Sustainable Public Financial Management

Doug Hadden, VP Products

After much effort, the International Aid Transparency Initiative (IATI) standard is being adopted by donors and recipient governments. Tracing aid will improve aid effectiveness. Is this standard highly complicated? Will it be too difficult to implement and expensive? I’ve made the case for using financial management systems to automate IATI compliance and for integrated donor with country systems.

The IATI Secretariat recently published a simple explanation of the IATI standard. This helps to explains that much of IATI can be automated through the proper use of financial management systems by donors and recipient governments. My premise is that financial information and project metadata is stored within the budget classifications or Charts of Accounts (COA). This metadata enables tracking transactions within the financial system with project documents and enable consolidation to the IATI standard. Donors use financial systems. Most recipient government use financial systems.

Integration Structure

The ability to automate IATI depends on the systems in use by donors and recipient governments.

• Chart of Accounts: all financial systems include COAs. The COA is often different among organizations, although there are some similarities. Nevertheless, side tables or inferred dimensions can be created to consolidate to a shared start.
• Core Financial: provides the commitment accounting systems used in the public sector.
• Budget Preparation: provides multiple year budget planning and forecasts.
• Grants Management: systems used by donors to manage grants and loans to recipients.
• Aid Management: systems shared by donors and recipient governments to coordinate partnership activities, risk monitoring, show commitments and disbursement.
• Project Accounting: enhancement of financial systems to provide milestone reporting.
• Debt Management: systems used by recipient governments to manage debt and forecast payments.
• Procurement: systems that recipient government use to buy goods and services that are part of funded aid projects.

Not all of these types of systems are used by donors or recipient governments. Nevertheless, an effective COA is an excellent starting point. And, there is often more than one financial system that could integrate with the IATI standard.

Integration Across the Budget Cycle

The posting on budget cycle provides more detail.

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.

Financial Systems and IATI Integration

Reducing Corruption

Automating financial flows from donors to recipient governments reduces corruption by dramatically reducing the fungibility of aid, as I’ve described before. Integration including with banking systems tracks funds throughout the budget life-cycle.

Doug Hadden, VP Products

There was a late cancellation at the 25th Annual International Consortium on Governmental Financial Management (ICGFM) conference for a presentation on Tuesday. The subject was the recent World Bank publication, Financial Management Information Systems: 25 Years of World Bank Experience on What Works and What Doesn’t. Fortunately, I’d read most of the document. After all, FreeBalance is the premier provider of financial management systems to developing nation governments! So, I was able to summarize the study in PowerPoint and present it without too much editorializing. (I’ll provide my opinions next week).

World Bank Fmis Study

The World Bank study covers a long period of financial management information systems implementations. Of various sizes. Different scope. Different technology and approaches. Nevertheless, there are some interesting conclusions:

• 82% of projects were completed on budget
• Capacity building is the key factor in the success or failure of FMIS projects
• Per user cost varied significantly across projects

The FMIS study has some particularly useful appendices, in particular, the FMIS checklist and information technology recommendations.

James Elrick, PR Specialist

Edilberto C. de Jesus just wrote an excellent piece about Timor-Leste in the Philippine Daily Inquirer. Published on 14 May 2011, the “Natural Resource Wealth Management” article describes both the author’s personal experience visiting Timor-Leste and the manner in which Timor-Leste has avoided the resource curse, known as the “Dutch Disease.”

The article also describes the challenges the government faces as it manages the revenue from its natural resources in a transparent manner to develop the capacity of its people and build a sustainable economy for its citizens.

A highlight of Timor-Leste’s achievements since gaining independence in 2002 includes:

• The Revenue Watch Institute and Transparency International placed Timor-Leste in the group of countries most transparent with government revenues
• In 2010, Timor-Leste achieved full compliance with the Extractive Industries Transparency Initiative (EITI), only the third country in the world to meet this standard
• An improvement of
  • 14 places in the Human Development Index rankings
  • 19 places in the Corruption Perception Index
  • 7 places in the World Bank Doing Business Report
• And, between 2007 and 2009, Timor-Leste reduced the poverty incidence from 50 percent to 41 percent

Read the article on the Philippine Daily Inquirer website >>

Doug Hadden, Vice-President, Products at FreeBalance recently presented “Strengthening Public Financial Management through Transparency in Timor-Leste” at the 25th Annual International Consortium of Government Financial Management (ICGFM) conference in Miami.

This presentation describes how the Government of Timor-Leste employs the FreeBalance Transparency Portal and other mechanisms to create public financial management transparency to assist civil society, build infrastructure, set education goals, involve citizens, and improve government performance. The presentation describes how transparency was sequenced with other government reform. 

