Sustainable Public Financial Management

This series examines different scenarios and the impact of Government Resource Planning (GRP) to improve governance. [Framework described in more detail.]

Information and Communications Technology (ICT) initiatives such as Government Resource Planning (GRP), sometimes known as Financial Management Information Systems (FMIS) for government, are seen as an expression of PFM reform. Diamond and Khemani suggest that “the establishment of an FMIS has consequently become an important benchmark for the country’s budget reform agenda, often regarded as a precondition for achieving effective management of the budgetary resources. Although it is not a panacea, the benefits of an FMIS could be argued to be profound.” 

IMPACT: Profitability is the key concept in the private sector. Budget is the key concept in government. In business the budget is only an internal document. In governments and not-for-profits, the budget is the key fiscal document.

PROBLEM: Many government budgets are created with little regard for spending realities or budgets are changed in execution without the spirit of the original plan.

OTHER FACTORS: Credible budgets require effective economic understanding and linkage with policy.

SCENARIO:Use of GRP systems for improved budget planning and budget execution. 

Matt Andrews suggests that considerable effort has been made to help developing countries improve budget planning but these bettter budgets did not result in better spending. Stephen Symansky has pointed out that governments should focus on budget execution priorities first despite the orthodoxy that budget preparation should come first.   Credible budgets requires a combination of effective planning and execution. According to Simson, Sharma and Aziz, an effective budget pursues three (partially competing) objectives: maintaining fiscal discipline, allocating resources in accordance with policy priorities and efficiently delivering services, or ‘value for money’. Budgets should be comprehensive, transparent and realistic. This series demonstrates how GRP can be used to improve governance including improving budget credibility.

Government Resource Planning Approach for Credible Budgets

Managing the civil service is enabled through GRP systems:

1. Government Performanceincludes historical analysis decision-making tools of examining past spending, budget variances and revenue trends
2. What-if and scenario planning decision-making tools  are used to model the effects of economic changes, policy and unit pricing
3. Logic mapping decision-makingtools  are used to align government goals (budget inputs, outturns, outputs and outcomes) with capital, operating and salary spending  where alignment and objectives change over time
4. The Budget Preparation element of Government Performance management includes the budget circular, a control tool, that sets the acceptable parameters for budgets from government Ministries, Departments and Agencies (MDAs)
5. The budget calendar control tool sets out the process of multiple budget versions, compliance with information detail and schedule
6. The GRP leverages an enterprise-grade ICT Platform as foundation that integrates data from multiple system including core accounting, expense, payroll and revenue systems as a decision-making tool
7. The resulting budget law that can include a budget book becomes a control tool within Core Financials that needs to be integrated with all financial management systems
8. Commitment Accountingis a control tool inherent in all GRP systems, rather than an add-on to private sector software, that supports multiple  aggregate controls to prevent over-spending budgets or spending on unauthorized items
9. Analyticsdecision-making tools that are part of Government Performance management enables tracking and forecasting budget variances
10. Budget transfersmay be required based on revenue variance or a reaction to economic shocks where transfers are a control tool to ensure proper authorization for these changes

Governance Toolset

The budget credibility management scenario requires the ability for GRP systems to support the progressive activation of good practices in public service reform:

• Support for analyzing information from budget execution to develop effective estimates
• Automating budget formulation and execution controls to ensure that budgets are not overspent
• Support for changes to budget classifications and the introduction of techniques of Medium Term Expenditure Frameworks (MTEF) such as macro-fiscal frameworks, performance management, multiple year viewpoints and sectoral strategies when appropriate based on government capacity

There are GRP governance tools operating at every stage in the PFM reform lifecycle including:

• Controls
• Chart of Accounts that aligns all government financial activity to budgets, users, purpose, organizational structure and accounting types for fiscal discipline – the COA tends to change because of government reform to introduce program budgeting, performance measures, standards support or accrual accounting
• Policy that articulates government priorities is critical at all stages of budget formulation and execution
• Reporting and Analytics is important at all stages of the budget lifecycle for proper planning and adjustments
• Budget Transparency can also be important to engage civil society on prioritization and effective spending

Some governance tools augment specific parts of progressive activation lifecycle:

• Historical analysis includes decision-making tools used for general  that supports benchmarking and other comparisons
• Scenario planning includes decision-making tools for ‘what-if’ analysis that include different economic, revenue and spending assumptions
• Logic mappingincludes analytical tools that support program management, outputs and outcomes, and Key Performance Indicators (KPIs) to better align public servant performance with government objectives
• Budget circular  and Budget calendar leverage control tools of workflow and approvals for compliant and timely budget formulation
• Integration controls  including data integrity and reconciliation ensures that the data used for decision-making is accurate and up-to-date
• Budget law generates budget controls that sets multiple aggregate and line-item budget ceilings across multiple periods with tolerance levels
• Commitment Accountingis a commitment control tool that ensures that the requirements of the budget law are respecting during budget execution
• Analytics decision-making tools including alerts & dashboards re-forecasts variances and provide early warning to management
• Budget transfer controls tools ensures that all virements and changes to aggregate levels follow legal approval requirements

Governance Enablers

Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP.

