Sustainable Public Financial Management

Recent financial shocks have led to accelerated adoption of Government Resource Planning (GRP) and Public Financial Management (PFM) reform in emerging countries. What about more developed countries? There has been some examples of fiscal reforms in countries like Korea, and changes in regulations for the financial sector in OECD countries. Yet, governments in Iceland, Greece and Ireland are experiencing significant fiscal shortfalls.

How can GRP help governments to adapt more effectively to unexpected financial crisis? Freezing spending and public sector wages is a typical approach. How can emerging country governments expect to better manage budget shortfalls if the budget management software in use in developing countries appears so ineffective?

Financial Stress and the  ’Budget Problem‘

Government financial management is budget driven, unlike the private sector. Government budgets are complex. And, constrained:

• Capital expenditures often span multiple years and generate multi-year commitments. Slowing in-progress capital expenditures can result in half completed bridges, buildings, internet infrastructures.
• Recurrent expenditures often have minimum costs that provide little room for reduced spending. Hospitals need electricity and medical supplies.
• Public Private Partnerships (PPP) bring expenses off the government balance sheet. However, governments are often liable to pick up on these projects when the private sector partner encounters financial difficulty.
• Legal constraints often mandate expenditures, such as the results of  ’propositions’ in the the American State of California. These expenditures cannot be reduced. Many governments are unable to reduce the size of the public service even when jobs are identified as redundant, as in the case of India.
• Donor projects executed by the government or outside organizations often require a legal commitment for the government. Governments may need to contribute funds to projects or provide specific deliverables. Cutting back on the government expenditure can cancel donor funded programs.
• Wages often represent a significant portion of government expenditures. Governments are often the largest employer in countries.  This is why salaries are often reduced or frozen when governments encounter budget deficits. Yet, this method often demoralizes public servants and reduces the quality of government services.
• Government objectives and priorities are difficult to manage during financial crisis. New priorities such as stimulus packages are introduced. Medium and long-term objectives often take a “back seat”.

Effective Budget Management for Governments Under Financial Stress

Many budget preparation software applications used by governments are ineffective in handling financial crisis.  Applications developed for the private sector do not have necessary features for modeling multi-year budgets. Custom applications typically manage the ceremony of budget proposals. Spreadsheet applications are not able to handle whole-of-government budget analysis.  These solutions are often unable to forecast budget surpluses or deficits during the fiscal year.

Governments can use effective budget preparation and budget execution software components of GRP to more effectively deal with financial crisis. These applications, like the FreeBalance Accountability Suite, can support the following:

• Scenario planning and what-if analysis during budget preparation and execution. Financial crisis can be modeled in budget preparation software. Governments can leverage these models should a crisis occur. Governments can also update these scenarios with actual figures to enable more effective reaction to problems.
• Forecasting provides early warning on revenue shortfalls. Governments can react quicker and more effectively.
• Wage forecasting is particularly important when managing deficit situations. Wages include salaries, benefits, training, travel, bonuses and other civil services expenses. So, wages can vary significantly from plans. Human Resources applications rarely have budget visibility. Wage forecasting and variance is critical. Elements of salary costs other than wages could be reduced.
• Multiple year visibility to budgets, budget types and budget constraints to enable decision-makers to find more effective methods of expenditure management.
• Objectives management for budgets enable governments to link expenditures with objectives and priorities.  Every expenditure is linked with one or more objectives. Priorities change during a financial crisis. Objectives management enables governments to recast budget plans during the fiscal year to focus on priorities.

Is Open Government the next Rodney Dangerfield?

by Doug Hadden, VP Products

Has “open government” reached the trough of disillusionment? Like the late comedian Rodney Dangerfield, Government 2.0 isn’t getting any respect.  Open Government 7 deadly sins from the blogosphere include:

1. Change: governments have shown no culture change
2. Gauge: governments have not been able to better gauge public opinion
3. Retread: Government 2.0 is nothing new, just a facade on e-government 1.0
4. Misled: open data will result in more confused electorate
5. Illusion: Government 2.0 will never achieve the promise
6. Economic: there is no return on investment for open government
7. Social: government is serious business, not a social activity

It is high time to address these issues. Much of the blogosphere commentary extrapolates specific situations into generalizations. Many commentators in the United States seem to define “open government” entirely within the American government context. Technology change and cultural transformation is affected by unique structures of governments. The incentives and disincentives for the “checks and balances” structure of the American federal government are unique. So many Government 2.0 successes or failures in the United States may not be indicative or wider trends or predictive of future successes or failures.

The broad spectrum of “Government 2.0″ functionality seems to have become hijacked by one aspect: open government. Exposing raw data. A more realistic approach is to put this subset within the entire context of Government 2.0 that includes internal and external collaboration.

