Proper Government 1.0 Also Required

Doug Hadden, VP Products

Public sector unions have been demonstrating in Greece and Wisconsin because of public-sector austerity measures. The debate about these measures seem to rely more on dogma than fact. Unions and politicians leverage old media and industrial methods to present cases to the public. A so-called “court of public opinion.” And, not an open court.

So, it’s come to this….

The “winner” in these disputes might be the side that loses the least credibility. Losing trust in politicians or public employees results in losing trust in government across the board. The winner and loser both become losers. That’s why transparency and citizen engagement are cornerstones for 21st. century governance. Government 2.0 is needed to overcome this environment of political partisanship that turns citizens angry of apathetic.

A Government 2.0 Prescription

with a touch of back-office government financial systems

1. Are public employees properly compensated? Full salary spend information, including benefits and travel expenditures needs to be tracked in back-office systems and presented to the public. Are public employees properly compensated?That’s up to the public to decide.
2. Is public employee talent optimized? Training, performance appraisal and certification program information fro back-office civil service management information needs to be presented to the public. Merit systems must be transparent. The public service needs to be a career option for the very best in any country. Is public employee talent optimized. That’s up to the public to decide.
3. Is government effective? Government outputs and outcomes need to be tracked for efficiency and effectiveness. The political debate is often about inputs (the amount spent) rather than performance. Is government effective? Is it too big? That’s up to the public to decide.
4. Is government improving over time? Financial information collected from back-office systems needs to be presented in open data formats to citizens for visualization. Government financial management is complex. Government reports and documents make comparison difficult. Are governments improving over time? That’s up to the public to decide.
5. Is government focused on what is important? Government needs to engage citizens on a regular basis. As Umair Haque points out. “voting is the most brittle kind of democracy, built on the tiniest of conversation.” In particular, budget and policy processes need to be opened up. Participatory budgeting that engages experts and citizens beyond those who traditional wield influence is necessary to improve government trust. It will also improve government performance. Is government focused on what is important? That’s up to the public to decide.

But at What Cost?

Transparency isn’t free. Many question the return on investment of open data and Government 2.0. It can be considered a “nice to have”. Yet, Gartner analyst Andrea di Maio has pointed out that Government 2.0 could be effective should the US federal government funding end next month.

Labour disputes cost everyone. Lack of efficiency and effectiveness costs everyone. Should the public be prepared to fund these current costs through taxes? Or, is the public purse better served with transparency?

Doug Hadden, VP Products

Social media is enabling social change. Some experts believe that social media isn’t changing the dynamic of government to citizen relationships. Despite some recent evidence to the contrary.

Of course, makes perfect sense to contemplate the future of Government by reading books. Irony by Marshall McLuhan standards: resorting to a linear arguments in the mechanical typography world to consider the emerging non-linear digital world.

Understanding Media: The extensions of man, first published in 1964 articulates the clash of media that we see today. The use of the television medium by dictators while citizens leverage Twitter and Facebook demonstrates these effects. Social media represents a “speed up”, is more integral and more participatory than television. It is counter-hierarchical. It reacts faster and in a more organic fashion. McLuhan describes how movable type led to the nation state. How it created the individual and point-of-view. How it created the notion of privacy. So, it’s no wonder that moving to a more integrated “re-tribalized” world will run across privacy concerns.

Don Tapscott and Anthony Williams in Macrowikinomics dedicate some chapters to the public sector. Umair Haque in New Capitalist Manifesto: Building a Better Business is concerned about the sustainable capitalism but has lessons for government. (See my book review.) Evgeny Morozov in Foreign Policy and Clay Shirky in Foreign Affairs criticize the American State Department policy of internet freedom.

Takeaways for Government

1. Failure to perceive the effects, or governing in denial: McLuhan suggested that the changes in media create anxiety but also can dull the senses so the “electric media is also the age of unconscious and apathy.” He pointed out that “a new medium is never an addition to an old one, nor does it leave the old one in peace.” Many observers fail to see the impact of social media in social media. Perhaps they should contemplate how television has “evolved” in response: cable news 24/7 opining, reality programming and Idiocracy-level stunts. Of course, those people whose livelihood is based on old media are more likely to see social media as having negative values. McLuhan pointed out the problem of making “value judgments with fixed reference to the fragmentary perspective of literary culture.”Future: Governments who think that social media will not change the nature of governing have had a recent wake-up call. Governments will evolve from using media as public relations to engagement. This will give governments more credibility.
2. Fragmentation and specialization crumble: McLuhan described how specialization draws people away from fundamental solutions. Tapscott and Williams provide examples such as in disaster recovery and comment about the “dismantling the culture of the policy expert.” Future: Public servants will engage social networks to solve problems quicker.
3. Citizen scrutiny and transparency: McLuhan described how the photocopier turns anyone in a publisher. More so with social media. Tapscott and Williams describes the “rise of the citizen regulator. Future: There is no holding back the transparency movement. Transparency will become a competitive differentiator. Politics will be fundamentally changed through data and visualization.
4. Participatory government enabled: Tapscott and Williams describe how “most governments still reflect industrial age organizational thinking.” McLuhan provides insight in the differences between the industrial and electronic ages, particularly in participation. Haque suggests that “voting is the most brittle kind of democracy, build on the tiniest kind of conversations because it limits a voice to a vote.” Future: Participatory budgeting and participatory policy-making will become commonplace. As will idea hubs.
5. Sustainability and performance: Tapsott and Williams describes a principle of networked intelligence as “interdependence”. Haque is vocal about the lack of sustainable businesses that draw more resources than value presented. Open data can be used to determine government positive and negative impacts. Future: Government performance management will mature to measure sustainability and the network effect of government actions.

