SUMMARY• TheImplementationoftheIntegratedFinancialManagementSystem(IFMS)wasmotivatedby

theUgandanGovernment’sdesiretoimproveefficiencyinbudgetpreparation,executionandfinancialreporting.

• Since2003,theIFMShasbeenextendedacrossall22ministriesand25centralgovernmentagencies.TheIFMShasalsobeenimplementedin8localGovernmentswithplanstoextenditto6moredistrictsaspartofthefirsttier1IFMSimplementation.Usingalower(second)tiersolutionwhichofferslesscomplexity,theGovernmentintendstofurtherextendtheIFMIStoalllocalgovernments.2Thesecondtierprojectimplementation(basedonMSNavision)hasrecentlycommenced.ThediscussioninthisnoteislimitedtothefirsttierIFMSimplementation

• TheimplementationoftheIFMShasenabledtheGovernmenttoaddressmanyofthefiduciaryissuesfacedpriorto2003.Thishasledto:greaterexpenditurecontrolanddisciplineinbudgetmanagementasaresultofimprovedoversightandenforcementofinternalcontrols;areductioninthetimetakentoprocesspayments;improvementinaccountreconciliation;andmoreaccurateandreliablefinancialreporting.

CHARACTERISTICSOFTHEIFMSANDITSROLEINSUPPORTINGTHEBUDGETPROCESS

APPROPRIATEDESIGNFORTHEIFMSThedesignoftheIFMSisbasedonacentralisedarchitecturewhichenablescentralprocessingandstorageoffinancialtransactions.AllprocessingtakesplacecentrallyattheserverinthedatacentreoftheMinistryofFinanceinKampala.Ministries,agenciesandlocalgovernments(MALGs)areconnectedtotheDataCentreoveraWideAreaNetwork(WAN)and

Uganda’sIFMSprojecthasbeenacriticalpartofitspublicfinancialmanagementreformsoverthelast10years.UndertheIFMS,itwastheintentionto

automatethefullbudgetcycleacrossallunitsofGovernment.TheIFMSisalargeundertakingwithpotentiallymajorbenefits.However,italsocomeswithchallengeswhich,ifnotwellmanaged,mayleadtoitsfailure.ThisCountryLearningNoteexploresthekeyconsiderationsinimplementingtheIFMS,thechallengesencounteredandthelessonslearntbasedonUganda’sexperience.

Uganda:implementinganIntegratedFinancialManagementSystemandtheautomationofthebudgetprocess

COUNTRYLEARNINGNOTES

LawrenceSemakula&RobertMuwanga*

July2012

* LawrenceSemakulaistheCommissionerofFinancialManagementServicesattheUgandanMinistryofFinance,PlanningandEconomicDevelopment.RobertMuwangaisanadvisoratODI’sBudgetStrengtheningInitiative.

accesstheIFMSthroughawebbrowser.MALGsarehoweverabletoprocessandreportontheirfinancialtransactionsindependently.

ThiscentralisedmodelwasadoptedtofacilitatecentraloversightandmanagementoftheinternalcontrolregimewithoutlimitingtheflexibilityofMALGstoprocesstheirfinancialtransactions.Themodelalsoeasesmaintenanceofapplicationsoftware(includingdeployingupgrades)andlimitstheneedforsitebasedITandhighlevelapplicationsupportskillsateachoftheMALGS.

IFMSBASEDONOPENTECHNOLOGIESTheIFMSusestheOracleapplicationanddatabaseandtheHPUNIXplatformwhichbothsubscribetoopentechnologies.Theconceptofopentechnologyarchitecturesallowstheflexibilitytoimplementinterfacesandintegratewithothersystemsforthepurposeofsharingdataandenhancingefficiency.TheIFMSisabletoeasilyinterfacewithsystemsattheUgandaRevenueAuthority(URA)andtheBankofUganda(BoU).Itisexpectedthatitwillbeeasytointerfacewiththeintegratedpersonnelandpayrollsystem(IPPS)currentlybeingimplementedbytheMinistryofPublicService

COVERAGEOFTHEIFMSTheeffectivenessoftheIFMSdependssignificantlyontheextenttowhichitiscomprehensiveincoveringGovernmentfinancialtransactionsandtheGovernmentunitsthroughoutthebudgetprocess.Totheextentpossible,allgovernmenttransactions–revenuereceipts,debt,expenditures(includingtransactionsfinancedbydonororotheragencies),andallgovernmentunits(ministries,agencies,sub-nationalunits,projects,etc.)–shouldbecoveredintheIFMS.Thisapproachwillenhancetheimplementationofacommoncontrolregimeandcomprehensivefiscalreporting.

