Public Financial Management Good Practices Multiple Year Chart of Accounts

7/29/2019 Public Financial Management Good Practices Multiple Year Chart of Accounts

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PFM Domain CORE PUBLIC FINANCIALS

Good Practice MULTIPLE YEAR CHART OF ACCOUNTS

Applicable ALL COUNTRIES,ALL TIERS OF GOVERNMENT

FreeBalance Public Financial Management

Good Practices


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why is the Chart of

Accounts critical in

governmentfinancials?

Many governments are increasingly adopting Commercial-Off-the-Shelf (COTS)software to replace legacy and custom developed software applications for

financial, budget, expenditure, tax, treasury and civil service management. Government organizations can chose to acquireEnterprise Resource Planning

(ERP)software from large software firms whose software is used in multiple

vertical markets orGovernment Resource Planning (GRP) software designed

exclusively for governments.

Government budget classifications, often called Charts of Accounts (COAs),represent the underlyingmeta datafor Public Financial Management (PFM) for

statutory financial statements and decision-support.

COAs tend to be more complex ingovernment than in the private sector.Government COAs include multiple segments such as fund, organization,

program, economic purpose, geography and object. COAs are often consolidateacross agencies and departments or across all government levels.

Government COAs capture budget and allocation information, supportinternational standards, provide reporting information and are increasingly used

to map government objectives to performance outcomes.

what is the COA

challenge in

government?

Government organizations arechallengedto adapt COAs to supportmodernization such as the introduction of program budgeting, accrual accounti

or new national reporting. Changes within the organizational structure of

government are also commonplace requiring changes to the classification

structure.

Many countries should improve Budget Classifications according toPublicExpenditure and Financial Accountability(PEFA) reviews.

Many governments are reforming financial reporting to support internationalstandards such as theInternational Financial Reporting Standard(IFRS),

International Public Sector Accounting Standards(IPSAS),Classification of the

Functions of Government(COFOG),Government Finance Statistics(GFS),

International Aid TransparencyInitiative (IATI), andthe eXtended Business

Reporting Language(XBRL).

Many governments find that underlying custom-developed or Commercial-off-the-Shelf (COTS) ERP software make changes to COAs difficult.

Frequent changes to COAs across fiscal years makes reporting and comparisondifficult. Budget preparation and analysis requires the ability to compare

information across fiscal years even though that information is classified

differently.
http://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://www.freebalance.com/blog/?p=427http://www.freebalance.com/blog/?p=427http://www.freebalance.com/blog/?p=427http://www.freebalance.com/blog/?p=1787http://www.freebalance.com/blog/?p=1787http://www.freebalance.com/blog/?p=1787http://www.freebalance.com/blog/?p=194http://www.freebalance.com/blog/?p=194http://www.freebalance.com/blog/?p=194http://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.pefa.org/http://www.pefa.org/http://www.pefa.org/http://www.pefa.org/http://www.ifrs.com/http://www.ifrs.com/http://www.ifrs.com/http://www.ipsas.org/http://www.ipsas.org/http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://www.imf.org/external/pubs/ft/gfs/manual/gfs.htmhttp://www.imf.org/external/pubs/ft/gfs/manual/gfs.htmhttp://www.imf.org/external/pubs/ft/gfs/manual/gfs.htmhttp://www.aidtransparency.net/http://www.aidtransparency.net/http://www.xbrl.org/http://www.xbrl.org/http://www.xbrl.org/http://www.xbrl.org/http://www.xbrl.org/http://www.xbrl.org/http://www.aidtransparency.net/http://www.imf.org/external/pubs/ft/gfs/manual/gfs.htmhttp://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=4http://www.ipsas.org/http://www.ifrs.com/http://www.pefa.org/http://www.pefa.org/http://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=194http://www.freebalance.com/blog/?p=1787http://www.freebalance.com/blog/?p=427http://en.wikipedia.org/wiki/Enterprise_resource_planninghttp://en.wikipedia.org/wiki/Enterprise_resource_planning


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what are some good

COA practices?

Integration of budget and accounting classifications:in countries where thebudget classifications are not integrated with the COA, or only partially

integrated, there is risk of loss of important information undermining the

effectiveness of budget control and reporting.

Sufficient structure for fiscal management: the COA should includefund sourceorganization, economic and function classifications.

Adaptability: The COAshould be able to be changedparticularly in the contexof an Integrated Financial Management Information System (IFMIS)to respon

to changes such as reorganization of government and changing needs.

Simplified structure: to facilitate data entry,the structure of the COA should beintuitive and usually no more than 30 digits in totaland support easy ways to fin

the right classifications

Reporting Objects: The COA candrive external reporting and transparencywithout adding any burden to data entrythrough the use of alternative roll-upstructures or side concepts.

Integration with authorization: permissions and access within the GRP systemshould be directly linked to the COA to control access.

Error checking and validation: across COA segments so that it is impossible toassociate an expense against programs or economic purposes that are not owne

by a line ministry and to validate debits and credits

what is a multiple year

Chart of Accounts?

The COA should allow flexibility for future additions and changes as far as possible.multiple year COA enables governments to map across classifications through many

years including:

Reporting on any fiscal year based on the COA of any year in the system Matching aggregate budgets and programs across multiple years Supporting accrual accounting reporting on previous non-accrual years Calculating the reality of cost savings initiatives like departmental consolidation

or shared services

Supporting multiple year commitments and obligations even thoughclassifications have changed

Providing full budget histories across multiple years to assist in developing morecredible budgets

Identifying cost efficiency opportunities through multiple year comparisons
http://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.freebalance.com/blog/?p=148http://www.freebalance.com/blog/?p=148http://www.freebalance.com/blog/?p=148http://www.freebalance.com/blog/?p=148http://www.freebalance.com/blog/?p=1598http://www.freebalance.com/blog/?p=1598http://www.freebalance.com/blog/?p=1598http://www.freebalance.com/blog/?p=1598http://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.freebalance.com/blog/?p=1598http://www.freebalance.com/blog/?p=1598http://www.freebalance.com/blog/?p=148http://www.freebalance.com/blog/?p=148http://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.freebalance.com/blog/?p=751http://www.freebalance.com/blog/?p=751http://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdfhttp://www.imf.org/external/pubs/ft/tnm/2011/tnm1103.pdf


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Classifications frequently change in government to accommodate organization structure, international

standards, reporting requirements, accrual accounting and performance information.

how is a multiple

year COA supported

in GRP software?

COA designer in GRP software requires flexibility to change structure such as addsegments, change organization alignment and re-classify some or all of the

metadata

COA designer must have ability to map classifications from year to year Data integrity must be supported to eliminate any orphan COA elements Specialized reporting objects that are not visible for data entry are enabled. This

used to roll up detailed information from the COA in different methods to suppor

changing reporting requirements

Adding a new line item within the existing COA structure during the fiscal yearshould require little effort

COA designer should support valid code combinations and standard offsetaccounts to reduce data entry errors

Desirable that the tool for COA design is graphical, supports XML import andprovides for draft classifications for review


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Good Practice Conclusions

1. Government Resource Planning (GRP) software should enable the modeling ofcomplex Charts of Accounts including support for reporting objects, valid code

combinations and other error-prevention techniques

2. GRP software should not require significant effort to deploy a new COA3. GRP software should support multiple year COA to enable government decision

making

There are very few best practices but many good practices in Public Financial Management.

FreeBalance, a global provider ofGovernment Resource Planning(GRP) software and services

shares good practices from experience withdeveloped and developing country governmentsaround the world.

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Public Financial Management Good Practices Multiple Year Chart of Accounts