Institutional governance enablers that are critical to budget credibility include:

• Efficiency in budget formulation and execution through automation to ensure timely intervention
• Standards and guidelines used across the budget lifecycle including support for Government Financial Statistics (GFS), International Public Sector Accounting Standards (IPSAS) and national standards
• Compliance processes that ensures that standards are followed
• Legitimacy of the budget process within the public service, with politicians and civil society that creates an environment to support budget credibility

There are other institutional characteristics that are important during the lifecycle include:

• Capacity of public servants  to support the progressive activation of performance management, decision-making tools and new standards
• Institutional arrangements aligned to controls to add incentive for credible budgets
• Accounting procedures that follow appropriate good practices so that information is reliable

It can be argued that appropriate institutional arrangements for credible budgets will have limited impact without an effective underlying technology system:

• Informal processes will dominate budget processes without the imposition of automated controls where the executed budget does not reflect policy or the budget law
• Budget estimates will be inaccurate without a computerized model based on the government establishment
• No early-warning systems for potential budget variances will be observded

Governance Signs

There are numerous signs that are used to measure the governance effectiveness of PFM in this scenario:

• Public Expenditure and Financial Accountability(PEFA) assessments are widely accepted as showing the PFM state-of-the-art in any country. PEFA provides detailed analysis of budget credibility
• Quality of Governance Institute measure that provides an index for government corruption, bureaucratic quality and the rule of law
• Open Budget Indexdescribes the compliance with good budget transparency practices

Governance Linkages

In this anti-corruption scenario:

• GRP systems support automated governance tools that enforce fiscal procedures
• Features of the GRP ensure broad budget coverage
• Governance controls and decision-making tools enables budget coverage
• Improved budget credibility improves development outcomes and the World Governance Indicator, Government Effectiveness 

PEFA Impact

Progressive action using GRP with tools and enablers will help to improve ratings for numerous scores, especially PEFA A:

• PEFA A Credibility of the Budget
• PI-1 aggregate expenditure out-turn compared to original approved budget can be achieved through controls on budget execution
• PI-2 composition of expenditure out-turn compared to original approved budget can be achieved through aggregate budget controls and budget transfer controls
• PI-3 aggregate revenue out-turn compared to original approved budget is improved through historical information, macro-economic and scenario planning
• PI-4 stock and monitoring of expenditure payment arrears is managed within the financial management system with links throughout the budget cycle including commitments, obligations and good receipt
• PEFA B
• PI-5 classification of the budget tends to improve when linking policy with programs and performance
• PI-6 comprehensiveness of information in budget documentation improves through comprehensive budget preparation and execution systems that can easily generate budget books and financial statements
• PI-10 public access to key fiscal information is more easily supported out of comprehensive budget systems
•  PEFA C(i) Comprehensiveness and Transparency
• PI-11 orderliness in the annual budget process will be enhanced through planning and budget models that will provide more accurate estimates
• PI-12 multi-year perspective will be enhanced through budget tools

Governance Indicators and Outcomes

The improvement of meta governance indicators such as Government Effectives improves trust and investment in countries. Improved effectiveness improves policies, laws and regulation of those laws. These indicators are used by credit agencies and private businesses. Foreign Direct Investment (FDI) can increase. Many countries attempt employment interventions through tax credits, training programs and investments. Credible budget planning can align with these policies. Analytical tools can be used to identify the most effective interventions.

There are numerous budget management software applications available but, according to Hove and Wynne, in practice the World Bank and aid agencies have funded the introduction of private sector financial systems, which do not include core budgeting functionalities.  Many government organization use spreadsheet applications for budget planning that fail to support controls, version management, management approval while referencing multiple years of historical information.

Case Study: Antigua and Barbuda

The Government of Antigua and Barbuda utilized numerous procedures for budget formulation. The government had good budget office capacity. Budget execution did not often follow the plan. And, there were numerous supplemental budgets over the years. The use of supplemental budgets is a sign that the original budgets were not credible.

The Ministry of Finance at the Government of Antigua and Barbuda decided to reform the budget process to include:

• Multiple-year budget planning using FreeBalance Performance Budgeting
• Broader coverage of the Core Financials and Payroll functionality of the FreeBalance Accountability Suite across Ministries, Departments and Agencies (MDAs) to provide additional controls
• Capacity building of accounting and payroll officers in MDAs
• Support for accounting standards that better reflect program and objectives
• Performance measures used in budget proposals
• Improved budgeting of the long-term recurrent expenditures from public investment projects
• Quarterly budget meetings to ensure socialization of budget discipline and share lessons learned across MDAs chaired by the Financial Secretary and the Minister of Finance
• Develop of Dashboards using the FreeBalance Accountability Suite to provide actionable information to the Accountant General

Significant improvements in the PEFA measures for budget credibility have been achieved at the government improves budget management.

Conclusions

Many studies show that budgeting in the public sector is fundamentally different from budgeting in the private sector. It can be argued that budget credibility cannot be achieved without GRP systems that provide:

• Controls and automation of the entire budget lifecycle
• Integration of all expenditure and revenue systems
• Decision-making tools to develop better budgets and for early warning on budget variance problems

Government institutional characteristics can improve budget credibility further

This series examines different scenarios and the impact of Government Resource Planning (GRP) to improve governance. [Framework described in more detail.]