Doug Hadden, VP Products

Umair Haque, a next-generation economic thinker, has published a mind-provoking “New Capitalist Manifesto: Building a Better Business.” The debate around the role of business in society has been subject to some very parochial thinking especially around the concept of Corporate Social Responsibility (CSR). It’s welcoming to find someone who can articulate sustainable future for business rather than be anchored to the past, or in Haque’s words: “firmly ensconced in the industrial age.” This is a wake-up call for those who think that the “business of business is business”.

Style

Haque uses some techniques that are familiar to business book readers. There are anecdotal examples, a technique that dates back to In Search of Excellence. It’s not my favourite technique, but, in all fairness, it is difficult to describing an emerging trend using the kind of long-term data analysis used in Built to Last. Haque writes in a direct manner – there’s no passive tone here – no boring stuff to skim over. At a touch over 200 pages of text, it’s not like most business books: magazine articles stuffed into 400 pages.

Compelling Argument

Haque’s argument that a new mode of sustainable capitalism or “constructive capitalism” is necessary is compelling, current and well-articulated. Sprinkled with effective touches of hyperbole. He explores the cornerstones for industrial-era and constructive capitalism and provides assessment tools. One of the most effective moments of compelling cognitive dissonance in this post-cold war period is Haque’s point that “if companies were countries, we’d say they had centrally planned, dictatorial economies.”

The notion of “thick value” that does no harm – doesn’t extract value from “people, communities, society, the natural world and future generations” is particular interesting and useful for FreeBalance, as a For Profit Social Enterprise (FOPSE). Haque also delves into the concept of customer innovation, something that we strive for here. The of “deliberation” in customer relationships is particularly valuable because it uncovers the reasons for preferences.

If I have any particular criticism of the examples used in the book, it’s mostly big company examples. It seems to me that there is more constructive capitalism afoot among smaller companies.

Lessons for the Global Software Industry

FreeBalance sometimes competes against larger companies whose techniques are often to hold customers “hostage”. As Haque points out “if we’re locking users in, chances are there’s no sense of urgency to innovate and make product better.” Ironically, many software firms seem to use this industrial-age technique in the digital world. There is very thin value when customers have to ramp up data centres to support bloatware and are forced into expensive upgrades with limited incremental benefits. Or, constantly employ high-priced consultants to keep systems operational.

Haque also points out the value of simplicity and asks how business can provide solutions to “chronically and consistently underserved, ignored, or marginalized” customers. This is an area where FreeBalance has innovated by adapting processes to better serve developing nation governments.

Many software companies do not explore Haque’s recommendation to “go deeper” to determine real impact. These companies seem to follow passing fads of “compliance,” CSR or “public private partnerships.” They provide software to evaluate company carbon footprints yet propagate big applications that suck energy while sponsoring sporting events.

Accounting for Sustainability

The concept of “sustainability” is most often associated with environmental sustainability. Haque provides more food for thought about accounting for real sustainable value. This is a step beyond “triple bottom line reporting“.  Haque points out that accounting really hasn’t changed since the invention of double-entry bookkeeping. Accrual accounting  provides the “true value” of a business. Perhaps the next generation accrual will measure the full impact of a business, or a real “true value”.

doesDoug Hadden, VP Products

There has been a lot of talk about the so-called “Facebook revolutions” in the middle east. It’s created an interesting phenomenon: tension of social media and traditional media. Authoritarian regimes leverage traditional media while citizens leverage social media. And, many commentators suggest that social media is not enabling social change.

Irony in Traditional Media

Malcom Gladwell’s October 2010 New Yorker article created a twitter stir by claiming that social networking cannot build the strong ties needed for social change. Both Evgeny Morozov in Foreign Policy and Clay Shirky in Foreign Affairs have recently criticized the United States State Department efforts to promote Internet freedom. These articles are well thought-out narratives with valuable insights. Yet, these article predict little change thanks to social media. Morozov rejects the “notion that technology can succeed in opening up the world where offline efforts have failed.” Shriky has more understanding of social media effects but suggests that Internet freedom to “encourage regime change — are likely to be ineffective on average.” Some average over the past month!

Articles go through a publishing cycle, so it is unfortunate that the good points in both articles are lost with what seems a poor predictions. Granted, the contribution made by the State Department may not have had any effect whatsoever except to highlight what Morozov describes as  movement of countries “seeking ‘information sovereignty’ from American companies.” (In all fairness to the State Department, the organization has been pushing open source software that provides full information sovereignty to whomever wants it.)

