We’ve been tweeting from 27th. Annual International Consortium on Governmental Financial Management (ICGFM) conference in Miami. You’ll find the chronological “storified” version of these tweets from each presentation posted on our storify site We’ve also summarized some of the themes from the conference.
Government Resource Planning Progressive Activation
The GRP “progressive activation” lifecycle can be described as:
Technical GRP Platform consisting of one of more modules is installed in a government organization after a thorough needs analysis
This needs analysisis used in a system configuration to meet government PFM needs
Governments modernize and create new PFM laws through legal reform that can include new procurement guidelines, transparency initiatives and support for international standards
Governments also develop improved processes through process re-engineering
Governments build civil service capacity to improve fiscal discipline and efficiency
These changes require functional improvements that need to be configured in the GRP Platform that can include more advanced functions and new modules
A typical initiative is to improve citizen delivery and decision-making through decentralization that requires some devolution of responsibilities yet maintaining budget controls
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
Dashboardsand other analytical methods also identify opportunities for reform
Progressive Activationenables sustainable PFM reform as the cycle returns to GRP Processes where the GRP system can adapt to multiple stages of reform
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:
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 managementmethodology 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 systemsdecision-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
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
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
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.
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.
Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP.
I have always been intrigued by government purchasing processes and decision-making. When governments decide to take the initiative to modernize their financial system and enhance their countries Public Financial Management (PFM) system, the common objective is to create accountability, transparency and ultimately increase country revenues and provide economic growth.
e-GP systems can be a major tool to meet those objectives. Yet there are few systems in operation. What are governments waiting for? And, why are multilateral banks setting e-GP project separate from PFM initiatives?
Proven Results not Prompting Action?
According to the Update of Multi-Lateral Development Banks e-GP Toolkit published in 2011: The governments of Chile and Andhra Pradesh reported savings ranging from 3%-20%, and Andhra Pradesh reported reduction in tender cycle time from 130 days to 32 days. The Government of Kazakhstan also reported significant savings from its partly developed system [Kazakhstan Centre for E-Commerce, April 2011].
Shouldn’t multilateral banks be prompted to expedite e-GP funding given these results?
Interconnectivity is of the Essence
Ever been in a situation where you purchase a model helicopter at the beginning of the week and you been waiting for the weekend to assemble, fuel it, take it to a field and fly it around, to later find out it’s missing the ruder? An essential interconnecting piece that makes the whole thing work! Well having a stand alone e-GP system that does not connect to the budget and communicates in real time with the Integrated Financial Management Information System (IFMIS) is as rudderless.
A solid e-GP system allows governments increase competition to achieve lower prices while reducing supplier bidding costs.
To quote the handy e-GP Tool kit once more: An e-GP solution must allow government procurement to be a commercial incentive that encourages productivity and competition, increases anti-trust mechanisms, facilitates the development of SMEs (less entry barriers to government markets), and promotes local and regional trade. The e-GP system provides a business development tool for both governments and supplier communities by providing access to information and opportunities locally, regionally and internationally.
IFMIS systems that have been designed for the private sector such as Enterprise Resource Planning (ERP), require a great deal of development and customization to meet government needs. This becomes doubly difficult if IFMIS and e-GP systems are bought separately.
Advantage of integrated Government Resource Planning (GRP)
The governments of Timor-Leste and Suriname have taken the initiative to modernize their public financial systems. Timor enjoy of a full financial suite that is web-based and can be seenin real time. The GRP approach ensures that all purchases are linked to the budget and that all financial procedures such as internal approvals and length of tendering process are integrated. There is no manual intervention to disconnect procurement from financial procedures. This has increased productivity, revenue growth and the increased of transparency and fair competition in a natural resource exporting country.
Suriname has recently taken on a PFM modernization endeavour, and is in the proper path to further reduce investment risk and promote foreign investments in the multiple sectors of developments, such as tourism, mining and agriculture.
Now that I have briefly showed you some of the good things a proper government focused e-GP system can provide. Why are multilateral banks keeping IFMIS and e-GP projects separately, when they can and should go together? If one provider has the IFMIS and another the e-GP, this just adds a layer of unnecessary difficulty and creates opportunity for corruption and inconsistent fiscal practices. Some governments realize to late that they have overspent budgets because of the lack of integration
Latin American countries are experiencing growth and resilience to the financial crisis. Finance Ministers from Colombia, Paraguay and Peru discussed the next wave of reforms for Latin America yesterday at the Inter-American Bank. You would think that the Ministers would be touting accomplishments and speaking, with some certainty and authority, about future plans. The Finance Ministers demonstrated a grasp of reality. And, a framework for growth that includes horizontal initiatives that support inclusive growth. To reduce income inequality. They showed a willingness to consider labour, business and tax reform that seems so unlike the rhetoric we hear in most OECD countries.
