GoR and its entities.

8.2.3.5 Note 4: Consolidation module

At the moment, the reporting module in IPSAS has a functionality to consolidate, at entity level operations running e.g. operations of a ministry with district offices. Consolidation of the GoR accounts is currently being done by the Public Account Unit (PAU) using Electronic Working Paper (EWP). The key concern at the moment is that there is no link or automation between IFMIS and EWP which makes the GoR consolidated accounts susceptible to manipulation as the financial results of the components are sent to the PAU for consolidation.

The GoR is faced with three options when it comes to developing the consolidation module:

Option 1: Interface and integrate EWP with IFMIS – This implies developing both IFMIS and EWP to

the requirements of accrual basis IPSAS reporting framework. This also maintains a certain level of autonomy and responsibility as the IFMIS users are not the same personnel carrying out the consolidations. Furthermore, automating the receipt of reports from the components eliminates the current concerns of data manipulation before the financial results are consolidated.



Option 2: Fully develop a consolidation module in IFMIS – This implies developing a consolidation module from the start. This has the advantage of ensuring that the module developed is fully suited to the reality of the GoR entities and hence the module developed will be a highly specialised and tailored module to the specifics of the GoR entities.

Option 3: Off the shelf consolidation packages – This option is the most convenient for the GoR. However, the disadvantage is that the off the shelf package may need some modifications to ensure that the GoR specifics on consolidation are taken care of in the consolidation package.

For the GoR, option 2 is the most beneficial. This is because IPSAS framework will be implemented across 5 years and during this period a number of updates will have to be made to IFMIS based on developments arising from the phased implementation approach. This can best be achieved with an in-house developed package.

8.2.4 Analysis of GoR entity access to IPSAS modules

To facilitate timely update IFMIS and better collaboration on the key accounting areas under the accrual basis IPSAS framework, it is imperative that the following entities are given access to the following modules in IFMIS.

# Entity IPSAS area IFMIS module Comments

RSSB Employee benefits

Payments and Accounting

Employee benefits is a complex area because of the needed valuation of both the short and long-term GoR obligation with respect to employee benefits.

RRA Revenue from non-exchange transactions

Receipts management

Tax revenue is the biggest source of revenue by the GoR and it is very key that IFMIS is up to date as regards this stream of government revenue.

RTDA Transport equipment and infrastructure assets

Fixed assets Under the proposed IPSAS implementation plan, fixed assets will be recognised across the two years in the financial statements due to the complexity inherent in terms of valuation, measurement and recognition. RHA Land and roads Fixed assets

Ministry of Defence

Military Assets Fixed assets The Ministry of Defence has not yet been integrated with IFMIS with respect to the stock of military assets.

Ministry of Public Service and Labour

Employee benefits

Payments Accounting

IPPIS interfacing with IFMIS has been completed and this is key in the management of government payroll and ensuring that the accounting entries are correctly treated and passed in IFMIS.

National Bank of Rwanda

Financial Instruments

Accounting module

The National Bank of Rwanda maintains the key GoR bank accounts. Interfacing with IFMIS is ongoing.



8.2.5 Analysis of GoR accrual basis IPSAS main transactions and impact on IFMIS

In this section, the GoR’s main transactions under the accrual basis IPSAS per financial statement line item in the GoR financial statements and identify recognition points for revenue, expenditure, assets and liabilities are analysed.

IFMIS currently has five main process flows namely: Payments, Budgeting, General Ledger, Procurement Cycle and Planning processes. These processes will need modification to facilitate accrual accounting. This section identifies the modification needed to the process flows as well as identifying the IFMIS modules impacted by the GoR main transactions treated under accrual basis IPSAS.



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed Statement of financial performance 1. Revenue Generally, when:

There is a basis establishing that the GoR has a valid right to receive the revenue;

It is probable that future economic benefits will flow to the GoR; and that

Those benefits can be measured reliably.


When:

For services rendered - it is probable that the economic benefits or service potential associated with the transaction will flow to the entity and those benefits can be measured reliably.

For goods sold: o the GoR transfers to the purchaser the

significant risks and rewards of ownership of the goods;

o The GoR gives up managerial involvement usually associated with ownership or control over the goods sold;

o It is probable that the economic benefits or service will flow to the GoR; and

o The amount of revenue and costs incurred or to be incurred can be measured reliably.

The revenue is either considered to either be earned, realised or realisable i.e. revenue is:

Earned – when goods are delivered or services are provided.

Currently all revenue from exchange transactions such as income from buildings currently being rented out to the public is captured through the Receipts management module in IFMIS when cash is received. This then results in the following main gaps:

The module is not able to split between the income relating to the current period and that which is either relating to the prior period or the subsequent reporting period.

The module records only cash receipts and where no cash has been received the module does not recognise the receivables relating to the revenue earned until the end of the period when all funds not received with respect to the particular revenue from non-exchange transaction compiled and recorded as receivables i.e. where only part of the consideration is received in cash the module is not able to slip between the amount in cash and the portion of the receivable arising.

There is no process flow to guide on the recording and recognition points of revenue and receivables from exchange transactions with respect to either goods sold or services performed.

Interface and harmonise the Receipt management module with RRA systems for timely update on tax revenues due.

Redesign of the accounting and reporting process flow to ensure that the trigger point for revenue/receivables recognition under accruals as well as the possible scenarios are included.

Introduce a revenue and receivables process flow to detail the types of revenue (i.e. revenue from exchange and revenue from non-exchange transactions) per level of GoR entities, the recognition points as well as the receivables arising from the various revenue transactions. The requirement in the Receipts management module is that revenue must have been duly certified before being captured in the system. Therefore before the certification of the receipts is performed there is need to determine the possibility of receivables also arising in relation to the revenue to which the cash certified relates. This should be



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed

Realised – when cash is received in relation to the goods delivered or services performed.

Realisable – when it is probable that economic benefits will flow to the entity in future and that those benefits can be measured reliably e.g. where a customer elects not to have goods shipped to them but commits to pay for them when they are ready to receive the goods.

included in the revenue and receivables process flow.

Enhance the functionality of the receipts management module to:

o Record the revenue due for recognition and at the same time recognise the other accounts affected by the same transaction and then simultaneously reflect in the respective modules where such transactions should be recorded.

o Split between revenue from exchange transactions and revenue from non-exchange transaction. Tax revenue is from non-exchange transactions.

o Facilitate interface and interaction with other modules such as the accounting module, budgeting module and the planning module.

Enhance the accounting module to: o Automatically receive entries

impacting cash from other modules such as from the receipt management module as above.

Taxes Tax laws and regulations as stipulated by the Law Nº 16/2005 Of 18/08/2005 2005 on Direct Taxes On Income establish a government’s right to collect the tax, identify the basis on which the tax is calculated, and establish procedures to administer the tax (i.e. procedures to calculate the tax receivable and ensure payment is received).

Taxes on Income

When, through the operation of the income tax legislation of the Republic of Rwanda, the GoR has a valid right to receive the revenue and it is probable that future economic benefits will flow to the GoR and that those benefits can be measured reliably e.g. when a tax return is submitted by a tax payer.

This is currently recorded when cash with respect to the tax amount determined is received by the GoR. The tax received is recorded in the receipts management module. The following gaps with IFMIS arise with respect to the demands of accrual basis IPSAS framework:

RRA – the revenue collecting agent of the GoR is not integrated in the Receipts management module giving rise to further gaps as follows:

The receipts management module currently can only record revenue which is cash is paid but cannot distinguish between accrued revenue and deferred revenue.




IFMIS does not have the capabilities to perform ageing of receivables arising from both revenue from exchange transactions and revenue from non-exchange transactions.

There is no process flow i.e. revenue and receivables to guide on the recording of revenue from taxes on income.


The earlier of when the taxable services stipulated under the income tax legislation are rendered to an employer or when the employee receives the economic benefits in exchange for rendering of a service.

Currently RRA recognises payroll tax when the remittances are submitted by the employers and it is at this point that the tax revenues in relation to payroll and workforce are recorded in the Receipts management module. The gaps, on top of those noted under Taxes in income above are as follows:

The receipts management module does not capture the taxes earned by the GoR through the operation of the law on Direct Taxes on Income e.g. remittances relating to month 1 not submitted by the 15th of the month 2 are not captured even when the taxes on them has been duly earned by the GoR.


The earlier of when the property income is earned by the tax payer or when the property income is received by the tax payer.

This is currently captured as revenue in the receipts management module when the cash in relation to the tax has been received. The following gaps arise with respect to this tax revenue stream:

WHT is due on property and should remitted by the withholding party within 15 days of receiving the property income. All remittances not received as at the end of the reporting period are not captured (receivables relating to them) in the receipts management module.




Taxes on goods and services

When the goods are received or services have been utilised.

This is recognised and recorded when the tax revenue is received, in cash. The gaps include:

The receipts management module does not match or prorate the tax to the extent that it relates to the current reporting period.

The receipts management module is also not able to capture outstanding tax (i.e. tax receivable) where the tax payer has not paid within the stipulated period.


The earlier of when goods are received or services utilised or when ownership transfers from the vendor to the tax payer.

The tax revenue in relation to this stream is recognised when the cash relating to the tax determined has been received. The main gap is that the receipts management module in IFMIS does not record the tax when the taxable event happed but when the cash in relation to the tax determined has been received.

Transfers (including grants, debt forgiveness, fines, bequests, gifts, donations, and goods and services in-kind)

When, through the operation of the relevant legislation, the GoR has a valid right to receive the revenue and it is probable that future economic benefits will flow to the GoR and that those benefits can be measured reliably e.g. when a motorist commits a fineable offence the GoR has a valid right to receive revenue through the settlement of the fine by the motorist.

These revenue streams are captured when the cash from the transfers has been received. The following are the main gaps in the Receipts management module:

The module is not able to capture the tax revenue due to the GoR timely i.e. at the point it is earned by the GoR e.g. on breaking of a fineable traffic offence by a motorist. Transfers are compiled and remitted to the relevant GoR entities periodically.

The receipts management module is not able to split between the tax obligations due in the current reporting period and those in the prior or subsequent period.




The module has no capabilities to record the bulk of accounting entries inherent in transfers such as goods and services given in kind, debt forgiveness and fines.

Grants When a trigger event such as receipt of grant or enforceable claim to receive it occurs e.g. signing of a grant agreement between the GoR and a third party, typically a development partner or donor and through that agreement the benefits embodied can be measured reliably. Some grants come with conditions and for such the revenue is recognised when the grant conditions are met.

On top of the impact as highlighted above under tax revenue, transactions on grants further give rise to a number of scenarios as highlighted under section 4.1.1.1 above. Currently, in IFMIS receipts management module the whole amount of the grant is recorded in the period in which it is received. The receipts management module is not able to perform the following:

Record transactions relating to grants with conditions attached. Refer to treatment under section 4.1.1.1 above.

Split between the revenue relating to the current period and revenue deferred.

Recognise the receivables arising in the scenarios above.

There is no process flow for aiding recognition of revenue from grants.

2. Expenses Recognised in the period in which they occur

and when they occur whether or not cash has been received. A key principle in accruals basis accounting is that all revenue for the period must be matched against the expenses incurred in generating it. Depreciation for instance

Currently expenses are recognised when obligations relating to them have been settled i.e. when cash has been paid out. This is performed in the payments module in IFMIS. The following gaps arise with respect to the payment module and payments process flow:

Redesigning of the current processing of payments flow to include timing and matching aspects of accrual accounting around expenses e.g. where a payment is made for the first nine months of an annual expense, at the end of the financial year the three



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed qualifies to be an expense because as the assets are being used to generate revenue their wear and tear then should be matched against the revenue they have generated. This is a called the matching concept and thus revenue earned for a particular period is matched against expenses earned for the same period.

The module is not able to prorate expenses so as to determine accruals and prepayments.

The module only processes cash payments and non-cash expenses such as impairment, depreciation, revaluations are not processed.

months unpaid for should be accrued for (i.e. recognised as an expense). Hence such trigger points need to be included in the payments flow.

As demonstrated the majority of the expense transactions are emanating from the movements in the statement of financial position between to reporting dates. Thus interaction between the payments, receipts management and accounting modules and the proposed fixed assets, inventory and financial instruments modules is inevitable.

Statement of financial position 1. Assets Where GoR control (not necessarily ownership) over the asset can be demonstrated as to rest with the GoR and through the use of the

asset in the normal course of operations it is probable that future economic benefits will flow to the GoR.

Intangible assets

Where (refer to detailed recognition criteria under recommendations in section 2.2.2 of this report) the following are established in relation to the asset:

The asset is identifiable.

The GoR controls the asset rather than necessarily owning it.

Future economic benefits are validly expected to flow to the GoR; and that those

Can be reliably measured.

Intangible assets are currently expensed in the period in which they are purchased. When it comes to the prescribed treatment of intangible assets under accrual basis IPSAS, there is no module in IFMIS to record intangible assets in line with IPSAS 31.

Introduction of a fixed assets module to manage the demands of accrual basis IPSAS accounting treatment of fixed assets.

Redesign the current procurement process flow to distinguish the type of procurement by fixed asset, inventory, supplies, intangible etc. This should give exit points to other process flows such as fixed assets and inventory to come in and provide further guidance on the treatment of the respective procurement. Also the procurement flow should be updated to indicate


When the costs in relation to the acquisition, overhaul (for componentised assets e.g. aircrafts, hydro-electric power plants), self-

Fixed assets are currently expensed in the period in which they are acquired. The following gaps



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed constructed assets are incurred. These costs are simply costs incurred in bringing the asset to its present location and condition. The costs include, but not limited to purchase cost, transportation cost to location where the asset will be used, preparation and set up costs, development costs, estimates of asset dismantlement, removal and restoration costs.

arise in relation to the payments made in relation to fixed assets in the payments module:

Currently, there is no fixed assets recognition process flow in IFMIS. The procurement flow captures the acquisition of fixed assets and the costs incurred thereof under the current cash basis accounting framework where such costs where simply expensed. With accrual basis accounting the procurement flow needs modification.

IFMIS has no fixed assets module.

The payments module is not able to distinguish between qualifying costs and non-qualifying costs.

The module is also not able to separate borrowing costs incurred in relation to self-constructed assets from the rest of borrowing costs.

The procurement flow currently does not separate the type of procurement as inventory, fixed assets or supplies. There is no further guidance on the treatment of each type of procurement.

point at which various payables arise in relation to the procurements arise.

Introduction of a fixed assets process flow to detail the type of asset, class of asset and classification costs for capitalisation and treatment of componentised assets as well as self-constructed assets. This should start from an exit point on the revised procurement process flow chart. Currently, this is at PO03.02 on the Po03 Purchase requisitions – process flow.

Interaction or interfacing of IFMIS with databases and systems maintained at RHA, RTDA, RPPA and RISA.

Updating the payments module with capabilities of distinguishing costs in relation to acquisition of fixed assets between qualifying and non-qualifying. This should be embedded on the payment module process flow.

Inventories When the costs for bringing the inventory to its present location and condition are incurred by the GoR. Inventory is then recognised as the lower of cost and Net Realisable Value (NRV).

Inventory is expensed in the period in which it is acquired.

Introduction of an inventory module to manage and value inventory between two statement of financial position dates. This involves setting up a functionality to facilitate keeping of inventory using the weighted average costing




method as recommended in this report.

Introduction of an inventory process flow to give guidance on the treatment of inventory under accrual basis IPSAS.

Redesign the current procurement process flow to split inventory and other procurements to the extent that the inventory process flow can start at an exit point in the procurement flow chart.

Recoverable from non-exchange transactions (long and short-term)

When an occurrence of a trigger event (refer to tax revenue trigger point above) is probable that future economic benefits will flow to the GoR.

Refer to impact on tax revenue and fines, penalties, licences and other fees and grant revenue above.

This will benefit from the enhancements under tax revenue and fines, penalties, licences and other fees and grant revenue above.

Receivables from exchange transactions (long and short-term)

When revenue is earned or realisable rather than realised.

Refer to impact on Revenue above. This will benefit from the enhancements under revenue above.

2. Liabilities

Employee benefits (both long and short-term)

By operation or invocation of specific clauses in the contracts of employment for the GoR employees in all the GoR entities. The contracts of employment state the trigger points for the payables arising under employee benefits e.g. payment of pension at the end of the contract or on retirement of an employee.

Currently, payroll for all GoR employees is run in the Integrated Personnel and payroll Information System (IPPIS). IPPIS is currently fully integrated with IFMIS and the payments relating to payroll are made through the Payment module in IFMIS. Furthermore, RSSB manages the pensions for the government of Rwanda employees. As highlighted above in section 2.2.6 and section

Enhancement of the payment and accounting modules to facilitate recording of provisions in relation to employee benefits as well as splitting between long-term and short-term provisions.

Interfacing RSSB with IFMIS for on time update on pension liabilities.



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed 4.1.2.5 the GoR under the accrual basis IPSAS framework should recognise provisions in relation to cash outflows expected on the occurrence of trigger events such as retirement or eligibility of staff for the annual performance bonus. RSSB conducts actuarial valuation the pensions under its mandate. Therefore, linking RSSB to IFMIS is key in the enhanced IFMIS. The following gaps have been identified.

The payment module has no functionality to accrue for pension liabilities for the GoR employees.

The payment module currently does not record provisions made in relation to payroll during the year.

Redesign of the processing of payments process flows i.e. AP03A, AP03B and AP02B to include the types of employee benefits and also to guide the recording of employee benefits due for payment.

Long-term borrowings (both long and short-term)

When the specific provisions of the loan agreements are invoked in the normal course of operations.

Proceeds from loans are currently recognised in full as revenue and the regular payments comprising principal repayments and interest payments are expensed every financial year until the loan obligations are fully settled. Under accrual basis IPSAS the proceeds from the loan are debited to the cash or bank account and two liabilities created i.e. long-term and a short-term (regular payment of principal and interest). This treatment under accruals accounting gives rise to new journal entries impacting the accounting module, payments module and the budgeting module. All long-term borrowings by the GoR are managed in DMFAS at MINECOFIN. DMFAS

Interfacing IFMIS with DMFAS for on-time updates on the valuation of GoR borrowings. This should be preceded by capacity building of DMFAS to facilitate the system compute interest to meet the requirements of IPSAS 28, 29 and 30.

Introduction of a financial instruments module in IFMIS to solely manage the valuation, presentation and disclosures of financial instruments.

Design and introduction of a liabilities process flow. This should



Balance Trigger or recognition point Current recognition under IFMIS Enhancement needed currently does not compute interest on debt securities. The following are the gaps identified in relation to the payment module in IPSAS:

The module is not linked to DMFAS which is currently being used for recording debt instruments and also the proposed financial instruments module.

be building on all trigger points for liabilities in other process flows such as the revised procurement process, inventory and fixed assets modules.

Provisions (both long and short-term)

When:

there is a legal or constructive obligation for the GoR to settle;

it is probable that an outflow of resources embodying economic benefits or service potential will be required to settle the obligation; and

a reliable estimate can be made with respect to the liability.

Under the current modified cash basis accounting provisions are not recognised. The recognition of provisions on transition to accrual basis IPSAS in relation to various obligations means more journal entries for processing in the accounting and payment module.

The accounting and payment modules should be updated so as to enable the processing of all provisions made under the accrual basis IPSAS as well as reverse the provisions when the circumstances necessitating their recognition change.

Redesign of the processing of payments process flows i.e. AP03A, AP03B and AP02B to include the guidance on when cash resources should flow out to settle the borrowings obligations as they become due.



Review HR capacity and skills mix, and identify areas needing external consulting assistance



9 Review HR capacity and skills mix and identify areas needing external consulting assistance

9.1 Overview of the current HR capacity and skills within the General Government

The key staff involved in public financial management at different levels from processing transactions to approval are listed in the table below:

PFM occupational discipline/category Projected number of staff

1 Accounting (Directors of Finance, Accountants, Budget Officers, Accounting staff for the Non-Budget Agencies)

6,383

2 Auditing (External and Internal Auditors) 529

3 Budgeting (National Budget Staff) 21

4 Economic Planning (Economists and Planners) 225

5 Revenue Management (Revenue Officers of the RRA)

454

6 Procurement (Procurement Officers) 646

7 Monitoring & Evaluation (M&E Officers) 183

Total 8,441

Staff involved in public financial management need to possess relevant skills and knowledge in accounting. The level of qualifications and accounting knowledge varies depending on the roles and responsibilities assigned. For instance, accountants may be required to possess professional qualifications in accounting but this may not be necessary for budget officers. However, all staff involved in public financial management should have a working knowledge of basic accounting and IPSAS requirements related to their roles and responsibilities.

9.2 Gaps in human resource capacity

As discussed above, not all staff will require accounting qualifications and the key roles that require staff to possess these qualifications include Director of Finance, Accountant, Accounting Technician and Auditor. These will be the staff involved in accounting and reporting on a day to day basis.

The government currently has only 55 qualified accountants out of the accounting staff in the table above. These accounting staff are currently posted to all ministries, departments, boards, local government and agencies of the government to conduct accounting functions.

MINECOFIN has a programme where it sponsors accountants and internal auditors under the Ministry of Finance, budgetary and non-budgetary agents. The programme has close to 1,000 students who work in the finance departments of respective agencies who are studying professional courses including ACCA, CPA and CAT. Accounting technicians are not yet in place but accountants from non-budget agencies are sponsored to pursue this qualification.

In addition to professional qualifications, staff involved in day to day accounting and reporting will require to be trained in IPSAS at a more comprehensive level. A classroom training followed by an online assessment will be



an appropriate option for the training. However, the training should mainly be held for staff who have commenced their professional accountancy qualifications and have a good understanding of the principles of accrual basis accounting.

It is worth mentioning that the process of training on IPSAS has commenced following this approach and the first lot of 50 staff were trained between December 2016 and January 2017 in a one week classroom training, following which they sat for an online IPSAS assessment leading to IPSAS certification for each of the staff. However, as IPSAS standards have continued to be issued after this training, they will require a refresher course and also a training on the new standards rolled out after their training.

The other staff not involved in day to day accounting and reporting can be trained on aspects of IPSAS that touch on their current roles. This should be a customised classroom training that provides an overview of IPSAS and in more detail, the aspects they are handling.

IFMIS will also require to be further developed to meet the requirements of accrual basis IPSAS as discussed in chapter 8. IFMIS is an in-house developed system that was developed by a team of staff and consultants based at the Ministry of Finance. Discussions with the IFMIS core team indicated that the software has the capabilities to be expanded to meet IPSAS requirements and the system is documented in a manner that future teams can understand how it was developed and the underlying databases it is using. It will be important for the core team of consultants overseeing and developing the system to continue to work with other staff who are permanent staff of the Ministry to enable skills transfer and for sustainability. The team will require a staff that has good knowledge of accrual accounting in order to guide the team in expanding the system to enable accrual basis of accounting and once the system configuration and process maps are updated, the team of developers can then enhance the system. Due to the additional modules that will require to be developed, the team will require additional developers to assist in developing the modules.

The following are the areas with gaps included in the training plan:

1. Lack of a sufficient number of qualified accountants. Although good progress has been made in sponsoring government accountants, there is need for current accountants undergoing training in professional qualifications to progress to higher levels of qualification and move closer to qualification for ease of learning accrual basis IPSAS. Also other staff that have not started their professional qualifications should be encouraged to commence.

2. There is need for a pool of IPSAS experts across the government to serve as champions for IPSAS implementation and guide other staff in their institutions on complex areas or support in implementation.

3. There is limited experience with full accrual basis of accounting (outside the modification areas of receivables and payables under modified cash basis of accounting).

4. There will be a need for staff to build their technical knowledge in accrual basis IPSAS and application of the standards. This will require a change in the mind set of staff.

5. Staff will need to be trained on accounting for areas not covered under modified cash basis including fixed assets, inventories, long-term employee benefits, accounting for investments and other areas identified in the gap analysis.

6. Ensuring other staff outside accounting and audit appreciate the importance of accounting and reporting under accrual basis IPSAS.

7. Understanding changes required to current workflows/processes to meet the requirements of accrual basis IPSAS.

8. There will also be need for annual update trainings on IPSAS as the standards are changed. This will require a mechanism for tracking changes in the standards and communicating or training relevant staff.



9. IFMIS will need to be further developed to meet the requirements of accounting under accrual basis IPSAS. This will require additional developers/IT consultants to assist with enhancing current modules and developing new modules. For sustainability and to enable users to be adequately supported after developing IFMIS, the team of externally recruited consultants should work closely with permanent staff allocated to IFMIS under the Ministry.

There are other stakeholders that will also require some level of sensitisation such as politicians, non-finance staff at various levels and development partners to enable them appreciate accrual basis IPSAS.

9.3 Recommendations for the above gaps

The recommendations for the above gaps include:

1. Ensure all staff working in accounting related roles possess accounting qualifications in either CPA or CAT. Those who demonstrate willingness/commitment to pursue these qualifications can also be considered. There will be need for the Ministry of Public Service and Labour to mandate each accounting role to have accountancy qualifications as a requirement for the role.

2. Encourage all accountants in government to pursue professional qualifications under the current sponsorship programme and to continue the qualifications when they do not pass their papers. Timelines may have to be incorporated to mandate staff to qualify within defined timelines.

3. Accountants and auditors should undergo an in-depth training on IPSAS that provides both classroom training and an online assessment to enable them get certification. Other staff outside accounting and audit should attend tailored courses in their area.

4. There will be need to invest in continuous annual training on IPSAS as a refresher and also for annual updates when there are changes in the standards.

5. It will be key to communicate the transition to accrual basis IPSAS to all stakeholders for buy in and provide proper training to enable change management.

6. IPSAS may result in additional roles and responsibilities. Hence, there will be need to determine and budget for the additional resources required in the administrative, budgetary and finance areas to ensure effective capacity for migrating to IPSAS accrual and to sustain IPSAS compliance.

7. Ensure that existing and future staff are trained on the new accounting policies, procedures and systems.

8. IPSAS implementation is part of the PFM reform programme and hence will fall under the PFM governance arrangement. IPSAS implementation will fall under the PFM sector working group where it will be overseen by the IPSAS working group under the PFM technical committee. Under the IPSAS working group, there will be need to set up an IPSAS implementation unit/project team headed by a Project Manager to drive day to day implementation and migration to accrual basis IPSAS.

9.4 External consulting assistance required IPSAS implementation is a complex and long-term project that should be supported by experts with practical experience in IPSAS implementation, particularly in the earlier phases and also in handling complex accounting areas.

The skills mix required under IPSAS implementation is also diverse from project management skills to technical accounting skill, which requires a team that has the combined skills set.



The government may opt to engage external experts/consultants to assist in some of the areas below where diverse technical skills that may not be available in house may be required. In addition, some of the areas below such as valuation of assets and actuarial valuation may not require full time experts as they are only required when a particular activity is to be conducted.

Human resource and change management – A significant component of IPSAS implementation is change

management and particularly for accounting staff and stakeholders to transition their mind-set from cash accounting to accrual accounting and embracing the new reporting framework and systems. This requires a change management expert to ensure the transition is properly managed to ensure objectives are met.

Project management – A project management team will be set up which will require a team of experts that are

technically strong in accrual accounting and IPSAS standards. They should also have skills and experience in capacity building and working with different stakeholders on similar projects.

Accounting technical – As IPSAS standards are continuing to evolve and more standards will be issued in the

future, it will be important to have technical accounting experts to guide the implementation process, particularly in adoption of the new standards and also guiding on application of more complex standards.

Budgeting – Budgeting experts will be particularly key for transition to accrual basis budgeting and also guiding

on reconciling the current cash basis of budgeting with financial statements prepared under accrual basis IPSAS.

Employee benefits – One of the complex IPSAS standards is employee benefits (IPSAS 25) and this requires an

expert to assist in guiding interpretation and application of this standard. Actuarial experts will also be required to value defined benefit plans.

Information technology experts – These will be mainly required to conduct a detailed assessment of IFMIS,

redesigning the system and developing an enhanced IFMIS. These should work along IT staff allocated to the IFMIS project. In addition, system assurance experts will be required during the implementation process to ensure the system is implemented as designed to meet accrual basis IPSAS requirements.

Valuation of fixed assets – Valuers will be required to value assets, and particularly more complex assets such as

roads, bridges, land and buildings. Equipment experts will be required to value more specialised assets such as health equipment, military assets, etc.

Workflows and process reviews – Current processes and procedures will need to be reviewed in detail and

aligned to accrual basis of accounting. These will be documented in both the accounting manual and IFMIS

Human resource and change

management

Project management

Accounting technical (IPSAS

and accrual accounting)

Budgeting

Employee benefits (and actuarial

valuation)

Information technology

Valuation of fixed assets

Work flow or process review

Review of laws and regulations

Training and capacity building



process flow manual. To ensure the current processes are improved and properly benchmarked to best practices and accrual basis IPSAS, external experts may be required.

Review of laws and regulations – Experts will be required to conduct a comprehensive review of current laws

and regulations and propose amendments to ensure IPSAS implementation is adequately supported by current laws. The current laws and financial regulations stipulate that IPSAS shall be followed in public sector accounting as indicated below.

Article 62 of Organic Law N° 12/2013/OL of 12/09/2013 on State Finances and Property stipulates that the Minister shall determine the accounting standards and policies applicable to all public entities while Article 63 stipulates that the Accountant General shall be responsible for monitoring and coordinating accounting activities and for setting and promoting compliance with the accounting and financial reporting standards applicable to public entities. This guidance will be provided in an accounting manual that will be developed during IPSAS implementation. Article 99 of Ministerial Order N°001/16/10/TC of 26/01/2016 relating to Financial Regulations stipulates that central government and decentralised entities shall follow the International Public Sector Accounting Standards, abbreviated as IPSAS and the Accountant General shall issue regular guidance to enable progressive compliance to these standards through revisions to the reporting templates or through regular circulars. However, a comprehensive review will be required to ensure all other laws are aligned to accrual basis IPSAS, for instance, at local government level, budget laws, tax laws and other laws as applicable. Training and capacity building – The training programme may require a training and capacity building expert

to ensure effective transfer and application of knowledge. All training initiatives should be aligned to the learning and development strategy.

The areas that will require external expert support will include:

Area Areas that may require external support Implementation Setting up and training the project team and technical working streams/committees.

Guiding the project team in the initial phases in implementing the IPSAS implementation strategy and action plan.

Providing day to day support in handling complex accounting areas and implementation issues.

Polices Developing a comprehensive accounting manual to guide users.

Developing first-time implementation guidelines to help prepare the opening Statement of Financial Position.

Reviewing and revising relevant laws and regulations to ensure they are aligned to accrual basis IPSAS. Refer to appendix 5 and 6 for clauses that may require review and amendment.

Processes Reviewing all processes and workflows and designing new processes in line with

accrual basis IPSAS.

People Developing tailored training material for each level of staff and training a trainer of trainers to conduct classroom training.

On the job capacity building of the IPSAS project team and also staff in entities with complex accounting transactions.

Providing guidance on treatment of complex accounting transactions.

Assistance in preparing the first set of accrual basis IPSAS financial statements.

Providing a recognised IPSAS certification course to staff that combines both classroom and e-learn training.

Training and change management.