Why So Wrong?

Gladwell suggests that hierarchy is needed for social change. He points out that “social media are not about this kind of hierarchical organization. Facebook and the like are tools for building networks, which are the opposite, in structure and character, of hierarchies. Unlike hierarchies, with their rules and procedures, networks aren’t controlled by a single central authority. Decisions are made through consensus, and the ties that bind people to the group are loose.”

This exactly where the State Department, Malcolm Gladwell, Evgeny Morozov and governments in Egypt and Tunisia may not understand the new dynamic. It’s true that social change required strong organization and strong ties in the past. A replacement set of elites. Or oligarchy.

But as Jaron Lanier has pointed out, Web 2.0 creates a “hive mind“. Lanier is very much against this change, but look at the results: in the past governments could leverage media monopolies to present the message that unrest has been created by foreign interests. And, opposition organizations could be monitored over time.

Today, facts and opinion can not be quickly suppressed. Social media is self-organizing. It moves too quickly. Hierarchy is the old way.

Marshall McLuhan described how social and political change were generated by media in “Understanding Media: The extensions of man.” He described how one medium changes with the introduction of another. Machine technology made society fragmented and specialized, according to McLuhan. Social media may enable “integral and centralist”  social organization.

What does this mean for Governments?

There are some key lessons from social media effects including phenomena such as the Tea Party use of Twitter and the use of social media Obama’s election in the Unites States. Don Tapscott and Anthony Williams in Macrowikinomics suggest that “most governments till reflect industrial age organizational thinking.”

1. Governments need to move in-network to use social media to improve policy formulation and policy execution. This will improve social cohesion and what we once called “efficacy”.
2. There is no stopping what Tapscott and Williams calls the “rise of the citizen regulator.” It is time for governments to recognize the participatory benefits of this trend to help improve performance and outcomes.
3. Traditional media does not have the impact it once did. Traditional media organizations are hierarchical in nature and suffer from the same inefficiencies as other “command-and-control” organizations. Therefore, transparency, even to the extent of “dis-intermediating” traditional organizations is becoming a competitive differentiator for governments.

Guest post by LitWorld

What would you miss most if you could not read or write? Imagine your world without words.

Let’s join together and read aloud for a collective 774 million minutes in support of the 774 million people worldwide who cannot read or write.

With this global rally we show the world that the right to read and write belongs to all people and we lend all our voices to the Global Literacy Movement.

Let the children of the world know we believe in the power of words and stories to change their lives. 

“I know the day is coming when global literacy isn’t fiction. I don’t know how long it will take, but I know that day will come.” – 10 year-old World Read Aloud Day Participant

Visit litworld.org to participate in World Read Aloud Day and to “Read it Forward” and donate to LitWorld’s mission to change the world with the power of words. 

Please also include these links in your post: 

• Register to participate in World Read Aloud Day through this link: http://www.litworld.org/worldreadaloudday
• For ideas on how to celebrate World Read Aloud Day: http://www.litworld.org/worldreadalouddayactivities
• How to celebrate via Social Media: http://www.litworld.org/worldreadalouddayblog/2011/2/1/join-the-global-literacy-rally-via-social-media.html

We also invite you to make your own video based on the video above! Please submit your videos answering the question, ”What would you miss most if you could not read or write?” and email it to us at info@litworld.org. 

Annual ESAAG event to explore PFM as a driver in good governance and service delivery 

Ottawa, Canada (February 17, 2010) – FreeBalance, a Government Resource Planning (GRP) software company, will be participating in the 18^th Annual Eastern and South African Association of Accountants General (ESAAG) Conference. The ESAAG event will take place February 21 to 25 in Nairobi, Kenya. ESAAG supports the improvement of the democratic processes through transparency and accountability and by strengthening of the government accounting profession.

FreeBalance is uniquely positioned to support PFM reforms in Africa. FreeBalance has successfully assisted governments to implement modern PFM systems in challenging circumstances. The FreeBalance Accountability Suite has been implemented in African and other emerging nation governments where there has been limited connectivity, low bandwidth, lack of electrical power, and low human capacity. FreeBalance recently announced agreements with the Governments of Liberia, Uganda, and MCA Namibia. FreeBalance is also working in Sierra Leone and Southern Sudan. The Government of Sierra Leone is a member of the FreeBalance International Steering Committee (FISC).

FreeBalance has developed a methodology to improve implementation success that includes project governance, change management and progressive activation of system features. The FreeBalance Accountability Suite is distinguished by strong and flexible budget control. Recent innovations from FreeBalance include Transparency and Procurement portals to improve government accountability.

“The 2011 ESAAG event is well aligned with the FreeBalance vision for PFM in governments in Africa,” said Manuel Pietra, President & CEO of FreeBalance. “The FreeBalance Accountability Suite is designed specifically for PFM and covers the entire budget cycle including budget preparation, budget execution and civil service management to improve governance. PFM reform is critical to improving good governance. Good governance is needed for economic development.”