Since2003,thedepthoffunctionalityandcoverageofGovernmentunitsundertheIFMShasgraduallybeenexpanded.TheIFMSwill,uponcompletionoftheimplementationprogram,covercentralandlocalGovernmentunits.Wherekeytransactionsareassignedto

specificagencies,orbestmanagedseparately,theapproachtakenhasbeentoestablishelectronicinterfacewithsystemsinthoseunits.ThisisthecaseforrevenuesystemsundertheURA,debtmanagementsystemsandpayrollsystemsundertheMinistryofPublicService.

Akeyelementinachievingagreatdepthofcoverageistheleveltowhichstandardisationcanbeexercised.Someofthekeychallengestostandardizationhavebeeninrelationtotheuseofmultiplecurrencies,particularlyforprojectsfinancedbymultipledonors,andvaryingproceduresforapprovingpaymentsacrossdifferentunitsofGovernment.

SUPPORTTOBUDGETPLANNINGANDPREPARATIONTheIFMSsupportsthebudgetplanningandpreparationprocessbyprovidinghistoricalexpendituredatacoveringbudgetapprovals,adjustmentsandactualexpenditureatthelowestlevel(economicclassifications).Arecordofapprovedbudgetappropriationsislogged

TABLE1:KEYIFMSMODULESIFMSMODULE ROLE

PublicSectorBudgeting

Enablesvoteholderstoprepareandsubmitbudgetselectronically.Consolidationisalsodoneonthesystem

GeneralLedger Thisenableselectronicandautomatedpostingoftransactionsonthesystem

Payables Receivingandprocessingsupplerinvoicesarelinkedelectronicallyandvalidatedinrealtime

Purchasing Linkspurchaseorderstotheonlinecashlimitsthusenhancingcommitmentcontrols

CashManagement

Enablescashforecastingandbankreconciliationtobedoneonlineinrealtime.AninterfacewithBoUisalsoinplacetofacilitateautomatedreconciliation

Revenue/Receipting

LinksTreasurywiththeUgandaRevenueAuthority(URA)inrespectoftaxreturns.Invoicingandcollectionsofnontaxrevenueisalsoexpectedtobemanagedonline.

andmadeavailableforbudgetexecution.Initially,recurrentanddevelopmentbudgetswerepreparedontheIFMSbyspendingagenciestowhichtheIFMShadbeenextended.

However,theIFMShasnotbeenabletoprovidethedesiredsupporttoelementsofbudgetplanningthatareanalyticalinnature,notablyforecastingofrevenuesandexpendituresoverthemediumterm.Also,annualestimatescouldnotbeeasilyconstrainedbythebudgetceilingsoftheMediumTermExpenditureFramework(MTEF),andthebudgetestimateswereprintedfromlegacysystems.TheIFMShasalsobeeninadequatetofullyadjusttorecentOutputOrientedBudgeting(OOB)reforms.Toaddressthis,theMinistryofFinancehasintroducedasupplementaltool-theOutputBasedBudgetingtool(OBT)-toprovidesupportinpreparing,monitoringandreportingontheresultbasedbudget.TheannualbudgetestimatesareuploadedfromtheOBTontotheIFMIS,andexpendituredataistakenfromtheIFMISanduploadedintotheOBTonaquarterlybasistoenablebudgetreporting.

SUPPORTTOBUDGETEXECUTIONTheIFMSwasconfiguredtoimplementinternalcontrolsduringbudgetexecutioninlinewithpublicfinanciallaw.ItfacilitatestheissuanceofwarrantsandthereleaseoffundstoMALGs.ThisincludescashmanagementsuchaselectronicbankreconciliationsandtheissuanceofcashlimitswhichtheMALGsuseforexpenditureplanning.TheIFMSalsoenablesMALGstoreceiptrevenues,approveandissuepurchaseorders,recordcommitments,approveandprocesspayments(includingtheprintingofinvoicescheckstosuppliers).TheIFMSalsofacilitatesthegenerationofmanagementinformationandpreparationofreportsbothatMALGlevelandconsolidatedlevel.

SUPPORTTOFINANCIALREPORTSANDAUDITINGMALGsandtheMinistryofFinanceareabletorelyontheIFMStopreparereportsoncaptureddata.Alongwithstandardreports,theIFMS

offersareportconstructionmodule–thefinancialstatementgenerator–whichprovidestheflexibilitytodevelopadditionalcustomreports.Italsooffersaflexiblewayofqueryingthesystemonvariousaspectssuchasquicklistingsofpurchaseordersandcommitments.Theexistenceofanaudittrailprovidessignificantaddedsecurity.