1. Change

Premise: There has been no culture change in government from Government 2.0. Politicians and civil servants remain reluctant to embrace transparency.

Reality: Change is not easy for large organizations. We’ve written about the skills necessary to lead Government 2.0 change. And there any many examples of culture change and Government 2.0 adoption.  Change is unevenly adopted.  That’s why we talk about early adopters. There is a culture of expertise in large organizations. Knowledge is power in traditional organizational structures. So, we cannot expect widespread immediate culture change. At the same time, we cannot expect that no change will occur.

2. Gauge

Premise: Government 2.0 and open government is all well and good. But, governments and politicians are not able to better gauge public opinion.

Reality: Many commentators are stuck in the broadcast model of thinking. Where citizens are passive consumers. Government 2.0 is not about gauging the opinion of passive consumers. It’s not about finding ways to influence citizens by opening up new channels of propaganda. Government 2.0 is about regular citizen engagement with government policy. It’s a much deeper relationship than passive consumers who periodically vote.

3. Retread

Premise: Government 2.0 is nothing new. The tools used are variations on what has been available for years. We are kidding ourselves to think that there will be any substantial change in the way governments interact with citizens.

Reality: There are always technological similarities among different generations of software. Collaboration and document management software has been readily available for some time.  Yet, these software applications have not been as widely adopted as Web 2.0 and social networks. There are fundamental differences in Web 2.0/Government 2.0 that will result in wider adoption and new usages. The most important aspect of Government 2.0 is openness: open standards to enable comparison, mashups, and integration. Openness to support adapting software to meet goals rather than forced into the limited processes envisioned by the software vendor.

4. Mislead

Premise: The exposure of raw data and documents will overwhelm the public. Government information requires expertise to understand. Citizens will misunderstand government information and make incorrect conclusions.

Reality: The press do not have a franchise on misunderstanding government data. Specialization has been a skill associated with the 20th Century. Professionals developed deep technical expertise in narrow subjects. The ability to learn and use strong generalization skills to find patterns across multiple disciplines is a characteristic of the 21st Century. Government information needs to be made more accessible – there is no question that jargon can be simplified. Open data can enable more effective methods of visualizing government information through charts or maps.

There also seems to be a focus on documents in open government discussion. Documents are a remnant of the pre-digital age. Documents and reports are the final container of government processes. Documents are vetted and edited. The data within documents are selected for a particular purpose. Open government will open up the process. Citizens will interact with governments before documents become documents. For example, participatory budgeting can be enabled via Government 2.0 tools well before a proposed government budget is produced. And, budget execution information can be made available for mashup and analysis outside the preparation of government documents.

5. Illusion

Premise: E-government did not achieve the promise of transforming government. Disincentives for transformation will persist. We are fooling ourselves to think that Government 2.0 will provide anything but incremental improvement.

Reality: We’ve written about why Government 2.0 will fulfill the promise of e-government.  The fundamental flaw with e-government predictions is that they did not take culture change into account. Change is important – it is the first deadly sin.  Culture change in government requires exercising social muscles. Government organizations are using social tools to interact beyond ministries and agencies. Positive results have encouraged government organizations to open up to the public. And, many civil servants at the forefront of Government 2.0 initiatives have found fast promotion.

6. Economic

Premise: Governments are under increasing budget constraints. Governments sell data. Open government will result in high cost to implement while reducing revenue opportunities. There is a negative ROI for Government 2.0.

Reality: Return on Investment is the wrong measurement for open government. ROI is very much a private sector concept. And, one that assumes a rather narrow set of parameters and effects. (Such as increasing or decreasing the advertising budget for a consumer product.) The effects of government initiatives can cascade across many economic sectors. The appropriate measurement for open government is Economic Value Add.  Releasing government data assists businesses. It enables mashups that provide insight. That improves government and business decision-making. It increases economic stability.

7. Social

Premise: Governments have mandates to fulfill. Governments need to be highly efficient and effective in order to achieve goals. Government 2.0 is about social networks and informal methods of interaction. Governments must be formal. There is no place for toys or social networking in government.

Reality: We’ve written about the “S” word before – how the word “social” implies play rather than work. There seems to be a view that all government functions can be articulated as strict business processes – as if government has no creative function. Civil servants learn from each other. They find solutions to problems. Social networks support knowledge management, creative discussion and problem solving. Nevertheless, there is no question that selling Government 2.0 to decision-makers as “social” or “innovative” or “cool” is probably not the best approach.