ESAAG member countries include Botswana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Rwanda, South Africa, Swaziland, Uganda, Tanzania, Zambia, and Zimbabwe. Over 500 delegates from member countries and the international PFM and accounting community are expected. FreeBalance has been a strong supporter of ESAAG since first participating as an exhibitor and sponsor of the 2006 conference in Maseru, Lesotho.

Conference items include: An IFMIS Sub-system for Project Monitoring for More Effective Service Delivery; XBRL – A Future Language of the Government for Greater Accountability; The Role of an IFMIS in Effective and Efficient PFM; The Importance of Change Management for an Effective PFM Reform; and Why a Strong Internal Control Model is a Must for an Effective PFM system.

FreeBalance customers span the globe and the user community includes public financial management professionals in 18 countries, including Liberia, Namibia, Sierra Leone, Uganda, and Southern Sudan. 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.

About ESAAG
The East and Southern African Association of Accountants General (ESAAG) is the regional body of Accountants General which supports its members in adoption and implementation of best practice in Public Financial Management practices. ESAAG holds an International conference every year to which its members and non-members are invited.  The objective of the conference is to appraise participants from ESAAG and those from outside the association of the developments in Public Financial Management Reforms.  The conference is also an excellent opportunity for networking, exchange of ideas and information and sharing solutions on issues of mutual concern in public sector financial management. 

About FreeBalance
FreeBalance helps governments around the world leverage robust Government Resource Planning (GRP) technology to accelerate country growth. FreeBalance software solutions for public financial and human resource management support reform and modernization to improve governance, transparency and accountability. Good governance is required to improve development results. For more information, visit www.freebalance.com.

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Doug Hadden, VP Products

Reuters reported yesterday about an IMF report that found corruption and mismanagement at Kabulbank. There were some interesting points made in the report:

Donors contribute about 70 percent of the Afghan state operating budget, itself dwarfed by billions more in direct aid.

and

One of the next cards to fall would be the Afghan Reconstruction Trust Fund (ARTF), the biggest vehicle for donor funding. Between 2002 and April 2009, 30 donors contributed more than $3 billion to the World Bank-administered ARTF, according to the fund’s website (www.worldbank.org).

As the provider of the Afghanistan Financial Management Information System (AFMIS), we have been somewhat vocal on the subject of corruption and the superficial reporting on corruption. For one thing, this report doesn’t make the necessary connection that the use of ARTF and budget support through AFMIS is a strong tool to reduce corruption.

Fighting Corruption with Software and Process

This simplified diagram demonstrates the strong anti-corruption tools available to international donors:

• Visibility throughout the budget cycle where every step can be audited increases the chances of discovering corrupt practices
• Segregation of duties to prevent someone from approving purchase orders, indicating that goods were received and approving payment
• Use of budget and approval controls reduces the opportunity for corrupt practices
• Avoiding cash as much as possible reduces corruption
• Standard reports and automated processes improves efficiency

I’m not going to tell you that the FreeBalance Accountability Suite eliminates corruption. It’s a tool for good governance. And, transparency. The vast majority of government corruption in Afghanistan is perpetrated outside of the financial system.

The ARTF provides transparency with monthly financial reports and the Government of Afghanistan budget statements. As the ARTF points out, on-budget funding reduces corruption:

Corruption remains a major concern for the people of Afghanistan and for international donors. Indeed, the World Bank’s own diagnostics recognize that graft and bribery are widespread, even pervasive, in Afghanistan. Yet despite the growing threat of corruption, the Afghan government has improved its accountability measures for public finances, and the essentials of a public financial management system are now in place. In fact, Afghanistan’s Public Financial Management (PFM) per formance compares favorably with other post-conflict countries. An assessment by the World Bank and DFID in June 2008 (the Public Expenditure and Financial Accountability (PEFA) assessment) rated Afghanistan better than the average of a sample of other low-income countries. Interestingly, on some criteria, Afghanistan’s ratings were even better than the average of a sample of middle-income countries.

Practices that Enable Corruption

You’ve read the stories like billions of dollars flying out of Afghanistan. How is this enabled? Ironically, many donors enable corruption by trying to avoid it. This concern that government systems are rife with corruption creates an environment that is impossible to audit.

How?

1. Donor aid is provided in multiple projects
2. Projects are executed by private sector companies and NGOs
3. Some of the money is provided to government entities but is off the books – “off-budget”
4. There can be significant amounts of sub-contracting
5. Every player in the aid life-cycle has different levels of controls
6. Cash is widely used
7. Every project requires reports but these reports do not necessarily come from a robust financial application – some could be fiction
8. Of course, multiple projects with donors and sub-contracting creates inefficiency and makes it difficult to coordinate

So What?

It doesn’t make sense that donors will scrap ARTF because of corruption. There could be other factors at play, but the notion that the ARTF will be the “next card to fall” because of corruption at Kabulbank is something that makes no objective sense.