Area Areas that may require external support Systems Redesigning workflows for modules that need enhancement under IFMIS and missing

modules.

Updating user manuals and overseeing enhancement of IFMIS to capture transactions in line with accrual basis IPSAS.

Providing IT experts to provide system assurance over the enhancement of IFMIS and strengthening system controls.

A firm providing a team of experts in each accounting and technical area and practical experience in IPSAS implementation may be more advantageous to support the government over the initial phases. The firm should provide both local and international staff to enable sharing of experience and knowledge from other regions.

This reduces the risk of turnover of individual consultants that do not have the required skills and experience in all the required technical areas. In addition, a firm that is involved in implementation in initial phases then transitions out in later phases enables visible skills transfer to staff and over reliance on individual consultants on a permanent basis. Finally, a reputable firm (s) is more established and in case of any issues in implementation in later years, the government may always revert to the firm for guidance.



Training and communication aspects



10 Training and communication aspects

10.1 Brief overview

To reap the full benefits of the transition to accrual accounting, it is important that all personnel involved understand the reasons for the change, are capable of implementing the changes in their own entity, can operate the resultant new systems and procedures and understand the information produced.

The successful adoption of accrual accounting and the associated systems changes cannot occur without appropriately trained personnel. In addition, training on the benefits of accrual accounting and general awareness of IPSAS implementation and expected benefits is crucial – people need to be convinced of the benefits or they will not see the purpose of IPSAS implementation.

Such training needs to occur at all levels of government and needs to be at least partially driven and “owned” by individual entities. The development of an effective training strategy and delivery of appropriate training in accordance with that strategy is an essential element of transition risk management. The development of training strategies and the implementation of training programs should therefore be identified as a project milestone and be guided by a training and communications plan.

The purpose of putting in place a training and communication plan is to ensure that project management provide relevant, accurate and consistent project information to project stakeholders and other appropriate audiences. By effectively communicating, the project can accomplish its objectives with the support and cooperation of each stakeholder group.

A training and communication plan provides a framework to manage and coordinate the wide variety of training and communications that take place during the project implementation. The communication plan covers who will receive the communications, how the communications will be delivered, what information will be communicated, who communicates and the frequency of the communications.

10.2 Integrating IPSAS training into the PFM learning and development strategy

To address the persistent capacity gap, the government through the Ministry of Finance and Economic Planning (MINECOFIN) developed a 5 year PFM learning and development strategy, which commenced in 2018/19 to improve skills and capacity across the entire PFM occupational disciplines. The strategy has a PFM competency framework which comprises a mixture of 22 leadership/management, technical and core competencies that cut across all PFM occupational disciplines and the three job categories in Rwanda Public Service namely: Job Category I: Political appointment positions and senior servants; Job Category II: Professional staff; and Job Category I: Technical staff. The training areas identified below cut across several competencies under this framework.

A competency proficiency assessment carried out when the learning and development strategy was conducted indicated that majority of the current PFM staff in public entities are at proficiency level 1 (awareness) meaning that they have a general understanding of the listed competencies or learning areas. However, general understanding is not adequate to achieve excellent performance in the PFM system necessary to move the country to the next level of becoming a middle-income nation as articulated in Vision 2030.



Based on personal development plans to be developed, all PFM staff will be required to undergo specialised PFM training and work towards an occupation specific qualification using the interventions proposed in the strategy to become not only competent (level 2) but experts (level 3) in their respective fields of specialisation.

One of the strategic interventions and activities in the PFM learning and development strategy, is to develop a critical mass of competent PFM staff through continuing to support the existing professional programme for ACCA, CPA–R, CIA, IPSAS and CAT. The desired outcome is accounting and audit cadre PFM staff with improved proficiency knowledge and skills in accounting and audit functions.

As a result, IPSAS is incorporated within the 22 competencies in the PFM learning and development strategy under financial reporting and analysis which is a competency that is required for almost all the categories of PFM staff. Hence, the training plan for IPSAS is aligned to the PFM learning and development strategy and targets to provide specialised knowledge to staff in IPSAS that is focused on their specific roles during IPSAS implementation.

10.3 Objectives of a well-coordinated communication plan Effective and open communications is critical to the success of the project. The key communication objectives for the project are:

Create awareness and understanding of the changes, reforms required, implementation approach and reform implications (training is one way of implementing a communications strategy);

Creating understanding of the practicalities of implementing the changes in their own entity to enable implementation;

To impart knowledge on the users and ensure that they are able to operate systems and procedures following implementation (at both a centralised and decentralised level);

To impart knowledge and ensure the users are able to use the information generated by new processes and systems;

Promote and gain support for the project (stakeholder buy in); and

Ensure a consistent message.

Further to the changes in the specific skills required, the implementation of changes to financial management systems may also require cultural or “mind-shift” changes. For example, senior public officials may be expected to assume much greater responsibility for the financial management of an entity. It is important that both the technical and the cultural aspects of change are addressed in the development of communications and training strategies.

10.4 Identification of Target Groups

The identification of target groups and development of training strategies for each target group means that

training can be customised to the needs of specific groups. The number of target groups identified will depend on the size of the organisation and the resources available. When resources are limited, broader target groups and more generalised training may be necessary.

Although the nature and composition of target groups will vary across entities, the following examples may assist entities to identify appropriate target groups. The target group within the government could be of the following stakeholders:

1 Director Generals and Chief Budget Managers. 2 Directors of Finance 3 Auditors 4 Budget Officers 5 Accountants 6 Economists



7 Revenue Officers 8 Procurement Officers 9 Monitoring & Evaluation Officers 10 Planners 11 Accounting Technicians 12 Parliamentary Audit Committee Members 13 Board members (Finance and Audit Committee Members)

The purpose of training target groups may vary. For example:

Education of key leaders of the government regarding the role, purpose and objectives of transitioning to accrual basis IPSAS will reinforce political support; and

Management and other staff need to understand their roles and responsibilities within the context of implementing accrual basis IPSAS, their responsibilities within their sub-systems and the relationships between the various sub-systems.

10.5 Identification of training needs The assessment of training “Needs” involves identifying discrepancies between existing capacities and the capacities desired following the transition to accrual basis IPSAS and determining the relative priority of discrepancies. The first stage in the identification of training needs is to look at the impact of the transition to accrual basis IPSAS on the type of skills, knowledge and behaviour (referred to collectively as competencies) required for various types of positions.

The move from modified cash basis to accrual basis IPSAS will require changes in the way transactions are captured and recognised and a higher level of technical accounting skills. Under modified cash basis of accounting, technical accounting skills are not in high demand and as a consequence there may be a severe shortage of personnel with the accounting qualifications required to implement accrual accounting.

However, training will need to focus on more than accounting skills. In public service, training generally has two different components:

a technical component that reflects the knowledge and skills to be mastered; and

an environmental or organisational component that reflects the values, policies and practices of the public service.

Further, it is not sufficient for personnel to master the technical aspects of accrual accounting and information management. They must understand the reasons for its implementation, as well as the rules, the policies and the new norms of the government. The adoption of accrual accounting is also usually accompanied by devolution of financial management responsibilities to other staff outside accounting unit such as staff in the debt management unit or in fixed assets management. The staff cannot take initiative, be critical, or feel accountable if they do not understand the foundation for the changes.

As earlier explained, IPSAS training is part of the overall PFM learning and development strategy. A mapping of the areas of competency under the strategy and respective category of PFM strategy that should be incorporated in the IPSAS training is presented below:



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Planning & budgeting officers Economists Accountant Director of Finance Auditors Monitoring & Evaluation officers Procurement officers Director Generals Revenue officers



Based on the competencies in the PFM learning and development strategy, the IPSAS training should focus on the following areas for each of the staff occupational disciplines:

PFM occupational discipline

Areas of training under IPSAS

All PFM staff below General principles and benefits of accrual accounting

Overview of accrual basis IPSAS standards and requirements

New accounting policies, regulations and processes

Planning & budgeting officers

Revenue

Asset management

Financial accounting and reporting

Expenditure

Treasury and public debt

Budgeting (Accrual basis budgeting and reconciling cash budgets to IPSAS reports)

Understanding GFS requirements

Reconciling GFS and IPSAS reports

Economists Financial reporting and analysis

Asset and liability management

Revenue


PFM Information Systems (enhanced IFMIS)




Accountant Financial reporting and analysis


Expenditure

Revenue

Public sector accounting



Cost and capital planning (accrual basis)




Director of Finance Financial reporting and analysis


Expenditure

Revenue




Cost and capital planning (accrual basis)






PFM occupational discipline


Auditors Financial reporting and analysis


Expenditure Management

Revenue management




Cost and Capital Planning


Monitoring & Evaluation officers

PFM Information Systems (including enhanced IFMIS)

Procurement officers Expenditure

Budgeting

PFM Information Systems (including enhanced IFMIS)

Cost and Capital Planning


Revenue officers Revenue

Budgeting

Other stakeholders to be trained:

Occupational discipline/ Area


All stakeholders Benefits of accrual accounting and adopting IPSAS

Brief overview of accrual basis IPSAS standards and requirements

Director Generals Treasury and public debt (Overview of IPSAS requirements and implications)

Debt Management Unit

Accounting for public debt (Overview of IPSAS requirements and implications)

Boards Financial reporting and analysis

Storekeepers Asset management

Inventory management

ICT Brief overview of accrual accounting

Enhancements to IFMIS and new modules

As previously discussed, other stakeholders such as politicians and development partners, should have a general awareness training on IPSAS focusing on gaining a general understanding of IPSAS, including the benefits and implications of adopting IPSAS.

The training on accrual basis IPSAS should also consider the level of complexity under each area when the training programme and content is being developed and should be aligned to the level and role of each staff. The



PFM staff that will require to be trained under each accounting area and the level of complexity are summarised in the table below:

Accounting area Level of effort or complexity

Staff

Reporting and presentation

High Director of Finance

Accountants

Auditors

Boards

Planning and Budgeting Officers

Economists

Consolidation High Director of Finance

Accountants

Auditors

Fixed assets High (complexity: medium)

Director of Finance

Accountants

Auditors


Intangible assets Medium Director of Finance

Accountants

IFMIS and ICT team

Auditors

Revenue Medium Director of Finance

Accountants

Revenue Officers

Auditors


Economists

Accruals and expenses Medium/Low Director of Finance

Accountants

Procurement officers

Auditors

Planning and budgeting officers

Economists

Employee benefits Medium (complexity: high)

RSSB Accountants

Accountants dealing with employee benefits

Auditors

Provisions Low Director of Finance

Accountants

Auditors

Inventories Low Director of Finance

Accountants

Auditors

Storekeepers

Financial instruments Low Director of Finance

Accountants



Accounting area Level of effort or complexity

Staff

(complexity: high)

Public debt

Auditors


Economists

10.6 Training programme

The following training programme will be employed in line with the training programme in the PFM learning and development strategy which includes:

Training programme

Training content

Initial training An initial training should be provided at the start of IPSAS implementation. This training should be comprehensive and will provide an overview of accrual basis IPSAS and be focused on the above areas identified for each area of PFM discipline.

Annual reinforcement training

Staff will undergo annual reinforcement training to create awareness of any changes in IPSAS and increase their proficiency.

Induction training for new staff

An overview of accrual basis IPSAS should be provided for new staff during the short-term orientation training courses. This will be covered under introduction to government and work area.

Specialist skills training

Accountants will sit for professional qualifications as well as specialist skills training to be conducted for planners, economists, budgeting officers and M&E officers in the corresponding PFM occupation areas i.e. all PFM occupational disciplines. The IPSAS certification course can be considered as a specialist skills training for all PFM staff.

As PFM staff have annual training schedules with other courses in addition to IPSAS, the IPSAS related training should be incorporated in the annual training schedules by the Manager - PFM Capacity Building.

10.7 Training strategies

Upon identification of the specific training needs, the government has several options for addressing the gap

between the capabilities of existing staff and the capabilities required. These options may include:



External experts - use of external consultants to assist with implementing complex areas under accrual

basis IPSAS while working alongside counterpart staff for skills transfer;

Recruitment - the recruitment of qualified accountants from outside the public service to increase the

number of qualified accountants;

Classroom training -the provision of training to existing staff through:

internal seminars, workshops and conferences administered either by training of trainers (ToTs) or external experts;

seminars and workshops provided by professional accounting bodies such as ICPAR; formal courses offered by academic and other training institutions (such training may be

available under the current government sponsorship program); courses developed and offered jointly by reputable institutions such as ICAEW that include

online e-learns and assessments; and seminars and workshops by external audit entities.

On line training - the roll out of an online training (e-learn) accessible to accounting staff countrywide.

This assists staff learn at their own pace and acts as a reference point for material on accrual basis IPSAS; and

On the job training – external experts can provide on the job support to staff to guide them on

implementation of areas covered in the training, particularly for complex or challenging areas. This may also be provided by mentors and experienced staff for sustainability.

The resources available will determine the appropriateness of various training strategies. For example, limited resources may mean that training takes place over a longer timeframe and that existing staff are used to develop and deliver training programs.

As discussed in previous sections, the government has an in-house developed integrated financial management information system (IFMIS) which will be developed further to meet accrual basis IPSAS requirements. Once the system is developed, all IFMIS users will need to be trained and supported on the job by the IFMIS team developing the software.

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5.On the job training



10.7.1 Recruitment of qualified accountants

Recruitment of qualified staff is a strategy for filling in staffing gaps. The recruitment of qualified staff from outside the public sector will depend on the ability of the public sector to meet the private sector remuneration and other terms and conditions of employment. It will also depend on whether individuals with private sector experience perceive that they have the appropriate skills and experience to transfer to the public sector environment. Mobility of individuals between the private and public sectors is enhanced when financial reporting and underlying systems requirements are similar in both sectors. There will usually be some differences in financial reporting between the private and public sectors but adopting IPSAS assists to bridge the gap since the underlying principles are to a large extent aligned to IFRS which used in the private sector.

In accordance with the current strategy for the government i.e. to build a mass of qualified accountants within government by sponsoring government accountants to pursue professional courses in ACCA, CPA and CAT. Each reporting entity has an approved fully fledged structure including a director of finance, accountant, budget officer, head of corporate services and chief budget manager.

The additional responsibilities arising from adopting IPSAS will mainly lie under the accountant and director of finance and will include recognising and capturing transactions under accrual basis of accounting and preparing financial reports in line with accrual basis IPSAS as well as interpretation to ensure effective use of the reports towards financial management decisions. If IFMIS is well developed and enhanced, this will support the transition to IPSAS without increasing responsibilities significantly. The main change for most budget entities (with the exception of the ones with complex transactions and assets) should be in how transactions are captured in the system and reported.

The entities with more complex and larger volumes of transactions may consider recruiting an additional accountant to cover financial reporting. The accountant should be a qualified accountant with experience reporting under more complex accrual basis based reporting frameworks such as IFRS. The scope of work for the reporting accountant may involve:

Coordinating IPSAS implementation for the entity;

Overseeing day to day capturing of transactions in line with accrual accounting;

Preparing financial statements in line with accrual basis IPSAS; and

Consolidating financial statements (where the entity has several units or sub entities operating under the entity).

The reporting accountant will report to the head of finance and as explained above, the reporting accountant will be required for larger entities with more complex transactions.

For instance, the reporting accountant may be required under the local government due to the various entities operating under districts. The reporting accountant may also be required for large central government entities with either large volume of transactions or complex transactions or a large portfolio of government assets such as Rwanda Development Board, Rwanda Housing Authority and Rwanda Revenue Authority.

This additional position of reporting accountant will have to be approved and integrated within the structure of each entity. The other option for more complex entities is to use external experts particularly in the initial years of IPSAS implementation in setting up relevant systems and processes at entity level while training the accountants in the approved structure and thereafter handing over to the accountants. This option minimises the need to hire additional staff.

10.7.2 Uses of external consultants

IPSAS implementation will be carried out in phases and the expectation is that the operation of the accounting

basis within the GoR will be fully compliant by the year 2022/2023. Based on the fact that the majority of accountants in the public sector may not possess the required professional qualification, the government can



choose to use contractors and consultants in the short-term. This may be an efficient way to meet immediate resource needs or to obtain specialised assistance. However, there are factors which need to be considered in obtaining maximum benefit from consultants. These factors include:

the early identification of skilled personnel to work alongside consultants;

the use of a formal agreement to transfer knowledge to permanent staff;

the development of teams and mechanisms so that this knowledge transfer can occur; and

the use of guidelines and monitoring procedures to ensure sustainability in the knowledge transfer.

Further, there could be situations where there is a shortage of consultants in a particular field, the cost of using consultants may be very high relative to the cost of training existing staff. However, even in such cases, there can still be benefits in using a limited number of experienced consultants together with internal staff. For example, the use of experienced systems consultants can reduce the risk of inappropriate configurations and subsequent re-work.

10.7.3 Roll out of online training

A number of IPSAS certification courses developed by reputable organisations are available. The online training enables relevant staff countrywide to sit for the course at their convenience and pace. This also avoids travel to other locations for the training. Hence, if staff have undergone some level of training in professional qualifications, they should have a good understanding of accrual basis and can conduct the online training and assessment.

The government also has contracts with two training institutions offering tuition in professional accounting. These institutions can provide classroom training in IPSAS as they are already training government accountants but the trainings should also include an assessment that effectively tests the knowledge of students in IPSAS and a recognised certification. The training also needs to be updated annually as the standards are updated.

10.7.4 Classroom training

The other strategy of imparting knowledge to the existing staffs is through training. The overall training should

be anchored on pure requirements and level of involvement of the staff. The training should involve every individual who is involved in the public finance reforms. The possible training topics per category of stakeholder are outlined in section 10.3 of this report.

Further, training materials should be developed centrally to minimise the need to customise at individual level and uniformity within all entities. Once the materials have been approved, they can be distributed to individual entities who may choose to provide details of qualified instructors for various aspects of training. However, for sustainability, a team of trainers of trainers should be trained to continue with the trainings across the life of the project and also after implementation.

Classroom training delivery will follow the PFM learning and development delivery strategies that require:

a) Training materials should be developed by qualified IPSAS experts for each area

b) Accredited trainers will use flexible modes of training delivery combining face-to-face and e-learning.

c) The training will integrate assessable work place tasks into the classroom training.

d) The accredited training service providers will assess participants and award certificates of competence to

successful candidates.

e) PFM workplace skills plans will be used to determine the timing and contents

f) Training policy will permit funding support to PFM staff enrolled for competency-based training.

g) All existing PFM staff performing all PFM occupational disciplines will be provided reinforcement

training on an annual basis.

h) Common training courses will be offered jointly to staff from different occupational disciplines.



i) Induction training will be offered by a core team of PFM staff in government and where necessary by

HEC accredited public sector training institutions.

Training delivery

It is important to identify the best mode of delivering the training to its employees. For the training to be effective it needs to defined properly and the communicating mode to be chosen properly for effectiveness and efficiency. It should be noted that, the best courses can be developed but their delivery fail to impact on the intended needs. The following aspects are good to consider before developing a proper training model:

Trainings should be coordinated centrally and consider: training topics and content; in-house or external provider (or some mix, such as “train the trainers”); method(s) of delivery; and the timing of training.

Methods of delivery. These could include: traditional instructor- led classroom training; multi-media computer-based courses (instructor-led or self-paced); and workshops.

The cost of the training also needs to be considered. It is also good to consider the time constraints and the ability of staff to be released from work for training.

The technique of “train the trainers”, whereby the government trains its own staff to process as trainers for other staff is increasingly being viewed as a lower cost way of disseminating externally developed material. Benefits of the “train the trainer” approach include:

lower cost than using consultants; the training material is understood at an in-depth level by a wider number of entity staff; staff may be more receptive to being trained by colleagues; where more than one language is used within a jurisdiction this approach makes it easier to

provide bilingual or multilingual training; and the trainers become expert resources for the entity and are useful long after the entity has

converted to accrual accounting.

However, the “train the trainers” approach carries some risk. Possible problems with this approach include:

staff selected to be trainers because they have certain technical competence may not be comfortable in a training role;

trainers may not deliver the message as well as experienced external trainers; trainers may deliver inaccurate messages; and competing demands for the time of the ToTs as they have other work responsibilities under their

roles.

The timing of training is important. If it is too early in the transition process, staff may forget what they learned and need refresher courses. Although general training may commence up to a year prior to implementation, some training (for example, systems training) will be best delivered just prior to implementation. Topics such as using the financial information generated by the new systems may be required both before and after implementation.



10.7.5 On the job training Training can be followed with on the job training where external consultants on the project team work hand in hand with staff to implement key or complex areas such as infrastructure assets, loans and other areas that require on the ground support.

10.8 Training plan Training will be conducted at the start of the project in the first year of implementation. The training programme will be developed in the first quarter and thereafter, training will be held from the second to the fourth quarter. In subsequent years, training will mainly involve technical update trainings.

The significant part of the training volume and resources as shown below will be allocated to continuous learning because this will be essential for the GoR staff directly involved in the implementation of the IPSAS project. This will also involve regular updates to the GoR on the developments in the IPSAS framework.

Phase Activity Owner Period Fiscal year

1) Development of an annual tailored training programme for the implementation period.

MINECOFIN IPSAS project manager

Q4 2017/2018

2) Initial training at project start-up: development and delivery of workshops

- Senior Official Awareness Training - Initial Technical IPSAS Training/Workshop

for Reporting Accounting Accountants (3/5 days)

- Awareness training for lower financial staff - Training of other stakeholders

Public Accounts Unit

IPSAS project teams

Q1 and Q2 2018/2019

3) Continuous Learning through Training - Technical update training - Topic specific workshops and Training - IFMIS user’s training

MINECOFIN

Public Accounts Unit

IPSAS project teams

Q1 and Q4 2018/2019

2019/2020

2020/2021

2021/2022

10.9 Communication plan

To ensure stakeholder buy in, a communication plan will ensure that the right messages have been communicated

to each stakeholder at the right time. It is important that communication is properly done at the start of the project to all stakeholders and thereafter, updates can be made to key stakeholders. The communication plan may include the following modes of communication:

Target group Mode of communication

Purpose Period Fiscal year

Senior management of MINECOFIN

Presentation to Senior Management of MINECOFIN

Approval and support of the transition to accrual basis IPSAS

Q4 2017/2018

Stakeholders engagement

Presentation to PFM Technical Working group (MINECOFIN,

Adoption of IPSAS implementation strategy , create

Q4 2017/2018



OAG, RRA, RPPA, PAC; ICPAR; PFM Development Partners)

awareness and buy in

Chief Budget Managers

Presentation to Chief Budget Managers of different public Entities

Create awareness and buy in

Q1 2018/2019

Accounting staff (Directors of Finance, Accountants, Auditors)

Circular on the move to accrual basis IPSAS training Financial regulations Accounting manual

Create awareness of the importance and benefits of the move Buy in and cooperation in the project Understand their role in the project

Q4-Q1 2017/2018 2018/2019

Other functions – procurement, budget, public debt, IFMIS

Circular training

Create awareness and buy in Understand their role in the project

Q4-Q1 2017/2018 2018/2019

Parliamentarians Presentation to Public Accounts Committee in Parliament


Q1 2017/2018 2018/2019

Citizens Announcement in the media


Q4-Q2 2017/2018 2018/2019

Other specific awareness tools forming part of the communication plan include;

Awareness tools Strategy

IPSAS project/PAU staff

The Ministry will customise their email signatures to create IPSAS implementation awareness.

IPSAS educational fliers

Use of IPSAS educational fliers at the end of every week. These can be put in strategic locations of MINECOFIN as well as being communicated electronically to the entities through the EWP.

IPSAS awareness video

Creation of an IPSAS implementation video which will be made available online on the MINECOFIN website. The video will include senior government officials as a motivation to staff across government and to set the tone at the top.

Engage key stakeholders

Personal engagement of the IPSAS project staff to personally reach out to all key stakeholders and explain year round the IPSAS implementation benefits for each one.

Recognising staff Publishing names of the government staff who attain professional qualifications on the MINECOFIN website. This will also include staff who obtain IPSAS certification.

Recognising institutions

Institutions or entities that have fully adopted IPSAS and complied with its requirements will be publicly recognised to encourage other institutions to follow suit

IPSAS implementation brochures

Preparation of brochures for the GoR IPSAS implementation and posted on the MINECOFIN website. The brochures will provide the benefits of adopting IPSAS and an overview of the implementation strategy.



Awareness tools Strategy

Webpage Create a web page on the MINECOFIN website to help promote the IPSAS implementation and correct misperceptions.

Media coverage Placement of articles in the local newspapers providing general awareness of IPSAS and its benefits and the progress of implementation (when major milestones are met).

Regular newsletters The IPSAS project management team will prepare quarterly/periodic newsletters to stakeholders briefing them on the progress of IPSAS implementation and major milestones met.



The above tools will ensure stakeholders are regularly updated on IPSAS implementation and that the staff implementing IPSAS are properly recognised for their efforts.

10.10 IPSAS training governance structure

The IPSAS project manager will collaborate closely with the PFM capacity building manager overseeing the delivery of the PFM learning and delivery strategy so as to ensure the IPSAS trainings are aligned to this strategy. Change management will be incorporated through developing and training drivers of change

from selected PFM staff in job categories I and II (change champions).



Implementing risks and mitigation measures



11 Implementing risks and mitigation measures

Set out below are the typical key risks associated with a transition from modified cash accounting to accrual accounting and the key necessary elements and recommended actions to mitigate those risks (key success factors).

Ref Risk Mitigating factor

1. Lack of buy-in and support from senior management

In order to achieve the objectives of the project, the support and buy-in of senior management will be crucial, especially regarding accessibility of key government finance staff and data collection. The project will need to be sponsored by the highest level of authority within the government and the project manager will need to be empowered with sufficient authority to be able to fulfil his/her role efficiently. Moving to accrual accounting will require a change in mind set by many government officials and a clear communication strategy should be put in place.

2. Theoretical approach that cannot be translated into pragmatic solutions

In order to translate the theoretical concepts into pragmatic solutions and achieve the objectives of the project, a collaborative approach between the project team (or consultant supporting project implementation) and government institutions involved in the project will be necessary in order to ensure the proposed solutions are adapted and suitable to the specificities of the GoR.

3. Lack of accounting expertise/knowledge of staff

It will be important that key staff involved in IPSAS implementation are adequately trained and the training should be tailored to their specific areas.

Most critical will be undertaking focused training based on a GoR IPSAS Accounting Manual that is to be developed. An online IPSAS certification course that is simplified and has reference materials that staff can refer to may be a good option to consider, in addition to the focused classroom training.

Communication to the GoR and other government staff should be tailored, concise and pragmatic. In addition, clear guidelines and instructions will be necessary for collecting and gathering information and for achieving the objectives of the project.

4. Lack of quality and availability of data gathered

New data will need to be generated in order to produce accrual-based financial statements and existing data that are currently not used for accounting purposes may need to be used going forward. Not only the availability but also the quality of the data gathered will be important. It may be useful to put in place policies, procedures and enhanced systems early on to ensure that data gaps are addressed.

5. Risk of missing the deadlines Adherence to a scheduled plan and a well-structured work organisation and tested project management approach will greatly contribute to the overall success of the project. This will




require strict discipline of key stakeholders and implementing institutions.

6. Uncertainty regarding selection of first-time implementation options and accounting policies

Based on experience, a lot of time is often spent in discussing and selecting first-time implementation options and accounting policies. The phased approach which the GoR has opted to follow may assist in mitigating this risk as it will enable a systematic and well-paced adoption of IPSAS. It will also enable options adopted in one phase to be tested during implementation before moving to the next phase.

Further still, while the detailed determination of accounting policies is outside the scope of this assignment, certain directions will need to be decided which will impact the implementation plan. These decisions will need to be taken on a well-informed basis at each phase of the implementation plan.

7. Risk of inappropriate or poor quality of deliverables

The most critical factor in the success of any project is the team assembled to lead, coordinate and manage the project. Expert resources need to be allocated to the project and the specific situation of the GoR need to be taken into account in order to achieve the best quality of deliverables. There is also need for both external and internal reviews and quality assurance reviews.

GoR can consider a project implementation team that involves a combination of a firm that has implemented IPSAS in other countries and a dedicated full time project team for day to day delivery.

There are several advantages of teaming with a firm. The main advantages include:

A firm can provide a large team of experts that can assist to implement the project within a shorter period of time due to availability of a pool of experts with the right number of experts and skills;

A firm can provide a team of experts with diverse technical skills and experience which provides a “one stop shop” in terms of technical skills and avoids the administrative and contractual challenges of managing a team of several individual external experts. This also assists in providing replacement experts with similar skills and experience when an expert leaves due to unavoidable circumstances;

A firm with prior experience in IPSAS implementation will bring this experience to the team including lessons learnt to avoid the country facing implementation challenges faced elsewhere. If a firm is international and has a wide pool of experts globally, it can provide rich experience, knowledge and resources that are not available with individual consultants;

International firms have the resources to continue to research on IPSAS as well as contribute to the development of standards which assists in providing continuous updates to the government on IPSAS. In addition, they have tools and resources that they can share with the government;

A reputable firm that has been operating for decades will continue in operation for many years after the IPSAS




implementation project allowing the government to fall back to the firm in case of any issues post implementation. This avoids the risk of individual consultants disappearing after an assignment;

A firm also avoids the risk of dependencies on individual consultants who at times take the place and role of staff affecting skills transfer. If a firm is contracted for a certain period of time with clear deliverables and proper transition arrangements, this ensures that the firm delivers within the contracted period and hands over to staff at the end of the period. This avoids continued dependencies on individual long-term consultants and enables the government to determine if skills have been transferred once the firm hands over and exits; and

Finally, reputable international firms will not allow a project of this magnitude to fail due to their reputation and will put effort to ensure it succeeds. This explains why most governments team with firms for IPSAS implementation.

The main challenge of teaming with firms is ensuring proper skills transfer and handover to staff. To mitigate this risk, counterpart staff must be assigned and at the end of the project, proper transitioning to counterpart staff must be done.

8. Risk of not reflecting the multi-dimensional aspect of the project

Making the transition to accrual accounting is much more than solely a change in accounting rules. It impacts the entire government’s organisation. In order to get it done, the various challenges arising from implementation need to be adequately addressed and a well-defined methodology and action plan should be developed, taking into consideration the various dimensions of the project: policies, people, processes and systems.



Monitoring and evaluation framework



12 Monitoring and evaluation framework

12.1 Overview of the M&E framework

This section covers the Monitoring and Evaluation (M&E) framework that will guide the implementation of


The M&E framework is linked to the implementation plan (refer to section 15 below) which is phased to enable a

systematic transition to accrual basis IPSAS while continuing to meet the reporting requirements for the

government.

Specifically, the three phases spread over six years as follows:

(1) Year 1 - Preparatory phase where government will set up a project team, review laws and regulations,

update policies and processes, redesign process workflows, enhance IFMIS, develop the training programme and

conduct training;

(2) Years 2 to 5 - Transitioning phase which will focus on transitioning balances progressively over four

years (year 2 to year 5). Less complex areas will be transitioned in the first two years as data is collected for more

complex areas; and

(3) Year 6 - Adoption phase where the government will transition fully to accrual basis IPSAS. The opening

balance sheet in line with accrual basis IPSAS requirements will be prepared in this year.