Information and Communications Technology (ICT) initiatives such as Government Resource Planning (GRP), sometimes known as Financial Management Information Systems (FMIS) for government, are seen as an expression of PFM reform. Diamond and Khemani suggest that “the establishment of an FMIS has consequently become an important benchmark for the country’s budget reform agenda, often regarded as a precondition for achieving effective management of the budgetary resources. Although it is not a panacea, the benefits of an FMIS could be argued to be profound.” 

IMPACT: General view that a skilled and efficient government workforceis required to enable public sector performance.

PROBLEM: The pace of PFM reforms often slows because of the inability for information systems to adapt to new needs

OTHER FACTORS: Many initiatives designed to improve government effectiveness in financial management, procurement, taxation, decentralization and anti-corruption require some changes in civil service management.  

SCENARIO: There is limited agreement about the functions that cause bureaucratic institutions to operate more effectively.

According to Christian Schuster, “development practitioners are rightly concerned with depoliticising clientelist civil services. In other words that the recruitment of officials be based on merit rather than political loyalty for all but the top echelons of the bureaucracy. A number of statistical studies have linked depoliticised bureaucracies to positive development outcomes, including increased economic growth, lower levels of corruption and poverty reduction.” And, yet “civil service and administrative reform projects have the lowest success rate, below 45%, among the four subareas of public sector reform” in a recent World Bank study.  This series demonstrates how GRP can be used to improve governance including enabling civil service reform.

Government Resource Planning Approach for Civil Service Management

Managing the civil service is enabled through GRP systems:

1. Government Performanceincludes logic mapping that aligns government goals (budget inputs, outturns, outputs and outcomes) with capital, operating and salary spending  where alignment and objectives change over time
2. Where the special characteristics of salary planning can be modeled including union agreements, salary scales, vacancy rates, deductions, bonuses, expenses and leave accruals
3. Core Civil Service Planning includes workforce management that includes the entire government “establishment”, public servant profiles and salary structures to help create standards
4. With the automation of payroll to reduce errors and  corrupt practices
5. And training programs for capacity building to improve public servant capabilities
6. The GRP leverages an enterprise-grade ICT Platform as foundation including a secure infrastructure
7. User group controlshave been defined in the ICT Platform
8. More advancedCivil Service Management functions can be implemented over time such as recruitment  to attract candidates with desirable education, skills and experience
9. When appropriate, talent management methods can be introduced to provide additional training, mentoring and advancement
10. With the introduction of merit-based pay for performance to provide additional incentives for improving civil service performance

Governance Toolset

The civil service management scenario requires the ability for GRP systems to support the progressive activation of good practices in public service reform:

• Support for modeling complex salary structures for planning with re-forecasting the salary spend based on actual payroll
• Support for multiple civil service payment methods including secure cheque printing, voucher, pay masters, electronic funds transfer and debit card support based on the financial services situation in the country
• Focus of non-financial functions of civil service management on capacity building and talent management

There are GRP governance tools operating at every stage in the PFM reform lifecycle including:

• Controls
• Segregation of Duties ensures proper human resource management discipline and reduces the opportunity for favouritism
• Approvals for all stages in the civil service lifecycle such as hiring, promotion, bonuses and dismissal
• Integrationensures that controls and functions operate consistently across multiple modules especially interfacing with core financial, budget and payment systems

Some governance tools augment specific parts of progressive activation lifecycle:

• Logic mappingincludes analytical tools that support program management, outputs and outcomes, and Key Performance Indicators (KPIs) to better align public servant performance with government objectives
• Salary panning includes analytical tools used for general budget planning that uses historical information and using complex salary structures used in government organizations
• Workforce management  that usesanalytical tools to adjust and rationalize salary scales through benchmarking across government organizations
• Payroll controls  through payment management aligned with workforce management that can eliminate phantom employees, improveattendance and reduce corruption opportunities endemic when payroll is provided through cash
• Capacity building through controls to ensure that training is used to ensure public servants have appropriate knowledge and courses are provided to only those who qualify
• Secure infrastructureis augmented by control tools such as data integrity that prevents manipulation in underlying databases, encryption that prevents people from accessing certain types of data, and general IT security such as virtual private networks to reduce ICT manipulation
• User group controls is augmented  by user management such as password controls
• Recruitment functions to attract public servants with needed skills, education and experience when appropriate to do so that includes front-office transparency functions with e-recruitment and workflow controls to make hiring less subjective
• Talent management functions including workflow controls and analytics decision-making tools to advance public servants who are contributing to performance improvements through promotions and training as part of a process of professionalizing the public service
• Pay for Performance using workflow controls and analytics decision-making tools to provide more incentives for performance

Governance Enablers

Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP.