Doug Hadden, VP Products

(white paper draft)

The Integration of Donor and Recipient Government Financial Systems

The International Aid Transparency Initiative (IATI) “aims to make information about aid spending easier to access, use and understand.” IATI seeks to improve aid effectiveness through transparency. Transparency can improve aid harmonization and reduce aid transaction costs throughout the entire aid lifecycle from donor funding through to result.

The IATI Technical Advisory Group (TAG) has been studying methods for aid data integration among all aid participants. The integration of data between donor systems and recipient government budget systems is critical to IATI success. This integration can reduce administrative transaction cost. It can improve the coordination of donors and governments to achieve results. And, it can lead to direct budgetary support that ensures that aid better meets recipient government objectives. It’s all about improving aid effectiveness.

The TAG has encountered technical issues with donor and recipient government integration. Stakeholders from donors, civil society, governments and NGOs have differing aid effectiveness improvement objectives. Some stakeholders are concerned about the quality historical statistical information, while others seek a better understanding of transactions. Aid sector categories differ among stakeholders. There are differing needs for the level information granularity. Current standards in use by International Financial Institutions (IFIs) and governments operate at cross purposes, satisfying few stakeholders.

These difficulties are seen as technical metadata integration problems – data structures from operational systems used among donors and recipient governments cannot be rationalized.

The technical problem of project, transactional and statistical information integration among donor and recipient government budget systems is thought to be too complex and too expensive to contemplate. Nothing should be further from the truth. At its core, the IATI technical integration challenge is integrating donor budget with recipient government budget systems. Project data and statistical data are hierarchical constructs of budget and financial transactions. Additional data elements, including documents, project and statistical information can be linked directly to this transactional data.

What’s the Technical Problem?

Timely, effective, and automated integration among financial and project systems across the aid lifecycle requires the adoption of good practices in financial management systems – the use of program classifications. Herein lies the problem.

Developing nation governments, particularly FreeBalance customers, use program classifications. (And, the software enables progressively activating program classifications.) Many donors are not using this established good practices and have financial software systems that are too rigid to quickly and inexpensively adopt this good practice. (Financial software designed for the private sector often provides rigid classifications because these change infrequently. Government COAs change frequently to reflect modernization, reform, government restructuring, adoption of performance management, support of standards – including new standards like IATI.) Some donors pull project information from documents and have to manually reconcile with transactions.

Towards Donor to Government Integration: Automating the Financial Aid Lifecycle

The integration of donor systems with recipient government budget systems for on-budget aid projects includes the following elements:

1. Donor budget preparation systems where donors determine upcoming project budgets. These systems could integrate directly with recipient government budget preparation systems that include anticipated on-budget aid resulting in legally mandated budget
2. Alternatively, and perhaps preferably, the donor budget preparation and system could integrate with aid management systems. Aid Management systems enable donors and recipient governments to collaborate in the definition, funding and management of aid projects. Also recipient government budget preparation systems could integrate with aid management systems to enable budget planning and to harmonize the government and aid budgets.
3. The resulting budget prepared in the donor budget preparation system is formalized in the donor financial management system for disbursements during the fiscal year.
4. Disbursement information from the donor financial system could integrate with the recipient government financial system. The recipient government receives the funds against the budget item and provides authority to spend through appropriations or warrants.
5. Alternatively, and perhaps preferably, the donor financial management provides disbursement information to the aid management system that also integrates with the recipient government financial management system. This provides disbursement information to all stakeholders to improve aid harmonization.
6. Outcome and project reports are generated from the Aid Management System.
7. Outcome and project reports from the donor financial management and recipient government financial systems can also provide output, project and outcome information.
8. Recipient government financial systems typically output statistical data using the IMF GFS standard.
9. Output, project, outcome and statistical data can be compared to support historical analysis.

Budget Preparation

All public sector organizations operate using commitment accounting techniques for financial management. Budgets are developed that become the legal embodiment of government policy in recipient governments. Bi-lateral donors are government entities and operate based on the legal budget. Multi-lateral donors also manage financials based on commitment accounting to satisfy funders.

The budget preparation cycle is similar among public sector organizations whether special budget preparation software or spreadsheets are used.

Recipient Government Perspective:  Aid intentions from donors, regardless of the certainty of that aid, are critical to forming budgets. Recipient governments require harmonizing with donor budgets to achieve government objectives. The fact that a donor might commit to funding is important because the recipient government can identify this likelihood and be prepared should these funds be disbursed later.

1. Numerous factors are analyzed during the budget preparation process. This includes organizational objects, or the general policy of the organization, macroeconomic analysis and historical information to determine budget assumption for the upcoming year, typically in the form of a budget circular. This budget circular is scheduled during the current fiscal year for planning for a subsequent fiscal year. Many government organizations plan ahead on a medium term; therefore, the historical information includes preliminary information about the upcoming fiscal year and multiple year projects and commitments.
2. The budget circular typically provides guidance on budget assumption in the form of budget ceilings to organizational units.
3. Government organizations follow an iterative process of numerous internal budget proposal or versions with project and cost justifications. These versions are rolled-up to budget organizations and analyzed. Scenarios are examined.
4. The budget organization completes a detailed budget document or budget book for approval.
5. The budget is adapted by legislative processes through a vote.
6. The result of the budget vote is a budget law in government.
7. The budget law provides the allotment or appropriation information for budget execution in the government financial system.