In tracking progress, this M&E framework/plan will serve as an early-warning system to alert the owner(s) of this

project when there are difficulties and weaknesses in implementation of the IPSAS workplan. It also provides a

framework for management to evaluate progress against set targets.

The monitoring and evaluation framework has the following components:

Goal: The long-term results that an intervention seeks to achieve

Outcomes: The primary result(s) that an intervention seeks to achieve

Output: The tangible products, goods and services and other immediate results that lead to the

achievement of outcomes.

Strategic initiatives or activities: The collection of tasks to be carried out in order to achieve the

outputs.

Indicator – A variable that can be used as a benchmark to measure outcome, output or goal/ impact.

Indicators should be SMART (specific, measurable, achievable, results-focused and time-bound).

Baseline values - Value of an indicator at the beginning of IPSAS implementation.

Target values – Target results that are planned to be achieved.

Data and reporting – These are the main sources of data, for example, reports.

Responsible – This is the party that will be in charge of management or measuring this indicator



Goals: The overall objective for implementing accrual basis IPSAS is improve the quality and completeness of

financial information leading to better informed assessments of resource allocation decisions made by the

government, thereby increasing transparency and accountability.

The following outcomes are expected from this project:

1. Updated laws and regulations to enable adoption of accrual basis IPSAS;

2. Updated accounting policies and manual in line with accrual basis IPSAS;

3. Developed staff capacity in applying accrual basis IPSAS;

4. Enhanced project management and governance arrangements to ensure successful implementation of

accrual basis IPSAS;

5. Enhanced IFMIS that enables capturing of transactions in line with accrual basis IPSAS;

6. Capturing and recording of transactions in line with accrual basis IPSAS; and

7. Financial statements prepared in line with accrual basis IPSAS.

The M&E framework is summarised in appendix 20.



Cost estimates



13 Cost estimates

13.1 Overview

Outlined in this section is the estimated cost of the IPSAS implementation project across the projected timeline i.e. from quarter 4 of the 2017/2018 to quarter 4 of the 2023/2024 fiscal years.

13.2 Approach and scope of costing

Based on the gaps identified in the various sections of this report, the main activities where the government will require external expertise to mitigate the gaps identified are captured. Further considered are those activities which will require government staff involved in implementing this strategy to work outside their normal course of duties to implement the activities outlined in the action plan.

Finally analysed are the activities under the four IPSAS themes namely: Processes, Policies, People and Systems.

13.3 Assumptions

The main assumptions used include:

Activities will be implemented as planned with limited delays;

The budget for implementation will be available each year as planned without a reduction in available funds over time or delays in funding;

All stakeholders identified in the training plan will be trained;

There will be limited staff turnover during this period. Hence, we have not factored repeat trainings;

Trainings will be held at provincial and national level, and not district level; and

Government staff involved in implementation will implement accrual basis IPSAS within their current roles and mandate and hence we have not factored additional pay or fees for these staff.

13.4 Unit costs

The main activities that would require costing that we identified using the above approach include:

Hire of external experts to provide support in implementing this IPSAS strategy and providing technical assistance in implementing some of the project activities;

Cost of trainings on IPSAS for key staff and stakeholders identified (including logistics, training venues, training materials and travel and accommodation costs);

Payment of training facilitators for the planned trainings;

Payment for IPSAS certification courses;

Costs of enhancing and further development of the IFMIS system;

Costs for rolling out new regulations, policies and accounting manuals; and

Cost of quality assurance reviews. The main unit costs used are as follows based on market rates and government official gasette notices.

1. Daily rate for experts is USD 1,200 including taxes and disbursements; 2. IPSAS certification course is estimated at USD 450 per staff; and 3. Project management office costs are estimated at USD 3,000 a month for running the project office including

printing costs, communication and refreshments.



13.5 Budget summary

The implementation budget consists of three main components i.e. consultancy fees (for IFMIS, trainings and

other technical areas), training and project management costs throughout the implementation timeline. For each activity the number of cost items needed to successfully carry out that particular activityare identified. For instance, a training outside the normal work station of the GoR staff needs a facilitator, conference facilities, meals and per diem for participants drawn from other parts of the country other than the location of the venue.

IFMIS plays a crucial role in the implementation of the IPSAS project by the GoR because of the system’s coverage of the GoR entities and the continued development of the system to tap into ERPs of GoR entities outside the central government. The budget proposed for IFMIS enhancements to the ten existing modules as well as development of four new modules to facilitate accruals based reporting under IPSAS. Other key activities budgeted for under IFMIS include mapping of the new CoA, re-designing of the main work flows and data transfer in readiness for full accrual accounting.

Trainings for the GoR staff on accruals concepts and the changes in IFMIS as well as sensitisation of key stakeholders will run for the entire duration of the IPSAS implementation. For this reason, training forms a significant portion of the implementation budget. This will require engagement of consultants (IPSAS specialists) to facilitate the trainings especially on the technical aspects of the IPSAS. Other costs budgeted for under trainings include cost for IPSAS e-learning and certification, conferences facilities, transport and accommodation costs for trainings conducted at provincial level.

Consultants will also be involved in the drafting of new accounting manuals and IFMIS manuals based on the enhancements and new modules to be developed to fully transition to accrual basis IPSAS reporting. As discussed in section 14 below, MINECOFIN will engage the project management team to gauge the attainment of the objectives of the IPSAS implementation against the actual progress of implementation across the six years. Presented below is the summary implementation budget:

Activity Year Total

1 2 3 4 5 6 1 Update policies, systems and initial training

1.1 Develop/update regulations, policies and guidelines 216 - - 144 - - 360

1.2 Set up project management arrangements 324 324 324 324 324 324 1,944

1.3 Training and capacity building 179 425 425 425 122 - 1,576

Subtotal 719 749 749 893 446 324 3,880 2 Transition to accrual basis IPSAS using a phased approach

2.1 Statement of financial position

2.1.1 Engineers and property experts (identification and valuation of assets)

- 288 408 - - - 696

2.1.2 Accounting experts - valuation of public debt in line with IPSAS requirements

- - 144 - - - 144

2.1.3 Actuaries - valuation of employee benefits in line with IPSAS requirements

- 432 - - - - 432

2.2 Statement of financial performance

2.2.1 Consultant - adaptation of RRA systems and estimation of receivables and bad debts

- 432 864 - - - 1,296

2.2.2 Consultant - review of grant documents and identification of conditions

- - 432 - - - 432

Subtotal - 1,152 1,848 - - - 3,000

TOTAL 719 1,901 2,597 893 446 324 6,880



Refer to Appendix 7 for the detailed costing of the IPSAS implementation action plan.



Project management and governance arrangement



14 Project management and governance arrangement

14.1 Overview This IPSAS implementation plan envisages full implementation of accrual basis IPSAS and preparation of fully compliant financial statements by the end of fiscal year 30 June 2024. This IPSAS implementation project is a major project which requires proper project management structures and governance arrangements. A properly coordinated management structure will ensure good coordination among different stakeholders/players involved in implementation and smooth flow of the project activities. It will also ensure proper tracking of implementation, decision making and resolution of implementation issues. However, implementation of accrual basis IPSAS is part of the wider Public Financial Management (PFM) reforms being implemented by the GoR. Under these reforms the GoR developed a governance framework to execute the reforms and remedy several gaps noted in light of the country’s financial services strategy. Hence, IPSAS implementation will fall under the PFM reform governance structure below:

Ministry of Finance and Economic Planning IPSAS Implementation plan


The PFM Sector working group oversees PFM reforms in Rwanda. The PFM technical committee will have an IPSAS technical working group (TWG). The Project Manager will report directly to the IPSAS TWG headed by the Deputy Accountant General in charge of public accounts and reporting. Under the Project Manager will be the local Financial Management Specialists that will assist with training, developing new policies, regulations, frameworks and guidelines.

14.2 Key Role Definitions

14.2.1 Minister of Finance and Economic Planning The Minister of Finance and Economic Planning is required to keep Parliament fully informed of the current and projected state of the economy and finances of Rwanda and the fiscal policies of Government.

To that end, the Minister has a direct interest in the success of the IPSAS project and in ensuring that Cabinet and Parliament are fully informed.

14.2.2 PFM Sector Working Group Within the context of the implementation of the IPSAS implementation Project, the PFM Sector Working Group shall specifically be responsible for:

Providing overall policy guidelines for the project;

Facilitate dialogue between government and the development partners towards the

implementation of the IPSAS project.

Ensuring commitment at the highest levels of government to the project;

Overseeing the project;

Articulating a high-level description of the project scope;

Setting overall priorities;

Confirming the IPSAS project goals and objectives;

Committing and monitoring resources and budget;

Reviewing the IPSAS project progress;

Endorsing milestone achievements;

Providing resolution of escalated issues by the PFM Technical Committee; and

Endorsing organisational, policy and strategic changes decisions;

14.2.3 Project Owner – Permanent Secretary and Secretary to the Treasury (PS/ST) The Project owner is also the chair of the PFM Sector Working Group and will assist with the business management and project management issues that arise outside formal business of both the PFM sector-working group and the PFM Technical Steering Committee.

Assisted by the Accountant General, the PFM reform unit and the various technical working groups, the Project owner is responsible for:

Providing overall guidance to the IPSAS project

Endorsing project goals and objectives

Setting overall priorities



Approving resources and budget.

Articulating organisational, policy and strategic change issues arising from the IPSAS project which require escalation to the Minister of Finance and Economic Planning.

Facilitate coordination between the Development partners and government in respect of the IPSAS implementation initiative.

14.2.4 IPSAS Technical Working Group (TWG) – Chaired by the Accountant General

The Chair of TWG is responsible for utilising the IPSAS program outputs, verifying the agreed project outcomes and assisting the project team with the technical knowledge relating to the adoption of the accrual basis IPSAS and the implementation of its roadmap. The chair is responsible for final technical acceptance of the project deliverables.

Accordingly, the Accountant General, who is also the chair for the PFM technical committee, is the Business Owner for the implementation of the IPSAS Project.

Assisted by the Head of the IPSAS Technical Working Group, the business owner shall be responsible for reviewing and reporting on the IPSAS project progress to the project sponsor. He will also serve as a communication focal point to the project technical working groups and the PFM Technical Committee

The TWG is a multidisciplinary Committee that will meet regularly to discuss progress of the project activities. The TWG will undertake routine management activities of the IPSAS implementation with a mission to effectively manage the introduction of accrual basis IPSAS within the time frames specified. The following objectives are designed to meet that goal:

Clearly defining the scope, goals and objectives of the IPSAS program;

Identifying the project risks and developing a strategy to manage those risks;

Determining the project resource requirements and budgeting accordingly;

Meeting all quality assurance standards for project management;

Managing all stakeholders’ expectations and information needs;

Building capacity within the GoR to support the effective implementation of the IPSAS program;

Minimising disruption to the GoR’s clients, both internal and external during implementation of the IPSAS program.

The core activities of the IPSAS Technical working Group will cover:

Project scheduling and resource management

Risk management

Communication

Capacity building, change management and training

Development of policies, regulations and guidelines towards the effective implementation of the IPSAS program.

Technical liaison with other Technical Work Groups; IFMIS, GFS, Audit and Budget. The Deputy Accountant General in charge of accounting and reporting shall be the chair of the IPSAS TWG with a composition and appointments that will be determined by the project sponsor upon the recommendation of the business owner.



14.2.5 IPSAS Project Manager

The Project Manager shall be a professional accountant with extensive experience in project management

and the application of the international public sector accounting standards in government. He or she will be responsible for the management of the project on a day-to-day basis and for the achievement of the project objectives. The Project Manager’s role shall be to:-

Achieve the project’s objectives within the time, cost and quality/performance constraints imposed by the sponsor;

Make timely decisions to ensure the project’s success;

Plan, monitor and control the project through to completion;

Motivate the project team;

Develop project plans and budget;

Establish priorities for critical project tasks;

Monitor project progress and budget;

Keep the sponsor and senior management informed of progress and alert them in case of problems – especially if these could have an impact on the achievement of the project’s business objectives;

Serve as the principal point of contact between the sponsor, management and the rest of the technical working groups;

Prepare for and coordinate weekly team status meetings;

Ensure timely escalation and resolution of issues;

Act as a communication focal point to the project teams and the PFM Technical Steering Committee.

As a professional accountant, the IPSAS project manager shall also provide the required technical assistance in progressing the activities of the project.

14.3 IPSAS Implementation Teams

From the proposed governance arrangements, the need for the existence of implementation teams on a permanent basis has emerged. The implementation team will sit in the IPSAS project office and report to the IPSAS Project Manager. The team should comprise of experts that are qualified accountants with significant experience in IPSAS implementation and working with governments in public financial management.

The teams identified to date include:-

14.3.1 Training, Capacity Building, Communication and Change Management team

This workgroup will be responsible for:

Coordinating and managing the training/capacity building activities directly associated with the accrual basis IPSAS implementation and ensuring coordination with the overall PFM training/capacity building activities.

Taking a leadership role in planning, overseeing and coordinating the transition in the GoR to effectively implement the accrual basis IPSAS. This includes development and communication of



a change management plan, implementation of the plan and monitoring and assessing the change management processes.

Responsible for the design and implementation of all IPSAS communication/sensitisation strategies as well as the development, maintenance and distribution of IPSAS communication materials.

Responsible for ensuring the timely resolution of IPSAS application-related issues logged by the entities.

14.3.2 Policy Development Team

Responsible for coordinating the development and /or revision of all requisite policy, regulations, guidelines and procedural documentation. (Includes legislative as well as accounting/financial manuals and instructions.

Have overall responsibility for overseeing the implementation of the IPSAS program in close liaison with the change management and training and asset management framework implementation teams.

Perform the internal quality assurance role of ensuring the effective implementation of the IPSAS program so that it is delivered within the prescribed time, cost and quality/performance constraints.

The policy development team should also be the technical team overseeing technical aspects of implementation and compliance with IPSAS requirements. The team should consist of experts that are qualified accountants with experience in implementing IPSAS.

The team should coordinate the accounting areas below (in collaboration with the other two teams). Refer to the table below for the degree of priority under each area.

Accounting area Priority

Reporting and presentation High

Consolidation High

Fixed assets High

Intangible assets Medium

Revenue Medium

Accruals and expenses Medium/Low

Employee benefits Medium

Provisions Low

Inventories Low

Financial instruments Low

Further explanation is provided below on the expected efforts in relation to each of the accounting areas.

Reporting: includes the design of the financial statements (statement of financial position,

statement of financial performance, cash flow statement, statement of changes in equity, segment reporting, presentation of budgetary information and other disclosures) and the setup of the general accounting environment (chart of accounts, system environment). Significant efforts can be expected in the field of design of the financial statements, development of the general accrual



accounting environment (general ledger and accounting flows) and data collection for the respective disclosure requirements.

Consolidation: the exercise whereby all entities in the consolidation scope present a single set of

financial statements. Consolidation can be a complex exercise for governments, as both the definition of the scope of consolidation and the number of entities to be included can be an important challenge. The entire set-up of the consolidation process, including the elimination procedures of intra-group balances and transactions, has an important impact on both the processes and the IT systems.

Property, plant and equipment: these are the most technically complex accounting area.

However, fixed assets require a significant amount of effort to move from a cash-based accounting environment given the number of assets managed by the Line Ministries and the data required to report these in accordance with accrual-based principles (creating a complete and detailed fixed asset register and individual asset valuation of all existing assets, embedding the fixed asset accounting lifecycle in the administrative flows, implementing sufficient IT infrastructure). The acquisition and management of property, plant and equipment represent material flows, which occur across the entire Government entity and involve interactions with many of both non-finance (procurement, asset managers) and finance staff to account for the entire asset cycle appropriately.

Accruals and expenses: accruals and expenses represent very important flows within the

Government. IPSAS requires that expenses be recognised at the time the economic transaction takes place, not at the time the budgetary commitment is raised or invoice is received. An accurate recognition and measurement of the major classes of transactions require effective procedures to manage the respective transaction cycles. The new or updated procedures need to be system embedded in order to organise the purchase cycle (e.g. receipt of goods and services should be identified) and the lifecycle of the social benefits. For instance, year-end cut-off procedures should be embedded to allow a timely and accurate year-end closure process. This will also require an important training effort given the number of both non-finance and finance staff, which are involved with these transaction flows. All exchange and non-exchange (social benefits, grants) Government expenditure flows are affected by this accounting area.

Revenue: revenue is a key element within the Government financial reporting that may require

detailed information in accordance with the complexity and variety of the tax regimes. The characteristics of the taxpayers (private persons, companies) need to be considered in respect of the various applicable tax regimes (personal income tax, corporate tax, VAT, etc.) in order to determine the taxable event and corresponding tax revenue in accordance with IPSASs. Given the size of the different groups of taxpayers, this requires the gathering of an extensive set of data. Depending on the applicable tax regime, a high degree of complexity may be involved in the calculation/estimation.

Employee benefits: employee benefits represent large amounts and it can be challenging to

address the accounting of all types of benefits that exist. The identification of post-employment obligations such as pension obligations and the measurement of the related liabilities are the biggest challenge. Although complex, these transactions are managed centrally, involving a limited number of specialists (actuaries, etc.).

Intangible assets: intangible assets have similar characteristics to property, plant and

equipment, but the asset population and underlying efforts are much more limited. The accounting for internally developed assets may require adaptation to systems and processes but the overall impact is limited as compared to property, plant and equipment.



Inventories: inventory requires particular attention with respect to the completeness and

valuation of the inventory. Although inventory items exist across the different Government entities, this area is expected to be of limited importance to Government.

Financial instruments: financial instruments represent large amounts and constitute a complex

area from a technical point of view. The main focus is on the accounting treatment of Government debts and other financial arrangements, as well as of derivatives, borrowings from individuals and financial guarantees. Although complex, these transactions are managed centrally, involving a limited number of specialists (treasury staff, public staff etc.).

Provisions: completeness of provisions is a particular point of attention, especially for entities

starting from a cash-based environment. The existence of significant present obligations needs to be identified and a reliable estimate of the costs to be incurred needs to be made. However, the volume of material transactions is not expected to be very significant and no major impact on the IT systems is anticipated.

14.3.3 Asset Management Framework Implementation Team

Responsible for the coordination of the technical and procedural aspects of the collection and valuation of assets by:-

Assessing the accuracy and completeness of existing asset information;

Determining the categories of assets that will be used in the chart of accounts and the financial statements;

Determining whether GoR holds any assets that are within the scope of IPSAS 32 Service-Concession Arrangements: Grantor and assist the reporting entities to deal with them accordingly;

Assisting each reporting entity to be able to identify and include all its property, plant and equipment (PPE), intangible assets, investment property, service-concession assets, assets under finance lease, biological assets in the individual financial statements;

Providing support to enable all reporting entities to document all types of assets held, and compile asset registers;

Assisting the entities to determine accurate opening balances for each category (identification, application of definition of asset, measurement, impairment, recognition, de-recognition); and

Establishing systems to support the ongoing requirements of accrual accounting. This might include providing the necessary support in developing a fixed assets functionality in IFMIS.

Each of the implementation teams would be headed by a local Financial Management Specialist with support provided by an International Technical Assistant.

14.3.4 Auditors

Both internal and external auditors will be key in IPSAS implementation and hence it will be important to ensure constant communication with both.

Internal auditors

Provide input to revised policies and processes

Reviewing compliance with revised policies and processes providing recommendations to further

strengthen

Support with conducting financial internal audits to review compliance with accrual basis IPSAS



Assist in following up external audit recommendations

External auditors The main role of the OAG is to monitor implementation and using the audit to drive improvement in financial statements in order to achieve full compliance with accrual basis IPSAS.

Provide input to the implementation plan and strategy

Monitor progress of IPSAS implementation against set milestones

Audit the opening statement of financial position

Point out deviations from accrual basis IPSAS and provide recommendations to address the deviations

Follow up implementation of audit recommendations

14.4 Meetings

Meetings of the PFM Sector Working Group and the PFM Technical Steering Committee will continue to be held as at present. The IPSAS Technical Working Group will ensure monthly meetings are held.

In order to ensure that team members are adequately briefed and prepared before each meeting, agendas, minutes of the previous meetings and supporting documentation for agenda items will be distributed to the team members at least 24 hours before the meeting, whenever possible.

It is expected that all members appointed to the IPSAS Technical Working Group will attend each meeting. However, if a member is unable to attend, the team member should indicate who would be attending on his/her absence and ensure that they are adequately briefed prior to the meeting.

14.5 PFM Sector Working Group/ Technical Committee Meetings

During the meetings, progress reports shall be provided to specify;

Activities planned since the last meeting.

Activities performed during the period.

Activities not performed (with relevant explanations).

Issues requiring the attention of the PFM Sector Working Group/PFM Technical Committee.

Activities planned for the next period.

14.6 IPSAS Project TWG Meetings

The IPSAS Project TWG will meet accordingly to review progress made during the month and plan for project activities for the next month. The Heads of each of the IPSAS project implementation teams will present reports to the TWG highlighting:

Activities planned for the previous month.

Activities Performed during the previous month.

Activities not performed (with relevant explanations).

Issues requiring the attention of the TWG.

Activities planned for the next month.



14.7 Workshops and Consultative Meetings

The IPSAS TWG will organise regular workshops to ensure that all relevant stakeholders are updated on all

aspects of the project as it progresses. Workshops will also be organised to review and evaluate implementation progress in order to plan for future implementation activities, or as determined by the PFM Sector Working group/PFM Technical Committee.

14.8 Coordination with the IFMIS project team

The need for a strong coordination with the IFMIS project has already been highlighted in this report, mainly under the gap analysis section. The IPSAS project team should provide the input/information that is needed to the IFMIS project team to build a system which can support an efficient and reliable IPSAS reporting and the interactions between the two projects in terms of timeline should be properly managed.

14.9 Change management

Adopting accrual accounting requires a significant cultural shift in the mindset of people at all levels of the

Government. Resistance to change is also likely to be encountered at various stages of the project and in various parts of the organisation.

To mitigate this risk or overcome it, a whole change management programme should be put in place, complementary to the training plan and the ongoing communication between the project manager/core project team and the stakeholders.

A well-thought communication plan towards the various categories of stakeholders should be developed, including an awareness and information campaign on the benefits of the accrual accounting project and regular communication/reporting on the project wins and successes to keep up the motivation and buy in throughout the project.



Develop the action plan



15 Develop the action plan

15.1 Overview

Making the change to accrual-based IPSAS is much more than a change in accounting rules and is a full transformation project with multidimensional components. The various dimensions of the project need to be well managed and coordinated.

The project will have an impact on the whole Government organisation; it will impact its policies, its processes, its systems and its people.

What you need to implement accrual basis IPSAS

In order to transform and implement accrual basis IPSAS, the government requires:

A well-thought action plan, with clear milestones and deliverables. What and when?

A proven conversion methodology that capitalises on a strong project governance combined with an effective project management. How?

15.2 Implementation plan

The implementation plan for the transition to accrual basis IPSAS is phased to ensure it is progressive and

realistic. The implementation plan recognises the simplest and most important stocks and transactions

first, and then goes on to gradually recognise more complex stocks and transactions in subsequent phases.



It also progressively extends the coverage of the financial statements from the budgetary central and local

government to the whole of the public sector. The proposed phasing is also designed such that, at each

phase of the transition, an integrated and internally consistent set of financial statements are produced.

This will allow for regular reconciliation of stocks and flows and maintains the overall integrity of financial

reporting at each stage.

One other feature of the implementation plan developed is complementary implementation i.e. as phase 1

balances and flows are being transitioned to accrual basis IPSAS, works to facilitate the smooth transition

of the phase 2 balances and flows the following year is also ongoing in year 1. This particularly key for

complex balances such as fixed assets and inventory where the identification and valuation is scheduled

earlier than the actual recognition of the balances in the financial statements.

The implementation plan will also require IFMIS to be up to date to take on the balances and flows being

transitioned at each phase. This implies enhancing the current IFMIS modules as well as developing new

modules such as financial instruments, fixed assets and inventory modules as proposed under section 8 of

the blueprint. Furthermore, the implementation plan will require continuous training of key staff to

materialise by financial year 2023/2024. The training will include IFMIS user training, accrual basis IPSAS

accounting as well as updates on the new and revised IPSASs issued by the IPSASB.

Finally, the implementation plan calls for wide stakeholder engagements and change management. MINECOFIN will need to extensively engage stakeholders such as RRA, RHA, RTDA, RISA, OAG and NBR among others to attain the demands of accrual basis IPSAS by the end of year 6 of the roadmap. Furthermore, adopting accrual basis IPSAS is demanding as evidenced by countries such as the UK, Australia and New Zealand which have managed or attempted to adopt accrual basis IPSAS. For the GoR this calls for the effective management of risks inherent in the implementation process as detailed under section 11 of the blueprint.

Presented below is the snapshot of the IPSAS implementation roadmap across the 6 years to the financial year 2023/2024.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Objectives

Achievements/ milestones Consolidation of accounts of central government, districts and projects with improved disclosures to address data gaps in the area of assets; investments; grants’ conditions; receivables and revenues from non-exchange transactions.

Consolidation of accounts of the sectors within the local government cluster and hence in the overall consolidated financial statements.

A separate

cluster of consolidated GBEs to be introduced and aggregate them line by line.

Consolidation of accounts of Hospitals while remaining NBAs are aggregated as per detailed reporting categories.

Inter entity

transactions within GBEs eliminated.

Consolidation of accounts of government to include GBEs and secondary schools.

Consolidation of accounts of health centres.

Compliance with accrual-basis IPSAS for the whole Public sector; consolidated accounts include all GBEs and NBAs.

Sub-area/Activities – Accrual basis IPSAS compliance

1. Fixed assets - IPSAS 5, 13, 16, 17, 21, 26 and 32

Fixed assets - IPSAS 5,13,16,17, 21, 26 and 27

Update PFM manual in respect of valuation policies and recording and reporting on all fixed assets.

Implement assets module of the IFMIS.

Continue with identification, recording and valuation of assets.

Continue with the migration of data from legacy systems.

Recognise all PPEs excluding infrastructure assets; land and buildings; heritage assets and natural resources on an accrual

Recognise land and buildings on an accrual basis.

Recognise infrastructure and biological assets on an accrual basis.

Recognise heritage assets and natural resources on an accrual basis.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Complete identification, recording, and start the valuation of all fixed asset items.

Migrate data from legacy systems to the IFMIS.

Include appropriate disclosure note on fixed assets in the financial statements.

Review quality and completeness of data in fixed asset registers.

Interface IFMIS with the RTDA management system for infrastructure assets.

Interface IFMIS with the land management system.



basis in line with IPSAS.

Service Concession Arrangements -IPSAS 32

Update PFM

policies and procedures manual to require recording and reporting on all service concession agreements/ assets involving public entities.

Interface IFMIS

with RDB database for PPPs.

Enhance note disclosure on service concession agreements in the financial

Recognise as

assets under appropriate categories with corresponding liabilities.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Enhance IFMIS to record service concession assets of public entities in the fixed asset module.

Identify and review public - private partnerships arrangements.

Migration of data on service concession assets into the IFMIS asset module.

Note disclosure on service concession agreements in the financial statements form the 2018/19 FY.

statements from the 2018/19 FY.

2. Intangible assets - IPSAS 5, 21, 26 and 31

Intangible assets - IPSAS 5, 21, 26 and 31

Update PFM

manual in respect of valuation policies and recording and reporting on all intangible assets and also assign responsibility to

Continue to

review quality and completeness of data in registers.

Continue valuation of intangible assets.

Continue to

review quality and completeness of data in registers.

Recognise all

intangible assets on an accrual basis in line with IPSAS.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

the head of the finance units.

Implement assets module of the IFMIS to capture costs of internally developed software and costs of externally purchased software.

Complete identification, recording, and start the valuation of all intangible assets.


Include appropriate disclosure note on intangible assets in the financial statements.

Review quality and completeness of data in asset



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

registers for intangible assets.

3.Invetories - IPSAS 12

Inventories - IPSAS 12

Update PFM policies and procedures manual (identifying and recording of obsolete stocks, valuation of all inventory items using WAC, inventory count procedures and controls, year-end stock taking).

Implement inventory module and address data gaps

Migration of data from legacy systems to the IFMIS.

Update financial reporting templates to include appropriate note disclosures in respect of inventories.

Recognition and reporting of inventories on an accrual basis.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

4. Revenue - IPSAS 9, 11, 23 and 27

Revenues - IPSAS 9, 11, 23 and 27

Enhance IFMIS to make distinction between revenue from exchange and non-exchange transactions.

Enhance DAD to track grant conditions and report on status.


Recognise revenue from exchange transactions (sales of goods and services, interest income, dividends, Rental income) on an accrual basis.


Recognise revenue from non-exchange transactions; fees, fines, penalties and licenses on an accrual basis.

Improve disclosures relating to taxation

Recognise revenue from non-exchange transactions; Grants and Transfers from other government entities on an accrual basis.

Recognise taxation on accrual basis.

5.Accruals and expenses - GAAP

Accruals and expenses - GAAP

Amend policy and procedures (PFM policies and procedures manual) for how and when to recognise goods and services.

Enforce the requirement to recognise accounts payable upon receipt of


Recognise grants and other transfer payments transactions on an accrual basis.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

goods and services and ensure invoices are entered into IFMIS without delay.

Ensure monthly financial reports submitted to MINECOFIN have appropriate note disclosures on, reports on commitments, accounts payable, arrears, including due dates and aging analysis.

6. Employee benefits - IPSAS 39

Employee benefits and Pension liabilities - IPSAS 39

Update PFM

manual to require; the accrual of the annual performance bonus, submission of information on pension liabilities relating to government staff.

Issue year-end procedures with

Note disclosure

in the consolidated financial statements.

Recognition of

pension liabilities in accordance with IPSAS 39 i.e. included in the statement of financial position.

Enhance IFMIS accordingly to generate accounting



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

guidance on the treatment of the annual performance bonuses paid in respect of the financial year 2018/19 onwards.


entries from information submitted by the RSSB.

7.Provisions - IPSAS 19

Guarantees and other contingent liabilities - IPSAS 19

Continue to

disclose all guarantees and other contingent liabilities in the entity and consolidated financial statements.


Ascertain

probability of payments related to guarantees and other contingent liabilities, and if payments are probable, estimate provisions and provide disclosure notes.


Recognise

provisions as estimated.




2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Other provisions - IPSAS 19

Identify other provisions (e.g. onerous contracts and decommissioning obligations) and maintain information.

Include appropriate disclosure in the financial statements.

Recognise in the balance sheet.

8. Financial Instruments - IPSAS 4, 28, 29 and 30

Public debt - IPSAS 28, 29 and 30


Enhance DMFAS to capture/measure amortised cost of debt using the effective interest rate (principal and interest payable)

Improve the current disclosure of public debt and on lending.

Recognition of public debt in accordance with IPSAS 29 i.e. included in the statement of financial position.

Enhance IFMIS accordingly to generate accounting entries through an interface with DMFAS.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Update PFM

manual to

measure require

additional

information on

amortised cost of

public debt using

the effective

interest rate.