Institutional governance enablers that are critical to progressive activation include:

• Public Service capabilities and incentives need to be adjusted to support professionalization
• Political Will by stakeholders such as the executive and senior public servants to champion change
• Independence of the civil service organization to pursue changes
• Standardsused in human resource management is required to develop proper pay grades, incentive scales and needed civil servant qualifications for positions
• Complianceprocesses that ensures dealing with phantom employees and workforce changes such as promotion

There are other institutional characteristics that are important during the lifecycle include:

• Capacity of public servants must improve over time in order to sequence more advanced functions such as recruitment and talent management
• Informal processesthat encourage patronage need to be examined and changed

It can be argued that appropriate institutional arrangements for civil service reform sequencing will have limited impact without an effective underlying technology system:

• Informal processes will dominate human resources without the imposition of automated controls
• Phantom employees will be difficult to identify without electronic identities, address tracking and electronic funds transfer
• Capacity gaps within the public service will be difficult to uncover without sufficient data
• Many public servants could be underpaid or overpaid
• Budget estimates will be inaccurate without a computerized model based on the government establishment

Governance Signs

There are numerous signs that are used to measure the governance effectiveness of PFM in this scenario:

• Public Expenditure and Financial Accountability(PEFA) assessments are widely accepted as showing the PFM state-of-the-art in any country. PEFA provides detailed analysis of the comprehensiveness, efficiency and quality of PFM processes with some elements reflecting payroll

Governance Linkages

In this anti-corruption scenario:

• GRP systems support automated governance tools that enforce fiscal procedures
• Governance tools within the GRP help to improve efficiency and performance
• Features of the GRP optimize government capacity and methodologies ensure capacity building as part of the professionalization of the public service
• Governance tools are progressively activated to enable more advanced functions in sequence with improved capacity
• Improved efficiency and public service capacity can improve the World Governance Indicator, Government Effectiveness
• Professionalization of the public service with proper pay and incentives can also reduce corruption, the perception of corruption and the World Governance Indicator, Control of Corruption

PEFA Impact

Progressive action using GRP with tools and enablers will help to improve ratings for:

• PEFA C(i) Comprehensiveness and Transparency
• PI-11 orderliness in the annual budget process will be enhanced through salary planning and budget models that will provide more accurate estimates, particularly in government where salaries are often the largest expenditure category and governments are the largest employer
• PI-12 multi-year perspective will be enhanced through the salary models
• PEFA C(ii) Predictability and Control in Budget Execution
• PI-18 effectiveness of payroll controls will be enhanced through payroll and payment systems and human resources workflow
• PEFA C(iii) Accounting, Recording, Reporting
• PI-22 improved timeliness of accounts reconciliation via integration and automation including integration across GRP modules including payroll
• PI-24 improved quality and timeliness of in-year reports through integration between payroll and financial systems
• PI-25 improved quality and timeliness of in-year reports through integration between payroll and financial systems

Governance Indicators and Outcomes

The improvement of meta governance indicators such as Government Effectives and Control of Corruption improves trust and investment in countries. Improved effectiveness improves policies, laws and regulation of those laws. These indicators are used by credit agencies and private businesses. Foreign Direct Investment (FDI) can increase.

Case Studies: Canada and Uganda

Geoffrey Shepherd has pointed out that the merit model promotes competence and protects the civil service from political interference, but it largely fails in developing countries. Public service reform is enabled through GRP systems but requires significant and sustained change management to achieve objectives.

Canada and Uganda are two countries with similar sized public services and British heritage. These countries are at different levels in the professionalization of the public sector and face different challenges.

Canada

Information systems to handle human resources and financial management systems have been primarily decentralized in the Canadian federal government to departments, agencies and commissions. Payments are made centrally but planning has been highly decentralized. Canadian federal government organizations are faced with Commercial-Off-The-Shelf human capital and payroll systems that have no concept of budget. These systems are unable to predict salary budget deficits and can authorize payments that exceed the budget vote.

The decentralized nature of payroll in the Government of Canada can result in payments made to public servants who have changed departments or on secondment.

The most widely used tool to manage these problems in the Government of Canada is FreeBalance Performance Budgeting for Human Capital (PBHC) for organizations with more than a handful of employees. PBHC includes complex Government of Canada salary scales including modeling collective agreements with unions. Salary budgets developed by these organizations include all salary expenditures including training and travel.

PBHC acts as a hub for salary management. PBHC examines actual payroll figures to adjust forecasts. For example, higher vacancy rates and lower training costs in a pay period will show potential surpluses. On, the other hand, increased travel, training and certification will show potential deficits. Human resource professionals are able to use this information to make better decisions while ensuring meeting budgets.

PBHC also generates journal vouchers in financial systems, including ERP software where used, for accruals and intergovernmental transfers.

Uganda

The Government of Uganda acquired Civil Service Management modules of the FreeBalance Accountability Suite as an Integrated Personnel and Payroll System (IPPS) to support the Public Service Reform Program (PSRP) after a competitive bid process in 2009. The introduction of IPPS required significant efforts in civil service change management that has included multiple stages. This has included training, updating human resource processes, auditing systems for phantom employees and potential areas of corruption and integration with a non-FreeBalance ERP system.

The Government of Uganda received a FreeBalance Public Financial Management Award of Excellence for Data and Process Migration. The IPPS team continues to sequence human resource functions based on capacity improvements and socializing changes. The final planned stage of IPPS will include salary planning and budgeting. At this time, the payroll and human resource integration across the Government of Uganda using the IPPS `shared service` could be equivalent in many ways to that in Canada.