Aid management

1. Donors prepare budgets based on donor objectives
2. Donor objectives are harmonized with government objectives to determine areas of mutual interest
3. Projects that meet objectives are proposed
4. That include a set of risk factors and performance measurements for expected outputs and outcomes
5. Projects that are approved for funding are shown in donor and recipient Budget Preparation systems
6. Budget information is shown in the Budget Execution module of donor and recipient government Financial Management systems
7. Funds are disbursed by donors to the recipient governments and progress shown in a Monitoring and Evaluation module
8. Funds received by donors are executed by the recipient governments, with progress shown in a Monitoring and Evaluation module
9. Results from the projects can be tracked against risk factors and performance measures in a Monitoring and Evaluation module

Budget Execution

Budget execution includes the financial management of all revenues and expenditures controlled by the budget. The budget can be adjusted throughout the fiscal year based on cash availability, macro-economic changes and availability of new revenue sources.

Recipient Government Perspective: Budget execution is difficult for many developing countries to effectively manage. These governments tend to experience cash shortfalls. Some governments are not able to spend the entire budget, hence reducing the effectiveness of many initiatives. Many donors examine recipient government disbursements as an indicator of progress. Yet, budget execution processes can expose in-progress spending through commitments and obligations to give a better indication of the recipient government project budgets.

1. The budget law developed during formulation creates the annual budget. The budget typically includes annual spending limits that are aggregated by organizational unit, fund source, project and type of expenditure such as capital or recurrent. The budget law also includes detailed line-item budget estimates that are used for advisement in most governments. Some government organizations use full line-item budgeting. The appropriations including authority to spend typically include the aggregate annual budget, some elements of the line item information and period budgetary controls. Many governments operate with monthly or quarterly controls that are more detailed than the annual appropriation to enable more effective fiscal control.
2. Expenditures in government financial management systems leverage commitment accounting functions. Funds are set aside during expenditure cycles to ensure that budgets are overspent. Many governments support two phases of commitments where money is set aside during the requisition stage as a soft commitment or pre-encumbrance. Good practices in government financial management ensure that contractual obligations set aside funds when purchase orders are created.
3. Goods and services are received by the government are paid for through disbursements.
4. Government revenue may be higher or lower than expected based on macroeconomic changes. There may be cash and liquidity issues. These situations often change expenditure budgets and appropriations.
5. Governments often receive supplemental budgets. Recipient government receive project funds when fiscal years are not aligned with donors and there is no budget preparation integration. Special supplemental budgets are often created because of macroeconomic shocks, such as stimulus packages or because of natural disasters.
6. The spending status against the budget can be analyzed. Budget deficits and surpluses can be predicted. It is considered a poor practice to under-spend because this will reduce outputs and outcomes. Appropriations can be loosened to encourage spending or tightened to reduce spending.
7. Budget reports showing outputs and variances are produced.

Commitment Accounting Transactions

Commitment Accounting is sometimes considered as part of the Budget Execution cycle. PFM transactions combine the traditional accounting transactions used in the private sector with budget controls.

Recipient Government Perspective: The status of commitments and obligations provides a better indicator of project progress than disbursements. It should also be noted that there can be delays in payment cycles after expenses have been approved. Therefore, the goods received and expense voucher stages in expenditures can also provide insight to project progress because these indicate goods and services completed but not yet paid.

The commitment accounting transaction structure includes the following:

1. Budget law provides one or more appropriations that act as expenditure controls
2. Internal purchase requisitions are checked for budget availability in some countries. The estimated amount of the expenditure is committed or set aside.
3. Purchase Orders are checked against budget availability. Differences with requisitions are adjusted. The purchase order represents a contractual obligation or hard commitment. The obligation is set aside.
4. Goods and services are received and returned via Goods Receipt and Goods Returned Notes are accrued if the government is using modified accrual or accrual accounting.
5. Goods and services that are accepted are approved for expenditures through Expense Vouchers that are shown in the Accounts Payable sub-ledger. PFM systems tend to post Accounts Payable transactions to the General Ledger immediately in order to show the true cash and budget situation.
6. Cash Receipts, revenue from taxation and other sources of government income are provided to Bank accounts and shown in the Accounts Receivable sub-ledger, posted in real time to the General Ledger.
7. Payments are posted to the Accounts Payable sub-ledger and honoured by the Bank.
8. The Bank information is reconciled with the General Ledger.
9. The recipient government manages Cash and liquidity based on Bank information, expected payments from Accounts Payable and the commitment cycle, revenue expected from Accounts Receivable, forecasts based on Appropriations, investments and debt.

The Classification of Aid Information

Classifying data is a typical information management problem. Information systems need to catalogue and classify data to support process workflow, analysis, decision-making and reporting.  Information systems classify data based on needs. This data classification is known as “metadata.” Organizations often require using “master data management” tools to harmonize data across multiple information systems. These systems reclassify and transform data to create common information. These systems also rationalize differing levels of detail required in information systems.