KEYFACTORSANDLESSONSINSUCCESSFULIMPLEMENTATIONTHEIFMS

PRE-REQUISITESFORIMPLEMENTINGTHEIFMSBasedonthelessonslearnt,thefollowingareusefulconditionstoputinplacetofacilitateimplementationoftheIFMS:

• Acomprehensivechartofaccountsmappingbudgetclassificationtoaccountsisneededtoallowseamlessreportingbetweenbudgetandexpenditures.

• ApublicfinancelegalandregulatoryframeworkprovidingasoundbasisforimplementingandusingelectronicsystemsandtherightconditionstooperatetheIFMSareneeded.InthecaseofUganda,thelegalframeworkandtheinternalcontrolsregimewerereviewedtoenableproperinterpretationandacceptanceofelectronicrecordsandreportsbyrelevantauthoritiesandinstitutionsforexamplewhenapprovingpaymentsorauditingfinancialstatements

THEIFMSISNOTJUSTTECHNOLOGYImplementingtheIFMSiseffectivetotheextentthatitisacceptedandutilizedbytherelevantstaffandmanagement.IntroducingtheIFMSismorethanprocuringandinstallingtechnology(hardwareandsoftware).Itisaboutchangingthewaybusinessisconducted,andchangestoprocedureswillneedtobeadoptedbystaffandmanagement.

InUganda,thereweretwocrucialelementsthatneededtobetackled:

• TheIFMSneededtobeappropriatelyscopedandalignedtotheUgandanprogramoffinancialmanagementreformsthatwasunderimplementationsothatitsupportedtheobjectivesofthesereforms.

• TherewereentrenchedpracticesorpowernetworksthatwerethreatenedwiththeintroductionofIFMS.This,coupledwithrequirementstolearnnewskillsandthefearoflayoffsamongstaff,creatednegativityandhadtobeaddressedtolimitundesirableimpactontheimplementationoftheIFMS.

Anextensivechangemanagementexerciseandacommunicationsstrategywereimplementedtominimizethefearsandnegativity,andtoimproveownership.Thesewereaccompaniedbyasetofincentivestoensureoperativesusedthesystems.Forexample,withdrawingmanualreceiptsandlocalpurchaseordersfromuseandabolishingthesubmissionofmanualfinancialstatementsattheendoftheyearbyMALGsthatwereconnectedontheIFMS.

MANAGINGTHEIFMSDURINGANDAFTERTHEIMPLEMENTATIONAsuccessfulIFMSrequireshighlevelcommitmentwithinthestructuresofGovernmentduringandafterimplementation.Governmentleadershipmustbeexpresslyexercised.InUganda,responsibilitiesforimplementingandmaintainingtheIFMSwereassignedtotheAccountantGeneral–apositionatthelevelofdeputyPermanentSecretary(orUndersecretaryintheGovernmentofSouthSudan).Theyreportedtotheseniormanagementontheimplementation.ThispositionhadsufficientpowertomobilisetheresourcesrequiredandtoensureMALGsimplementedtheIFMS

PLANNINGTOIMPLEMENTTHEIFMSCarefulplanningiscrucialforthesuccessfulimplementationofanIFMS.InUganda,thisallowedtheMinistryto(i)properlyscopetheIFMS(forexamplewhichmodulesand

functionalitytoinclude-e.g.shouldpayrollbepartoftheIFMS);(ii)assigntimeanddesiredlevelofresourcestoidentifyinguserrequirements;(iii)assignstaffanddevelopskillsrelevanttoparticipateinimplementingandusingtheIFMS;(iv)putinplacearrangementstomanagetheIFMSduringandafteritsimplementation.

Withthehelpofconsultants,UgandaundertookastudywhichdevelopedtheuserrequirementsandprovidedaroadmapfortheimplementationoftheIFMS.Fundingwasthensecuredtofinancetheimplementationoftheroadmap.Inaddition,theMinistryplannedwellinadvanceforthepostimplementationperiodincludingensuringthat(i)apropersupportstructureandtechnicalstaffwereputinplace;(ii)elementsoftheIFMS–forexamplesiterequirement-tobetakenoverbytheMALGswereproperlyassignedtothemandthattheywereguidedinmanagingthem;and(iii)fundsforrecurrentmaintenanceofsuchelementswereprovidedintheMALGsbudgets.