Conclusions

The pace of PFM reform needs to be sustainable to have lasting governance improvements. The information systems must enable rather than prevent reform. There have been numerous failures when inappropriate software is used for government financial management. GRP software can enable public service reform through:

• Progressive activation of business rules and workflow to support modernization
• Elimination of multiple points of corruption including ghost employees and cash payments
• Improved decision-making through reporting and analytics
• Salary planning that ensures that payroll does not exceed budgets
• Standardization of human resource processes for recruitment, promotion, capacity building, performance appraisals, dispute management and pay for performance

These tools and techniques are best leveraged by governments with political will to sequence reforms with a focus on capacity and change management

Doug Hadden, VP Products

We were very happy to get an invitation to give a short 15 minute presentation at  InterAmerican Development Bank workshop yesterday. My focus was on the disturbing trend of problems with custom developed Government Resource Planning systems in Latin America and the problems associated with customizing Enterprise Resource Planning (ERP) systems for government. There has to be a better way – Commercial-Off-The-Shelf GRP systems like FreeBalance. It’s the GRP tipping point.

Doug Hadden, VP Products

A FreeBalance team attended an InterAmerican Development Bank workshop from May 15 to 17: International Workshop on Public Financial Management for IFMIS Coordinators. [Presentations are located on that web page and my Storify version of tweets during the event are below.] We prefer the term "Government Resource Planning" (GRP) to "Integrated Financial Management Information Systems" (IFMIS). Nevertheless, IFMIS (SIAF in Spanish) is the term most often used among International Financial Institutions. 

We were very happy to get an invitation from the IDB to attend the entire conference and to give a short 15 minute presentation. (It was actually 14 minutes.) Three Enterprise Resource Planning (ERP) vendors were also invited, but only Oracle came and presented. Our partners Samsung SDS and Everis also presented. 

We've been going to Public Financial Management related conferences and workshops for some time. Insight in what is working and what isn't working is progressing. Patterns are emerging. And, many of these patterns are relevant across countries. In this case:

• Analysis of why some Public Financial Management reform doesn't work as expected and how to organize reform to achieve success from Matt Andrews of the Harvard Kennedy School, whose recent book, Limits of Institutional Reform, is a seminal work 
• Analysis of the links between GRP systems and extent of budget transparency by Cem Dener of the World Bank. He introduced a study that will be published in June with a budget transparency rating for 175 countries. He showed countries grouped in A, B, C and D. The main outlier was our customer Timor-Leste rated as an A thanks to the transparency portal that we developed that integrates with our GRP system.
• Analysis of drivers for accountability and GRP systems from Philipp Krause of the Overseas Development Institute who showed that the push from transparency can often come from internal government demand without any democratic insitutions.
• Significant problems in the dominant model for IFMIS in Latin America – custom developed software and significant problems with ERP in government elsewhere.

It was in this environment that I presented about the advantages of Commercial-Off-The-Shelf (COTS) GRP software like FreeBalance and the need for software vendors to be committed to customer successes.

This series examines different scenarios and the impact of Government Resource Planning (GRP) to improve governance. [Framework described in more detail.]

Information and Communications Technology (ICT) initiatives such as Government Resource Planning (GRP), sometimes known as Financial Management Information Systems (FMIS) for government, are seen as an expression of PFM reform. Diamond and Khemani suggest that “the establishment of an FMIS has consequently become an important benchmark for the country’s budget reform agenda, often regarded as a precondition for achieving effective management of the budgetary resources. Although it is not a panacea, the benefits of an FMIS could be argued to be profound.” 

IMPACT: General agreement that Public Financial Management and institutional reform is critical to improving governance

PROBLEM: The pace of PFM reforms often slows because of the inability for information systems to adapt to new needs

OTHER FACTORS: Sequencing of reformsdiffers because of differing country contexts  

SCENARIO: Continued and sustained activation of required PFM functionality based on country governance needs

Matt Andrews has pointed out the importance of regulative, normative, cultural-cognitive mechanisms to understanding the country governance context. Richard Allen suggested that there is no consensus model for sequencing.  The need for more in-depth understanding of context in government is further complicated by what Cindy Jutras describes as a lack of agility in Commercial-Off-The-Shelf (COTS) Enterprise Resource Planning (ERP) systems that are often used in government. This series demonstrates how GRP can be used to improve governance and enable governance reform.