Emerging country governments want more transparency

by Doug Hadden, VP Products

The prevailing view: governments are reluctant to be transparent. Especially governments in so-called “developing countries”.  Huge “disincentives” for transparency. Imagine the surprise for some attendees at the IATI (International Aid Transparency Initiative) Technical Advisory Group meeting in Oxford this week when I explained some of the initiatives by the Government of Timor-Leste:  transparency and procurement portals. It should be noted that the Ministry of Finance publishes budget preparation, execution and important reports already.  The government plans to publish even more information and provide dynamic analytical capabilities.

Conventional wisdom and globalization

Conventional wisdom states that governments need to be pushed into transparency by providing other incentives. Development partners have pushed countries into PFM reform and the acquisition of Government Resource Planning (GRP) systems. And, most development experts assume that these governments will be the most reluctant in the value chain of aid management to be transparent. As I pointed out in my previous post, it is good to get out of your context. There are two television commercials in the UK that come to mind from Macedonia and Georgia pointing to great improvements in the World Bank Doing Business Index. The creator of this annual report, Simeon Djankov, is now the Minister of Finance of Bulgaria.

What is happening here? Governments are pulling to become more transparent. We attend many PFM conferences around the world and have been witnessing this increasing thirst for transparency. Among public servants and politicians.

It all goes back to our first FreeBalance International Steering Committee meeting in 2007, coincidently in the UK.  We ask our customers to present successes, challenges and lessons learned to foster knowledge transfer. The Mongolian presentation mentioned that “competition” was a primary driver for PFM reform. The notion: advancing PFM reform makes countries more competitive. Especially during a financial crisis, as it turns out. Globalization gives businesses choices. Countries with reduced risks of doing business attract more business. And, more partner funds.

Leapfrog transparency?

Conventional wisdom also states that PFM reform should be sequenced and slow. Sequenced yes. But slow? FreeBalance emerging nation government customers do not have many of the built-in organizational biases against transparency. Technology is also more easily integrated. Yes, there are “disincentives” and capacity issues. (As we have seen in Afghanistan, capacity building can be accelerated.) The incentive – the Economic Value Add – for improving transparency in emerging country governments is orders of magnitude higher than in the G7.

AidData, World Food Programme, Gordon Brown, International Aid Transparency Initiative, Black Swans and visiting the UK

by Doug Hadden, VP Products

Insight is often achieved when outside comfort zones. As it was during the IATI (International Aid Transparency Initiative) Technical Advisory Group meeting and AidData conference in Oxford earlier this week. Semantic confusion because a constant theme of my many tweets.

The AidData portal launched on Tuesday is the most comprehensive single source for aid information available. It’s a remarkable achievement. Yet, there remains missing data and category confusion. Many academic papers were presented that leveraged this more complete information source. But every result was questioned: What is a project/activity?  How can duplicate information be eliminated? What is the quality of data? Has there been greenwashing?

Narrative and Transparency

Newsweek coincidently published a story called Food for Naught claiming that “a great deal of food distributed by the World Food Programme … is not going where it’s supposed to.”  Problems in four countries were mentioned.  Out of more than 80 countries. To add to this coincidence, I was reading Black Swan: The Impact of the Highly Improbable by Nassim Taleb. Taleb suggests that “the journalistic prevarications of contemporary narrative”  is very misleading.  The Newsweek “damning portrait of the World Food Programme’s operations” may not be a portrait at all, rather a misleading snapshot. It is not a semantic fractal that represents the whole.

That’s where full transparency comes in. Corruption affecting the WFP may be limited to less than 10% of recipient countries. It could represent less than 1% of WFP aid. In fact, the WFP could be one of the best donors in controlling corruption. If the data was published.

The transparency paradox: opaque organizations face unsubstantiated criticism. Transparent organizations leverage civil society to improve results.

Meaning and Transparency

Raw data leads to misunderstanding among non-experts. At least, that’s the criticism from organizations looked at transparency. The data will be misunderstood and the public will make false conclusions. Why make false conclusions the sole purview of the press and academics? The information in AidData is subject to misunderstanding among experts. Donors do not code consistently – across years, among donors. Semantic confusion pervades. Then, the add to the coincidences, British Prime Minister Gordon Brown announced a £30 Million investment in Semantic Web.

IATI aims to provide the semantic understanding to made aid projects more universally understood. Comparable. Provide real analytical insight to improve aid. The world can succumb to the narrative belief that aid does not and cannot work – that is is “dead aid.” Or, we can look at what works and improve what doesn’t. Through meaning and transparency.

What’s the lesson for the World Food Programme?

Be more transparent and participate in IATI or suffer the slings and arrows of outrageous/outraged media.