Valuation of financial assets (Financial investments, student loans) - IPSAS 28, 29 and 30

Update PFM policies and procedures manual for the categorisation of financial assets according to IPSAS 28.

Update IFMIS to capture financial investments (shares or bonds bought).


Recognition and

recording of

financial

investments of

all public

entities on an

accrual basis.

Receivables and doubtful debts in

Analyse

receivables to

Estimate

provisions for

Recognise

estimated

Recognise

estimated



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

accordance with IPSAS 29

identify doubtful

items of both

revenue from

exchange and

non-exchange

transactions.

Review

reasonableness of

information on

the estimated

provisions.

doubtful debts

and provide

appropriate

disclosure notes

(in case of RRA,

monthly

accountability

report to

disclose

outstanding

receivables and

associated

doubtful debts.

Enhance the

IFMIS to record

and account for

estimated

provisions.

provisions of

doubtful debts

arising out of

revenue

exchange

transactions

(short and long

term).

provisions of

doubtful debts

arising out of

revenue non -

exchange

transactions

(short and long

term).

Enhance the

IFMIS, RRA

systems to

record and

account for the

estimated

provisions.

9. Reporting - IPSAS 1, 2, 3, 14, 18, 20, 22 and 24

Presentation of financial statements (primary financial statements and notes) - IPSAS 1

Adopt proposed

financial

reporting

templates by the

IPSAS blueprint

Based on the

IPSAS blueprint

templates update

the annual

formats in line

with the IPSAS -

Based on the

IPSAS blueprint

templates

update the

annual formats

in line with the

IPSAS -

implementation

roadmap.

Implement

necessary IFMIS

changes.

Based on the

IPSAS

blueprint

templates

update the

annual formats

in line with the

IPSAS -

implementatio

n roadmap.

Implement

necessary

Based on the

IPSAS

blueprint

templates

update the

annual formats

in line with the

IPSAS -

implementatio

n roadmap.

Implement

necessary

IPSAS

blueprint

templates as

may have been

updated with

new

requirements

fully adopted

and

implemented

at both entity

and



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

implementation

roadmap.

Implement

necessary IFMIS

changes.

Include

appropriate note

disclosures for

financial

information not

handled on

accrual basis.

Include

appropriate note

disclosures for

financial

information not

handled on

accrual basis.

IFMIS

changes.

Include

appropriate

note

disclosures for

financial

information

not handled on

accrual basis.

IFMIS

changes.

Include

appropriate

note

disclosures for

financial

information

not handled on

accrual basis.

consolidated

level.

Budget information in the financial statements - IPSAS 24

Include an

explanation of

material

differences

between budget

(original and

final) and actual

amounts.

Include a

reconciliation

between budget

and cash flow

statement.

10. Consolidation - IPSAS 35, 36, 37, 38 and 40

Consolidation - IPSAS 35

Update PFM

policies and

procedures

manual with

Consolidation of accounts of the sectors within the local government

Consolidation of accounts of Hospitals while the remaining

Consolidation

of accounts of

government to

include GBEs

Consolidation of accounts of health centres.

Compliance with accrual-basis IPSAS for the whole Public sector;



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

criteria for the

identification of

controlled

entities and

therefore

reporting entities

that should be

consolidated.

Appropriate

disclosure notes

for controlled

entities but not

consolidated

(GBEs,

Associates, and

NBAs).

Operationalise

GBE reporting

template that

should include

information on

inter-entity

transactions.

Consolidation of

accounts of

central

government,

districts and

projects – base

line with

improved

disclosures to

cluster and hence in the overall consolidated financial statements.

A separate cluster of consolidated GBEs to be introduced and aggregate them line by line.

NBAs are aggregated as per detailed reporting categories.

Inter entity transactions within GBEs eliminated.

and secondary

schools. consolidated accounts include all GBEs and NBAs.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

address data gaps

in the area of

assets;

investments;

grants

conditions;

receivables and

revenues from

non-exchange

transactions.

Investment in associates and joint ventures - IPSAS 36

Update the PFM policies and procedures (identification of associates , submission of financial information to MINECOFIN)

Disclosure note for associates included in the consolidated financial statements on an equity basis).

Include associates on equity basis in the GoR consolidated statement of financial position.

11. Audit and Quality Assurance

Audit and Quality Assurance

Review and comment on completeness





First statutory Audit of official IPSAS compliant



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

and accuracy of data in registers and disclosure notes towards accrual accounting information. In year and annual financial statements - External and Internal Audit.






Conduct mid-term QA review of all the IPSAS implementation activities (External consultant).


Annual

implementatio

n review

reports (IPSAS

implementatio

n unit).



Conduct final QA review of all the IPSAS implementation activities - External consultant.

financial statements of 2022/23 and issue of formal audit opinion and recommendations for improvements [Auditor General.

12. Institutional, Governance,

Set up of the Public Sector Committee

Establishment of a public sector committee of the ICPAR;



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

systems, capacity development and change management arrangements



Update legal and regulatory Framework for public financial management


Issue instructions, circulars (preferably as part of the year end procedures) for the progressive implementation of the IPSAS manual in line with roadmap.


Update OBL and associated financial regulations.




Learning and development/people



Train the trainers.

Train key users.



Train users.



Train users.



Train users.



Train users.



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

Change management

Communicate key IPSAS implementation messages to target audiences through intranet, e-mail, newsletters, education fliers, IPSAS awareness videos, IPSAS webpage, brochures and media coverage.






Project management

Assign project manager and set up implementation unit.



Establish monitoring and reporting frameworks -



2018/19 2019/20 2020/21 2021/22 2022/23 2023/24

IPSAS implementation unit.

IFMIS and other PFM system readiness

Improvement of accounting solution in FMIS and other IT systems - All entities.


Update work flows/processes to support accrual accounting - Accountant General.

Update the chart of accounts for compliance with IPSAS - Accountant General.







15.2.1 Phase/Year 1

15.2.1.1 Overview The first phase in the transition to accrual accounting involves developing a system for recording some “in transit” receipts and expenses in the operating statement, and recognising the related stocks of unpaid invoices from suppliers as liabilities and unpaid bills issued to customers for services rendered as assets on the government’s statement of financial position. This is already in place as the government is using modified cash basis of accounting. Therefore, for the GoR, IPSAS implementation will commence at a more advanced stage as opposed to cash basis of accounting.

The focus will mainly be on development and updating of policies and processes. The phase sets out the preparatory activities for the transition of balances and flows in the on-coming implementation years. Below is the transition strategy for the first year:



Institution

Year/ Phase

Assets Liabilities Revenue Expenditure

Year 1

1. Cash and cash equivalents 2. Prepayments and other current assets

1. Accruals and other short-term payables

1. Compensation of employees 2. Other expenses

1. Central government 2. Districts 3. Projects

This phase takes cognisance of the accrual accounting aspects already existing as part of the modified cash basis accounting in use. Cash and cash equivalents (comprising mainly cash at bank, deposits and cash held on behalf of other parties), compensation of employees (existing aspects) and accruals and short-term payables in the current modified cash basis GoR consolidated financial statements will be transitioned to accrual basis IPSAS.

Whilst the above items are the focus transitional items in this phase. Implementation for more complex areas, like fixed assets, on the overall implementation spectrum starts in this phase. Furthermore, decisions have to be passed on accounting policies, consolidation scope and materiality of components to consolidate, format of financial statements, financial reporting for and publication of accounts for each administrative level of the general government, presentation of budget information and identification of related party relationships and transactions.

Therefore, as part of the phased implementation plan, the following activities will be carried side by side the conversion of the above flows and balances in year 1:

Consideration Area Activities Fixed assets. IPSAS 5,13,16,17, 21, 26,27

Update PFM manual in respect of valuation policies and recording and reporting on all fixed assets.

Implement assets module of the IFMIS.

Complete identification, recording, and start the valuation of all fixed asset items.


Include appropriate disclosure note on fixed assets in the financial statements.

Review quality and completeness of data in fixed asset registers.



Consideration Area Activities Service Concession Arrangements. IPSAS 32

Update PFM policies and procedures manual to require recording and reporting on all service concession agreements/ assets involving public entities.

Enhance IFMIS to record service concession assets of public entities in the fixed asset module.

Identify and review public- private partnerships arrangements

Migration of data on service concession assets into the IFMIS asset module.

Note disclosure on service concession agreements in the financial statements form the 2018/19 FY.

Intangible assets. IPSAS 5,21,26,31

Update PFM manual in respect of valuation policies and recording and reporting on all intangible assets and also assign responsibility to the head of the finance units.

Implement assets module of the IFMIS to capture costs of internally developed software and costs of externally purchased software.

Complete identification, recording and start the valuation of all intangible assets.


Include appropriate disclosure note on intangible assets in the financial statements.

Review quality and completeness of data in asset registers for intangible assets.

Inventories. IPSAS 12 Update PFM policies and procedures manual (identifying and recording of obsolete stocks, valuation of all inventory items using WAC, inventory count procedures and controls, year end stock taking).

Implement inventory module and address data gaps.

Migration of data from legacy systems to the IFMIS.

Update financial reporting templates to include appropriate note disclosures in respect of inventories.

Revenues. IPSAS 9, 11,23,27

Enhance IFMIS to make distinction between revenue from exchange and non-exchange transactions.

Enhance DAD to track grant conditions and report on status.


Accruals and expenses GAAP

Amend policy and procedures (PFM policies and procedures manual) for how and when to recognise goods and services;

Enforce the requirement to recognise accounts payable upon receipt of goods and services and ensure invoices are entered into IFMIS without delay.

Ensure monthly financial reports submitted to MINECOFIN have appropriate note disclosures on commitments, accounts payable, arrears, including due dates and aging analysis.

Employee benefits and pension liabilities. IPSAS 39

Update PFM manual to require; the accrual of the annual performance bonus, submission of information on pension liabilities relating to government staff.



Consideration Area Activities

Issue year-end procedures with guidance on the treatment of the annual performance bonuses paid in respect of the financial year 2018/19 onwards.


Guarantees and other contingent liabilities. IPSAS 19

Continue to disclose all guarantees and other contingent liabilities in the entity and consolidated financial statements.


Public debt. IPSAS 28, 29, 30


Enhance DMFAS to capture/measure amortised cost of debt using the effective interest rate (principal and interest payable).

Update PFM manual to measure require additional information on amortised cost of public debt using the effective interest rate.

Valuation of financial assets (Financial investments, student loans). IPSAS 28, 29, 30

Update PFM policies and procedures manual for the categorisation of financial assets according to IPSAS 28.

Update IFMIS to capture financial investments (shares or bonds bought).


Receivables and doubtful debts in accordance with IPSAS 29

Analyse receivables to identify doubtful items of both revenue from exchange and non-exchange transactions.

Review reasonableness of information on the estimated provisions.

Presentation of financial statements (primary financial statements and notes). IPSAS 1

Adopt proposed financial reporting templates by the IPSAS blueprint

Based on the IPSAS blueprint templates update the annual formats in line with the IPSAS - implementation roadmap.

Implement necessary IFMIS changes.

Include appropriate note disclosures for financial information not handled on accrual basis.

Consolidation. IPSAS 35 Update PFM policies and procedures manual with criteria for the identification of controlled entities and therefore reporting entities that should be consolidated.

Appropriate disclosure notes for controlled entities but not consolidated (GBEs, Associates, NBAs)

Operationalise GBE reporting template that should include information on inter-entity transactions.

Consolidation of accounts of central government, districts and projects. Base line with improved disclosures to address data gaps in the area of assets; investments; grants conditions; receivables and revenues from non-exchange transactions.

Investment in associates and joint ventures. IPSAS 36

Update the PFM policies and procedures (identification of associates, submission of financial information to MINECOFIN).

Disclosure note for associates included in the consolidated financial statements on an equity basis).



Consideration Area Activities Audit and Quality Assurance

Review and comment on completeness and accuracy of data in registers and disclosure notes towards accrual accounting information the year end and annual financial statements. (External and Internal Audit).



Establishment of a public sector committee of the ICPAR.



Update legal and regulatory framework for public financial management


Issue instructions, circulars (preferably as part of the year end procedures) for the progressive implementation of the IPSAS manual in line with roadmap.




Train the trainers.

Train key users.

Change management Communicate key IPSAS implementation messages to target audiences through intranet, e-mail, newsletters, education fliers, IPSAS awareness videos, IPSAS webpage, brochures, media coverage.

Project management Assign Project Manager and set up implementation unit.



Establish monitoring and reporting frameworks (IPSAS implementation unit).


Improvement of accounting solution in FMIS and other IT systems (All entities).


Update work flows/processes to support accrual accounting.

Update the chart of accounts for compliance with IPSAS.

The milestone for year is therefore consolidation of accounts of central government, districts and projects with improved disclosures to address data gaps in the area of assets; investments; grants conditions; receivables and revenues from non-exchange transactions.

15.2.1.2 Transition of opening balances, statement of financial performance items and subsequent accounting treatment

This is the first time the GoR is having to record transactions under accrual basis IPSAS framework. This differs from the current modified cash basis accounting in use where simple accrual accounting concepts of accruing receivables and payables at the end of the period are applied. Below we array the procedures to be put in place to effectively convert the modified cash basis financial information into accrual basis information.



15.2.1.2.1 Assets

The assets in this phase include cash and cash equivalents, prepayments, advances and imprests, staff and student loans. All the foregoing receivables will be transitioned in this phase except for staff and student loans receivables which will be transitioned to accrual basis IPSAS in the phase 2 accrual stage i.e. the next phase. This is due to the administrative burden of the loans on the GoR and the entities managing the loans. Furthermore, there is need to take stock of the whole loan portfolio and also to assess collectability of the loans especially student loans. This may not be achievable in the first year of transition and thus postponed to the next transition phase. 15.2.1.2.1.1 Prepayments and other receivables

This includes salary advances, imprests not yet liquidated and payments made for goods and during the year which, as at year end have not yet been received or provided by third parties respectively. The treatment of these balances at this stage (i.e. phase 1 IPSAS accrual stage) is as follows:

Prepayment and other receivables account component

Dr Cr Comments

Opening balance (cash basis)

XX IFMIS currently does not determine a portion of an expense that is prepaid. The opening balance was arrived at by way of applying cash basis accounting. However, the accuracy of the closing amount when gauged against accrual basis IPSAS is not affected. This is because the receivables leading up to this opening balance were recognised at the end of the reporting period by taking account of all inflows expected by the GoR. Had accrual basis IPSAS applied in the prior year the transactions leading up to the closing balance were going to be captured at the point they occurred whether or not cash was received. Thus the difference, becomes only that of the time the transactions leading up to the balance were captured and the not the accuracy of the balance.

Add: Bookings during the year (accrual basis IPSAS)

X Under accrual basis accounting, all payments being made in relation to goods or services, imprest or salary advances and the expenses arising have to be matched or recognised to the extent to which they relate to the current reporting period. For instance, where the GoR pays vehicle insurance on 1 April for one year, at year end (30 June) only the three months i.e. April, May and June expense should be recognised for the current year and the excess (July to March the following year) is recognised and booked as prepayment. For the GoR at this stage, this means that every time a payment is being made, the amount paid should be matched to the goods or services, imprest and advances to the extent that only the portion relating to the current period is recognised as expense in the current period. In the case of advances the whole amount paid out as advance is recognised as a prepayment and only expensed (transferred to the statement of financial performance) when the advance is liquidated (i.e. when the support documents for all expenses incurred have been presented).



Prepayment and other receivables account component

Dr Cr Comments

The matching and bookings thereof should then be made whenever a payment is made, as long as the services or goods or economic benefits in relation to the amounts paid out have not been realised by the GoR. This is the actual transition point for all prepayments and other receivables for the GoR.

Less: Transfers to the statement of financial performance during the year i.e. expensing (accrual basis IPSAS)

X This relates to the process of expensing an amount brought forward as prepayment at the point when the economic benefits have been realised by the GoR e.g. when an advance has been liquidated. The transfers should be made promptly, throughout the year as they

are triggered i.e. at the point at the point when the economic benefits

have been realised by the GoR and to the extent to which those

economic benefits have been realised.

Closing balance (accrual basis IPSAS)

XX The closing balance then will be that arrived at in line with accrual basis IPSAS principles.

15.2.1.2.1.2 Cash balances

Cash balances in the accruals framework are a residual item in that the cash balance will be what has remained at the end of the period taking into account all the cash receipts and cash payments made during the year. Therefore, no conversion will be needed with respect to the cash balances on transitioning to accrual basis IPSAS framework. The accuracy of the period end cash balance then depends on the accuracy of the transactions recorded during the period under accruals basis accounting principles. 15.2.1.2.2 Liabilities

15.2.1.2.2.1 Short-term payables

These for the GoR currently include third party obligations not yet settled, payroll liabilities, overdrafts contracted by various GoR entities and funds held on behalf of third parties such as prisoners’ funds, court deposits and deceased estates among others. These are payables which are due for payment (or at least expected) within the next 12 months. Currently, these payables are recognised at the end of the reporting period when all the invoices not yet paid as well as other notifications received in relation to GoR obligations yet to be settled are taken into account. Under accrual basis IPSAS, these payables are recognised when it becomes probable that there will be an outflow of future economic benefits for the GoR to settle obligations as a result of past events.

Short-term payable account component

Dr Cr Comments


XX Under the current modified cash basis of accounting, short-term payables as stated above are accounted for by taking stock of all obligations not yet settled as at the end of the reporting period.



Short-term payable account component

Dr Cr Comments

Under IPSAS, the short-term payables are recognised when it becomes probable that there will be an outflow of future economic benefits for the GoR to settle obligations as a result of past events e.g. when an invoice for goods purchased it becomes probable that the GoR will release economic resources to settle the obligation embedded in the invoice and it is at that point that the payable should be recorded as opposed to the modified cash basis treatment where recognition only happens at the end of the year. There will be no need to convert the opening balance in relation to short-term payables due to the same considerations given above under opening balances for assets being transitioned in the current transition period.

Add: Bookings during the year (accrual basis IPSAS)

X The bookings for payables should be made when the events triggering payables occur. For instance in the case of court deposits, the trigger event is when a third party makes a deposit or in the case of an overdraft when a GoR entity receives funds from an overdraft. The debit entry is posted to the cash/bank account and a payable booked under this line. The bookings should be posted in this manner throughout the year, and at any one period end the closing balance will automatically be determined, except for period end adjustments, by the fact that the transactions in relation to the short-term borrowings are being recorded as they happen as opposed to at the end of the period when all the payables are taken stock of and recorded.

Less: Payments made during the year (accrual IPSAS)

X This relates to all payments made during the year to settle the obligations for the year. The double entry is that a credit (payment) is posted to the cash/bank account and the debit is posted under this line to reduce the payable to which the payment relates. The payments are currently being captured when they occur under the modified cash basis accounting framework.


XX The closing balance then will be that arrived at in line with accrual basis IPSAS principles.

15.2.1.2.3 Expenses

Expenses should also be recorded when a trigger event occurs e.g. in relation to the payroll expense, the trigger event would be when the GoR employees provide the employment service to the GoR. This is truly a case by case basis exercise depending on the nature of the expense at hand. For instance payroll expense based on the contracts of employment is paid in arrears at the end of the month, which then designates payroll expense as a monthly expense and as such the payroll expense entries should be posted every month end. Similarly, for expenses every time, at the occurrence of a trigger event the general double entry is a Dr – Expense and credit cash/bank. This then means that the following considerations should be employed in relation to the debit side of the transaction i.e. the expense side:



The expense does not cover the full period of the obligation towards which cash resources have been released - Dr – Expense (amount paid) and Expense (accrual covering the period not covered by the cash resources released to settle part of the obligations) and then Cr – Bank/cash (amount of cash resources released to settle part of the obligation) and Payable (accrual covering the period not covered by the cash resources released to settle part of the obligations).

The expense covers a period extending into the following reporting period – Dr Expense (amount relating to the current reporting period only) and Prepayment in the statement of financial position (amount paid but relating to the following reporting period) and then Cr –cash/bank with the full amount paid out.

The expense is fully covered by the cash resources paid out – Dr Expense (full amount) and Cr Cash/bank.

Currently, simple accrual accounting is running for compensation of employees’ expenses which are run in IPPIS and posted to the payments module in IFMIS. Short-term benefits not paid at the end of the period are accrued. In this regard, there is no conversion needed in relation to the recording of the payroll expenses in light of IPSAS adoption.

15.2.1.3 Financial statements

The financial statements at this stage will comprise the statement of financial performance, statement of financial position and cash flow statement.

15.2.1.3.1 Statement of financial performance – Year 1

In this first year the statement of financial performance will be made up of items fully transitioned to accrual basis IPSAS accounting, items not yet transitioned to accrual basis IPSAS accounting treatment (i.e. items which are currently in the GoR consolidated financial statements) and items introduced due to IPSAS requirements at this stage.

All revenue in the first year will be on cash basis. This includes non-exchange revenues i.e. tax revenues, transfers (grants, fees, penalties and fines), proceeds from borrowings as well as exchange revenues i.e. receipts from sales of goods, fees and charges for provision of services, capital receipts or investment revenues (e.g. sale of GoR shareholding) and proceeds from sale of fixed assets and inventory.

On the expenditure side Compensation of employees and other expenses such as membership dues and subscriptions, scholarships and other educational benefits and miscellaneous expenses are transitioned to accruals.

20X1 20X0 After

transitioning Before transitioning

Revenue

Taxes X X N/A Cash

Fees, fines, penalties and licences X X N/A Cash

Grants X X N/A Cash

Transfers from other government entities X X N/A Cash

Borrowings (domestic and external) X X N/A Cash

Capital receipts X X N/A Cash

Other revenue X X N/A Cash

Expenses

Compensation of employees (X) (X) Accrual Modified cash



20X1 20X0 After transitioning

Before transitioning

Use of goods and services (X) (X) N/A Modified cash

Grant and other transfer payments (X) (X) N/A Cash

Social Assistance (X) (X) N/A Cash

Finance costs (X) (X) N/A Cash

Other expenses (X) (X) N/A Cash

Repayment of borrowings (X) (X) N/A Cash

Acquisition of fixed assets (X) (X) N/A Cash

Surplus/(deficit) for the period XX/(XX) XX/(XX)

The statement of financial performance will be as above including both cash items and items on accrual

basis.

15.2.1.3.2 Statement of financial position – Year 1

The statement of financial position will consist of the following items:

Cash and cash equivalents – This includes cash at bank and cash in hand. The cash account is a residue

account in that its yearend balance is a result of all the cash related transactions that have been captured

during the year. Thus this balance is easily converted to accrual accounting basis by accurately

recording cash related transactions during the year.

Prepayments are a result of accrual basis IPSAS requirement that a payment made to settle an

obligation be matched to the extent to which it covers the current reporting period. At the moment the

GoR is not recognising prepayments as there is no match done between the payments made and the

periods they are relating to.

Accounts payable – Accounts payables are currently recognised at the end of the period when all

invoices and other payables not settled are taken stock of. IPSAS however requires that payable

balances are recognised when it is probable that that there will be an outflow of resources to settle the

obligation and the obligation can be measured reliably. Payables include bank overdrafts, unpaid

invoices and funds held on behalf of other people. These at this stage are transitioned to accrual basis

IPSAS.

The above items will form the statement of financial position in the first year as below:

20X1 20X0 After

transitioning

Before

transitioning

ASSETS

Currents assets

Prepayments and other current assets X X Accrual Cash

Cash and cash equivalents X X Accrual Cash

NET ASSETS/EQUITY

Capital



Reserves X X N/A Cash

Accumulated surplus/(deficit) X X N/A Cash

LIABILITIES


Current liabilities

Payables X X Accrual Cash

15.2.1.3.3 Cash flow statement – Year 1

20X1 20X0

Receipts

Taxes X X

Fees, fines, penalties and licences X X

Grants X X

Transfers from other government entities X X

Borrowings (domestic and external) X X

Capital receipts X X

Other revenue X X

XX XX

Payments

Compensation of Employees (X) (X)

Use of Goods and Services (X) (X)

Grant and other transfer payments (X) (X)

Social Assistance (X) (X)

Finance costs (X) (X)

Other expenses (X) (X)

Repayment of borrowings (X) (X)

Acquisition of fixed assets (X) (X)

(XX) (XX)

Cash flows from operating activities XX XX

Adjusted for:

Changes in receivables X/(X) X/(X)

Changes in payables X/(X) X/(X)

Prior year adjustments during the year X/(X) X/(X)

Cash flows from investing activities

Acquisition of fixed assets X X

Proceeds from sale of capital items X X

Net cash flows from investing activities XX XX



20X1 20X0

Cash flows from financing activities

Repayment of borrowing X X

Proceeds from borrowing X X

Net cash flows from financing activities XX XX

Net increase in cash and cash equivalents during the year XX XX

Cash and cash equivalents at beginning of period X X

Cash and cash equivalents at end of period XX XX

15.2.1.4 Accounting policies 15.2.1.4.1 Prepayments

An accounting policy needs to be developed for prepayments specifying the details of the recognition points

as well as valuation procedures. Assets (and liabilities will usually) be recorded in the accounts at nominal

value. If it is likely that the full amount due from a third party will not be recovered, an adjustment for

doubtful debt should be made and an entry recorded in the balance sheet for the amount unlikely to be

recovered, or the receivable should be written-off.

15.2.1.4.2 Cash and cash equivalents

Even though the current items making up cash and cash equivalents remain the same under accrual IPSAS

accounting it is important to point out that the current financial statements include items treated under

modified cash basis accounting and accrual basis IPSAS. There is no effect on the yearend cash balance

despite the fact that there are two accounting bases used in the preparation of the transition financial

statements.

15.2.1.4.3 Expenses

As stated above monthly payroll is currently run on an accrual basis and in this regard there is need to

update disclosures as the accounting basis has changed from modified cash to accrual basis IPSAS i.e. the

current accruals accounting being done is due to the modification inherent in the modified cash basis

accounting and now under accrual basis IPSAS, full accruals of the payroll expenses will be employed.

IPSAS accrual accounting gives rise to a number of entries around employee benefits such as short-term

provision for performance bonus earmarked for recognition in the next phase.

Payables should be recognised in the statement of financial position at the time an obligation to pay an

amount to a third party was created for the GoR. Accounting policies need to define triggering events

consistent with this principle. They are usually as follows:

For goods and services, the delivery of goods, the provision of a service, or the fulfilment of a

contract; and

For wages and salaries, when an employee earns an entitlement to receive a cash remuneration or

similar benefit, as specified in the law or employment contract.



During this year, IFMIS should be enhanced to allow tracking of these triggering events as they occur for

both receivables and payables.

15.2.1.5 Operational implications

Operational implications for the GoR and the various GoR entities at this stage include the following:

Orientation and training of the accounting staff in accrual accounting principles. This is the first

year the GoR is introducing accruals basis accounting on the financial statement line items

highlighted above. This will have to be done for all GoR entities at the different levels of

administration as the scope of responsibility for the accounting staff will increase.

A number of controls have to be tightened and/or introduced during this stage to enhance close

monitoring of accruals accounting. This involves performance of reconciliations between accounts

(control accounts) and processes such as purchases and payables and revenue and receivables.

IFMIS should be enhanced with capabilities to capture the new transactions such as prepayments

and other transactions under cash basis accounting at the same time (duality functionality). This

implies that the upgrading of IFMIS should also be phased so as to align with the accruals

accounting aspects being adopted in the next phases.

Accounting staff should also be oriented on which transactions to capture on modified cash basis

and which ones to capture on accrual basis IPSAS basis during the year.

The recruitment of key staff such as the project management staff (as per the structure proposed

under section 14 of the blueprint) and financial controllers for entities deemed to be complex such

as RDB (various revenue streams) and RRA (various taxes, each with its own law and collection

mechanism) should start in year of the implementation roadmap.

DMFAS upgrading at this stage should be running to prepare for the next phases when the more

complex financial instruments are introduced into the financial statement.

The transition to accruals will require a new CoA. This has been developed already with the help of

IMF and has been updated in the CoA to take into account aspects of accrual basis IPSAS

accounting such the split between revenue from exchange and non-exchange transactions as well

as the split between long-term and short-term receivables from the foregoing revenue types. The

update has ensured that additional elements of accrual accounting have been incorporated to

ensure recognition of balances on accrual basis.

Local government is unique and autonomous in that it is allowed to raise its own funds and has

assets gazetted under it such as roads, bridges, land and buildings (i.e. District class 2 roads). In

this case there is need for entities like RTDA, BNR, RHA and MINECOFIN to collaborate starting

in the first year of implementation to ensure a smooth transition to accruals basis IPSAS.

ICPAR will be in charge of the following during the first year:

o Set up a public committee.

o Training and capacity building

o Sensitisation of the public about IPSAS

o Provision of professional courses and certification

To determine the opening balances for trade payables, an inventory of all known accounts payable related

to goods and services should be compiled. This should be done for all services and goods received and

contracts let up to the statement of financial position date. Such an inventory should also be compiled at

yearend to determine the closing balance for accounts payable. It is also advisable to survey major suppliers

or third parties (e.g. large local governments or public corporations receiving transfers) to confirm the



accuracy of the amounts outstanding and to review the invoices received post period-end to identify

accounts payable that should have been recognised in the statement of financial position at the closing date.

A switch to accruals makes it even more important that the source documentation, such as delivery notes,

invoices, contracts, confirmation letters from suppliers, should be systematically filed and available for

audit done by the OAG.

A better approach to a year-end inventory of receivables and payables is to record goods delivered and

services received in the accounts as transactions occur. To achieve this, accounting procedures and

information systems should be set up to ensure that expenses are recorded systematically, from the

purchase order through receipt of goods to payment of the invoice, including the dates at each stage, with

capture of equivalent data on the trade receivables cycle.

When expenditure can be incurred without a purchase order, or receivables registered without an invoice

being issued i.e. outside of the ledger system – there is a risk that the accounts payable or receivable may

not be recorded in a comprehensive or timely manner.

This systematic tracking of the processing of revenues and expenses often requires a reconfiguration and

upgrade of IFMIS to record the date, value, and status of each invoice for goods and services. A suitable

level of manual records should be maintained, with regular internal audit to ensure that all invoices

presented for payment have been recorded in a timely manner and that sufficient back up of transactions

is maintained especially for lower level GoR entities like district offices which may not have fully fledged IT

systems. Compliance with these accounting rules is critical to the accurate recording of accounting

information and an effective sanction regime for officials who fail to record all invoices should be instituted.

For wages and salaries and grants and subsidies similar procedures need to be performed for establishing

the opening and closing balances of payables. Wage and salary related accruals present special challenges

which need to be reflected in the interface between human resource, payroll and accounting systems to

ensure that triggering events can be effectively monitored and updated in IPPIS. Thus, at this stage only

simpler elements such as salaries, short-term benefits and accumulated leave should be accrued leaving

more complex items like long-term employee benefits such as pension liabilities for the GoR employees to

be introduced in year 3 of the implementation plan.

The accruals basis statements should be subject to audit, with the audit based on the accounting policies

adopted at this point. Partial accrual accounts will receive a qualified audit opinion until transition is

complete. Qualification of the accounts because of the uneven quality of data, or concerns about the

application of the accounting standards would have negative implications for the credibility of the financial

reporting of the GoR and undermine confidence in its fiscal position. It is therefore recommended that the

OAG and the various GoR make use of “dry-run” audits to enable the OAG staff to become familiar with the

new format of the accounts before the first formal audit of the financial statements.