Government Resource Planning Progressive Activation

The GRP “progressive activation” lifecycle can be described as:

1. Technical GRP Platform consisting of one of more modules is installed in a government organization after a thorough needs analysis
2. This needs analysisis used in a system configuration to meet government PFM needs
3. Governments modernize and create new PFM laws through legal reform that can include new procurement guidelines, transparency initiatives and support for international standards
4. Governments also  develop improved processes through process re-engineering
5. Governments build civil service capacity to improve fiscal discipline and efficiency
6. These changes require functional improvements that need to be configured in the GRP Platform that can include more advanced functions and new modules
7. A typical initiative is to improve citizen delivery and decision-making through decentralization that requires some devolution of responsibilities yet maintaining budget controls
8. Government Performance Managementfunctions such as audit enables governments to identify opportunities for governance improvements in areas such as anti-corruption, risk management and efficiency improvements
9. Dashboardsand other analytical methods also identify opportunities for reform
10. Progressive Activationenables sustainable PFM reform as the cycle returns to GRP Processes where the GRP system can adapt to multiple stages of reform 

Governance Toolset

The progressive activation scenario requires the ability for GRP systems to adapt to changing requirements:

• Centralized method for change across all GRP modules is preferred to complex “Master Data Management” exercises across modules from different vendors
• Reliance on software code customization (code development, call-outs to code, and complex scripting languages) adds significant costs and time at all stages of reform, especially when this code is in proprietary software languages owned by the COTS vendor
• Methodology and process is intertwined with technology otherwise governments are often faced with entry-level custom developed software that does not reduce poor practices or inappropriate “out-of-the-box” functions from COTS vendors

There are GRP governance tools operating at every stage in the PFM reform lifecycle including:

• Controls
• Chart of Accounts that aligns all government financial activity to budgets, users, purpose, organizational structure and accounting types for fiscal discipline – the COA tends to change because of government reform to introduce program budgeting, performance measures, standards support or accrual accounting
• Segregation of Duties ensures proper fiscal discipline – duties tend to change as governments decentralize, and reorganize
• Integrationensures that controls and functions operate consistently across multiple modules – integration requirements tend to increase as new modules and users are added
• Procedure Workflow articulates proper processes and controls – the workflow tends to change as governments introduce more advanced functional

Some governance tools augment specific parts of progressive activation lifecycle:

• Needs analysisis augmented by methodology tools that generate system blueprints (that often include multiple stages) following appropriate good practices
• Configuration includes changing parameters, adding fields of information, adjusting business rules and workflow as part of controls
• Legal reformand process re-engineering is enabled through change management methodology tools that ensures appropriate reforms for the country context and effective socialization of those reforms – and the linkage with policy
• Capacity building is enabled through configuration controls  including e-learning, user certification and localized help and terminology that adapts to meet increase in civil service knowledge
• Functional improvements requires controls to upgrade parameters, information fields, business rules and workflow that includes typical initiatives like movement to accrual accounting
• Decentralizationis supported through the configuration controls
• Auditing includes compliance and performance audits decision-making tools that provides information to eliminate practice deficiencies through controls  and typically uses the technique of benchmarks within government and with peer governments
• Performance management includes results systems decision-making tools that enable connecting government spending with outputs and outcomes that can improve decions and provide insight into controls changes

Institutional governance enablers that are critical to progressive activation include:

• Capacity of stakeholders including businesses, executive and civil society to create an environment for governance improvements
• Public Service capacity and incentives is important otherwise informal practices will dominate and laws will not be put into practices
• Political Will by stakeholders such as the executive and senior public servants to champion change
• Standardsused in public financials that provides better information to stakeholders
• Accounting procedures used by the government that provides appropriate fiscal discipline using good practices and integrated with controls
• Complianceprocesses and norms within the government

There are other institutional characteristics that are important during the lifecycle include:

• Legislature institutional capacity to ensure debate and passage of appropriate PFM laws
• Focus on improving the efficiency of government processes through automation and functional improvements
• Decentralizationof appropriate controls to enable devolution and improved citizen services
• The independence and enforcement options forinternal and external audit institutions and public service organizations to enable future reforms

It can be argued that appropriate institutional arrangements for PFM reform sequencing will have limited impact without an effective underlying technology system:

• Auditors will be forced to track budget, revenue and spending effectiveness through paper files or across incompatible information systems
• Public servants will not have access to data that measures efficiency or effectiveness in order to recommend changes
• Informal processes will dominate public financial management without automated controls
• Errors in financial processing will not be easily trapped except with an automated system that will show where user capacity needs improvement

Governance Signs

There are numerous signs that are used to measure the governance effectiveness of PFM in this scenario:

• Public Expenditure and Financial Accountability(PEFA) assessments are widely accepted as showing the PFM state-of-the-art in any country. PEFA provides detailed analysis of the comprehensiveness, efficiency and quality of PFM processes
• Quality of Governance Institute measure that provides an index for government corruption, bureaucratic quality and the rule of law

Governance Linkages

In this anti-corruption scenario:

• GRP systems support automated governance tools that enforce fiscal procedures
• Governance tools within the GRP help to improve efficiency and performance
• Features of the GRP optimize government capacity and methodologies ensure capacity building as part of the professionalization of the public service
• Governance tools are progressively activated to enable more advanced functions in sequence with improved capacity
• Improved efficiency and public service capacity can improve the World Governance Indicator, Government Effectiveness

PEFA Impact

Progressive action using GRP with tools and enablers will help to improve ratings for:

• PEFA B Comprehensiveness and Transparency
• PI-5 budget classification could be improved to support program budgeting, reorganization, performance indicators and accrual accounting
• PI-6 increase in the comprehensiveness in budget documents thanks to improved data classification
• PI-7 reduced amount of unreported government operations through decentralization and integration
• PI-8 improved transparency of inter-governmental fiscal relations through decentralization and integration
• PEFA C(ii) Predictability and Control in Budget Execution
• PI-16 improved predictability in the availability of funds for commitment of expenditures through improved budget classification and controls
• PI-17 automation to improve the recording and management of cash balances, debt and guarantees
• PI-20 improved effectiveness of internal controls thanks to effective automated controls
• PEFA C(iii) Accounting, Recording, Reporting
• PI-22 improved timeliness of accounts reconciliation via integration and automation including integration across GRP modules
• PI-23 improved availability of information from service delivery units through increased GRP coverage government-wide
• PI-24 improved quality and timeliness of in-year reports through integration, automation and the use of international standards and good practices in accounting procedures
• PI-25 improved quality and timeliness of in-year reports through integration, automation and the use of international standards
• PEFA C(iv) External Audit and Scrutiny
• PI-26 improved scope of external audit through independence, capacity and access to the procurement audit trail
• PI-28 improved legislative scrutiny of external audit reports because of improved information and increased legislator capacity

Governance Indicators and Outcomes

The improvement of meta governance indicators such as Government Effectives improves trust and investment in countries. Improved effectiveness improves policies, laws and regulation of those laws. These indicators are used by credit agencies and private businesses. Foreign Direct Investment (FDI) can increase.

It is true that exogenous factors and informal processes can reduce the PFM reform pace. Appropriate GRP technology can enable “small wins” and incremental improvements that enhance institutional efforts and capacity building.

Case Study: Kosovo

PFM reform in Kosovo began with the United Nations Mission in Kosovo (UNMIK) in 1999.UNMIK created an administrative structure creating the “Central Fiscal Authority (CFA), later renamed the Ministry of Finance and Economy. The FreeBalance Accountability Suite was selected and implemented in 26 days to support a new Chart of Accounts, support budget controls and issue payments.

The GRP system in Kosovo adapted to new reforms by the UNMIK and the Government of Kosovo after independence was declared in fiscal management, public procurement, human resources, budget, decentralization, corruption, cash and debt management.  PEFA assessments also improved with use of GRP functionality cited as partly responsible. Today, Kosovo has rolled out GRP software to all budget organizations are all government tiers. Budget transfer and purchasing responsibilities have been decentralized to improve decision-making and service delivery while maintaining compliance with fiscal controls.

Conclusions

The pace of PFM reform needs to be sustainable to have lasting governance improvements. The information systems must enable rather than prevent reform. There have been numerous failures when inappropriate software is used for government financial management. GRP software can enable reform through:

• Progressive activation of business rules and workflow to support modernization
• Integration of additional software modules that increases automation across government
• Decentralization of processes and responsibilities in concert with capacity improvements
• Government-specific methodologies for needs analysis and change management that includes tackling incentives and informal practices

These tools and techniques are best leveraged by governments with political will, good civil service, legislative and civil society capacity with audit organizations with sufficient capacity, independence and enforcement.

Governance Enablers

Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP. 

Enterprise Software Success Myth #7

FreeBalance is a medium-sized Independent Software Vendor (ISV) with considerable success competing against very large Enterprise Resource Planning (ERP) vendors. We are sharing 16 lessons learned by bucking conventional wisdom to encourage industry innovation and creativity.

Conventional View

Enterprise Software companies introduce new features with every new release through an interesting ceremony: gathering analysts, customers, partners and music stars at a large event. Saturate the market with press releases and hyperbole. Claim each and every new feature presented is “innovation”. And, go so far as to define integration among acquired products as innovation.

Symptom

Enterprise Software customers are reluctant to upgrade to the newer versions because of the introduction of complexity or changes in the user interface that users have become familiar with.

Emerging Trends

The Enterprise Software market is undergoing significant change where new “features” often reduces perceived value by users, as pointed out by Alan Cooper , features often get in the way of usability.

• Focus on user experience design especially since the success of Apple in consumer devices through ” design thinking”Focus on UX.
• As described by Eric Kimberling, many ERP customersdon’t want to constantly change their operations to adapt to functionality. To add insult to injury, most organizations don’t upgrade because it delivers any sort of tangible ROI. Instead, they do it because they have to and often have no other choice if they want to continue to have annual maintenance and support.
• A survey from an ERP user group found the average upgrade time frame is between 6 to 12 months.
• We’ve seen the elimination of feature noise in popular products such as in Microsoft Office
• As Clayton Christiensen has identified the “Innovator’s Dilemma” where incumbent vendors are reluctant to implement disruptive innovation that disrupts the business model.

FreeBalance Approach

Feature bloat in software – bloatware is a scourge – it makes software less financially sustainable by customers: harder to learn and remember features and increases the required technology footprint. Our “features” approach includes:

• Software designed with no client/server layer to reduce the technology footprint.
• Focus on features designed for government with no private sector features.
• Change the product roadmap based on customer needs at the FreeBalance International Steering Committee and the Government of Canada FreeBalance Cluster.
• No forced upgrades and the support for multiple software versions.

PDF & Storified version of presentation made by a FreeBalance team on May 7th. and links to relevant documents discussed.