Press release from the recent AidData event in Oxford, UK. Doug Hadden, VP Products at FreeBalance participated in the IATI technical advisor group (TAG), which works with the AidData group.  As a contributing member of TAG, FreeBalance has provided insight into how governments classify funds, programs, projects, and sectors. Below is an excerpt from the announcement:

“AidData pulls together facts and figures from existing databases, donors’ documents, online resources and insights gleaned from direct contacts between its creators and donors. Participants at a conference to showcase the portal described it as the most comprehensive source of information on global development and emergency aid to date.

For example, existing data captures only 39 percent of aid given to Mauritania in 2007 while AidData can provide a much fuller picture, said Rob Hicks, an associate professor of economics at the U.S.-based College of William and Mary who has helped build the new tool.

Kawusu Kebbay from the Sierra Leone government office that coordinates development aid to the country said corruption in aid is worse when transparency is poor, when there are no guidelines on how to use aid or report on its distribution and when the recipient government lacks expertise and influence.

“Corruption is primarily driven by the lack of information on aid data and weak capacity,” he told an audience of researchers, aid workers and officials from donor nations at the event called “Aid Transparency and Development Finance: Lessons and Insights from AidData”.

Misuse of aid funds was highlighted by a recent U.N. report that said up to half the food aid for needy Somalis was being diverted to a network of corrupt contractors, al Shabaab militants and local U.N. staff.

And in February, watchdog Transparency International launched a handbook to help aid groups combat corruption in their operations. It advocates bringing the discussion of fraud into the open and sharing information on anti-corruption practices, among other recommendations.”

Read the rest of the press release on ReliefWeb >>

The International Aid Transparency Initiative (IATI) recently announced the release of a new white paper. This paper outlines how IATI can offer added value to existing aid reporting systems without disproportionate cost to donors. The paper, Implementing IATI: Practical Proposals, argues that rather than just improving existing databases, IATI should extend the range of aid information that is made available, including documents as well as data, and make it quick and easy for users to find.

IATI Secretariat member Carolyn Culey explains how the system would work: “Donors would use their existing internal systems for collecting aid information.  But they would include additional information needed by other stakeholders and publish the information more rapidly, and in a common electronic format. They would then register the location of their information in an IATI Registry – a kind of online catalogue that would enable users to locate it.”

Read the Implementing IATI: Practical Proposals white paper >>

Ottawa, Canada (March 22, 2010) - FreeBalance, a global software company that helps governments leverage robust Government Resource Planning (GRP) technology to accelerate country growth, will be attending the International Aid Transparency Initiative (IATI) Technical Advisory Group from March 22 to 23 at Queens College in Oxford, UK. FreeBalance will also be attending the Aid Transparency and Development Finance: Lessons and Insights from AidData conference from March 22 to 25 at University College in Oxford, UK. 

Follow Doug Hadden, VP Products at FreeBalance, at IATI and AidData events on Twitter: http://twitter.com/freebalance 

The IATI aims to make information about aid spending more transparent, easier to access, use and understand. The Technical Advisory Group (TAG) includes users and providers of aid data and statistics, and experts in using technology for aid effectiveness. The TAG addresses the challenge of aid classifications. Donors, governments, and NGOs who implement donor funds account differently: different fiscal years, project descriptions, budget classifications and levels of detail. This makes it difficult to trace the donor funds from source to execution to outcome. This reduces and impedes donor aid transparency.

As a contributing member of TAG, FreeBalance has provided insight into how governments classify funds, programs, projects, and sectors.

AidData is a development finance portal that delivers a better understanding of the impact of foreign aid. The goal of AidData is to help improve aid coordination, assist in measuring the effectiveness of development finance, and provide information to improve allocation decisions by donor governments.

“FreeBalance is a strong proponent of aid transparency and the use of country systems,” said Doug Hadden, VP Products of FreeBalance. “The proposed IATI standard will reduce aid transaction costs while providing insight into how aid programs can be optimized.” 

The FreeBalance Accountability Suite is a Government Resource Planning (GRP) solution supporting transparency and accountability. FreeBalance solutions for governments and external aid projects and funds simplify administration and reduce transaction costs for government or private organizations managing aid projects. The FreeBalance Accountability Suite automates reporting to donors, project finance management, and project performance management. The FreeBalance solution operates in developing nations around the world, including low-capacity countries, and providing effective donor reporting that meets international standards.

FreeBalance customers span the globe and the user community includes public financial management professionals in 18 countries, including Kosovo, Afghanistan, Timor-Leste, Antigua Barbuda, Mongolia, Palestine, and Sierra Leone. FreeBalance operates in 15 customer time zones. FreeBalance has more than 60,000 users around the world. FreeBalance software manages a global civil service workforce of 1,500,000, and also manages a quarter trillion ($US) annual budgets worldwide.