The transition to accruals has implications on budget presentations and provides some challenges owing to

the fact that some financial information is treated under modified cash basis and some under accrual basis

IPSAS framework and that the current budgets are on cash basis accounting. The CoA and IT system will

need to meet the dual demand of cash based budget reports, and accrual accounting.



15.2.1.6 Institutional coverage

The coverage of the financial statements at this stage should be limited to the central and local government

levels. This means that an explanatory note should also be issued to accompany the national budget

explaining the impact on the budget of the adoption of accruals and the extent of adoption at this stage.

Currently the GoR has a system of consolidating.

Central Treasury and RRA

Central Government

Local Government

Development Projects

Entities submit their financial statements and consolidation is done manually. The GoR should maintain

this system of consolidation as upgrades are currently being made to IFMIS and the consolidation module

proposed.

The consolidation at this stage excludes GBEs as well as subsidiary entities and sectors. This is to allow

these entities to align their financial reporting processes to the wider changes towards IPSAS adoption going

on at Central GoR level at this stage. GBEs will be consolidated in year 4.

Consolidation of the GoR as this stage means presenting the assets, liabilities, net assets/equity, revenue,

expenses and cash flows of the GoR and its controlled entities (as defined in the scope of consolidation in

the overview above) as if they were a single entity. Consolidation thus combines their accounts (statement

of financial position and statement of financial performance) line by line. To that end, the financial years of

the GoR entities being consolidated ideally need to align with government and accounting policies and

instructions need to define how internal transactions and balances should be eliminated. At this stage, these

intra-central government transactions would typically include transfers from government to agencies and

taxes paid by agencies to government.

Typically the elimination of internal transactions involves the following steps:

Identification by both parties of any intra - GoR transactions that are to be eliminated;

Verification that internal transactions and balances reported are the same amounts and classified

similarly by both parties; and

Elimination of the transactions and balances from both entities’ financial statements.

15.2.1.6.1 Consolidation processes

The following considerations need to be taken into account when consolidating the accounts at this stage

and going forward. It is also worth noting that government is already consolidating four clusters namely

the Central Treasury and RRA cluster; the Central Government cluster, the Local Government cluster and

the Development Projects cluster. Hence, the main consideration in later phases is including subsidiary

entities in the consolidation.

15.2.1.6.1.1 Standardisation and harmonisation of accounting policies, formats and reporting timeframes for entities to be consolidated



To achieve this objective completely, all consolidation component entities must be migrated to a

harmonised accounting framework which at this stage implies that the components should all adopt IPSAS

to the level or transition strategy prescribed in this in this phase.

While this may present some practical challenges, it should not prevent consolidation. For the purposes of

preparing consolidated financial statements, some GoR in the consolidation scope at this stage may need

to configure additional reports within their IT system to restate their individual accounts in line with the

CoA and accounting policies.

15.2.1.6.1.2 Materiality for consolidation

Considerations should be taken into account for deciding the scope of the consolidation. Small bodies such

as some projects currently under the GoR entities that have little or no income except the grant they receive

from another part of government and minimal assets or liabilities may be consolidated at later stages or

excluded as immaterial (but listed in the disclosure notes). Attention should be paid however to whether

these public sector entities have contingent liabilities that could be material.

Some projects and smaller GoR entities or operations may be months or even years behind in producing

financial statements, or the statements may not have been audited. In this case, efforts will be needed to

address the backlog and the timeliness of entities’ reporting or at the very least focus attention on producing

accounts for the first year to be consolidated. In the absence of previous years’ accounts, additional work

may be needed to establish opening balances. As a last resort, the consolidation of central government

accounts may have to go ahead without these entities and this omission must be made clear in the statement

of accounting policies. Their omission may however result in an adverse audit opinion, if the entities’

finances are material to the consolidated account.

15.2.1.6.1.3 Consolidation systems

Consolidation usually requires specialist accounting software or a custom-built consolidation system. The

blueprint has proposed an introduction of a consolidation module in IFMIS and this option is open for the

GoR as well as purchasing an off-the-shelf consolidation package. In the current phase, the consolidation

of the GoR accounts will be done with the current manual system running as upgrades to IFMIS are

currently being made.

The consolidation of the GoR accounts should be accompanied by timetables and procedures for

consolidation so that all the requisite data becomes available to MINECOFIN in a timely way. The

consolidated financial statements should be published consistent with the GoR financial reporting year,

with formal discussion in the legislature, so that they are not seen as irrelevant by the time they are

produced.

15.2.2 Phase/Year 2 15.2.2.1 Overview

In Year 1 the following items in the current GoR consolidated financial statements were transitioned to

accrual basis IPSAS framework as well as the classification:



Cash balances

Prepayments and other current assets

Short-term payables

Compensation of employees

Other expenses

The second phase of the transition brings on board the recognition of revenue from exchange transactions

(sales of goods and services, interest income, dividends, rental income) in the statement of financial

performance and the receivables thereof in the statement of financial position. This phase also transitions

financial investments and student loans of all public entities into accrual basis IPSAS framework.

Furthermore, the institutional coverage of financial statements increases to include the sectors within the

local government cluster.

During the year 2 accrual phase the full transition items are as below. These items are more complex in

terms of accounting treatment than the first phase transitional items above. In this manner the GoR

consolidated financial statements start shaping up towards the format of the full accrual basis IPSAS

compliant financial statements:

Statement of Financial

Position

Statement of Financial

Performance

Institution

Year/ Phase Assets Liabilities Revenue Expenditure

Year 2 1. Financial

investments and

student loans of

all public entities

2. Receivables

from revenue

from exchange

transactions

(sales of goods

and services,

interest income,

dividends, rental

income)

1. Revenue

from

exchange

transactions

(sales of goods

and services,

interest

income,

dividends,

rental

income)

1. Use of Goods

and Services

1. Central

government

2. Districts

3. Projects

4. Sectors

within the local

government

cluster

The key areas for implementation in this phase as part of the routine preparations for the next phases as

well as building on the prior year implementation include the following activities:


Continue with identification, recording and valuation of assets.

Continue with the migration of data from legacy systems.

Interface IFMIS with the RTDA management system for infrastructure assets.

Interface IFMIS with the land management system.





Consideration Area Activities

Service Concession Arrangements. IPSAS 32

Interface IFMIS with RDB database for PPPs.

Enhance note disclosure on service concession agreements in the financial statements from the 2018/19 FY.


Continue to review quality and completeness of data in registers

Continue valuation of intangible assets.

Inventories. IPSAS 12 N/A Revenues. IPSAS 9, 11,23,27

Recognise revenue from exchange transactions (sales of goods and services, interest income, dividends, rental income) on an accrual basis. IPSAS 9.




Employee benefits and Pension liabilities. IPSAS 39

Identify types of employee benefits within each of the four categories:

o Short-term benefits

o Post-employment benefits

o Other long-term benefits

o Termination benefits

Involve RSSB and other HR departments in the identification process

as well as engaging actuaries to perform valuation of the employee

benefits.

Note disclosure in the consolidated financial statements.


Ascertain probability of payments related to guarantees and other contingent liabilities and if payments are probable, estimate provisions and provide disclosure notes.


Other provisions

N/A


Improve the current disclosure of Public debt on lending.

Valuation of financial assets (Financial investments, student loans). IPSAS 28, 29, 30

Recognition and recording of financial investments of all public entities on an accrual basis.


Estimate provisions for doubtful debts and provide appropriate disclosure notes (in case of RRA, monthly accountability report to disclose outstanding receivables and associated doubtful debts.

Enhance the IFMIS to record and account for the estimated provisions.



Consideration Area Activities Presentation of financial statements (primary financial statements and notes). IPSAS 1

Based on the IPSAS blueprint templates, update the annual formats in line with the IPSAS - implementation roadmap.



Budget information in the financial statements. IPSAS 24

Include an explanation of material differences between budget (original and final) and actual amounts.

Include a reconciliation between budget and cash flow statement.

Consolidation. IPSAS 35 Consolidation of accounts of the sectors within the local government cluster and hence in the overall consolidated financial statements.

A separate cluster of consolidated GBEs to be introduced and aggregate them line by line.


N/A


Review and comment on completeness and accuracy of data in registers and disclosure notes towards accrual accounting information. In year and annual financial statements (External and Internal Audit).



N/A






Train users.

Change management Continue with the communication tools on an ongoing basis.

Project management N/A




15.2.2.2.1 Assets



15.2.2.2.1.1 Short-term receivables from exchange transactions

Receivables from exchange transactions by the central and local GoR entities should be identified, recognised and measured at this stage. Based on IPSAS 9 guidance revenue from exchange transactions is revenue derived from transactions where the GoR receives economic benefits in exchange for provision of a good or a service. Some of the revenues from exchange transactions for the GoR at the moment include hospital fees, property income from various GoR buildings and assets which are leased out to third parties, laboratory fees, revenue from construction activities and accommodation fees as well as hire of halls and other facilities among others. The receivables from the exchange transactions currently captured are recognised at the end of the period when all the goods or services which should have been provided to the GoR by third parties during the reporting period are taken stock of and recorded in the books of accounts as receivables. Under accrual basis IPSAS, the receivables in relation to the exchange transactions should be recognised at the point it becomes probable that future economic benefits will flow to the GoR and that those benefits can be measured reliably. There is need to identify receivable transactions arising from revenue from exchange transactions across the GoR entities to ensure completeness of the receivables to be reported in the financial statements at the end of the first year. This starts with taking stock of the types of revenues under various GoR institutions and distinguishing between those revenues as a result the GoR providing a good or service and those where the GoR receives economic benefits when the GoR has not provided any good or service. For instance extra budget entities like hospitals, public universities and research and training institutes in Rwanda have revenue from exchange transactions in fees charges for their services and under accrual basis IPSAS framework, receivables arising from those revenues have to be recognised and captured in the books of accounts. At this stage, short-term receivables (those expected to be realised within the next 12 months) arising from all the revenue from exchange transactions identified at this point should be recognised. For instance, loans are given out to the students by the GoR, the receivable (repayments) are spread over a period of more than 12 months as the students start repaying the loan once they get employed or once they can afford making repayments from other sources of income. The treatment of receivables as a result of revenue from exchange transactions in the manner highlighted above should be cascaded to all other receivables arising from exchange transactions identified at this stage and recorded as such going forward. Considering that there are already some opening balances which were treated under the modified cash basis accounting, the following table highlights the action points to transition the current receivables from exchange transactions across the year for the phase 1 accrual stage.

Receivables account component

Dr Cr Comments


XX Transactions leading to this balance were captured under modified cash basis. That is at the end of the year all the cash expected but not received from the debtors as at date was taken stock of and recorded as the closing balance. The difference between the closing balance under modified cash basis accounting and the accruals derived balance is that of timing. Under accrual basis accounting, the transactions leading up to the closing balance were going to be captured when they happened as opposed to being taken stock of and recorded at the end of the year. This means



Receivables account component

Dr Cr Comments

that the accuracy of the ending balance is not affected but only that the events during the year leading to the balance were not captured when they occurred but taken account of at the end of the period (i.e. timing of capture of information). Therefore, no conversion from modified cash basis to accrual basis IPSAS is needed in relation to opening balances.

Add: Receivables during the year (accrual basis IPSAS)

X These transactions should be captured at the point they occur throughout the financial year. For instance, when a third party is accommodated at a GoR hotel with the hotel bill to be settled later, other than at the time of stay, the double entry for this transaction is Dr – Receivable (i.e. book receivable) and Cr – Revenue (recognise revenue since the service has already been provided). All receivables arising from the exchange transactions identified at this point should be recorded in this manner throughout the year and going forwards. This is the actual transition point for the GoR entities recording particular receivable from exchange transactions.

Less: Payments during the year (accrual basis IPSAS)

X The payments towards settlement of the receivables booked should be recorded when they occur during the year. This is already happening under the current modified cash basis accounting and will not present problems on transition to accrual IPSAS as the same treatment or practice is maintained under both accounting bases.


XX The closing balance for the first year then will be that arrived at in line with accrual basis IPSAS principles.

15.2.2.2.1.2 Long-term receivables from exchange transactions

Long-term receivables from exchange transactions are introduced in this phase. The long-term receivables

(those expected to be realised after the next 12 months) arising from all the revenue from exchange

transactions are identified and recognised at this point. Examples include employee welfare scheme loans,

employee contributions scheme loans and National Scholarship Scheme Loans.

Student loans are currently treated under accrual basis as part of the modifications inherent in the current

modified cash basis of accounting employed by the GoR. The receivables (repayments) in relation to these

loans are spread over a period of more than 12 months as the students start repaying the loan once they get

employed or once they can afford making repayments from other sources of income. In this regard, both

current and long-term receivables arise. At the point of transition in this phase, the short-term receivables

relating to loans will comprise the repayments from students who are now able to repay the loans after

getting employment or on from other sources of income such as personal enterprise. The long-term

receivables in relation to the student loans will at this point comprise the loans given out to students in the

current phase as well as outstanding balances from loans given out in previous periods and which are

expected to be recovered after a period of 12 months.



The long-term receivables arise in the year the student takes out a loan as the GoR does not expect to receive

repayments from the students considering that they are just starting their university program. The long-

term receivables should be recorded at this point. This will involve having to review the contracts and other

documents to establish whether both short-term and long-term receivables arise.

Generally, receivables that are expected to be realised after the next 12 months are normally supported by

contracts or other documents, for example, construction contracts. Most construction contracts for instance

run for more than 12 months and where it is the GoR providing the service, the retention payments made

by the GoR to the customer should then be recognised as long-term receivables if they are to be paid back

to the GoR at the end of the contract. Some construction contracts require retention payments to be paid

back as the contract activities progress. In such cases the retention payments are recorded as short-term

receivables. Thus it is key at this point to clearly establish whether a particular receivable should be

classified as long or short-term.

In the case of employee welfare scheme loans and employee contributions scheme loans, similar principles

should be followed as elaborated above under student loans. The key issues is to split in any financial year

at any point, the portion out of the total repayments, expected to be recovered within the next 12 months

(short-term) and after the next 12 months (long-term). This goes down to the terms of the loans and the

array of cash flows inherent in the loans as stipulated in the actuals loan agreements.

This treatment of receivables as a result of revenue from exchange transactions should be cascaded to all

other receivables arising from exchange transactions identified at this stage.

Considering that there are already some opening balances which were treated under the modified cash basis

accounting, the following table highlights the action points to transition the balances across the year at the

year 3 accrual stage.

Receivables

account

component

(long-term)

Dr Cr Comments

Opening balance

(cash basis)

XX This is the closing balance as at the end of the first year. Transactions

leading to this balance were captured under modified cash basis. That

is at the end of the year all the cash expected but not received from the

debtors as at date was taken stock of and recorded as the closing

balance.

The difference between the closing balance under modified cash basis

accounting and the accruals derived balance is that of timing. Under

accrual basis accounting, the transactions leading up to the closing

balance were going to be captured when they happened as opposed to

being taken stock of and recorded at the end of the year. This means

that the accuracy of the ending balance is not affected but only that the

events during the year leading to the balance were not captured when

they occurred but taken account of at the end of the period (i.e. timing

of capture of information).



Receivables

account

component

(long-term)

Dr Cr Comments

Therefore, no conversion from modified cash basis to accrual basis

IPSAS is needed in relation to opening balances.

Add: Receivables

during the year

(accrual basis

IPSAS)

X This relates to the bookings for long-term receivables during the year

e.g. students’ loans just given out to the students or retention payments

under construction contracts as stated above. The recognition point

then is when it is clear that the GoR will receive economic benefits in

future and that those benefits will be received in the period of at least

more than 12 months from the present.

All receivables arising from the exchange transactions identified at this

point should be recorded in this manner throughout the year.

Less: Payments

during the year

(accrual basis

IPSAS)

X The payments towards settlement of the receivables booked should be

recorded when they occur during the year. Quite frankly, these

payments are normally not expected within the next 12 months due to

the fact the receivable itself is expected to be realised after the next 12

months. However, in the case of balances running from prior years

such as student loans, the repayments by the students should be

recorded here.

Less: impairments X Currently, the GoR is experiencing challenges in having the full stock

of loans given out to students. In this phase the GoR should ensure

completeness of all the loans given out and assess recoverability of the

loans. This is an involving exercise for the Development Bank of

Rwanda (BRD) which is currently administering the student loans

because it requires having complete information on all student loans

given out to date as well as making follow ups with the individual

students to assess whether or not they can afford to settle the loans

obligations.

Furthermore, there is need for the BRD to revise the student loan

conditions in a way that seeks to maximise the access to the student

loans at the same time reducing the administrative burden to facilitate

reporting under accrual basis IPSAS framework. Accurate information

is needed to ease the process of making an estimate for the students

who are likely to default. Accrual basis IPSAS 19 principles stipulate

that the impairment losses should be recognised at the point they are

clearly foreseen and that they should be measured reliably.

The impairment of the receivables from the loans is credited here to

reduce the receivable and expensed (debited) in the statement of

financial performance.



Receivables

account

component

(long-term)

Dr Cr Comments

Closing balance

(accrual basis

IPSAS)

XX The closing balance then will be arrived at in line with accrual basis

IPSAS principles.

15.2.2.2.1.3 Other financial assets

Other financial assets currently include dividends receivable from GBEs, bonds, equities and fixed deposits.

Dividends currently are recognised at the end of the period on the basis of information communicated from

the GBEs on dividends declared during each financial year whether or not cash has been received. This

treatment should continue even under accrual basis IPSAS as the treatment is IPSAS compliant. As for

deposits and equities, confirmations should be sent to the entities hoarding the assets on behalf of the GoR

and the confirmed amounts recorded as closing balances at every statement of financial position date.

15.2.2.2.2 Revenue

Revenue from exchange transactions is currently captured under administrative fees, fines, penalties and license fees in the modified cash basis accounts of the GoR. The implementation strategy in relation to revenue at this stage is to recognise all revenue from exchange transactions (sales of goods and services, interest income, dividends, rental income) and other revenues such as property income from investment properties under the GoR and proceeds from disposal of GoR property. Revenue generated from goods and/or services provided by the GoR should generally be recognised when the goods are delivered or when the services are provided by the GoR. A key issue at this stage is completeness of the revenue from exchange transactions at the moment. Some GoR entities like hospitals, hotels, conference centres and universities are currently engaged in exchange transactions but the question is: Is the revenue from the currently identified entities all that should be recorded as revenue from exchange transactions? This then calls for the comprehensive identification of the types of revenue generated from the exchange transactions currently happening across the GoR entities from the central government entities to the local government entities. In terms of recording revenues from exchange transactions, at any one point the revenue recognised should be credited to the statement of financial performance and then for the debit entries two considerations should be made i.e. whether cash has been received in full or not for the amount of revenue recognised. Hence the following three scenarios arise:

Cash received for the full amount of revenue recognised – Dr- Cash/bank and Cr – Revenue

Cash partly covers the amount of revenue recognised – Dr – Cash/bank and Receivable and Cr – Revenue

No cash received with respect to the revenue amount recognised – Dr – Receivable and Cr – Revenue

Therefore, every time a trigger event for revenue recognition occurs the above considerations should be employed for the amount of revenue being recognised and recorded in the books of accounts.



As for proceeds from the sale of GoR property, they are currently recorded when the cash (proceeds) in relation to the property disposed of has been received. However, under accrual basis IPSAS accounting, the revenue from such transactions should be recognised when it is probable that the GoR will receive or at least becomes entitled to receive economic benefits as a result of the disposal of the GoR property. This is a judgement call for the accounting staff involved in the disposal of GoR properties. In this regard the accounting manual should identify the standard trigger points for recognition of revenue so that the accounting process for such properties is properly guided. Some of the instances or scenarios where the GoR can be said to have a right to receive future economic benefits in relation to the disposal of property, thus recognise revenue whether or not cash has been received include:

Where a third party has agreed in writing to purchase a GoR asset e.g. a vehicle which a GoR entity has announced or displayed for sale. Revenue for the selling price as well as a receivable are recognised.

Where the ownership and control of the asset under disposal has been transferred to the third party with no funds received yet for the purchase. Revenue for the selling price as well as a receivable are recognised.

15.2.2.2.3 Expenses

The main expense line to be transitioned at this stage is Use of goods & services. Under modified cash basis accounting currently used by the GoR, expenditure in relation to this expense line is recorded when cash has been paid out to settle the obligations embedded in the goods or services. However under accrual basis accounting, expenditure is recorded once the goods have been received or the service has been rendered.


Financial statements produced at this stage would include the set of statements required under accrual

accounting. This includes a cash flow statement, a statement of financial position and a statement of financial performance which has more complex items compared to the phase 1 IPSAS accrual one.

As a result of the transition of modified cash basis items as well as introduction of other items based on the requirements of accrual basis IPSAS, the following depict how the financial statements would look at the end of the year 2 accrual stage.

The terminology for the financial statement line items also transitions in phases e.g. all revenues

from exchange transactions are identified and recorded under the line Revenue from exchange

transactions. For instance, revenue from sale of goods and assets are currently recorded under

Administrative fees, Fines, Penalties and Licences revenue stream in the current GoR consolidated

financial statements. In the financial statement template below, sale of goods and services is

recorded under the revenue from exchange transactions line.

In the statement of financial position, the receivables arising from the revenue form exchange

transactions as well as financial investments of all public entities and student loans are recognised

under accruals IPSAS basis.

The following tables summarise the model financial statements for this stage of the implementation spectrum.




20X2 20X1 Year 2 Year 1

Revenue

Taxes X X N/A Cash

Fees, fines, penalties and licences X X N/A Cash

Grants X X N/A Cash

Revenue from exchange transactions X X Accrual Cash

Borrowings (domestic and external) X X N/A Cash



Other revenue X X Accrual Cash

Expenses

Compensation of Employees (X) (X) N/A Accrual

Use of Goods and Services (X) (X) Accrual Cash


Social Assistance (X) (X) N/A Cash

Finance costs (X) (X) N/A Cash

Other expenses (X) (X) N/A Accrual

Acquisition of fixed assets (X) (X) N/A Cash


The statement of financial position as partly stated above brings on board long-term borrowings

from the statement of financial performance for the first time as well as transitioning short-term

borrowing into accrual basis IPSAS.

Furthermore, receivables grants (i.e. both long-term and short-term) are recognised at this stage based on accrual basis IPSAS principles. Currently there are no provisions made by the GoR in the current modified cash basis accounts. Based on IPSAS 19 requirements, provisions should be made at this stage partly owing to the nature of the items transitioned to accrual basis IPSAS up to this point. Below is the model statement of financial position for GoR at the end of the this stage.

Receivables from exchange transactions and prepayments and advance payments – Receivable

from exchange transactions relate to receivables arising from exchange transactions currently being

recorded (but not explicitly identified as such) under the modified cash basis accounting employed

by the GoR. Accrual basis IPSAS requires that revenue be split between exchange and non-exchange

and receivables relating to each be recognised as such.



ASSETS

Non-current asset

Receivables from exchange transactions X X Accrual N/A

Other financial assets X X Accrual N/A

Currents assets

Receivables from exchange transactions X X Accrual N/A




Prepayments and other current assets X X N/A Accrual

Cash and cash equivalents X X N/A Accrual

NET ASSETS/EQUITY

Capital

Reserves X X N/A Cash

Accumulated surpluses/(deficits) X X N/A Cash

LIABILITIES


Current liabilities

Payables X X N/A Accrual

15.2.2.3.3 Statement of cash flows – Year 2

20X2 20X1

Receipts

Taxes X X


Grants X X

Revenue from exchange transactions X X

Borrowings (domestic and external) X X



Other revenue X X

XX XX

Payments

Compensation of Employees (X) (X)

Use of Goods and Services (X) (X)


Social Assistance (X) (X)




(XX) (XX)


Adjusted for:



Adjustments during the year X/(X) X/(X)



20X2 20X1












15.2.2.4 Accounting policies

In this section the main changes and updates needed to be made to accounting policies in order to ease the

transition of balances and facilitate financial reporting tailored to the requirements of accrual basis IPSAS

as well as the needs of the users of the GoR consolidated financial statements are presented below.

15.2.2.4.1 Revenue from exchange transactions and receivables thereof

At this point the accounting manual should have been already updated with the accounting policies for the

treatment of revenue from exchange transactions. This should be preceded by the comprehensive

identification of the various types of revenue from exchange transactions currently existing under the GoR

entities. The trigger points for recognition of the various types of revenue from exchange transactions

should be stipulated in the accounting manual. Below are a few examples of the trigger points for some of

the revenues from exchange transactions under the GoR currently:

Revenue from

exchange transactions

Trigger point

Rental income (property

income)

Based on the lease agreement provisions e.g. where rent is to be paid

monthly, then revenue is recognised at the end of that period when the

tenant is said to have utilised the economic benefits embodied in the use

of the property under rental.

Certificate of origin On the issue of the certificate of origin confirming that the goods in a

particular shipment have been wholly produced, manufactured or

processed in Rwanda and are ready for shipment.

Abattoir fees When the abattoir service has been provided to the third party.



Hospital charges When the service has been provided to the patient e.g. when a medical

procedures has been fully performed.

Sale of drugs and medical

supplies

When the ownership of the drugs or medical supplies has moved from the

GoR to the customer.

Tuition fees When the service (education) has been provided. This is typically at the

end of a period e.g. a month or semester.

Accommodation fees When a customer has utilised or enjoyed the accommodation service.

Revenues from

construction activities

When the construction has been done to the extent relating to the period

over which the construction activities were carried out.


The current transition stage builds on the first (phase 1 IPSAS accrual) stage items transitioned to accrual basis IPSAS. Long-term benefits such as pensions will need to be included in the next stage owing to the bulk of work involved to transition them such as actuarial valuation of the GoR employee benefits portfolio under RSSB.

Grants and subsidies are non-exchange items which become an asset (or liability, for the grantor) when a legally enforceable claim arises (i.e. when it is reasonably certain that the transfer of resources will occur and its value can be reliably measured). At this stage the grants currently running should be identified and the conditions attached assessed and documented in readiness for transition in the coming phases.

Furthermore, a comprehensive inventory of all financial instruments will be a key task at this stage. Currently the GoR maintains its stock of borrowings such as loans received, treasury bills and bonds held and issued in DMFAS. In addition to these, a complete and reliable inventory and valuation of more complex instruments, such as derivatives and debt related to public-private partnerships will be required. Collection of information on financial liabilities and assets needs therefore to be coordinated by the MINECOFIN, and undertaken at the line ministries’ and public agencies’ level, as appropriate. The inventories and analyses should ideally be performed in a limited number of pilot ministries and agencies at first and extended progressively. Among the practical tasks to be implemented are:

• Inventorying and classifying of contracts signed with service providers and developing standardised toolkits or checklists for and defining the appropriate accounting treatment of obligations entered into by the GoR.

• Compiling a list and conducting an assessment of existing and proposed service concession arrangements (PPPs) and leases, including those under contracts with state-owned enterprises to identify conditions related to control over the asset, both during and at the end of the arrangement. Define and disclose those where the liabilities and assets are to be recognised in the government’s financial statements.

• Ensuring that equity stakes in public corporations are recorded and regularly revalued. This may require new laws or regulations to clarify or strengthen reporting requirements. For these



enterprises MINECOFIN has already been assigned oversight responsibility to manage the GoR stake holding in the GoR GBEs.

• Capacity for establishing the market value of financial instruments needs to be developed

within MINECOFIN, or where the implementation timelines are tight, alternatively contracted to a qualified expert. Contracting experts is likely to be necessary for conducting actuarial estimates of the expected cost of providing post-employment and other long-term benefits which should start at this stage in preparation for the recognition of the employee benefits in the next stage.

• The identification and reporting of contingent liabilities may also require new reporting systems to be developed, since at the moment contingent liabilities are not automatically captured by either DMFAS or IFMIS.

There is need to adapt IFMIS and DMFAS to enable capabilities of capturing and aggregating information on potential legal claims, guarantees provided, or any other form of potential claim on the entity. Such reporting should be by type and nature, allowing similar items to be grouped. IPSAS 19 requires the disclosure of the estimated financial effect of the contingent liability except in those rare cases where such disclosure would be severely prejudicial to the interests of the reporting GoR entity (for example, in a major legal claim) and thus IFMIS should capture such estimated values.

15.2.2.5.1 Key tasks and considerations for transitioning

The following are the key guidance points in transitioning revenue from exchange transactions in the

current phase:


o For each category of revenue from the rendering of service, establish methodology for best reflecting revenue over the length of the service period.

o For each category of revenue from the sale of goods, analyse fact pattern and establish methodology to determine when revenue should be recognised.

o Identify sales with multiple arrangements and apply the rules applicable to each component separately.

o Identify transactions for which the government entity acts as an agent and apply the proper accounting treatment (net presentation).

Recoverability of receivables

o Establish procedure for estimating the recoverability of amounts recognised as receivables at year-end.

Construction contracts

o Identify contractor/construction activities, both for other government entities and for external parties.

o Determine cost of contracts in progress Understand the production process, identify direct and indirect production costs,

and overhead costs that are incremental. Determine the normal capacity of the production facilities. Determine costing methodology. Determine percentage-of-completion and calculate contract revenue.



Check data availability and make sure the cost accounting system allow IPSAS - compliant costing.

Establish procedure to determine potential expected contract loss at completion (for fixed price contracts).

15.2.2.6 Institutional coverage 15.2.2.6.1 Consolidation policies

In the current phase, accounts should be consolidated to include Central government, Districts, Projects and sectors within the local government realm. This provides parliament and the public with a comprehensive overview of all public activities funded primarily through taxes and other compulsory levies. Accounting policies at this stage of the IPSAS implementation should require that all entities engaged in non-market activities be consolidated. 15.2.2.6.2 Consolidation processes

While at this stage it is presumed that the GoR will have learnt from the experience gained during the year 1 IPSAS accrual phase of the transition to accrual basis IPSAS for undertaking this task, consolidating the financial statements of the central GoR entities and local authorities may prove to be a lengthy process. This is mainly due to and not limited to the following:

The development of IPSAS accounting procedures is being done at central level and the role out process may be affected by a number of factors such as skills levels of the staff working in the lower GoR entities and the resistance to change from modified cash basis to accrual basis IPSAS in the staff in those entities

GBEs are being consolidated in the year 4. However, the different reporting cycles by various public sector entities is always a challenge to consolidation of the GoR accounts.

Accounting and systems capacity may be weaker at the district level for some districts.

15.2.3 Phase/Year 3

15.2.3.1 Overview

This accrual stage builds on from the previous stage and in this stage, the following balances and flows have

been transitioned in the previous stages:

Cash balances.

Prepayments and other current assets.

Financial investments and student loans of all public entities.

Receivables from revenue from exchange transactions (sales of goods and services, interest income,

dividends, rental income).

Accruals and other short-term payables.

Revenue from exchange transactions (sales of goods and services, interest income, dividends, rental

income).

Compensation of Employees.

Use of Goods and Services.