MANAGINGTHESUPPLIERCONTRACTImplementinganIFMShasfivemaincomponentsthatneedtobesupplied:(i)theapplication;(ii)hardwareandcommunicationnets(LANs)withineachinstitution;(iii)theinteragencycommunicationinfrastructure(wideareanetworkorWAN);(iv)Changemanagementandtraining;(v)systemintegration.Successinimplementingthesystemdependssignificantlyonhowthesecomponentsaremanaged.Inordertominimizerisk,especiallyinviewofthecapacityandskillsavailableatthetime,theMinistryoptedtohavethesupplierimplementandprovideprojectmanagementservicesforallcomponents(exceptchangemanagement)underaturnkeyconcept(onesinglecontract).TheGovernmentshiftedtheriskfordeliveringtheIFMStoasinglesupplier,ratherthanmanagingeachcomponentunderaseparatecontract.Thecontractwasarrangedaccordinglyandpaymentstiedtodeliveringkeycomponents.ThisprovedtobeapowerfulstrategyinimplementingtheIFMS

PARTICIPATIONOFRELEVANTUNITSTomaximisethechancesforownershipanduseoftheIFMS,itisimportantthatallPublicFinanceManagement(PFM)unitsrelevanttotheIFMSparticipateinitsdesignandimplementation.InUganda,unitswithkeyresponsibilitiesinbudget(forbudgetpreparationandreleases,andsectorplanning),macrofiscalunits,accounting,internalaudit,procurement,andexternalaudit,wereengagedontheneedtoparticipate.Thiswasdoneinastructuredwaywithinacommonstructure.However,requeststoexpandthescopeoftheIFMStoaccommodatespecialrequirementsforthebudgetandmacrounitswerenotfullyaccommodatedandthisinitiallylimitedtheirownershipandacceptanceofthesysteminUganda.

STAFFINGANDSKILLSImplementingtheIFMScalledforanewsetofspecializedskills–inaccountingandIT–whichwereinshortsupplyinUganda.Itwasnecessarytostepuptheseskillsquicklytoenablethesmoothimplementation.TheMinistryoptedtorecruitateamof12UgandanexpertstosupporttheimplementationoftheIFMSanditsskillsdevelopmentprogram.40graduatestaffspecificallytrainedtosupportthesystemwerealsorecruited,manyofwhichhavesincebeenabsorbedintothecivilservice.Theinternaltrainingfacilitythatwassetupduringtheprojectwaskeytodevelopingtheskillsrequired.ItshouldbenotedthatimplementingacomprehensivecapacitybuildingprogramwasinpartpossiblebecauseaccountsstaffareacommoncadreoverwhichtheAccountantGeneralhasauthoritytorecruit,deployanddiscipline.

CHALLENGESTOIMPLEMENTINGANDMAINTAININGTHEIFMS

PROLIFERATIONOFPARALLELSYSTEMVariousministriesandagencieswerealreadyimplementing,orwereplanningtoimplement,asystemtosupporttheirfinancialmanagement

operations.ThisslowedtheprocessoftransitiontotheIFMS.TheMinistryofFinance,evokingitsmandateoverfinancialmanagementsystemsunderthelaw,wrotetoallMALGsinformingthemabouttheplannedintroductionoftheIFMSandbarringthemtoinvestfurtherinsimilarsystems.

MANUALPROCESSESManualprocessesposethebiggestthreattoefficiencyandeffectivenessofautomationundertheIFMS.Forexample,commitmentsmadeoffthesystemandonlyregularizedafterthefact,orrevenuereceiptsandbudgetaryexpendituresthatmaynotbecapturedonthesystem,willlimititseffectivenessforfiscalcontrolandreporting.Thesystemwillonlybegoodtotheextenttowhichoffsystemprocessesandcontrolsarealignedwithit.Totheextentpossible,theIFMSshouldbeenabledtocaptureallfinancialtransactionstominimizeoffsystemtransactions.Atthesametime,theMinistry,supportedbyinternalandexternalaudits,needstocontinuallyexercisevigilancetocheckontransactionsthatmaybecarriedoutoutsidethesystemandtoensureappropriatesanctioningofirregularbehaviour.

EVOLVINGWITHPUBLICFINANCEMANAGEMENTREFORMSANDANALYTICALPROCESSESSomenewPFMreformsposeachallengetotheIFMS.Ugandahasrecentlyadoptedoutputorientedbudgeting,requiringGovernmenttotrackphysicalperformanceinadditiontoexpenditures.However,theIFMS’scapabilityislimitedtofinancialtransactionsandithasbeenunabletoadjusttothisnewrequirement.Therefore,itwasnecessarytodevelopasupplementalsystem(theOutputBudgetingTool)totrackandreportonthephysicalperformance.