Follow Doug Hadden, VP Products at FreeBalance, at IATI and AidData events on Twitter: http://twitter.com/freebalance

Grant Thornton and FreeBalance White Paper

This white paper is co-authored by Government 2.0 thought leaders Martha Batorski, Director at Grant Thornton, and Doug Hadden, Vice President of Products at FreeBalance. “Government 2.0 is driving transformation in transparency, participation and collaboration,” said Doug Hadden, Vice President of Products at FreeBalance. “Our vision is that knowledge management and collaboration are integral to Government Resource Planning.”

The FreeBalance Grant Thornton paper encapsulates the essence of a series of articles from the FreeBalance Sustainable Public Financial Management blog to respond to a growing demand among Grant Thornton clients for greater clarity on what leaders need to do different to successfully transition to Government 2.0. Articles about Government 2.0 received substantial interest and attention from social enterprises and the broader public financial management community. The white paper shows how to employ effective change management skills in the emerging Government 2.0 open environment and  describes the new skills and mindsets government leaders need to adopt to address and the many, emerging new challenges they face.

Embracing Government 2.0 Leading Trans Formative Change in the Public Sector

Martha Batorski has over 20 years experience leading business transformation initiatives in the public and private sector.  She is currently leading Grant Thornton’s Government 2.0 and Change Management 2.0 practice in the Global Public Sector. And, she was a recent speaker at the Potomac Forum February 2009 Conference on “Planning and Implementing Social Media and Open Government Strategy and Efforts: What Executives and Managers Need to Know ” in Washington DC.

Martha Batorski writes about a key difference in leading change in the Government 2.0 era.   “Traditional change management frameworks work for a mandated, roll-out of change – where change is pushed to a target audience.   Change Management in the Web 2.0 era (Change 2.0) is more peer-to-peer, viral – change is pulled by participants, constituents, employees, customers.  One key difference for leaders is in the need to engage with others, to convert value from the network into meaningful products and services and knowledge, and to quickly identify practical solutions to challenges.”

Doug Hadden has over 20 years of management, sales, marketing and product management experience. He has been instrumental in creating a vision for GRP software that incorporates Web 2.0 collaboration and content. Recently, Mr. Hadden hosted an interactive session detailing how Government 2.0 will transform the practice of government performance and public financial management. And he participated on the “Government 2.0: The Next Wave of Open Government?” panel at the ICGFM Winter 2009 conference.

H.E. Mr. Jose Luis Guterres, Deputy Prime Minister of Democratic Republic of Timor-Leste spoke to the United Nations Security Council in New York on February 23rd of this year. Good governance and economic growth were key themes of his address.

According to United Nations Radio: “Speaking in the Security Council on Tuesday, Mr. Guterres said despite the current world economic and financial crises, Timor Leste’s economic growth of non-oil gross domestic product in 2008 was over 12 per cent. He added that preliminary estimates of economic growth for 2009 are around 12 per cent while the annual average inflation is less than 2 per cent.”

The Deputy Prime Minister explained to the Security Council how FreeBalance is helping Timor-Leste achieve governance objectives:

“The Government of Timor-Leste aims to make the Public Management of Public Finance among the most accountable and the most transparent in the world.

A few days ago, executives from a Canadian Management software company FreeBalance have visited Timor-Leste; they are providing accounting services to many countries; an agreement was reached in which they will provide software solutions for public financial and human resource management.

These new solutions will produce at least two portals for the public via a web-based interface; one is called transparency portal where the public can access real time information on how the state funds are being executed including details like amounts allocated, timing of the project, location of the project, and under which program the project is being implemented.

The other is a procurement portal that gives access to information on the procurement plans of the Government providing the business community equitable participation and adequate preparation time to complete and submit the process. Once the procurement process starts, it can be monitored and provide information to the public on how the procurement process was implemented which procurement method was utilized, the process of evaluation, the names of companies and bidders and the allocated to the successful bidder.

The citizens and organizations of my Country will be able to follow closely the budget execution and the procurement process in real time.”

Today, March 8, is International Women’s Day, an event that celebrates the economic, political and social achievements of women past, present and future. In some places like China, Russia, Vietnam, Uganda, and Bulgaria, International Women’s Day is a national holiday.

To celebrate Women’s Day in Kyrgyzstan, officials from the Treasury department visited the FreeBalance office with champagne and chocolates. Suanne Dorion, Cholpon Oskoeva, and Victoria Belkhout of FreeBalance were the recipients of the toast.

Learn more about International Women’s Day >>