It’s the era of PFM myth building and myth busting.
Of clichés and fashion. Cynicism and risk aversion.
But, ultimately, it’s the era of increased insight into what works in public financial management reform.
2 Dimensional Debate
Current discussions about PFM effectiveness seem to centre about the relative merits of applied technology versus applied practice. There seems to be a view among many that proven practices can be automated via technology and so-called technical initiatives such as Governmental Financial Statistics (GFS) or International Public Sector Accounting Standards (IPSAS) will yield positive outcomes. There is an opposing view that the country context is critical: institutional capacity, macroeconomic situation and cultural norms should drive reform.
Both points of view are valid. The truth falls in a fuzzy place in-between. Where there are elements of both.
PFM reform success cannot be divined through some kind of black magic?
That’s why we look at the set of practices that have been known to work. These are good practices that enable PFM success under certain circumstances. Some practices are better based on the country context. The point here is that “county context” is not half the mystery it’s made out to be. We’ve got open data, PFM, governance and transparency assessments and macroeconomic country data. The information isn’t perfect – but enough to:
Benchmark the country condition relative to other countries
Evaluate what has and hasn’t worked in similar contexts
Andrews suggests that the PFM tinkerers encounter political barriers. Our experience implementing in many countries is that this is true. However, the political disincentives and technical complexities differ for these practices:
Support for Medium Term Expenditure Frameworks (MTEF) is highly political (can transform budget priorities and threaten vested interests) and highly technical (requires high capacity to manage multiple year budgets, use program budgeting and understand the long-term recurrent costs for public investment projects.
Support for Accrual Accounting is highly political (shows the true value of government programs and the true government debt load that threatens patronage models of politics – also exposes arrears) and highly technical (capital asset depreciation, accounting for contingent liabilities).
Support for International Public Sector Accounting Standards (IPSAS) has severe political implications if following the accrual standards. The support for cash-based IPSAS can have political implications in the accounting for sub-national and State-Owned Enterprises (SOE) requirements. And, there are significant technical problems to account for this. But, cash-based IPSAS support for national government accounting has moderate political implications because the data is not necessarily open and is easy to support in financial systems. The politics of making the data open. Of independent audit. Of legislative scrutiny. Well, that’s a different political issue from supporting IPSAS.
Support for Government Financial Statistics (GFS) has limited political barriers because it helps justify donor funds and is of moderate technical complexity because it can be generated from financial systems when properly designed.
Conclusion: Nuance over Magic Bullet approaches
If PFM reform were well-understood, we’d be doing it better. Observers who focus primarily on a magic bullet as the critical success factor are doing us a disservice. Governance does not improve when government PFM decisions are weighted heavily to best practices, informal processes, ICT technology, human capacity, or ‘PFM as art’. Or, through tinkering accountants and economists. Or, self-congratulating donors, for that matter.
We are on the cusp of a scientific revolution in PFM reform and country development. Open data and ‘big data’ techniques are debunking strongly held myths . And, social media provides additional avenues for discussion that has only recently been available.
Let’s persist in breaking down the myths. Of opening data and discussions. And, turning PFM reform from art to science.
Good governance solutions to help achieve sustainable growth through the progressive activation of GRP functions in line with improved public service capacity in Suriname
FreeBalance today announced that the Government of Suriname is deploying a comprehensive FreeBalance solution including software, services, support and capacity building. FreeBalance Accountability Suite software is being deployed throughout the government starting with the Ministry of Finance. The implementation will include all line ministries, sub-national governments and parastatal entities (public works and education).
The FreeBalance solution will enable the Government of Suriname to achieve its Public Financial Management (PFM) reform objective to sustain economic growth. “The highest priority for the Government of Suriname is to sustain economic growth. Sustainable growth will enable us to increase public sector development and citizen service delivery. PFM reform is considered a foundation for these objectives,” said Adelien Wijnerman, Minister of Finance of the Republic of Suriname. The Government of Suriname will be using a modified “platform” approach to PFM reform consisting of four overlapping phases. This approach ensures that there is not an overwhelming “change management” burden and recognizes the need for “small” wins to socialize change. This good practice is a key part of the FreeBalance i3+qM methodology designed for sequencing PFM reform based on the country context.
FreeBalance is also extending its operations in Suriname to include a permanent presence in Paramaribo to support the project and the Government of Suriname. “We are fully committed to supporting the PFM reform objectives of the Government of Suriname. We recognize the need for a strategic partnership is required,” said Manuel Pietra, President & CEO of FreeBalance. “This method ensures financial sustainability as information systems are adapted to the sequence of PFM reform appropriate to Suriname. “The permanent presence in Paramaribo is bolstered with the support of FreeBalance staff and resources from service, support, sales, project, and development offices around the world. This global workforce brings an additional and unique blend of experience, lessons learned, and good practices to the project.