International data exchange standards like IATI provide a standard data target to facilitate integration. Organizations use MDM tools to import and export data.

The aid lifecycle includes project, budget and financial information. This metadata associated with aid information tends to be multidimensional and hierarchical. For example, budget classifications often include multiple data segments. Each segment includes a hierarchy of details.

There are numerous COA practices including:

• Budget classification structures tend to change over time as donors and recipient governments change objectives, accounting methods (i.e. accrual accounting) and items to measure
• Organizations tend to modernize from a simple structure including fund, organization, object/economic item to add programme and output segments.
• Mid developed countries are often less likely to support international standards and multiple segments. Lower developed countries are most likely to follow international standards. High developed countries have mature national standards that are often at a par with international standards.
• International and some national standards are supported via side tables or side concepts. These items roll-up transactional data in alternative methods through mapping ranges of data to a different structure. Budget and accounting users should not be exposed to most statistical, project, and performance objects.

The Government of Sierra Leone utilizes the program segment of 8 characters with 5 levels of hierarchy. Users enter budgets and accounting transactions where:

• Character 1 = Project Type
• Characters 2 & 3 = Project
• Character 4 = Component
• Characters 5 & 6 = Sub Component
• Characters 7 & 8 = Activity

COA rules are able to take the 8 characters to infer 3 levels of Government Financial Statistics support, 2 additional levels of project reporting, 4 additional levels of output or performance information and 1 level of Millennium Development Goals.

The use of Side Concepts, supported by financial management systems used in almost all donors and most developing countries is conceived to be the method to support IATI reporting and integration.

Aid Management Classifications

Aid management systems track information and transactional information related to projects. This can vary from government to government, but the data structure for any project typically includes:

• Project identification including title , description , objective , purpose , agreement number and agreement date
• Planning information including project start and end dates , extension dates if any and project status
• Project implementation information which includes whether it is implemented at national/sub national level and the sector.
• Alignment of project to national priorities or MDGs
• Project implementing and beneficiary partners
• Government and donor focal point contact information

Integrating Structure across Systems

Integrating donor and recipient government systems is enabled because these systems hold more detailed information than is needed by the IATI standard. The structure of the budget data is different among stakeholders. However, there is sufficient commonality to infer or roll-up to the aggregate project and statistical information required by the IATI standard. The process is conceptually no different than donors supporting CRS or recipient governments supporting GFS.

1. The donor budget system includes Chart of Accounts that describes objective, project, sector, recipient and object code. This information could be in as few as 2 segments structured hierarchically. The objective, project, sector and recipient government information can integrate with an aid management system through a mapping process. Mapping data structures is well understood in information technology using Extract, Transform, Load (ETL), Enterprise Application Integration (EAI) or Business Process Management (BPM) tools.
2. The same information provided to the aid management system can integrate with the recipient government Chart of Accounts. The conditions of the donor can be integrated through the fund and object segment and controlled through valid code combinations to prevent improper spending.
3. Documents and other material such as assessments, reviews and proposals can be linked directly to elements of the budget and aid classifications.
4. The highly detailed transactional information can be exported from donor budget systems through side table COA structures or via mapping tools.
5. The less detailed transactional information can be exported from aid management systems through reports or via mapping tools.
6. The highly detailed transactional information can be exported from recipient government budget systems through side table COA structures or via mapping tools.
7. Common elements from DAC/CRS produced by some donors and GFS could be used to enhance the IATI data set or simplify the process of reporting. Of course, the IATI data structure can align with data elements found in documents. Navigating and drilling through IATI data could include document discovery.

Conclusions

• Aid information including transactions (and transaction stages),  project information (including documents) can be integrated because charts of accounts provide the linking metatdata
• Differences among charts of accounts can be facilitated through the use of side tables or side concepts
• Members of the aid ecosystem need to adopt program budgeting to enable integration – this cost will enable timely aid reporting including monthly
• Manual methods of integration compromises data quality and timeliness resulting is less coordination and less effective aid
• Integration can be accomplished with aid management, budget preparation and budget execution systems
• Tracking disbursements from donors and payment by recipient governments does not show progress so aid transparency and effectiveness can be improved by following the commitment cycle

Global Poverty

Entertainer and activist Bono tells the Globe and Mail to forget the past mistakes in foreign aid. “The present aid is working” [video]. This is a contrast to the ‘aid is just a waste of money’ and ‘it’s better to give at home’ narratives promoted by some politicians in developed countries.

As Owen Barder has pointed out:  most people don’t need to be convinced that development is desirable; they need to be convinced that aid works. However, rising budget deficits have given rise the notion of reducing foreign aid.