In this phase, more items are earmarked for transitioning on the premise that the activities in the previous

stages have been implemented as planned. Key activities expected to have been implemented include

updating of accounting policies and upgrading of IFMIS to handle the bulk of transactions and accruals

accounting expected at this stage.

The following are the financial statement line items earmarked for transitioning in this phase:

Statement of Financial Position Statement of Financial

Performance

Institution

Year/

Phase


Year 3 1. PPEs excluding

infrastructure assets;

land and buildings;

heritage assets and

natural resources.

2. Concession assets

under appropriate

categories

3. Inventories

4. Receivables from

non-exchange

transactions (fees,

fines, penalties and

licenses on an accrual

basis).

1. Public debt

2. Guarantees and

other contingent

liabilities e.g.

concession

arrangements

liabilities.

3. Pension liabilities

4. Provisions e.g.

estimated provisions of

doubtful debts arising

out of revenue

exchange transactions

(short and long-term)

and inventory

provisions.

1. Revenue

from non-

exchange

transactions

(fees, fines,

penalties and

licenses on an

accrual

basis).

1. Finance costs

2. Social

assistance

3. Depreciation

(PPEs excluding

infrastructure

assets; land and

buildings;

heritage assets

and natural

resources).

1. Central

government

2. Districts

3. Projects

4. Sectors

within the

local

government

cluster

5. Hospitals

Other areas of IPSAS implementation

The following are the areas for implementation at this stage in relation to preparations for the next phase’s transitional items as well as transitioning the earmarked items in this phase.


Recognise all PPEs excluding infrastructure assets; land and buildings; heritage assets and natural resources on an accrual basis in line with IPSAS.

Service concession arrangements. IPSAS 32

Recognise as assets under appropriate categories with corresponding liabilities.



Inventories. IPSAS 12 Recognition and reporting of inventories on an accrual basis.



Consideration Area Activities Revenues. IPSAS 9, 11,23,27

Recognise revenue from non-exchange transactions; fees, fines, penalties and licenses on an accrual basis. IPSAS 23.

Improve disclosures relating to taxation.

Establish methodology for estimating tax revenue reliably and also customisation of RRA systems and interfacing with IFMIS.


N/A

Employee benefits and pension liabilities. IPSAS 39

Recognition of pension liabilities in accordance with IPSAS 39. i.e included in the statement of financial position.

Enhance IFMIS accordingly to generate accounting entries from information submitted by the RSSB.


Recognise provisions as estimated


Other provisions

N/A


Recognition of public debt in accordance with IPSAS 29 i.e. included in the statement of financial position.

Enhance IFMIS accordingly to generate accounting entries through an interface with DAMFAS.

Valuation of financial assets (financial investments, student loans). IPSAS 28, 29, 30

N/A


Recognise estimated provisions of doubtful debts arising out of revenue exchange transactions (short and long-term) .





Budget information in the financial statements. IPSAS 24

N/A

Consolidation. IPSAS 35 Consolidation of accounts of Hospitals while the remaining NBAs are aggregated as per detailed reporting categories.

Inter entity transactions within GBEs eliminated.


N/A



Consideration Area Activities Audit and Quality Assurance

Review and comment on completeness and accuracy of data in registers and disclosure notes towards accrual accounting information in the year-end financial statements (External and Internal Audit)

Annual implementation review reports (IPSAS implementation unit)

Conduct mid-term QA review of all the IPSAS implementation activities (External Consultant)


N/A


Update OBL and associated financial regulations



Update training materials

Reinforcement training of trained trainers

Train users

Change management Continue with the communication tools on an ongoing basis

Project management N/A




15.2.3.2.1 Assets

Inventories, PPEs (excluding infrastructure assets, land and buildings, heritage assets and natural

resources), concession assets under appropriate categories and receivables from non-exchange transactions

(fees, fines, penalties and licenses on an accrual basis) should be introduced in the phase 3 accrual stage.

15.2.3.2.1.1 Phase 3 accrual fixed assets

Currently, expenditure relating to the acquisition of fixed asset is debited to the statement of financial performance. Under accruals basis IPSAS, fixed assets are capitalised and reported in the statement of financial position. Based on the implementation plan strategy fixed assets being a significant areas will be transitioned in phases i.e. starting with the non-complex assets such as furniture and moving to more complex assets such as land and buildings, infrastructure assets and finally heritage assets. The GoR assets to be transitioned in this phase include motor vehicles, fixtures and fittings, furniture, equipment and other mostly movable fixed assets. The Net Book Value (NBV) and depreciation for the assets will be determined as follows:



Movable fixed assets

Cost of asset

Add: Acquisitions

Less: Accumulated depreciation

Less: Disposals

Add: Acquisition of assets on

merger of entities

Add/Less: Other Adjustments

NBV XXX

The assets identification process and inventorying starts in the first phase and by this stage this process should have been complete. Furthermore, the IFMIS fixed asset module should be up to date to facilitate the computation of NBV and depreciation. 15.2.3.2.1.2 Inventory

Currently, expenditure relating to inventories are accounted for on an accrual basis and recognised in the

books of accounts when an expenditure is incurred regardless of the time associated cash and cash

equivalent are paid out.

The inventory is introduced into the statement of financial position as outlined below:

Inventory Dr Cr Comments

Opening balance

(Cash basis)

XX Inventory is currently expensed in the period in which it is acquired

under modified cash basis.

Therefore there will be no opening balance in this phase when inventory

is introduced into the statement of financial position. This is also due to

the fact that inventory is a current asset and as such is expected be

consumed within 12 months. Therefore, inventory existing at the

opening period date has firstly been already expensed in the prior

period and hence already gone through the prior year statement of

financial performance. Furthermore, inventory will be used up within

the 12 months to the period end date.

Add: Purchases

during the year

(accrual basis

IPSAS)

X It is at this stage that accrual basis IPSAS is being introduced as far as

recognising inventory is concerned. The inventory is recognised at the

lower of net realisable value and the cost. Cost in this case is the total

money spent on moving the inventory to its present location and

condition. It takes into account the purchase price of the inventory and

all costs incurred, such as transport and preparation for use costs,

incurred in that process.

Where inventories are acquired through a non-exchange transaction,

their cost shall be measured at their fair value as at the date of



Inventory Dr Cr Comments

acquisition. Inventories shall be measured at the lower of cost and

current replacement cost where the inventories are held for:

Distribution at no charge or for a nominal charge; or

Consumption in the production process of goods to be distributed

at no charge or for a nominal charge.

Less: Issues X In the GoR, inventory is issued at cost unless the issuing entity is

engaged in exchange transactions such as hospitals, universities and

hotels. In the latter case, a mark-up is added to the cost of the inventory

in readiness for the sale of the product. The credit entry here is recorded

at cost and posted to the cost of sale account where a mark-up is added

before the inventory is sold.

Less: Write downs This relates to write downs on inventory where the carrying value falls

below the recoverable amount of the inventory. The write down is

recognised as an expense in the period in which it occurs.

Closing balance

(accrual basis

IPSAS)

XX The transactions above will then constitute the closing balance under


15.2.3.2.1.3 Receivables from non-exchange transactions

This relates to all receivables from non-exchange transactions which are expected to be recovered at least

after the next 12 months. Some of the examples of these include fines and penalties where there are

receivables which have already been determined as per existing laws but not yet paid to the GoR and notes

receivable where the GoR gives third parties repayment dates which are due in future.

Accounting for the transactions for the first time under accrual basis IPSAS should be done as follows:

Receivable

component

Dr Cr Comments

Opening balance

(Cash basis)

XX Currently, receivables from fees, fines, penalties and licenses are not

recorded in the current GoR modified cash basis accounts.

Therefore, in terms of recognising and measuring the opening balance

of these receivables from non-exchange transactions, the GoR has the

following options:

Option 1 – to recognise receivables against the revenue from fees,

fines, penalties and licenses recorded in the prior year at the year end

and then brought forward as opening balances in the recognition

year i.e. year 3. This can be achieved by taking stock of all fees, fines,

penalties and licenses not paid by third parties at the end of the year.

Fees, fines, penalties and licenses are normally fixed amounts as they



Receivable

component

Dr Cr Comments

are mostly stipulated by law and thus it should be achievable to have

accurate values for receivables.

Option 2 – to start with a nil opening balance and record fees, fines,

penalties and licenses revenue and the receivables arising thereof as

outlined in the bookings below. Thereafter, any payments made in

relation to fees, fines, penalties and licenses should be gauged

against the period in which the revenue relating to them was

recognised. Any proceeds from fees, fines, penalties and licenses

determined in the prior year should be recorded as follows:

o Dr – Cash/Bank; and

o Cr – Other income

The choice between the two options lies between the amount of

resources needed to determine the opening balance and the materiality

of the fees, fines, penalties and licenses revenue stream. The current

GoR consolidated financial statements under modified cash basis

indicate that this stream is the fifth largest stream (when proceeds from

borrowings are included in the analysis) and for this reason the GoR

should opt for option 1 to enhance the prudence of the accounts

compiled in this phase.

Add: Receivable

bookings during

the year.

X This relates to fees, fines, penalties and licenses receivables contracted

during the year. These should be recorded on accrual basis as and when

the trigger event occurs. For instance, in relation to traffic fines revenue

should be recognised at the point of admission by the offender.

Less: Receipts

from the

development

partner during the

year

X The corresponding entry to this transaction is a debit to the cash/bank

balance to record the receipt of the cash from the development partners

or donors. The credit posted here is to reduce the receivable amount

sitting in either the opening balance or the receivables booked during

the year above.

Closing balance

(accrual basis

IPSAS)

XX After recording the transactions above, at the end of the period the

closing balance is hence derived under accrual basis IPSAS principles.

15.2.3.2.1.4 Public-Private Partnerships (PPPs) and leases

The GoR currently has assets acquired under various concession agreements with the private sector. These

agreements include leases and service concession arrangements (commonly termed PPPs) and the PPP

register is currently managed by the PPP unit at RDB. IPSAS 32 requires the GoR to recognise the assets

created by such arrangements where:



The risks associated with the asset rest with a GoR (public) entity, or

The use of the asset is controlled or regulated by the public authority and,

The public body has a residual interest in the asset at the end of the contract.

A newly created asset under PPPs should be recognised at fair value. The obligation to pay the contractor

should be recognised as a financial liability. Payments in each period should differentiate the reduction in

the liability, finance charges and service charges in the statement of financial performance.

RDB have no hotels under their books and they only have park buildings. Main revenue from parks is park

entrance fees and gorilla permits. The office building they are operating under is owned by MININFRA.

To date, all the assets existing and operational have been expensed in the current and prior reporting

periods. Therefore, to transition to IPSAS and to recognise the assets on the accrual basis IPSAS framework

the GoR should gather information in relation the assets as tabulated above and compute the NBV. IPSAS

33 permits the use of deemed cost where there is no reliable information to facilitate measurement of the

asset on initial recognition in the statement of financial position.

15.2.3.2.2 Liabilities

15.2.3.2.2.1 Borrowings

Currently borrowings current for the GoR include public debt (bilateral, multilateral, local banks, treasury bills/ bonds, euro bonds), bonds issued (treasury bonds/ euro bond), financial guarantees given to GoR entities, bank overdrafts obtained by GoR entities from local banks. Financial guarantees are authorised by the Minister of Finance. In addition, the Ministry of Finance can borrow and then on-lend giving rise to subsidiary loan agreements. The GoR provides financial guarantees to several reporting entities such as Rwanda Energy Group (REG) holding and Water and Sanitation Corporation (WASAC).

Borrowings are currently recognised into the books of accounts when it is probable that the proceeds under

them will be received by the GoR. Public debt and associated interest in particular are recognised on cash

basis. Proceeds from loan borrowing are recognised as revenue during the year of receipt at cost and

repayment as expenditure in the year of repayment. Cash is considered as received when recipient entity

received a transfer advice from the lender rather than when cash is received in the bank account of the

receiving entity.

Accrual basis IPSAS firstly requires that borrowings be recognised as liabilities in the statement of financial

position. Furthermore, accrual basis IPSAS recognises and classifies borrowings into long-term (expected

to be repaid after the next 12 months) e.g. loans, and short-term (expected to be repaid within the next 12

months) e.g. overdrafts. IPSAS recognises two cash outflows under long-term borrowings i.e. scheduled

principal repayments and accompanying interest. The two together constitute the current portion of the

long-term borrowings and is recognised as a current liability. The principal amount remaining after the end

of each period when the current portion of the borrowings are deducted is recognised as long-term

borrowing in the IPSAS compliant financial statements.

Currently the GoR long-term borrowings include loans i.e. public debt - bilateral, multilateral, local banks,

treasury bills/bonds and euro bonds.



The proceeds from these loans are recognised as revenue in the year in which they are received and the

repayments thereafter recognised as expenses in the statement of financial performance.

Currently in the modified cash basis financial statements only the current portion of the borrowings are

recognised in the financial statements. Under accrual basis IPSAS, the full obligation of the loan should the

recognised in the statement of financial position as a long-term borrowing. Furthermore, the current

portion currently recorded in the statement of financial performance comprising principal repayments and

interest payments should be recognised in the statement of financial performance as current liability

because they are due for payment within the next 12 months.

At the moment, the GoR’s loans and other financial instruments are hosted in DMFAS but the system is

currently not able to compute effective interest on debt securities. Accrual basis IPSAS framework requires

that all costs incurred in obtaining the loan such as administration fees and registration fees should be

considered together with all other cash flows relating to the loan over the full life of the loan and the effective

interest resulting in the process recorded. Where the GoR’s costs incurred in contracting the various loans

are not significant the coupon rate and the effective interest rate will not significantly vary and the coupon

rate can be used in the computation of the interest rate. However, if the coupon rate and the effective

interest rate vary significantly then it will be more prudent to use the effective interest rate to compute the

interest expense in the each of the years across the life of the loan.

What this means for the GoR and its entities in terms of opening balances is that for the current stock of

borrowings which was contracted in prior reporting periods by the GoR, a detailed review of the current

underlying borrowing agreements should be done to establish the following:

The duration of the borrowings.

The compounding period of the interest.

The interest rate (coupon rate).

The obligations inherent in the borrowings.

The repayment plan.

The issue, administration costs and expenses incurred in contracting the borrowings.

Accrual basis IPSAS seeks to determine the rightful amount of interest to be paid on borrowings in the

reasonableness of market conditions. Sometimes there are terms in the contract agreements for loans which

may lead the GoR to pay additional fees that are essentially disguised forms of interest expense. Over the

life of the borrowings these fees effectively increase the actual interest expense paid as compared to the

interest expense computed using the coupon rate and where the coupon rate is what has been used to

compute the interest expense then the expense at this point is understated and across the life of the

borrowings. This is the gap which IPSAS 29 seeks to remediate.

Thus, the fees and other costs inherent in the borrowings should be included in the computation of interest

expense over the life the of the borrowings if they are material and for the GoR such costs are highly likely

going to be material due to bulk and value of the borrowings contracted at central GoR level.

Conducting a complete analysis of the effective interest rate could be quite illuminating for the GoR as some

prospective borrowings will be avoided on the face of conducting the effective interest rate analysis.



Therefore, once the review of the effective interest rate has been conducted for each borrowing instrument

from the date of contracting to the opening date of the phase 2 accrual period then the adjustments on

transition to accruals would be done as follows:

Total interest

to date using

coupon rate

Total interest

to date using

effective rate

Variance

(adjustment)

Action

Borrowing 1 XX X X Interest expense overstated. Credit

the statement of financial

performance and debit reserves.

Borrowing 2 X XX (X) Interest expense understated. Credit

the reserves and debit the statement

of financial performance.

Therefore, the interest expense should be adjusted for as above at the beginning of the phase 3 accrual year.

The borrowings under accrual basis IPSAS are now recognised at their fair value and the interest computed

using the effective interest rate. This also means that the scheduled repayments for the borrowings are

affected as the interest expense has changed with the use of the effective interest rate to arrive at the interest

expense.

In a nutshell the moot issue when it comes to the recognition or transition of public debt from the current

accounting basis to accruals is effective interest. The following are the procedures to transition public debt

to accruals basis IPSAS:

a) Determine the effective interest rate for each public debt instrument i.e. at least by the beginning

of year 3 of the implementation plan. This involves bundling all the costs of borrowing, both implicit

and explicit, to determine in real terms the real cost of borrowing

b) Apply the determined effective interest rate on each public debt instrument from the date of

contraction and determine the interest expense per annum.

c) Sum up the interest paid so far on the specific public debt instrument.

d) Compare (c) above with the cumulative interest expense computed by way of (b) above.

e) The excess of interest expense paid so far over interest expense computed using the effective rate is

an overpayment and thus recorded as other revenue in the period in which the computation is

performed. Similarly, the excess of interest expense computed using the effective rate over the

interest expense paid so far is an underpayment and thus recorded as other expense in the period

in which the computation is performed. The double entry in relation to the above then is as follows:

Overpayment

Dr Cr

Statement of financial position Net assets X

Statement of financial performance Other revenue X

Underpayment



Dr Cr

Statement of financial position Net assets X

Statement of financial performance Other expense X

f) From this date then, all new public debt should be treated under the effective interest principles.

Financial guarantees based on IPSAS guidance are classified as either contingent liabilities because they

are dependent on certain events to occurring to trigger an outflow of resources to settle the obligations

inherent in the financial guarantee agreement. For instance, where the GoR guarantees a local bank that

should a local authority entity default on a loan obtained from the bank, the GoR will settle the obligations

in default on behalf of the local authority entity. Under this arrangement, outflow of resources from the

GoR depends on the likelihood that the default happens and as such IPSAS argues that at this point, there

is a possibility rather than a probability that the default would happen. IPSAS requires the disclosure only

of guarantees in the financial statements and recognition is only permitted when it becomes probable (e.g.

when the local authority entity defaults) that the GoR will have to release resources embodying economic

benefits to settle the obligation.

15.2.3.2.2.2 Employee short-term benefits

These for the GoR currently include, terminal dues, year-end bonuses and payroll taxes such as PAYE, CSR

and maternity leave contributions. These payables are due for payment (or at least expected) within the

next 12 months.

Employee

benefits account

component

Dr Cr Comments

Opening balance

(cash basis)

XX The considerations for this balance are as highlighted above under

employee short-term benefits.



Employee

benefits account

component

Dr Cr Comments

Add: Bookings

during the year

(accrual basis

IPSAS)

X The bookings for payables should be made when the events triggering

payables occur. For instance in the case of terminal dues, the trigger

event is when an employee resigns or retires. The debit entry is posted

to the cash/bank account and a payable booked here.

The bookings should be posted in this manner throughout the year and

at any one period end the closing balance will almost automatically be

determined, except for period end adjustments, by the fact that the

transactions in relation to the short-term liability are being recorded as

they happen as opposed to at the end of the period when all the

payables are taken stock of and recorded.

Less: Payments

made during the

year (accrual

IPSAS)

X This relates to all payments made during the year to settle the

obligations for the year. The double entry is that a credit (payment) is

posted to the cash/bank account and the debit is posted here to reduce

the payable to which the payment relates. The payments are being

captured when they occur under the modified cash basis accounting

framework.

Closing balance

(accrual basis

IPSAS)

XX The closing balance then will be arrived at in line with accrual basis

IPSAS principles.

15.2.3.2.2.3 Employee benefits and provisions thereof

Employee benefits for the GoR employees are currently managed by RSSB. Broadly, there are four

categories of employee benefits per IPSAS 39 guidance:

Short-term employee benefits: Those employee benefits (such as salaries, annual leave and sick

leave) which fall due, wholly, within twelve months from 1 July after the end of the specific GoR

fiscal year in which the employees rendered the related services. Under the current modified

cash basis accounting used by the GoR, short-term benefits are accrued in the reporting period

and paid in the subsequent period. There is performance bonus paid by the GoR to every

deserving employee based on performance indicators set by the GoR. Presently there are no

provisions made in relation to this bonus in the current GoR financial statements. Under

accrual basis, this provision will have to be made in line with the principles of IPSAS 19. The

provision is recognised on meeting the following:

o Obligation exists (constructive or legal) – They have been paying out the performance

bonus every year and at the beginning of each year the performance targets are

communicated to the GoR at which point a legal obligation creeps in because the GoR

through the communication of the targets to the employees has created a valid

expectation in the employees that the bonus shall be paid to the employees provided

that employees meet their targets.



o Resulting in future cash outflows – The obligations inherent in the bonus will be

settled through a bonus pay out.

o Obligation measurable – The GoR should make a reliable estimate for this bonus. This

is purely judgemental and based on experience. Suggestions for arriving at a reliable

estimate include analysing past trends of the amounts paid out in performance bonuses

or the number of staff who manage to meet their performance indicators for the year.

Post-employment benefits: This relates to employee benefits other than termination benefits

which are payable after the completion of employment and examples include pension plan and

death benefits. Currently, the contributions for the reporting period are accrued for at the end

of the period. Under accruals accounting, an estimate for the amount to be paid out in the next

coming 12 months (current liability) and after the next coming 12 months (long-term liability)

should be provided for in the books of accounts now.

Other long-term benefits: This relates to long-term benefits such as seniority premiums and

extra holidays depending on allocation per grade of the staff which do not fall due wholly within

twelve months after the end of the period in which the employees render the related service.

Estimates are needed for these employee benefits and should be recognised in the financial

statements at this stage.

Termination benefits: These are employee benefits payable which are as a result of either:

o An entity’s decision to terminate an employee’s employment before the normal

retirement date; or

o An employee’s decision to accept voluntary redundancy in exchange for those benefits.

The GoR needs to recognise provisions in relation to these employee benefits. Based on the

guidance from IPSAS 19 the obligation test and future cash outflow requirements are met in

relation to these benefits. The challenge comes in when it comes to the measurement of the

receivables as a reliable estimate has to be made. With the engagement of RSSB and actuaries,

parameters and historical information relating to these employee benefits above should be

studied and actuarial valuations done.

15.2.3.2.2.4 Long-term provisions

Currently, under the modified cash accounting, there are no provisions made with respect to the liabilities

in the current financial statements of the GoR. Under accrual basis IPSAS, IPSAS 19 stipulates, the GoR is

required to make provisions for all instances where the GoR has an obligation that will result in an outflow

of future economic benefits and that the outflows can be reliably measured e.g. in the case of employee

benefits and the provisions which the GoR should make in light of the adoption of the accrual basis IPSAS.

The provisions should thus be recognised at the point when it becomes clear that there will be an outflow

of economic benefits due to a present obligation which the GoR has as a result of past events. For instance

in the case of employee benefits, this recognition is at the point of employment i.e. when the employee

accepts the terms of employment by signing the offer of employment.

15.2.3.2.2.5 Short-term provisions



Currently, GoR does not make provisions under the modified cash basis accounting. Under accruals based

accounting, further provisions for invoices not yet settled and year-end performance bonuses should be

determined and recognised in the books of accounts in line with the principles of IPSAS 19.

15.2.3.2.2.6 Contingencies

Currently contingencies under the GoR include guarantees given by various GoR entities e.g. guarantees

given by GoR to private investors in the energy sector that should they produce power and REG is unable

to purchase the output then the GoR will settle the obligation on behalf of REG. This is typical of most of

the PPPs under RDB currently.

IPSAS provides that contingencies should be disclosed in the financial statements, and only introduced in

the statement of financial position when the event underlying the contingency occurs e.g. in the above

example, at the point REG becomes unable (or at the point the GoR has a valid reason to expect that that

REG will not be able to purchase the output) to purchase the output of the private investors in the energy

sector. Refer to section 1.5.2.3.4.5 below for the detailed outline of contingencies.

The review and identification of contingencies in various contracts and agreements for the GoR starts in

year 1 and by this year all the contingencies materialising into liabilities or assets should be determined and

introduced into the statement of financial position.

15.2.3.2.3 Revenue

At this stage revenue from transfers such as fines, fees, penalties and issue of licences will be recognised for

the first time under accrual basis IPSAS. Most of these transfers are administered by law enforcement

agencies such as the national police, the courts and other GoR entities mandated to do so.

Guidance from IPSAS 23 provide that revenue from these transactions should be generally recognised at

the point the GoR has a valid right to expect the inflow of future economic benefits and that the economic

benefits can be measured reliably. Further guidance from the standard is that revenue stream by stream

approach should be employed to ascertain the trigger point for each type of revenue stream. Below are the

recognition points for the revenues from transfers (except grants) under the GoR.

Revenue Recognition point

Fines At the point of conviction of the law breaker. For cases in court and attracting a fine, once

convicted, this occurs at the point the verdict is passed by the court and for traffic offences

the recognition point at the point the law breaker signs an admission of guilt form.

Fees For instance, business registration fees the recognition point will be at the point an

application for registration is approved by the GoR registration authority. For fees which

are non-refundable and paid upfront, the recognition point becomes when the fee is paid

by the third party.

Penalties At the point when the deadline is breached e.g. PAYE should be remitted by the 15 of the

subsequent month (i.e. PAYE for January is due on the 15 February) and if not remitted by

midnight on the 15 day then the GoR has a valid expectation that the penalty will be paid by

the law breaker.



15.2.3.2.4 Expenses

The main expenses being transitioned at this stage include finance costs, social assistance and depreciation

for all PPEs excluding infrastructure assets; land and buildings; heritage assets and natural resources.

15.2.3.2.4.1 Finance costs

Finance costs at this stage have to be determined taking into consideration the full GoR stock of borrowings

and the nature of the borrowings as well as whether effective interest rate would be a more prudent method

of computing the interest expense or to use the coupon rate as per the practice currently.

15.2.3.2.4.2 Borrowings repayments

GoR has the following borrowings: treasury bills and bonds, corporate loans and bonds, loans with public

enterprises and loans with local banks.

Repayments should be accrued for according to the signed contract or agreement. For example, for

overdraft facilities with local banks, the interest should be accrued for on either a monthly or quarterly basis

depending on the contract. The GoR as stated above should however perform an effective interest rate

analysis to determine the interest expense amounts prudently. The repayments for borrowings are made

up of an interest portion and a principal repayment portion and these are recognised as current assets as

described above.

15.2.3.2.4.3 Provisions

Currently under cash based accounting, the GoR does not make provisions, however under accrual basis

accounting, the GoR will be expected to make provisions for the following, short-term employee benefits

such as year-end performance bonuses, leave provisions for the GoR staff and court cases where it is

probable that the GoR will release resources (economic benefits) in future to settle a current obligation

which is as a result of past events.

For loan interest, the GoR is currently expensing these as they fall due based on the stipulations of the

various pieces of loan agreements held by the GoR entities. There will be no conversion needed for these

expenses only that the considerations highlighted above should be employed every time such expenses are

being recorded.

15.2.3.3 Financial statements Borrowings (public debt) at this stage are recognised in the statement of financial position from the

statement of financial performance and the annual repayments comprising of the principal payments and

the interest computed are transitioned to accrual basis IPSAS at this stage.

Assets introduced or transitioned to accrual basis IPSAS include PPEs (excluding infrastructure assets; land

and buildings; heritage assets and natural resources), concession assets under appropriate categories,

inventories and revenue from fees, fines, penalties and licenses as well as the receivables arising.

The above items transitioned also demand the transition of the following expenses to accrual basis IPSAS

treatment:

Finance costs



Social assistance

Depreciation (PPEs excluding infrastructure assets; land and buildings; heritage assets and natural

resources)



Revenue

Taxes X X N/A Cash

Fees, fines, penalties and licences X X Accrual Cash

Grants X X N/A Cash

Revenue from exchange transactions X X N/A N/A



Other revenue X X N/A Accrual

Expenses

Compensation of employees (X) (X) N/A Accrual

Use of goods and services (X) (X) N/A Accrual


Social assistance (X) (X) Accrual Cash

Finance costs (X) (X) Accrual Cash

Depreciation* (X) (X) Accrual N/A

Other expenses (X) (X) N/A Cash

Acquisition of fixed assets* (X) (X) N/A Cash


* PPEs excluding infrastructure assets; land and buildings; heritage assets and natural resources will be capitalised and recognised in the statement of financial position. 15.2.3.3.2 Statement of financial position – Year 3


ASSETS

Non-current asset

Property, plant and equipment* Accrual N/A

Receivables from non-exchange

transactions **

X X Accrual N/A

Receivables from exchange transactions X X N/A Accrual

Other financial assets X X N/A Accrual

Currents assets




Inventory X X Accrual N/A


transactions**

X X Accrual Accrual




NET ASSETS/EQUITY

Capital

Reserves X X N/A N/A

Accumulated surplus/(deficit) X X N/A N/A

LIABILITIES


Employee benefits X X Accrual N/A

Long - term provisions X X Accrual N/A

Long - term borrowings X X Accrual N/A

Payables X X N/A Cash

Current liabilities

Current portion of long-term borrowings X X Accrual N/A

Short - term borrowings X X N/A Accrual

Employee benefits X X Accrual N/A

Short - term provisions X X Accrual Cash


*PPEs excluding infrastructure assets; land and buildings; heritage assets and natural resources will be capitalised and recognised in the statement of financial position. Disclosures should be included in the financial statements to indicate that only non-complex fixed assets have been capitalised at this stage. ** Only receivables from fees, fines, penalties and licences will be included in the statement of financial position.


20X3 20X2

Receipts

Taxes X X


Grants X X




Other revenue X X



20X3 20X2

XX XX

Payments

Compensation of employees (X) (X)

Use of goods and services (X) (X)


Social assistance (X) (X)


Depreciation (X) (X)



(XX) (XX)


Adjusted for:

Changes in inventory X/(X) X/(X)



Adjustments during the year X/(X) X/(X)













In the phase 3 accruals stage, there will be need to tailor and update accounting policies for the following financial statement line items:

15.2.3.4.1 Inventory and inventory management

Accounting policies for inventory should be updated to take into consideration the following:



Harmonisation of inventory policies across GoR entities and adopting one method of valuation

from acceptable methods of inventory valuation such as Weighted Average Cost and First-in First-

out (FIFO). For the GoR Weighted Average Cost is recommended due to the bulk of inventory held

by GoR entities as a whole and also the range of types of inventory held which are more conveniently

valued by Weighted Average Cost method. Under FIFO, every time items are issued out of inventory

one has to determine how many items in the issues are from the first consignment and how many

items are from the next consignment. This creates extra administrative work for the staff handling

inventory in GoR entities.

Procedures for performing inventory counts need to be developed so that the verification of the

existence of inventory is properly guided across the GoR entities. The procedures should specify

how often the counts would be conducted, staff to be involved and the standard classification of

inventories chart. Furthermore, the GoR should develop a standard chart of types of inventory

found in government entities and how to maintain the inventory to avoid deterioration and

ultimately inventory write offs.

Storage procedures for various types of inventory should be developed for use by the inventory

handling and management staff.

GoR revenue policies need to be updated to include the recognition point for the various types of

revenue generated by the GoR and its entities.

For borrowings, there is need to issue comprehensive policies on recognition, initial and

subsequent measure of the various instruments currently carried by the GoR. The policies should

include procedures and consideration for computing interest in determination of the current and

long-term payables arising as a results of recognising the borrowings in the statement of financial

position.