2011-05-17 Government Financial Transparency in Timor-Leste

James Elrick, PR Specialist

Transparency International is the global coalition fighting against corruption. On the Transparency International blog, author Maria Gili of the International Defence and Security Programme at Transparency International UK recently published an article titled “Corruption in Afghanistan: The Status Quo is Not an Option”.

The article describes how corruption is becoming endemic and ranks as the highest concern for the people of Afghanistan. To prevent corruption from becoming the status quo, the author provides options that include a report on the total funds flowing into the country.

As the majority of funds spent in Afghanistan come from international donors, most of it is off-budget – not on the government books. Some of these funds are provided directly to government entities outside of the budget process. Most of it is expended directly by donors or through 3^rd parties, such as NGOs.

This reduces the ability for donors and the government to coordinate action. This also reduces aid effectiveness, which can be as big a problem as corruption in some countries.

But the real problem is that off-budget money is very hard to trace, especially cash payments. On-budget is much easier to trace, control and audit.

The Afghanistan Ministry of Finance has made great strides at reducing corruption substantially in public financial management (PFM). Since 2002, the Ministry of Finance has been using the Afghanistan Financial Management Information System (AFMIS). The AFMIS is an automated PFM system based on the FreeBalance Accountability Suite that can generate fully auditable reports on all transactions. Using the AFMIS, more than 99% of the government’s budget execution is captured on a real-time basis.

Highlights of the AFMIS include:

• 2010 saw the AFMIS Rollout team in Nuristan print its first cheque. With this achievement, the rollout of the AFMIS across the provinces of Afghanistan was completed as Nuristan was the last province to be connected to the AFMIS network.
• All 34 Afghanistan provinces and all line Ministries at the centre now have system-based budget controls, and can execute system-based payments with a very high degree of fiduciary control.
• In the April 2011 World Bank Economic Premise note titled “Strengthening Public Financial Management in Postconflict Countries,” the Government of Afghanistan was given a rating of “substantial” — the highest rating — for PFM rebuilding and reform progress.

And, as the documentary piece pointed out, Afghanistan has made significant capacity building gains as regular training on the AFMIS has resulted in 262 government employees being added to the AFMIS skilled workforce.

These are significant achievements that fail to get too much attention because of the overarching narrative that all government institutions are corrupt.

Evidence suggests that public finances have improved in Afghanistan to be better than peer countries. Using the AFMIS, the Government of Afghanistan has improved governance, accountability, and transparency. 

For more information:

Case study at: http://www.freebalance.com/news/2011/Afghanistan-Improves-Governance-Through-Public-Financial-Management-Reform.asp. The case study illustrates how the Government of Afghanistan has built capacity and effectively decentralized budget execution.

IMF Study on capacity building and public financial management: http://blog-pfm.imf.org/pfmblog/2010/07/implementing-a-financial-management-information-system-in-a-fragile-state-context-afghanistans-succe.html

How public financial management reduces corruption: http://www.freebalance.com/blog/?p=1609

A rant on the corruption narrative in Afghanistan: http://www.freebalance.com/blog/?p=1561

Strengthening Public Financial Management Through Transparency in Timor-Leste to highlight 25th Annual ICGFM International Conference

Ottawa, Canada (May 13, 2011) – FreeBalance, a For Profit Social Enterprise (FOPSE) software company that helps governments around the world to leverage robust Government Resource Planning (GRP) technology to accelerate country growth, continues to promote customer Public Financial Management (PFM) success milestones. FreeBalance will be participating and presenting at the 25^th Annual International Consortium of Government Financial Management (ICGFM) conference, May 15 – 20, 2011 in Miami. The conference will explore how governments are meeting the demands of citizens, civil society, media, and donors for greater impact on the shape of PFM policies. 

2011-05-17 Government Financial Transparency in Timor-Leste

“FreeBalance has developed good practices in government transparency that we will share with ICGFM participants,” said Manuel Pietra, President & CEO of FreeBalance. “The Government of Timor-Leste is leapfrogging more developed countries to become a transparency innovator. Lessons that we have learned are very valuable, even for governments who do not yet use FreeBalance software. Transparency improves government performance and helps build stable countries.”

Doug Hadden, Vice-President, Products at FreeBalance will present “Strengthening Public Financial Management through Transparency in Timor-Leste” on Tuesday, May 17, 2011, 10:45 am – 12:00 pm in the Grand Ballroom. This presentation describes how the Government of the Republic of Timor-Leste employs the FreeBalance Transparency Portal and other mechanisms to create public financial management transparency to assist civil society, build infrastructure, set education goals, involve citizens, and improve government performance. The presentation describes how transparency was sequenced with other government reform.