Developed country governments have fallen short of past commitments and now more is threatened. This has created concern in the aid community as reflected by the Modernizing Foreign Assistance Network in the United States who pointed out:

For around 1% of the federal budget, experts from the United States Agency for International Development (USAID), the Millennium Challenge Corporation, and other agencies are empowered to work hand-in-hand with our diplomats and members of the Armed Forces to help build accountable institutions and increase stability in “frontline” states like Afghanistan, Pakistan, Iraq, Somalia, and Yemen.  These professionals are also deployed to help boost private-sector and middle-class growth and reduce poverty in developing countries, the fastest-growing markets in the world. Our development efforts in these countries are crucial to opening up export opportunities for American businesses and building stable, long-term trading partners and allies. Were we to pull back, the void left behind would surely be filled by other countries that do not share our values.

Cutting aid may reduce security in developed countries as pointed out by US Secretary of State Hillary Clinton. Much of the security and aid debate relates to military and government aid to maintain stability. But, it is clear that improving the economic conditions of any country increases stability.

Towards a Rational Aid Debate

Aid targeting the sources of poverty and instability could be orders of magnitude more effective than securing borders and building intelligence and military capacity. Fixing the symptom is typically less expensive that mitigating the problem.

Foreign aid may also have more impact than local aid – especially with so many people living in poverty.

There is no question that aid effectiveness could improve. This is one of the benefits of the International Aid Transparency Initiative. The international community is improving results and leveraging transparency. There is a growing recognition of the power of harmonizing aid with government priorities and the need to untie aid.

But what about the other 99% of government budgets? Is there the same scrutiny to improve outcomes for national investment? It seems as if politicians are willing to promote spending based on inputs (the money provided for projects) rather than outcomes, with techniques such as “earmarks“.

Don’t get me wrong, there remain opportunities to improve aid effectiveness. Transparency data with visualization techniques holds much promise. It might be time for governments in developed countries to improve outcomes for internal national programs too.

Doug Hadden, VP Products

Enterprise technology is obsolete. Take the icing off the technology “wedding cake” to find legacy client/server code. You’ve seen these very elegant diagrams with lots of boxes and arrows.

Should we care that the majority of software technology used by enterprises and governments is based on legacy technology? Some contend that technology no longer matters.

Here’s the argument: governments will have to customize the code anyway to meet unique requirements. Regulations, laws, national standards. And, governments will have to continually change the software code to reflect public financial management changes. So, the best thing is to develop coding expertise to keep legacy software alive.

And, by “customization”, I mean: writing and maintaining software code. (Ok- there are various levels of coding from “call-outs” and workflow scripting to down-and-dirty coding.)

A Sad State of Affairs

There seems to be a general acceptance of this expensive state of affairs. The frequent failures for private sector software in government is blamed on the customer (i.e. blame the victim) or systems integrator for not having the right process, governance methodologies, project commitment. It’s rarely blamed on the orignal vendor who provided the software in the first place.

Should government customers accept this state-of-the-art of:

• High customization and maintenance costs
• Adapting government proven-processes to so-called industry “best practices”
• Product sunsetting and high upgrade costs
• Perpetual outside consultants who understand the underlying legacy technology
• Complex software requiring significant training

• Building special modules for unique needs because the functionality is missing in private-sector software

There is an Alternative

FreeBalance and the approach that we’ve taken is an alternative.

Don’t get me wrong: major enterprise software vendors have problems that I don’t want to have. Multiple acquired applications each using different programming languages. Multiple vertical and horizontal markets. That’s the advantage of being agile: you avoid these problems. Here’s the FreeBalance approach:

• Rebuild software using the latest architecture good practices (and make it open) so that there is no client/server translation layer, no legacy code constraining options. In other words, technology matters.
• Design with government exclusively in mind – the government domain for all functional and non-functional needs (i.e. GRP, not ERP).
• Software designed for shared services rather that re-purposed with brute force.

• Parameters to enable configuration and avoid customization – faster time to results and way lower TCO.

The Pendulum Swings the Other Way?

The enterprise software industry changed in the late 90s. The most successful vendors moved from single industry solutions to multiple industries. These vendors acquired other vendors. It was thought that it was less risky to buy from the very largest vendors.

Things have changed in the early 10s. For one thing, customers feel unheard by the largest vendors. And, there are alternative models such as cloud computing. This has caused many to reconsider the state of affairs. Especially when it is easier for agile vendors to create product suites using proven components and following standards. (Rather than proprietary middleware that is used to lock customers into legacy suites.)

Of course, some observers are incredilous.

How can FreeBalance have better technology? These larger vendors are very large – but their business is built on old technology, existing supply networks and they require the economies of scale to make middleware equivalent to open source.

How can FreeBalance meet needs through configuration? A single domain-government. (And, our platform has government-functionality built-in, so customers and consultants can build custom solutions for government fast too.)

How can FreeBalance win competitive tenders? Most of these tenders are 5-Year total cost of ownership. Lower hardware cost through an optimal footprint, ease of implementation and maitenance through configuration, less training – you get the point.

How can FreeBalance have more successful implementations? We have a track record of more on-time, on-budget, government-sustainable implementations than alternative solutions. It’s because of domain focus, including adapting our implementation methodology exclusively for government.

In my view, it is time to question the assumption that “bigger is better” in software. It’s time to question technology. To look at what really works.