15.2.3.4.2 Post-Employment benefits

In Rwanda the GoR employees’ benefits portfolio is managed by RRSB, currently established under law no. N°45/2010 of 14/12/2010. RSSB is managing a total portfolio including national pension and social security schemes to which private and GoR employees contribute as well as special benefits or pension schemes for specific categories of employees across Rwanda. Special accounting treatment is required for post-employment benefits which are usually earned on a continuing basis, but may not be paid directly or until sometime in the future on separation from the employment with the GoR. The GoR should therefore develop accounting policies that define how to estimate its obligations in relation to its employees’ benefits. Accrued benefits to be recorded include:

Short-term employee benefits, such as wages, salaries, and social security contributions; paid annual leave and sick leave; profit-sharing and bonuses, as well as non-monetary benefits (such as medical care, housing, cars, and free or subsidised goods or services) for current employees. The GoR payroll is run in IPPIS and at the moment short-term benefits are on accrual basis as partly provided by the modified cash basis accounting framework. However, there are no provisions made for the employee performance bonus which is paid in the subsequent year after completion of performance evaluations for employees;

Post-employment benefits such as pensions, other retirement benefits, post-employment life insurance, and post-employment medical care. There is currently no provisions made with respect to these obligations which the GoR will, under accrual basis IPSAS treatment, be paying out every financial year depending on the number of employees entitled to the benefits; and



Other long-term employee benefits, which may include long-service leave or sabbatical leave, long-service benefits, long-term disability benefits, as well as bonuses or profit-sharing payable beyond a 12 month horizon and termination benefits. There are currently no provisions in relation these benefits.

There is therefore a need to develop accounting policies firstly, governing provisions as highlighted during the phase 2 accrual stage. Furthermore, the GoR needs to collaborate with RSSB in the development of accounting policies for recognition of the above employment benefits as well as setting rules for eligibility under each benefit. Finally, in relation to the GoR employee benefits portfolio, the accounting policies need to stipulate at what intervals the actuarial valuations should be carried out. The treatment of long-term pensions and similar benefits is inherently complex because of the timescales and uncertainties attaching to them. A distinction, further needs to be drawn between “defined contribution” schemes and “defined benefits” schemes.

In a defined contribution plan, the GoR is only obliged to make contributions (for example, where they pay into a private retirement plan), and all financial risk related to future benefits rests with the employee. Contributions payable are recognised as a liability (accrued expense) when they are earned and extinguished when the contributions are paid. Valuation is generally at undiscounted (i.e., cash) value, and no actuarial valuations are needed. Defined contribution plans are common with the GoR GBEs.

In a defined benefits plan, the GoR has a long-term obligation to pay specified benefits, and the financial risk rests with the GoR. These obligations may be funded, unfunded or a mixture of both. Accounting is complex because actuarial valuations (with discounting) are needed to measure the obligation and associated expense, and the value of funds needed to meet those obligations. In some cases, estimates, averages, and computational short cuts may provide a reliable approximation in lieu of detailed computations. The majority of general GoR entities are currently defined benefits plans.

For the GoR, other long-term benefits, such as sabbatical leave or long service benefits are not as complex and open ended as other long-term employee benefits and for this reason these can be determined through policy actions and definitions including computation formulas. Whilst much of the same valuation thinking is applied as for pensions, all the impacts of changes in entitlement are recognised in the current year rather than being spread over a period. For termination benefits, these are recognised as a liability and expensed as soon as they are certain (for example, in a voluntary redundancy program, once the number, value and timing of redundancies are confirmed). Any benefits due beyond the 12-month horizon should be discounted to current values. 15.2.3.4.3 Other social benefits

The current social benefits under the GoR consolidated accounts are current transfers made by budget agencies to provide for needs arising from events such as sickness, housing and family circumstances. There is currently no standard under IPSAS guiding the treatment of social security benefits but general practice is that contributions from beneficiaries are recorded as revenue and benefits paid out under certain eligibility criteria are recorded as transfers or expenses. The IPSASB is however currently working on a draft standard on how to record these schemes in financial accounts, which should be aligned with the statistical treatment defined in the GFSM 2014. The GoR may choose to record these when the eligibility criteria are met, or when the benefits are paid.



15.2.3.4.4 Financial instruments

Accounting policies should prescribe the recognition of a financial liability or asset when the GoR becomes a party to the contractual provisions underlying the financial instrument. This includes also specifying whether the instruments are measured at either fair value or at amortised cost. Further guidance from IPSAS 28, 29 and 30 requires that detailed disclosures be included in the financial statements about the holdings of financial instruments by type. IPSAS 30 in particular requires disclosure in the notes about the types and levels of risk attaching to each class of financial instrument, including sensitivity analysis of those risks, as well as the policies for managing risk. However, full compliance may be challenging during the first years of the transition to accrual accounting. Capacity may not be available in the GoR for identifying, classifying and measuring some categories of financial instruments owing to a host of resources needed to transition other account balances at this stage and the forthcoming stages which bring on board more complex items like fixed assets and employee benefits. Where this is the case, the GoR may need to make use of transitional accounting policies to facilitate the financial reporting process as well as to make the financial information in the consolidated financial statements more meaningful to the users. This may include developing simplified measurement methods for some categories of financial instruments such as derivatives. 15.2.3.4.5 Provisions and contingent liabilities

Accrual basis IPSAS distinguishes GoR obligations between liabilities and contingencies. Liabilities such as payables and provisions are unconditional financial obligations of the GoR whilst contingencies are conditional financial obligations. The former will be recorded as liabilities in the balance sheet, while the latter will be reported only in the disclosures. This then means that:

A liability is an unconditional obligation arising from a past event, the ultimate settlement of which is expected to result in a future outflow of economic benefits or service potential from the GoR e.g. loans repayable by the GoR.

A provision on the other hand is a specific type of liability or probable obligation, of uncertain amount or timing. It relies on estimation, something that distinguishes it from the comparative certainties of cash accounting. The amount recognised in the balance sheet as a provision should be the best estimate of the expenditure required to settle the obligation, using present value techniques if spread over a number of years. Changes in a provision during the year would be recognised as an expense. Sometimes the word “provision” is also used in a looser sense, for recognising items such as doubtful debts or the impairment of assets. However, these are adjustments to the carrying amounts of assets, based on estimates, rather than provisions within a strict interpretation of IPSAS 19. In the current stage only short-term provisions are recognised in the financial statements. These for the GoR include provisions for expenses expected on the verdict of court cases where the GoR is the defendant or fines to be paid by GoR entities where the entities are fined by mandated GoR entities.

In contrast, a contingent liability is a possible obligation arising from a past event whose existence will only be confirmed by future events. They represent a financial risk for the GoR however, and should be reported in the notes to the financial statements. An example of a contingent liability is a loan guarantee given by a GoR to a local government or a state owned enterprise, or a guarantee on bank deposits. Accounting policies should therefore set up criteria for classifying the financial obligations of the government as liabilities, provisions or contingent liabilities, based on the GoR’s actual financial operations. Contingencies such as guarantees and commitments should be disclosed in the financial statements and only recognised at the point it becomes probable rather than possible that the GoR will have to release resources embodying economic benefits to settle obligations under a particular guarantee arrangement.



15.2.3.5 Operational implications Some of the operational implications at this stage include the following:

15.2.3.5.1 Inventory and inventory management

The recognition of inventory into the GoR consolidated accounts will bring about the following implications for the GoR and its entities.

Inventory counts – there is need to allocate staff in charge of managing inventory and also

coordinating inventory counts across the GoR entities.

Ageing analysis for inventory – inventory sometimes becomes obsolete at which point it cannot be

used for the intended purpose. Inventory ageing is also essential for inventory purchases planning

purposes as well as foresing write off costs. At this stage the GoR entities should start performing

ageing analyses for the various pieces of inventories held in the GoR entities.

Upgrading DMFAS with effective interest computation capabilities as the system is currently not

able to compute effective interest.

Skills development initiatives for accounting staff in the areas of inventory management and

accounting, borrowings and revenue and receipts management. This can be done through routine

training and updates on the IPSASs covering the areas above.

Revising the responsibilities or job descriptions of the existing staff to accommodate the roles

demanded by accrual basis IPSAS.

Inventory management procedures which should allow identifying damages to inventory that would impair their value. Assets such as inventory are usually valued internally, using invoices, contracts or other sources of information on their costs and that valuation of the inventory will have to be supported by identifiable documented sources to provide an audit trail in support of the valuation.

The inventory handling and storage departments in the GoR entities needs to be restructured and

aligned to facilitate accruals accounting requirements under IPSAS e.g. the storage staff need to

demonstrate knowledge of valuation methods such as Weighted Average Cost and FIFO.

Accountants involved in the recording of transactions for receipts under the current modified cash

basis accounting should be able demonstrate the skills needed to adapt to accrual accounting and

also understand the treatment of revenues from both exchange and non-exchange transactions

under accrual basis IPSAS.

At this stage the general GoR will have adopted accrual basis IPSAS accounting up to the balances added at this stage. This implies that IFMIS and subsidiary systems like DMFAS should be updated to facilitate the demands of the accounting transactions at this stage.

15.2.3.5.2 Post-employment benefits

The valuation of pension liabilities will require at least an annual exercise to bring together data on the various funds and pensions schemes for which GoR is responsible. Fund managers will need to provide updated data on beneficiaries and rates, and in each case an actuarial valuation of consequent liabilities (and assets, if the scheme is funded) will be needed. An important issue which will need to be decided and updated each year will be the discount rate to be applied to future flows in such valuations – the policy on how the discount rate is set should be consistent year to year even if it results in annual variations. Small variations in discount rates can generate large changes in values.



15.2.3.5.3 Grants and subsidies

The GoR currently receives grants for budgetary support and sector support. For grants and subsidies, recognition in the financial statements is the existence of a valid claim i.e. when all requirements and conditions for receiving a subsidy or benefit are satisfied by the GoR. This means that all grant agreements currently under which the GoR is a party should be reviewed and recognition points identified for such financial statement line items as long-term and short-term receivables and conditions attached as the latter determine whether or not the grant should be recognised as revenue or a receivable until all the conditions are satisfied for it to be released to the statement of financial performance. 15.2.3.5.4 Key tasks and considerations for transitioning

In this phase employee benefits, inventory, borrowings and revenue from fees, fines and penalties are the main transition items. Below are the key tasks and considerations to guide the transition of the foregoing items: 15.2.3.5.4.1 Inventory

With respect to inventory, the tasks and activities are as follows:

Identify categories of inventory o Focus on major categories with high value assets. o Distinguish spare parts that are major components of fixed assets and other spare parts

that are items of inventory.

Physical stocktake o Check availability of data. o Harmonise approach and instructions. o Involve operational and technical people.

Determine acquisition costs of purchased assets o Select First-in, First-out (FIFO) or Weighted Average Cost (WAC). o Determine components of cost.

Determine cost of produced inventories o Identify items of inventory produced for sale of for the provision of services. o Understand the production process, identify direct and indirect production costs and

overhead costs that are incremental. o Determine the normal capacity of the production facilities. o Determine costing methodology. o Check data availability and make sure the cost accounting system allow an IPSAS-

compliant costing.

Establish procedure to determine net realisable value of inventories held for sale and current replacement cost of inventories not held for sale.

Focus on slow moving items.

15.2.3.5.4.2 Social benefits

The following are the consideration with respect to social benefits:

Identify major types of social benefits



o Make a comprehensive inventory of social benefits, per category and sub-category of benefits.

o Understand current basis for allocation of these benefits.

Determine recognition and measurement rules for social benefits o Recommendation to do it based on IPSASB Exposure Draft on this topic (follow up

development of the standard).

15.2.3.5.4.3 Employee benefits

The following are the considerations for employee benefits:

Identify types of employee benefits within each of the four categories: o Short-term benefits. o Post-employment benefits. o Other long-term benefits. o Termination benefits.

Involve RSSB and other Human Resource (HR) departments.

Short-term employee benefits. o Establish cut-off procedures to recognise any unpaid liability at year-end and an asset in

respect of any service paid in advance.

Termination benefits. o Set up procedure to identify them.

Post-employment benefits. o Involve actuarial specialists. o Classify pension and other post-employment plans between defined benefit plans and

defined contribution plans. o For each type of defined benefit plans: determine appropriate actuarial assumptions and

an appropriate discount rate. o Select the accounting policy for recognising actuarial assumptions: immediate recognition

either in the statement of financial performance or in the statement of changes in equity, deferred recognition in the statement of financial performance using the corridor approach, deferred but faster recognition in the statement of financial performance.

o Identify any plan assets and determine their fair value.

Other long-term benefits. o Involve actuarial specialists. o Classify pension and other post-employment plans between defined benefit plans and

defined contribution plans. o For each type of defined benefit plans: determine appropriate actuarial assumptions and

an appropriate discount rate. o Identify any plan assets and determine their fair value.

15.2.3.5.4.4 Financial instruments

With respect to financial instruments the following should be considered:



Identify all financial assets, classify them first per type of assets (term deposits, bonds, shares, loans, receivables and derivatives).

Select a sample of contracts for analysis, analyse contractual features of the instruments and the purpose of why they are held (business model).

Establish procedure to measure financial assets (both debt and equity instruments) either at amortised cost or at fair value (level 1, level 2 or level 3 fair value).

Determine accounting policy for impairment if financial assets at amortised cost.

Identify concessionary loans by assessing the terms of the loans/borrowings against market conditions and determine their fair value for the initial recognition.

Establish procedure to measure financial liabilities either at amortised cost or at fair value (only for

derivatives).

Identify transactions with potential complex issues in respect of de-recognition rules (both for financial assets and financial liabilities).

Identify instruments issued by the entity and assess equity versus liability classification based on existing contractual arrangements.

Financial guarantees o Identify them in contracts. o Establish a methodology to value them.

Hedge accounting o Identify whether hedging transactions are concluded. o Assess whether the government wants to apply hedge accounting to minimise volatility in

the financial statements. o If hedge accounting is applied, prepare proper documentation, test hedge effectiveness and

set up appropriate booking entries.

15.2.3.5.4.5 Provisions, contingent assets and liabilities

Below are the key points for transitioning provisions, contingent assets and liabilities.

Identify categories or types of provisions and types of expenditure that may potentially give rise to a provision e.g. litigation, warranty, restructuring, environmental and onerous contract.

For each category identified, assess against the IPSAS recognition criteria:

o Determine whether an (legal or constructive) obligation exists. o Assess the criteria strictly for constructive obligations. o Assess the probability of outflow. o Involve legal and operational people.

For each category identified, determine measurement:

o Determine the best estimate of the cost required to settle the obligation. o Assess the need for discounting (for long-term provisions) based on materiality

considerations and determine an appropriate discount rate.

Identify major contingent assets and liabilities.

15.2.3.5.4.6 Service concession arrangements

For the service concession arrangements, the following are the considerations:



Identify all concession arrangements/ PPP transactions.

Analyse contracts and types of transactions.

For each transaction, determine whether the government has control over the asset.

Determine the measurement of the asset and liability based on evaluation of contractual terms.

15.2.3.6 Institutional coverage At this stage the scope of consolidation includes central government, districts, projects, sectors within the local government cluster and hospitals across the country. Therefore, the consolidation policies at this point should be fully developed to match up with the scope of consideration.

15.2.4 Phase/Year 4

15.2.4.1 Overview

In this phase, the transition of modified cash balances to accrual basis IPSAS has reached an advanced stage

in terms of the bulk and complexity of transactions across the entities in the consolidations scope. The

consolidation scope is extended to include the results of GBEs for the first time as well as secondary schools

across Rwanda.

The recognition of fixed assets into comes with the computation and recognition of the depreciation and/or

amortisation and impairment expenses in the current phase more complex fixed assets are brought on

board i.e. land and buildings as well as intangible assets. Grant revenue will also be recognised under

accruals IPSAS accounting principles at this stage. Refer to the table below for the transition strategy:

Statement of Financial Position Statement of Financial

Performance

Institution

Year/

Phase


Four 1. Land and

buildings.

2. Intangible

assets

3. Receivables

from non-

exchange

transactions;

Grants and

transfers from

other government

entities.

1. Provisions e.g.

estimated provisions

of doubtful debts

arising out of revenue

from non-exchange

transactions (short

and long-term)

2. Other provisions

(e.g. onerous

contracts and

decommissioning

obligations).

1. Recognise

revenue from

non-

exchange

transactions;

Grants and

transfers

from other

government

entities on an

accrual basis.

1. Depreciation

and

amortisation

(land and

buildings and

intangible

assets)

2. Impairment

1. Central government 2. Districts 3. Projects 4. Sectors within the local government cluster 5. Hospitals 6. GBEs and secondary schools

Other areas of IPSAS implementation

Consideration Area Activities Receivables and doubtful debts in accordance with IPSAS 29

Recognise estimated provisions of doubtful debts arising out of revenue non - exchange transactions (short and long-term).



Consideration Area Activities Enhance the IFMIS, RRA systems to record and account for the estimated

provisions.





Consolidation. IPSAS 35 Consolidation of accounts of government to include GBEs and secondary schools.


Include associates on equity basis in the GoR consolidated statement of financial position.


Review and comment on completeness and accuracy of data in registers and disclosure notes towards accrual accounting information.



Issue instructions and circulars for the progressive implementation of the IPSAS manual in line with roadmap.




Train users.

Change management Continue with the communication tools on an ongoing basis.


Recognise all intangible assets on an accrual basis in line with IPSAS.


15.2.4.2.1 Assets

15.2.4.2.1.1 Tangible assets

Land and buildings – Currently the funds expended in relation to the acquisition of land and buildings are

expensed through the statement of financial performance in the period in which they are incurred.

Currently, land is under the mandate of the Rwanda Housing Authority, Rwanda Land Management and

Use Authority (RLMUA) and local authorities.



Accrual basis IPSAS carries the assets in the statement of financial position at their net book value as

follows:

Land Buildings

Cost of asset

Add: Acquisitions

Add/Less: Revaluation

Less: Impairment

Add: Acquisition of land on

merger of entities


NBV XXX

Cost of asset

Add: Acquisitions


Add/ Less: Revaluation

Less: Impairment

Less: Disposals

Add: Acquisition of assets on

merger of entities


NBV XXX

The key milestone at this stage in relation to the land and buildings is that the valuation of the same should have been completed at this point.

15.2.4.2.1.2 Intangible assets

The main intangible assets identified under the GoR are: computer software which are either externally

purchased (Such as Sage, Pastel, QuickBooks etc.) or internally developed (such as IFMIS, IPPS etc.),

licences, operating rights or rights of use, acquired patents and copyrights. Intangible assets currently are

expensed in the period in which they are acquired and are not capitalised.

Intangible assets which are either developed or purchased by the entity of the GoR are recognised if:

It is probable that the future economic benefits or service potential that are attributable to the asset

will flow to the GoR; and

The cost or fair value of the asset can be measured reliably

Recognition of intangible assets generally excludes internally developed intangible assets. As an exception,

development costs for intangible assets such as IFMIS can be capitalised only if the technical and

commercial feasibility of IFMIS can be established or evidenced. Any items that do not meet the criteria

above are expensed in the period in which they are acquired.

IPSAS 31 also distinguishes between indefinite life (no foreseeable limit to the period over which the asset

is expected to generate net cash inflows for the entity) and finite life. Indefinite is not the same thing as

infinite. Generally, according to industry practice computer software like IFMIS is amortised over 3 years.

Intangible assets with indefinite useful lives are not amortised but are tested for impairment on an annual

basis. The GoR should also review, annually, whether the intangible continues to have an indefinite life.

Amortisation and impairment losses are expenses in the period in which they are incurred.



For the GoR, this means that at this stage, the identification and valuation of all assets eligible for

recognition should have been completed to enable depreciation, amortisation and impairment expenses to

be recognised.

15.2.4.2.1.3 Receivables from grants and other non-exchange transactions

At the moment, there are no receivables recorded in light of grant revenue. Typically, the receivables arise at two typical points i.e. when a grant agreement is signed by both the GoR and the donor or when the conditions embedded in the grant are fulfilled and there is no cash received yet. Refer to sections 4.1.1.1.2 and 4.1.1.1.3 above. There is already a stock of grants running and the information is maintained in the DAD database. The following table outlines the procedures which should be performed to introduce the grant revenue into the financial statements at this stage:

Receivable

component

Dr Cr Comments

Opening balance

(Cash basis)

XX Currently all proceeds received from grants are recognised as revenue

in the period in which they are received and no receivables are recorded.

Therefore, in terms of recognising and measuring the opening balance

of the long-term receivables from non-exchange transactions, the

following should be employed:

Identify all and take stock of all grant arrangements currently

running.

Review and determine the terms of the agreements so as to

identify obligations for the GoR and the counter parties as well as

the conditions attached and implications on financial reporting

under accrual basis IPSAS framework.

Once the terms have been isolated, record the transactions

implied by the terms as if accrual basis IPSAS had always applied

at the time the agreements came into effect (i.e. principally when

they were signed by both parties). This means for instance, where

a grant is to run for five years and a receipt of funds from the

development partner is scheduled annually, the full amount

across the five years is recorded less all the receipts from the

development partner at present. Therefore, two receivables will be

recognised in the statement of financial position i.e. long-term

receivable being the total grant amount across the five years less

all that has been received from the development partner to date

and a short-term receivable being the next expected scheduled

annual receipt from the development partner.

Where there are conditions attached to the grant and the

agreement has been effected through for example signing of the

grant agreement, the grant amount across the period of the grant

is recognised as a long-term receivable and a payable is also

recognised at the same amount of the total expected receipts from



Receivable

component

Dr Cr Comments

the development partner. The release of the payable (recognition

as revenue) to the statement of financial performance only starts

at the point the conditions are met and funds are received from

the development partner. The funds received in the first year are

recorded in the cash/bank account and a credit posted to the

receivable account as below to reduce the receivable by the

amount funds received.

Add: Receivable

bookings during

the year.

X This relates to new long-term receivables contracted during the year.

These should be treated as highlighted above on the opening balance

going forward.

Less: Receipts

from the

development

partner during the

year

X The corresponding entry to this transaction is a debit to the cash/bank

balance to record the receipt of the cash from the development partners

or donors. The credit posted here is to reduce the receivable amount

sitting in either the opening balance or the receivables booked during

the year above.

Closing balance

(accrual basis

IPSAS)

XX After recording the transactions above, at the end of the period the

closing balance is hence derived under accrual basis IPSAS principles.

15.2.4.2.2 Liabilities

The main liabilities in this phase are provisions e.g. estimated provisions of doubtful debts arising out of

revenue from grants (short and long-term) as well as other provisions e.g. onerous contracts and

decommissioning obligations.

Provisions in relation to grants should be made where it becomes clear that the GoR will not receive funds

recognised as revenue from grants. These provisions are typically rare considering that the revenue

recognised and the receivables thereof are on the basis of signed agreements.

Provisions for expenses expected to be incurred in future due to the obligations brought about by onerous

contracts should also be made at the point it becomes probable that the GoR will have to release economic

benefits towards the settlement of the obligations underlying the onerous contract.

15.2.4.2.3 Revenue

Currently for the GoR, this includes grants and donations from foreign governments, international

organisations and transfers between general GoR units which includes treasury transfers, inter-entity and

intra-entity transfers. Intra-entity transfers refers to transfers between cost or revenue centres within a

public entity.

The flowing are the recognition points of the pieces of grants under the GoR currently recorded through the

modified cash basis accounting:



Grants and donations are recognised in the books of accounts when cash is received and in case of

grant/donation in kind, such grants are recorded upon receipt of the grant item and upon

determination of the value.

Transfers from treasury are recognised in the books of accounts when cash is received.

Transfers received from government entity for onward payment to a third party are not treated as

an inter-entity (revenue) rather, such transfers shall be recorded as transit fund (liability) in the

books of the receiving entity.

Transfers from Treasury that are not related to current fiscal year budget are not treated as cash

transfers. Instead such transfers shall be treated as inter-entity transfers.

Transfers from entities to Treasury which does not relate to the current fiscal year budget are

treated by Treasury as inter-entity transfers.

Funds returned to Treasury at the end of the fiscal year as a result of zero balance accounts sweeping

are not recognised as inter-entity transfers. Instead, those funds will reduce the cash transfer

account balance for the same year. Where such transfers are received by Treasury in the subsequent

fiscal year (such as embassies and foreign missions) such transfers are recognised as inter-entity

transfers.

Under accruals based accounting, when a grant agreement is signed between the GoR and a third party, say

a development partner, and the grant agreement has conditions attached, deferred revenue should be

recognised with respect to the revenue underlying the agreement. Depending on how the funds will be

received, they should be classified as follows; short-term receivable from non-exchange transactions, if

expected to be received within the next 12 months and long-term receivables from non – exchange

transactions, if expected to be received after the next 12 months.

The GoR currently has grants signed in prior years which have funds still flowing to the GoR. The funds as

stated above were recorded as revenue when they were received. To transition to IPSAS there is need to

perform an analysis of the current grants running to identify the cash inflows underlying the grants. This is

because where there is a signed grant agreement which runs for, say, a five year term of funding with funds

received every year, the GoR only recognises the funds received annually and the funds to be received for

the following year are excluded. Accrual basis IPSAS requires that the economic implications of such grant

agreements should be recognised and recorded into the financial statements.

Thus for a grant running for five years like the example above, a deferred revenue (liability) is recognised

for the full amount of the inflows across the five year term as well as a long-term receivable for the balance

of the funds yet to be received. A short-term receivable is also recognised for the funds to be received in the

coming 12 months i.e. the next annual receipt.

15.2.4.2.3.1 Other transfers

Other transfers comprise of debt forgiveness, fines, gifts, donations and goods and services in kind. These

items should be recognised as revenue when they occur or when the economic benefits underlying them

have been transferred to the GoR e.g. for goods in kind, when the actual goods are received by the GoR.

The following are the key aspects involved in the transition of revenue from non-exchange transactions such

as grants:

Revenue from non-exchange transactions, for each (category of) revenue from a transfer:



o Determine triggering event for the transfer and the recognition of an asset; o Analyse terms imposed on receipt of the transfers, distinguish stipulations between

conditions and restrictions and identify performance obligations (based on laws, regulations or applicable arrangements);

o Establish methodology for measuring the release of the performance obligation; and o Recognise revenue cumulatively as the net balance between the asset and the (potential)

liability.

Select accounting policy for services in kind (i.e. assess whether or not to recognise).

15.2.4.2.4 Expenses

15.2.4.2.4.1 Grants and other transfer payments

The GoR also makes grants to its entities. Expenditure relating to grants, transfers and subsidies is

accounted for on cash basis and recognised in the books of accounts when the cash and cash equivalent is

paid out. Cash is considered as paid when consideration for payment such as EFT, cheque, payment order

are signed rather than when cash and cash equivalent are debited from the bank statement.

Under accrual accounting, the grants, transfers and subsidies will be recognised earlier than they are

currently. These will be recognised when the GoR communicates in writing to the various GoR about the

funds to be received in grants and subsidies whether or not funds have been transferred to the receiving

entities. At the point of communication, a payable will be raised in the books of the GoR and an expense

passed in the statement of financial performance. The transfer of funds to the receiving entity is another

transaction and when that happens the payable raised earlier is extinguished as a credit is posted to the

cash/bank account to release the funds.

15.2.4.2.4.2 Depreciation, amortisation and impairment

Depreciation, amortisation and impairment of the fixed assets are the expenses being introduced into the

statement of financial performance at this stage. These expenses are computed for each class of fixed assets

as highlighted above and are expensed in the period in which they are incurred.


In the statement of financial performance, grants and other transfers from GoR entities are transitioned to

accrual basis IPSAS. This also results in the recognition, in the statement of financial position, of long-term

receivables (for multi-year grants, the balance of funds embedded in the grant agreement after deducting

the annual portion received in the current reporting period and the portion to be received in the next 12

months i.e. the portion recognised as short-term receivable in the current period) from the transfers as well

as the short-term receivables (regular annual receipts of funds).

Finally, the grants and subsidies given out by the GoR to general government entities and other lower level GoR entities are transitioned at this stage to accrual basis IPSAS. 15.2.4.3.1 Statement of financial performance – Year 4




Revenue

Taxes X X N/A Cash

Fees, fines, penalties and licences X X N/A Accrual

Grants X X Accrual Cash

Revenue from exchange transactions X X N/A Accrual

Transfers from other government entities X X Accrual Cash

Capital receipts X X N/A Accrual


Expenses

Cost of sales (X) (X) Accrual N/A



Depreciation, amortisation and impairment (X) (X) N/A Accrual

Grant and other transfer payments (X) (X) Accrual Cash

Social assistance (X) (X) N/A Accrual

Finance costs (X) (X) N/A Accrual


Acquisition of fixed assets* (X) (X) Cash Cash

Share of surplus/(deficit) of associates X/(X) X/(X) Accrual N/A


*The acquisition of fixed assets relates to infrastructure and biological assets which are to be transitioned

in the next phase.



ASSETS

Non-current asset

Intangible assets X X Accrual N/A

Land and buildings X X Accrual N/A

Investments in associates X X Accrual N/A

Receivables from non-exchange transactions X X N/A Accrual



Currents assets

Inventory X X N/A Accrual

Receivables from non-exchange transactions X X N/A Accrual




NET ASSETS/EQUITY

Capital




Reserves X X Accrual N/A

Accumulated surpluses/(deficits) X X Accrual N/A

Minority interest X X Accrual N/A

LIABILITIES


Employee benefits X X N/A Accrual

Long - term provisions X X Accrual Accrual

Long - term borrowings X X N/A Accrual


Current liabilities

Current portion of long-term borrowings X X N/A Accrual



Short - term provisions X X N/A Accrual



20X4 20X3

Receipts

Taxes X X


Grants X X




Other revenue X X

XX XX

Payments

Cost of sales (X) (X)



Depreciation, amortisation and impairment (X) (X)






Share of surplus/(deficit) of associates X/(X) X/(X)

(XX) (XX)




Adjusted for:




Depreciation, amortisation and impairment X/(X) X/(X)

Other adjustments during the year X/(X) X/(X)













The GoR should ensure that the accounting policies and processes in place encompass the following:

Procedures to guide classification of land under RHA, RLMUA and local authorities to avoid

overlaps and double counting.

Depreciation rates for the GoR buildings which should be used across the public sector.

Procedures for physical verification and assessment of condition of the buildings.

Procedures to guide identification of conditions in grants.

Procedures to guide the estimations of future obligations embedded in onerous contracts as well as

provisions in relation to decommissioning costs.


15.2.4.5.1 Fixed assets

Accounting for physical assets (infrastructure, plant and equipment) provides perhaps the largest practical challenges in this phase of the transition. Significant effort may be needed to bring asset records up to date, to verify the existence and condition of such assets and to determine initial valuations. Lists of assets owned or controlled by public sector entities need to be maintained, in the form of asset registers. Asset registers may be a simple spreadsheet or database but ideally, they should be maintained in an information system that interfaces directly with the general ledger.



Currently the main GoR entities mandated to manage particular assets are as per the table below. Other GoR assets are managed by the specific public sector entities using the assets in their day to day operations.

Asset Responsible entity

Land Rwanda Land Management and Use Authority (RLMUA).

Land and buildings - districts Local government.

Buildings – central government Rwanda Housing Authority.