On Total Cost of Ownership (TCP) for government financial management systems

http://www.freebalance.com/whitepapers/FreeBalance%2013-01%20Good%20Practice%20GRP%20TCO.pdf

Public Financial Management Good Practice GRP TCO by FreeBalanceGRP

On the use of GRP systems for Anti-Corruption

http://www.freebalance.com/whitepapers/FreeBalance%2013-03%20Good%20Practice%20Anti-Corruption.pdf

Public Financial Management Good Practice Anti-Corruption using Financial Systems by FreeBalanceGRP

On the advantages of GRP specialization

http://www.freebalance.com/whitepapers/FreeBalance%2013-07%20Good%20Practice%20GRP%20Specialization.pdf

Good Practices in Government Resource Planning Vendor Specialization by FreeBalanceGRP

Doug Hadden, VP Products

Iron Man 3 is a Morozovian CGI-infused extravaganza. It extends every negative stereotype of testosterone-crazy technology Armageddon. (There’s really no point to buy Evgeny Morozov’s book – you can experience the dark side “technology solutioning” at the movie theatre.)

High Tech Cult of Personality

Iron Man 3 is a not-too-subtle story of two technology entrepreneurs with large egos. It’s the Silicon Valley ethic of full-speed-ahead destroy your competitor. Of one-upmanship.

And, of the military industrial complex. As Stephen Saideman suggests”the most relevant things for those who study international conflict are the movie’s depictions of drones and of terrorism…having forty or so Iron Man suits flying about controlled by some intelligent software is exactly what folks fear about the future.”

Lesson Learned: Competition can spurn innovation. But ego-based competition is not an effective driver for technology that can change the world for the better.

Lean should be used for Prototypes, not Products

Eric Ries in the Lean Startup recommends that companies should create “Minimum Viable Products” that tests the market. Otherwise, companies use good practices to create quality products that have no applicability in the market. Iron Man 3 would have been a much shorter movie if either protagonist had product with no bugs.

What “suspense” there was came through unintended consequences of technology glitches. And, from using the most recent “beat” model rather than something with fewer features that seems to work.

Lesson Learned: Technology companies should not force customers to upgrade to products that aren’t ready. .

Oracle sponsorship message?

Oracle Corporation has been an active sponsor of the Iron Man franchise. We see the use of “Oracle Cloud” in a hologram. (It’s not clear whether it’s public, private or hybrid cloud.) Later, there’s an Oracle/Sun Exadata rack in a TV van. It’s not clear what it’s doing there given that laptops can handle non-linear editing. That’s over a million dollars in a TV van.

I’m not sure what thought processes are operating at Oracle marketing. To believe that association with such a dark technology picture is a good idea. To introduce product placement where it makes no sense. (At least the Verizon and ABB product placement made some sense.) To use a consumer medium to advertise an enterprise product.

Lesson Learned: Technology companies need to be more circumspect in associations in the era of social media .

Enterprise Software Success Myth #6

FreeBalance is a medium-sized Independent Software Vendor (ISV) with considerable success competing against very large Enterprise Resource Planning (ERP) vendors. We are sharing 16 lessons learned by bucking conventional wisdom to encourage industry innovation and creativity.

Conventional View

As described in the ”Customization” is increasingly used to meet end-customer needs. This customization is developed by this “channel” that may generate, on average, between 3 and 5 times the software license revenue.

Emerging Trends

• High costs to customize and maintain these customizations across product releases has exposed high Total Cost of Ownership (TCO) in traditional ERP models
• Increasing adoption of cloud computing is driven by a need to manage IT costs more predictably and further reduce TCO.
• Complexity and costs have made customization one of the most “dreaded” term in enterprise software
• The customization approach and use of the channel is logical, but, in enterprise software, what should work often doesn’t.
• Many ERP clients find that customization creates barriers to change and process improvement.
• There is increasing recognition that customization is good for software vendors and implementation partners, but not so good for customers.

Public Financial Management Good Practice GRP TCO by FreeBalanceGRP

FreeBalance Approach

FreeBalance has a different approach to “product” than legacy Enterprise Software companies. For one thing, we’re focused on solutions that meet government requirements. That means that products and methodologies need to be adapted and integrated for the government context. Specialization is a compelling advantage to customers faced with complex and generic ERP options.

• FreeBalance is a fully “configured” solution with no code to add new fields of information, add validations, translate to another language, configure any system entity, determine mandatory fields and change workflow.
• As a specialist that commits to government projects, FreeBalance adds any missing features to the core product to eliminate customization and upgrade costs.
• FreeBalance works closely with channel partners to contribute to customer successes.

Good Practices in Government Resource Planning Vendor Specialization by FreeBalanceGRP

Doug Hadden, VP Products

FreeBalance recruiting for information technology and accounting specialists

We have a commitment to building local IT and Public Financial Management (PFM) capacity in our customer countries. These are excellent entry-level opportunities for ambitious graduates. And, it helps the Government of Suriname to improve governance. I’ve seen many of our interns and customer support hires progress quickly within the company. Talent is recognized with advancement opportunities in a growing global micro-multinational social enterprise. If you speak Dutch and English, please consider these s global job opportunites for you to consider.