Asimilarchallengerelatestothebudgetplanningprocesswhichisinherentlyhighlyanalytical.Previouseffortstoautomateitsprocesses(usingtheOraclefinancialanalyser)havenotbeensuccessful.Itwasdecidedthattherewaslittlebenefitincoveringhighlyiterativeandanalyticalprocesses.Therefore,theseprocessesremainofftheIFMS.

ReadersareencouragedtoreproducematerialfromtheCountryLearningNotesseriesfortheirownpublications,aslongastheyarenotbeingsoldcommercially.Ascopyrightholder,ODIrequestsdueacknowledgementandacopyofthepublication.Foronlineuse,weaskreaderstolinktotheoriginalresourceonwww.budgetstrengthening.org

Theviewspresentedinthispaperarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsofODI.

©OverseasDevelopmentInstitute2012

BudgetStrengtheningInitiativeOverseasDevelopmentInstitute

111WestminsterBridgeRoadLondon,SE17JD

www.budgetstrengthening.org

TheCountryLearningNotesseriesisintendedasatoolforpolicymakersandpractitionerstolearnfromtheexperiencesofothercountries.Eachnotefocusesonaspecificcountryandaparticularpolicyarea,documentingthechallengesfacedanddecisionstakentoovercomethem.

Theseriescanbefreelydownloadedfromwww.budgetstrengthening.org.Formoreinformationpleasecontactbsi-research@odi.org.uk.

ENDNOTES

1. ThefirsttierIFMSisbasedontheOraclefinancialapplication.

2. LocalgovernmentsinUgandatowhichthisstatementappliesincludedistricts(ashigherlocalgovernments),municipalandtowncouncils

CHANGESINTECHNOLOGYChangesintechnologyposeamajorchallengetosustainingtheIFMS.Hardwareneedstobeperiodicallyreplaced,particularlyassoftware(bothsystemandapplicationsoftware)advances.Thisismostapparentforthedatacentre.Asecondelementofthischallengerelatestoinstitutionswhoseinterfacesareimplementedandhaveaseparateprocurementdecisionprocess.Specifically,URAhascontinuallychangeditstechnologies–evenwithopentechnologies(discussedinSection1).Thishasconstrainedthesmoothimplementationoftheinterfaces

RELIABILITYOFTHEWANGiventhecentralisednatureoftheIFMS,thereliabilityoftheconnectionbetweentheMALGsandthedatacentreovertheWANiscritical.TheGovernmentoptedtooutsourcetheinfrastructurefortheWAN,askinglocaltelecommunicationsupplierstoprovidetheconnection.Twosuppliers,onebackinguptheother,werecontracted.However,theWANcontinuestobeunstablewithsignificantoutagesaffectingthereliabilityoftheIFMS.

MAINTAININGTHEIFMISDespitethemeticulousplanning,maintainingtheIFMShasposedchallenges.Theseinclude:highstaffturnover,requiringcontinuousskillsdevelopment;recurrentcostscovering(amongotherthings)licenses,technicalsupportandthemaintainingofequipment.MaintenancebudgetshavetobemadeavailablewithinMALGsandtheMinistryofFinance.Importantly,

theMinistryofFinancehastocontinuetoprovideleadershiptoensuremaintenanceisdonewhenitisdueandtoensurethesystemcontinuestofunctionatasatisfactorylevel,includinginthewakeofnewreforms.

CONCLUSIONSTheIFMSofferstremendousbenefitstotheGovernmentsinthebudgetcycle.TraditionalIFMSapplicationsolutionstendtobebetteratsupportingbudgetexecution,accountingandreportingprocessesthantheplanningphaseofthebudgetcycle.Thisisbecauseofthepresentlimitationtohandlethedemandsforanalysis.ImplementingtheIFMSisacomplexundertaking.TheIFMShastobetailoredtothespecificneedsofeachcountry:oneimplementationwillnotfiteverycountry.Accordingly,thedesignandthechoiceoftechnologiesmustbeselectedcarefullytofittheneedsofeachgovernment.ThereareotherfactorswhicharealsoimportantandtowhichattentionmustpaidtoensuresuccessfulimplementationoftheIFMS.Thisincludeshighlevelsofcommitmentfromkeygovernmentofficials,appropriateprojectmanagementarrangements,aswellasthedevelopmentoftherightskillsandattitudetotheIFMSamonggovernmentinstitutionsandstaff.Duetoitscomplexnature,challengeswillemergethroughouttheimplementationprocess.Thesechallengeswilloftenvaryfromoneimplementationtoanother.ReadinesstoaddresstheseemergingchallengesisessentialtoensuringsuccessinimplementinganIFMS.