Roads and bridges Rwanda Transport Development Agency.

District roads Local government.

Aviation assets Aviation Travel and Logistics Holding Limited (“ATL”).

Office furniture and equipment Entities maintain their own asset register.

ICT software and hardware IFMIS – MINECOFIN. Entities – in charge of their own ICT equipment.

Other plant and equipment Entities with specialised plant and equipment (for instance water and energy assets) maintain their own asset registers.

Tourism - Nyungwe and Virunga volcanic parks and park buildings and installations

Rwanda Development Board.

Heritage assets Rwanda National Museums.

Intangible assets Rwanda Information Society Authority (RISA) – Consenting party to the GoR’s ICT product specifications.

Military assets Ministry of Defence.

Public Private Partnerships (PPPs) assets PPP unit at RDB.

Agriculture assets Rwanda Agriculture Board and University of Rwanda.

Health assets Ministry of Health.

Sports assets Ministry of Sports.

Governments transitioning to accruals may not have such information readily available, and will have to undertake an initial inventory of their physical and intangible assets, together with evidence of physical verification. The identification, inventorying and valuation these assets should have been done by this stage and in this regard the main implications around fixed assets as follows:

There will be need for inspection of assets from time to time especially roads and other

infrastructure assets to ascertain the condition. This is an involving exercise requiring resources



with knowledge of the infrastructure assets as well as relevant level of accrual accounting.

Currently, RHA and RTDA are conducting scheduled inspection visits in conjunction with the

District Engineers in the various local authorities.

Updating of the fixed asset registers with changes surrounding the assets when the events

propagating the changes occur e.g. a bridge is washed away by heavy rains or a GoR vehicle is

involved in an accident and cannot be repaired or when a vehicle which is fully depreciated is

disposed of.

Collaboration between the various GoR entities using the assets with the GoR entities such as

RTDA, RHA, RDB and others mandated to manage the assets on behalf of the GoR.

IFMIS needs to be upgraded to facilitate the recording of transactions relating to fixed assets and

tax revenues as well as interfacing with systems at RRA, RTDA and RHA.


15.2.4.5.2.1 Investment properties

Considerations with respect to investment properties are as follows:

Identification of investment properties. o Focus on real estate properties. o Analyse existence and treatment of mixed use properties.

Selection of accounting policy (cost or fair value model). o If the cost model is chosen, follow rules for PP&E (+ disclose fair value).

Determination of fair value (whether for measurement or disclosure purposes). o Select most appropriate method for each category/type of asset. o Select potential (independent) appraiser. o Determine and monitor frequency of revaluation. o Lighter approach accepted in practice if for disclosure purposes.

15.2.4.5.2.2 Leases

With respect to leases, the following considerations apply:

Identification of lease transactions. o Identify the types of assets that are subject to lease transactions (and distinguish leases

from services), with the entity acting either as a lessor or as a lessee. o Include those assets whose right of use has been granted/obtained for free or below market

conditions (goods or services in kind). o Focus on material types of leases (leases that are individually material and leases for which

the total value of the transactions are material).

Decide on opportunity to analyse against the lease classification criteria (current IPSAS 13) o Analyse existing contracts (major individual special contracts and standard contracts per

category). o Analyse classification criteria for leases not evidenced by a written contract.

Identify accounting complexities based on a sample of lease transactions. o Determine lease term, determine lease liabilities, analyse impact of specific clauses (e.g.

modification or termination clauses), etc.



Determine useful lives for assets held under leases. o Depreciate over the appropriate lease term.

Identify complex types of lease arrangements (sale-and-lease back, sale-and-rent back, rent-and-rent back, etc.) and determine appropriate accounting treatment.

Data collection o Determine data collection strategy (manual/automated/semi-automated). o Extract all relevant data points from contracts.

Implementation of a sustainable automated solution o Develop use cases. o Implement sustainable automated solution (possibly select IT vendor).

15.2.4.5.2.3 Intangible assets

The following are the considerations for intangible assets:

Identification of categories of intangible assets. o Identify major categories with high value assets. o Check availability of data for completeness of the analysis.

Rules for capitalising or expensing expenditure on intangible assets. o Determine capitalisation threshold. o Analyse against recognition criteria and determine those intangible items that must be

capitalised and those that cannot be capitalised.

Internally generated intangible assets. o Identify those assets that are internally generated (IT developments, IFMIS development,

etc.). o Understand the process and distinguish research from development and maintenance

activities. o Determine direct development costs that should be capitalised and costing methodology o Consider accounting policy for borrowing costs. o Check about data availability and make sure the cost accounting and the time-tracking

system allow an IPSAS-compliant costing.

Depreciation rates and methods. o Analyse per category, sub-category and type of assets (including major components

identified). o Determine useful lives with input of operational and IT specialists (should reflect economic

reality).

First-time adoption rules o Determine opening statement of financial position positions (cost less accumulated

depreciation). o Reinstate internally developed intangible assets only if information available. o Reconcile pragmatic (namely considering availability of data) and reliable approach.

15.2.4.5.2.4 Consolidation



Determine consolidation scope and select appropriate consolidation method for Ministries, Agencies, Government Business Enterprises (GBEs) (or public corporations), Development projects, etc.

Determine whether Whole-of-government accounts (WGA) will be prepared for the whole country, including central government, local governments, development projects and public corporations.

Analyse treatment of GBEs in harmonising accounting policies.

Determine materiality thresholds and decide whether smaller entities will be allowed to go for a reduced reporting. Consider materiality constraints versus accountability objectives.

Implement procedures to eliminate intra-government balances and transactions at the level of the various reporting entities (Central government level, local government level, WGA if applicable, etc.).

Implement systems and/or tools to manage the consolidation process efficiently on a recurring

basis.

Document policies and processes (consolidation and reporting manual).

15.2.4.6 Institutional coverage

GBEs will be consolidated at this stage, adding onto the consolidation scope in the previous phase. This implies that the GoR should consolidate all corporations that they control. The GBES in Rwanda are material in relation to the total number of GoR entities currently operating. The GBEs in Rwanda deliver public services, protect key resources and generate both profits and impose risks for the GoR. In undertaking these activities, the GBEs collect trade revenue, incur expenses and develop stocks of assets and liabilities (for example, natural resources, infrastructures, financial investments, pension schemes, etc.), all of which are likely are significant to the GoR and the public who are the users of the consolidated financial statements. Thus, where these flows and stocks are not consolidated, the overall financial position of the government, the sustainability of the public sector finances and the fiscal risks associated with these assets and liabilities will more likely be misinterpreted.

Control is the main determining factor in terms of which entities to consolidate under the GBEs as outlined

under the GBEs section in the detailed blue print.

One consolidation challenge presented at this stage is the fact that the general government sector is adopting accrual basis IPSAS and the GBEs in Rwanda apply International Financial Reporting Standards (IFRS). Consolidation of GBEs now entails consolidation of IFRS - based data with accrual-based data based on IPSAS. Thus developed are separate templates for GBEs to use in the reporting of their results so that the results can be consolidated almost seamlessly. Where necessary, accounting policies and disclosures will be required to explain the adjustments made to the financial statements of public corporations to bring the accounting policies into line with those used by the government. Furthermore, GBEs are operating in the market place and are exposed to normal business cycles and to that end, some of them have adapted their financial years to the nature and cycle of their business operations. The financial years adapted in this manner are not then aligned to the GoR July to June financial year. Ideally, consolidation would be eased if all the GBEs aligned their financial reporting years to the GoR financial year and for this reason, GBEs should align their financial reporting years the GoR’s. Where it is not possible or feasible then the consolidation instructions to the GBEs should clearly stipulate the timelines for preparation for consolidation reporting. Furthermore, the consolidation timetable proposed in the previous phase should be at this stage be updated to include specific timelines for which GBEs are aligned to the GoR financial reporting calendar and which ones are not. Mapping tables for each of the GBEs also should be developed as part of the reporting procedures for consolidation so that the CoAs of the GBEs are



linked to the GoR SCoA to facilitate efficient reporting the GBEs and ultimate consolidation of the GBEs results. Model financial statements template mapping IPSAS financial statements with IFRS GBEs financial statements has been developed. Intra public sector transactions and balances which will need to be eliminated will include payables and receivables, dividends, government loans and grants to corporations and taxes due. To achieve this, templates and mapping tables should:

Require GBEs to provide reconciled data from their own audited financial statements in the format of the GoR SCoA; and

Identify amounts to be eliminated or reconciled to the counter party amount. Material differences need to be identified and eliminated.

All reports and eliminations will need to be available for audit during the audit of the GoR’s financial statements.

15.2.5 Phase/Year 5

15.2.5.1 Overview



Institution

Year/ Phase

Assets Liabilities/ Reserves

Revenue Expenditure

Five 1. Infrastructure and biological assets. 2. Receivables from taxation revenue.

1. Provisions e.g. estimated provisions of doubtful debts arising out of taxation revenue (short and long-term).

1. Tax revenue

1. Central government 2. Districts 3. Projects 4. Sectors within the local government cluster 5. Hospitals 6. GBEs and secondary schools 7. Health centres


15.2.5.2.1 Assets

15.2.5.2.1.1 Infrastructure, plant and equipment

This relates to roads, bridges and plant and equipment used by various GoR entities. The costs incurred in

the acquisition of the assets are expenses in the period in which they are incurred. The following table shows

how to arrive at the NBV of the infrastructure assets as well as the computation of the depreciation for the

same.




Cost of asset

Add: Acquisitions

Add: Major improvement/Overhaul


Add/ Less: Revaluation

Less: Impairment

Less: Disposals

Add: Acquisition of assets on merger of entities


NBV XXX

15.2.5.2.1.2 Biological assets

In Rwanda, RAB and the University of Rwanda have biological assets for their respective activities. IPSAS 27 provides that when biological assets are used for research, education, transportation, entertainment, recreation, customs control or in any other activities that are not agricultural activities, those biological assets are not accounted for under IPSAS 27 but other standards such as IPSAS 12 and IPSAS 17, in cases where they meet the definition of an asset. Thus under the above two institutions there is need to separate assets under them into those specifically used for purposes of agricultural produce and those which are not e.g. pigs or cows used for research purposes in this case should be classified as inventory rather than biological assets.

Biological assets cease to be such at the point of harvest e.g. pineapples still in the field as at period end is a biological asset and ceases to be when harvested or processed into further into pineapple juice. Strictly agricultural produce is inventory and the crop or live animal maintained specifically for agricultural produce are biological assets.

Essentially, the GoR shall recognise a biological asset or agricultural produce when and only when:

The GoR controls the asset as a result of past events;

It is probable that future economic benefits or service potential associated with the asset will flow to the GoR; and

The fair value or cost of the asset can be measured reliably.

15.2.5.2.2 Revenue

15.2.5.2.2.1 Tax revenue and receivables from taxation

Tax collection is currently the mandate of the Rwanda Revenue Authority (RRA). The current taxes being

collected include:

Taxes on income, profits or capital gains

Taxes on payroll and workforce

Tax on property income

Taxes on goods and services

Taxes on international trade and transactions



The taxes revenues are recognised when the cash with respect to the tax determined is received by the GoR.

Under accruals accounting, tax revenue is recognised when upon the occurrence of a taxable event the GoR

has a valid right or claim that there will be an inflow of economic benefits to the GoR in future and that the

economic benefits can be measured reliably.

IPSAS 23 encourages the determination of the recognition points at the level of each tax revenue stream.

The following are the recognition points with respect to the tax revenues collected under RRA.

Tax revenue

stream

Recognition point

Taxes on income,

profits or capital

gains

When, through the operation of the income tax legislation of the Republic of

Rwanda, the GoR has a valid right to receive the revenue and it is probable that

future economic benefits will flow to the GoR and that those benefits can be

measured reliably e.g. when a tax return is submitted by a tax payer.

The trigger event is simply the earning of assessable income during the taxation

period by the taxpayer.

Taxes on payroll

and workforce

The earlier of when the taxable services stipulated under the income tax legislation

are rendered to an employer or at the point when the employee receives the

economic benefits in exchange for rendering of a service.

Tax on property

income

The earlier of when the property income is earned by the tax payer or when the

property income is received by the tax payer. The trigger event for these taxes are

the passing of the date on which the tax is levied, or the period for which the tax is

levied, if the tax is levied on a periodic basis.

Taxes on goods

and services

When the goods are received or services have been utilised. Thus the trigger event is

the purchase or sale of taxable goods and services during the taxation period.

Taxes on

international

trade and

transactions

The earlier of when goods are received or services utilised or when ownership

transfers from the vendor to the tax payer.

This means that RRA has to record the tax revenue recognised at the above recognition points whether or

not cash has been received. Where no cash has been received and the tax is due to the GoR, a receivable in

relation to the tax amount due should recognised in the books of accounts. For RRA, this is a challenges as

the taxable amount for certain taxes is only known when a tax return is filed with RRA. Accrual basis IPSAS

requires that a suitable estimate be made for the tax expected where there is no tax return. Some of the

practices to estimate include analysing the trend of taxes paid by that particular tax payer or where RRA

has conducted tax visits for certain tax payers, reliable estimates can be made from the pre-period end

information. The estimates made for the tax receivable are recognised as receivables in the books of

accounts and the replaced with the actual taxes when the reliable information such as a tax return has been

received. This is simply achieved by reversing the estimate made and then recording the new (actual) tax

receivable as per the tax return submitted.

Identify categories of revenue



o From non-exchange transactions, split between taxes and transfers. o From exchange transactions, split between rendering of services and sales of goods.

Revenue from non-exchange transactions, for each (category of) tax revenue o Determine taxable event for recognition of tax asset, based on existing laws and

regulations. o Establish methodology for estimating revenue reliably. o Capitalise on existing procedures and information flows, and assess opportunity for

establishing new ones. o Align with reporting requirements of international sponsors (e.g. IMF, World Bank).


The financial statements at this stage will comprise the year 4 financial statements with the addition of the

statement of changes in net assets.

Below are is the format of the financial statements in this phase:



Revenue

Taxes X X Accrual Cash


Grants X X N/A Accrual


Transfers from other government entities X X N/A Accrual



Expenses

Cost of sales (X) (X) N/A Accrual




Grant and other transfer payments (X) (X) N/A Accrual




Share of surplus/(deficit) of associates X/(X) X/(X) N/A Accrual






ASSETS

Non-current asset

Intangible assets X X N/A Accrual

Land and buildings X X N/A Accrual

Infrastructure, plant and equipment X X Accrual N/A

Investments in associates X X N/A Accrual


transactions

X X N/A Accrual



Currents assets



transactions

X X N/A Accrual




NET ASSETS/EQUITY

Capital

Reserves X X N/A Accrual

Accumulated surpluses/(deficits) X X N/A Accrual

Minority interest X X N/A Accrual

LIABILITIES



Long - term provisions X X N/A Accrual



Current liabilities









20X5 20X4

Receipts

Taxes X X


Grants X X




Other revenue X X

XX XX

Payments










(XX) (XX)


Adjusted for:





















15.2.5.3.4 Statement of changes in net assets – Year 5

Contributed

capital Other reserves

Translation reserves

Accumulated surplus/ (deficit)

Minority interest

Total net assets/ equity

Year ended 30 June 20X4

Balance at 30 June 20X3 X X X X X XX Changes in accounting policy X X X X X XX Restated balance XX XX XX XX XX XXX Changes in net assets/equity for 20X4

Gain on property revaluation X X X X X XX Loss on revaluation of investments (X) (X) (X) (X) (X) (XX) Exchange differences on translating foreign operations X X X X X XX

Net revenue recognised directly in Net assets/Equity X X X X X XX

Surplus/(deficit) for the period X/(X) X/(X) X/(X) X/(X) X/(X) XX/(XX)

Total recognised revenue and expense for the period XX XX XX XX XX XXX

Balance at 31 June 20X4 carried forward XX XX XX XX XX XXX

Balance at 3o July 20X5 brought forward

Changes in net assets/equity for 20X5

XX Gain on property revaluation Loss on revaluation of X X X X X XX Loss on revaluation of investments (X) (X) (X) (X) (X) (XX) Exchange differences on translating foreign operations X X X X X XX Net revenue recognised directly in X X X X X XX Surplus/(deficit) for the period X X/(X) X/(X) X/(X) X/(X) X/(X) XX/(XX) Total recognised revenue and expense for the period XX XX XX XX XX XXX Balance at 3o June 20X5 XX XX XX XX XX XXX



15.2.5.4 Accounting policies At this stage, all relevant accounting policy should be in place with only the portions that present gaps in relation to the IPSASs available left to be remedied.

This phase presents an opportunity for the GoR to ensure that all disclosures especially those relating to complex and significant items like fixed assets, grants and GoR borrowings are compiled. This can be archived through the development of disclosure checklists at each of the levels of GoR administration.

Furthermore, consolidation procedures should be fully fledged considering that that this will be the first year where the GoR has consolidated the entire public sector entities, which should serve as a dry run in preparation the next phase consolidation.

Taxation – the accounting policies should be updated in light of the following:

o Updating the revenue accounting policies to incorporate the treatment of tax revenues for the

GoR including specifying the recognition points in relation to each stream of tax revenue

collected by RRA.

o Ageing and procedures thereof for the receivables arising from taxation. Receivables are

recognised in the statement of financial position and at any point their carrying amount should

not be lower than their recoverable amount.

Infrastructure assets, plant and equipment – the following policies should be updated in relation to assets

under this line:

o Currently the GoR has an asset management and policy manual in place which classifies the GoR

assets currently identified. This manual and the accounting policies will have to be updated for

new assets identified.

o Development of disclosures for infrastructure assets, plant and equipment as well as the

disclosure checklist for the different levels of GoR entities.

o Depreciation rates for the assets under infrastructure assets, plant and equipment.

15.2.5.5 Operational implications 15.2.5.5.1 Tax receivables and revenue

RRA currently records tax revenues when cash for the amount of tax determined is received. Under accrual basis IPSAS, the RRA tax administration information systems should include information on prepayments, actual payments and outstanding tax payments to facilitate accrual basis IPSAS reporting requirements. The above information should be used to record corresponding entries in the general ledger: prepayments are cash movements and temporary liabilities to taxpayers, actual payments are cash movements and revenue and outstanding payments are tax receivables and accrued revenue. However, the information already available in the tax administration system may need to be supplemented by estimates to record tax revenue on a full accrual basis. Recording provisions on tax receivables will entail estimating historical trends on tax recovery and tax relief. Recording tax revenue when the events generating a legal right to receive a tax has occurred (as opposed to the time of the establishment of the claim by RRA) will entail establishing economic assumptions and statistical models. Capacities for establishing the evaluations may have to be developed within the tax administration, or in other departments of the MINECOFIN, depending on the capabilities of the underlying systems and approaches to collection. Established practice by other governments the world over that have adopted accrual basis accounting is that they estimate tax revenue for personal income and corporate taxes with longer collection periods using statistical models based on a combination of projections derived from the most recent revenue flows and forecasts of



economic variables on which future revenue flows depend. This is quite an involving process and will need experts to set up.

15.2.5.5.2 Lessons from countries that have transitioned to accrual basis IPSAS

A number of countries around the world, chief of which are Australia, New Sealand and the United Kingdom have transitioned to accrual basis IPSAS, below is the stock of lessons picked from those countries:

The pace, scope, and sequencing of the accrual basis IPSAS reform depends crucially on the desired objectives of the government. In the context of the GoR, a number of works have been undertaken by the GoR through MINECOFIN and collaboration with development partners as part preparation for the implementation of accrual basis IPSAS. The works include the PFM reforms instigated by the GoR, the IPSAS implementation concept note and draft PFM manual among other pieces. These documents carry the commitment of the GoR towards the attainment of accrual basis IPSAS financial reporting framework. Countries focusing on improving management of government property may prioritise recognition of fixed assets over recognition of pensions or financial instruments in government balance sheets. Countries wanting to enhance surveillance of public enterprises may consolidate these entities in financial statements before bringing in local governments.

Implementing accrual accounting is about much more than adopting new standards. Standards set principles, but most of the challenges reside in implementing these principles. This requires the collection of additional data, reforms to business processes, modernisation of IT systems and capacity building both within and outside of government.

It is important to preserve the benefits of cash and budgetary accounting even after completing the transition to accrual accounting. Adopting accrual accounting should not and does not imply an end to reporting “hard” data on government cash flows and reserves. Moreover, presentation of financial statements in line with international standards should not and does not imply no longer presenting outturn data in format comparable with the annual budget.

It is important to ensure an integrated set of financial data at each stage of the transition from cash to accrual accounting. This requires a one-to-one correspondence between the additional stocks being recognised in statement financial position and the additional flows being recorded in flow statements. This enables standard consistency checks and audit techniques to be applied. Countries should make use of “dry run” accounts preparation and audits throughout the transition to gain an overview of the integrity of the financial data being produced and provide feedback on the problems that need to be addressed.

Implementing accrual accounting in the public sector takes a long time. Few countries have done it in less than three years and many countries have taken more than ten years.

Moreover, publishing the first set of financial statements is not the end of the story. Countries continue to improve the quality, coverage, timeliness and relevance of their financial data many years after publication of their first set of accrual accounts.


The following are the considerations to check against as regards the implementation of accrual basis IPSAS by

the GoR at this stage. During this stage key decisions will be made on a number IPSAS points such as accounting

policies, formats of financial reports and consolidation scope among other areas, based on the experience with

the implementation in the phases leading up to this phase. Below are the considerations to be taken into account

in that pursuit.



15.2.5.5.3.1 Infrastructure, plant and equipment

The following are the key considerations and activities for the GoR to transition and recognise infrastructure,

plant and equipment. Infrastructure, plant and equipment is a significant area for the GoR and in light of that,

recognition of the same is to be undertaken across the years - FY 2018/2019, FY 2019/2020, 2020/2021,

2021/2022 and FY 2022/2023.

Identification of categories of assets.

o Focus on major categories with high value assets. o Completeness of the analysis, categories and sub-categories. o Considerations sensitive assets like military assets. o Also include assets held under leases, assets whose operating rights have been granted through

a PPP. o Distinguish investment properties and heritage assets.

Physical inventory of PP&E

o Check availability of data. o Harmonise approach and instructions. o Focus on high value assets. o Involve operational and technical people. o Collect information on physical state and usage and on components.

Recognition

o Gather information on economic/legal ownership.

Components’ approach

o Identify those assets for which separate components must be identified and accounted for (will be treated as separate assets and depreciated separately): infrastructure assets such as roads or bridges, major industrial or specialised equipment, buildings, airplanes, etc.

o For each category, identify sub-categories that present similar characteristics in respect of their nature, technical composition and useful life.

o Define materiality thresholds, focus on major (high value) assets and components. o Analyse representative sample and extrapolate. o Link with major maintenance, repair and overhaul programmes. o Involve operational and technical people. o Distinguish fixed assets (major spare parts) and items of inventories.

Depreciation rates and methods

o Analyse per category, sub-category and type of assets (including major components identified). o Determine useful lives with input of operational and technical people (should reflect economic

reality). o Assess appropriateness of technical depreciation method versus straight-line method for certain

types of assets (e.g. Roads). o Determine assets with a potential significant residual value at the end of their useful life.

Rules for capitalising or expensing expenditure on fixed assets

o Determine capitalisation threshold. o Analyse activities and nature of costs related to the acquisition of fixed assets and determine

those costs that must be capitalised and those that cannot be capitalised. o Link with repair and maintenance activities.



Self-constructed assets

o Identify those assets constructed by the government. o Understand the production process, identify direct and indirect production costs and overhead

costs that are incremental. o Determine the normal capacity of the production facilities. o Determine costing methodology. o Check data availability and make sure the cost accounting system allows an IPSAS-compliant

costing.

15.2.5.5.3.2 Format of financial statements

Finalise format of IPSAS consolidated financial statements (primary statements and disclosure notes) based on output of implementation work where needed.

15.2.5.5.3.3 Cash flow statements

Select either direct or indirect method for operating cash flows.

Assess ability to identify all gross cash movements.

Distinguish between operating, investing and financing cash flows.

Assess ability to track those types of cash flows that need to be reported separately (interest, dividends and taxes).

Decide whether cash flow preparation is pushed down at individual entity level or done solely at consolidation level.

15.2.5.5.3.4 Segment reporting

Select segments to be reported.

Allocate assets, liabilities, revenue and expenses by segment.

Identify transactions between segments and put in place processes to eliminate them (leverage from procedures set up for consolidation purposes).

Assess the ability of the current IFMIS and other systems to provide segment information and adapt where needed.

15.2.5.5.3.5 Presentation of budget information

Assess the opportunity to move to accrual basis budgeting using IPSAS as the reference and the appropriate timeline for this (assumption for work plan: budget will still run under current rules).

Assess information on budget execution available within the existing budgetary system (consider need for dual systems).

Handle basis differences, entity differences and possibly timing differences.

Develop reconciliation tools and procedures.

15.2.5.5.3.6 Related party disclosures

Identify related parties.

Identify related party transactions.

Put in place procedures to identify and collect information on intragroup transactions and balances.



15.2.6 Phase/Year 6

15.2.6.1 Overview

Phase 6 is the last phase in the IPSAS framework implementation roadmap. At the beginning of this phase, the GoR will have prepared the first full accrual basis financial statements i.e. the opening balance consolidated financial statement. Based on IPSAS 33 provisions, the GoR’s first IPSAS financial statements will be the first set of financial statements that it presents in which it makes an explicit and unreserved statement of compliance with accrual basis IPSASs. This implies that all IPSAS requirements should have been complied with before the GoR can issue that statement.

Fully complying with IPSAS requirements at the level of a government is a lengthy and challenging process. Thus year 6 of the IPSAS transition roadmap is the year of taking stock of all points of compliance and non-compliance and remedying the gaps. By the end of year 6, the GoR should be able to claim full compliance with accrual basis IPSAS.

Phase 6 ends with the recognition of heritage assets and natural resources as below.

Statement of Financial Position Statement of Financial Performance

Institution

Year/ Phase

Assets Liabilities/ Reserves

Revenue Expenditure

6 – Close out Heritage assets and natural resources.

Public sector


15.2.6.2.1 Assets

15.2.6.2.1.1 Heritage assets and natural resources.

Heritage assets in Rwanda include historical sites, monuments, museums, natural forests and water bodies. For purposes of classification in the financial statements, the assets are largely classified as either land or buildings e.g. natural forests are classified under land. For museums, the artefacts and other items on display are classified under intangible assets. The identification and valuation (based on the principles outlined in sections 2 and 4 of the blueprint) of these assets is expected at this stage to have already been achieved in the prior implementation years. Thus there is need for the GoR to keep track with the implementation plan for the years before the close stage.

15.2.6.3 Financial statements 15.2.6.3.1 Statement of financial performance – Year 6


Revenue

Taxes X X Accrual Cash


Grants X X N/A Accrual




Transfers from other government entities X X N/A Accrual



Expenses

Cost of sales (X) (X) N/A Accrual




Grant and other transfer payments (X) (X) N/A Accrual




Share of surplus/(deficit) of associates X/(X) X/(X) N/A Accrual




ASSETS

Non-current asset

Intangible assets X X N/A Accrual

Land and buildings X X N/A Accrual

Infrastructure, plant and equipment X X Accrual N/A

Investments in associates X X N/A Accrual

Biological assets X X N/A Accrual


transactions

X X N/A Accrual



Currents assets



transactions

X X N/A Accrual




NET ASSETS/EQUITY

Capital

Reserves X X N/A Accrual

Accumulated surpluses/(deficits) X X N/A Accrual

Minority interest X X N/A Accrual

LIABILITIES



Long - term provisions X X N/A Accrual






Current liabilities







20X6 20X5

Receipts

Taxes X X


Grants X X




Other revenue X X

XX XX

Payments










(XX) (XX)


Adjusted for:



















15.2.6.4 Accounting policies At the beginning of this phase the GoR would have managed to compile the first full ISAS compliant opening statement of financial position. This statement should be audited by the OAG with an opinion issued on it so as to ensure that the year-end procedures are aligned to the audit recommendations to be made by the OAG in line with accrual basis IPSAS.

Furthermore, accounting policies at this stage should be finalised by taking stock of the challenges and milestones throughout the implementation achieved so far from the first year. This is important because at the end of this stage, the GoR is expected to claim full accrual basis IPSAS compliance and this demands that a statement is issued to state that all the relevant points of IPSAS have been complied with.

Lastly the GoR is expected to be making follow ups on the developing IPSAS standards at this stage and also in the years leading up to the final year of implementation. At this stage the accounting policies in place should be up to date with the trending standards developed and issued by the IPSASB.


The following are the typical operational implications expected in the final stage of the IPSAS implementation by

the GoR.

15.2.6.5.1 Staff

At this stage the staff are expected to be sufficiently resilient working with accruals basis IPSAS and also the bulk of transactions demanded by the framework. The key task for the GoR is to ensure that this achieved at all levels of the finance function in the GoR entities.

Furthermore, staff working in the support functions of the GoR also need to be technically savvy with the demands of IPSAS on their operations. For instance, procurement officers should be aware of the documentation they are supposed to maintain in relation to the stages of procurements in light of the recognition points of the procurement transactions.

A series of trainings have been proposed from the early stages of the implementation timeline. It is expected that at this stage all relevant staff would have been trained in the relevant areas based on their function. Remedial training should be organised in areas where the GoR monitoring teams assess as lacking the needed knowledge and skills.

15.2.6.5.2 Systems

IFMIS will be employed as the mainstream financial reporting package for the GOR throughout the implementation period. Integration and interfacing of peripheral systems containing essential accounting information for the GoR entities should have been completed at this stage. Additionally, key decisions as to whether some systems should continue to be interfaced or integrated should be made based on the experience with IPSAS accounting throughout the implementation timeline.




15.2.6.5.3.1 Heritage assets

The following considerations relate to heritage assets:

Selection of accounting treatment

o Decide whether heritage assets should be recognised (recommended in view of IPSASB developments) or not.

o Distinguish between operational and non-operational heritage assets. o If some heritage assets are recognised, select which rules will be applied for measurement: select

between IPSAS 17 rules or other rules. o Monuments and heritage assets classified in intangible assets.



Appendices

Ref Content

Appendix 1 Asset gap analysis

Appendix 2 IPSAS conversion checklist

Appendix 3 Data gaps

Appendix 4 System gaps

Appendix 5 Review of Ministerial Order N°001/16/10/TC of 26/01/2016 relating to Financial Regulations

Appendix 6 Analysis of Organic Law N° 12/2013/OL of 12/09/2013 on State Finances and Property

Appendix 7 Project budget

Appendix 8 GFS analysis template

Appendix 9 Detailed work plan

Appendix 10 Cash budget template

Appendix 11 Accrual budget template

Appendix 12 Consolidated financial reporting template

Appendix 13 Central government financial reporting template

Appendix 14 Local government financial reporting template

Appendix 15 Projects financial reporting template

Appendix 16 GBE financial reporting template

Appendix 17 Consolidation scope

Appendix 18 Chart of Accounts analysis

Appendix 19 Terms of reference for developing the IPSAS implementation blue print

Appendix 20 Monitoring and Evaluation Framework


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Documents

IPSAS Implementation Blueprint Government of Rwanda