The third released document, embedded below, describes good practices in Government Resource Planning (GRP) sequencing. This is one of the most difficult subjects in PFM. I can’t tell you how many times that I’ve heard the notion that reform sequencing is an art form rather than a science. The consensus seems to be that country contexts differ so much that there cannot be a set of principles or guidelines.
I fundamentally disagree with the notion that good practices in PFM reform sequencing cannot be formalized. We’ve had a lot of experience in developing countries going back more than a decade and have seen patterns emerge. We’ve also formalized an internal process called Governance Valuation that we’re updating thanks to the explosion in open data. I’ve embedded a presentation from last year explaining this process.
FISC 2013 is our Seventh Annual FreeBalance International Steering Committee conference. The FISC approach differs from the traditional technology user group conference in many ways – good ways, we think
For one thing, FISC is about enabling customers to influence FreeBalance, not the other way around.
And, FISC is about gathering Public Financial Management (PFM) professionals from different countries around the world to help share good practices. We often have keynote speakers. And, we share our research and experience well beyond the narrow boundaries of being a software company. That’s our mission. I looked through past public FISC presentations (and those adapted from FISC and made public) and found my 7 favourites :
1. Sequencing Public Financial Management Reform
David Nummy from Grant Thornton providing practical experience about PFM reform in developing countries. PFM reform sequencing is a critical concern in developing countries and was of great interest to our government customers. This resulted in a brainstorming session and spirited discussions. It was agreed that capacity building was the most critical factor for reform success for the first stages. But, the importance of capacity building never dropped below “very important” for every stage of PFM maturity.
We’ve taken lessons in PFM sequencing over the years further to provide tools to help governments decide on the most effective reform courses of action. This presentation, slightly adapted from FISC 2012, was built on many of the ideas from the brainstorming from FISC 2008.
We use FISC to help us understand the future of Public Financial Management. We also share our research with government customers. We adapted this from the presentation we gave at the first FISC in 2007. Some of the predictions did come to pass.
Leveraging technology for governance is a concern for a software company like FreeBalance. Our government customers have been leveraging technology from FreeBalance and other vendors to enable reform and transparency. This often enables these governments to “leapfrog” more developed countries. This presentation was adapted from content given by our customers at different FISC events. Ever government that attends FISC provides an overview of PFM lessons learned: challenges, solutions, achievements with an emphasis on initiatives from the past year.
Social media, open data, Government 2.0 and crowdsourcing represents significant opportunities and risks for government. We reflected on this last year at FISC in the wake of the Arab Spring, the Ushahidi platform and the Tea Party movement. And, we presented this at the ICGFM conference later that year.
Steve Symanksy, formerly at the IMF, provided insight based on his experience in fragile states. He explained that the view that PFM reform should start with proper planning is incorrect: fragile states should start with budget execution and control first.
FreeBalance has been successful implementing sustainable Government Resource Planning (GRP) systems in post-conflict countries. (This seems to be confirmed in a recent World Bank report.” We’ve also been successful in more developed countries in achieving low costs for customers and ease to adapt software to changing needs. We reflected on the post-conflict experience using some of the content from customer presentations.
We just finished the one-day training course in London to a group of public financial management professions from Africa and Asia, held at the Crown Agents office. There was a lot of information squeezed into the course that I gave, as you can below. It had a bit of “drinking from a firehose” effect with so much information.
The primary focus of the training was on lessons-learned in implementing Government Resource Planning (GRP) systems in emerging economies. Participants in the course were from the national and regional levels of government and from donors. There was some interesting discussions about vendor governance, donor assistance and PFM sequencing that is almost universal and mostly vendor-neutral.
You can see the topics covered in the embedded document.
General view from the PFM professionals was that the 3 most important PFM reform objectives are improved budget planning, procurement, debt and cash management
No one could guess how fast the fastest FreeBalance implementation was. Closest guess was 6 months which is slightly more that 6 times the fastest time.
Proper sequencing of reforms and the underlying technology remains a challenge in developing countries. Many participants expressed the view that donor representatives often have personal preferences.
Most participant agreed that it is difficult to make most commercial software solutions self-sufficient in governments.
It was agreed that major enterprise software vendors rarely participate in Public Financial Management events. (And, when they do, show little interest in learning from conference sessions.)
One customer of one of the ERP vendors is pleased because there is direct manufacturer support. That happens infrequently (except for FreeBalance, of course.) Maybe that vendor is reading this blog and learning something