The Timor-Leste Transparency Portal was launched on March 15, 2011 demonstrating leadership in open and accountable public financial management. The Timor-Leste Transparency Portal allows citizens to access historical and recent government financial information to monitor funds effectiveness. Citizens can drill into amounts planned and spent by ministry, program and location The Timor-Leste Transparency Portal provides 10 years of budget information: the budget that was approved and the actual budget spent. Reports and filtered results can be exported in PDF, Word, Excel, XML and HTML formats.

The Government of Timor-Leste has leveraged rich web technology from FreeBalance to integrate data across multiple sources giving a simple unified whole of government view. The Transparency Portal integrates seamlessly within the FreeBalance Accountability Suite.

FreeBalance is active in 19 countries, including Antigua & Barbuda, Afghanistan, Canada, Iraq, Kosovo, Kyrgyz Republic, Liberia, Mongolia, Namibia, Pakistan, Sierra Leone, Southern Sudan, Timor-Leste, and Uganda among others. FreeBalance software manages more than a quarter trillion ($US) annual budgets worldwide. More than 70,000 users around the world use FreeBalance software to manage a global civil service workforce of 1,500,000.  

About ICGFM
ICGFM brings together government leaders, public financial management experts, international donors and program managers every year at the ICGFM Conference in Miami. Representatives from Africa, Asia, Europe, Latin America, and North America – 50+ countries in 2008 — will be gathering in Miami to discuss what their governments are doing in response to the global economic downturn and how they are preparing public financial management to deal with the economic uncertainty. More at www.icgfm.org.

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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Matthew Olivier, Director, Global Marketing & Alliances at FreeBalance to participate on “Doing Business with International Financial Institutions” panel on May 10, 2011 

Ottawa, Canada (May 9, 2011) – FreeBalance, a For Profit Social Enterprise (FOPSE) software company that helps governments around the world to leverage robust Government Resource Planning (GRP) technology to accelerate country growth, announced that it is participating in the Doing Business with International Financial Institutions (IFI) workshop on May 10, 2011 from 8:30 – 11:30 am. Organized by Ottawa Centre for Research and Innovation (OCRI) and Foreign Affairs and International Trade Canada, the workshop will be held at the Export Development Canada building, 151 O’Connor Street, 2nd Floor Lounge, Ottawa, ON. Please contact Kirsten Sardelis to register for this free workshop.

During the workshop, attendees will learn about:

• The types of opportunities financed by the IFIs and other development agencies that exist for Canadian companies
• How the IFI landscape has changed in recent years
• The new areas of opportunity and the procurement processes
• The trends of interest to Canadian consultants and firms
• The support mechanisms available for Canadian companies wishing to pursue IFI-financed projects
• Strategies and key success factors involved in winning IFI-financed contracts, including recent procurement changes
• Techniques to finance your export contracts and mitigate risk when dealing with an IFI

“FreeBalance would like to thank OCRI and the Canadian Department of Foreign Affairs and International Trade for organizing this workshop,” said Matthew Oliver, Director, Global Marketing & Alliances at FreeBalance. “FreeBalance is a Canadian company that is active in all World Bank regions. Our mission is to help countries leverage technology to support economic growth and aid development through transparent and accountable financial systems.”

Olivier will be participating on the 10:00 – 11 am panel to discuss working with IFI institutions. An IFI is a financial institution that has been established (or chartered) by more than one country, and hence are subjects of international law. Examples include the World Bank, International Monetary Fund, Inter-American Development Bank, Asian Development Bank; and the African Development Bank. Other participants on the panel include Stephan Sander, Co-President, Sander Geophysics Ltd.; Boris Jacouty, Business Development Manager, CPCS; and a representative from Export Development Canada. The panel will be moderated by Amber Germain, Trade Commissioner, Office of Liaison with International Financial Institutions, Embassy of Canada, Washington, D.C.

FreeBalance is active in 19 countries, including Antigua & Barbuda, Afghanistan, Canada, Iraq, Kosovo, Kyrgyz Republic, Liberia, Mongolia, Namibia, Pakistan, Sierra Leone, Southern Sudan, Timor-Leste, and Uganda among others. FreeBalance software manages more than a quarter trillion ($US) annual budgets worldwide. More than 70,000 users around the world use FreeBalance software to manage a global civil service workforce of 1,500,000.

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

Over 200 people gathered at the Transparency Camp managed by the Sunlight Foundation yesterday to talk about trends and lessons learned in government transparency (twitter hashtag #tcamp11). I was lucky enough to present a case study about Timor-Leste that generated some interesting discussions.

2011-04-29 Government Financial Transparency in Timor-Leste

Governments in developing countries like Timor-Leste (aka East Timor) recognize the power of transparency to build stability and improve government performance. This appetite for transparency comes at a time where countries like the United States are cutting back on transparency funding.