Sustainable Public Financial Management

Doug Hadden, VP Products

We’re on the front-lines helping those governments with political will to improve fiscal transparency and accountability. I encountered this recent Ted talk from Afra Raymond on the

We started a Three Myths about Corruption: Some Lessons from Trinidad. He speaks about his experience with freedom of information, transparency and corruption. Well worth viewing to gain a good perspective, especially if you don’t view corruption as a serious governance problem today.

I was most strucl by Mr. Raymond’s corruption calculation :

PUBLIC EXPENDITURES

minus TRANSPARENCY

minus ACCOUNTABILITY

equals CORRUPTION

The other important food for thought, in my view, was the contribution of “government to government” funding relations to overall corruption.

Doug Hadden, VP Products

While contemplating the state of government shared services, I was reminded of the Elvis Costello version of the song: (What’s So Funny ‘Bout) Peace, Love and Understanding.

Which led me to remember the the Canadian and Commonwealth governance concept of Peace, Order and Good Government.

Government shared services is often presented as a magic pill to overcome myriad government challenges. Standardization is seen as the key ingredient to catalyze cost savings and performance improvement. Some go so far as to suggest that standardization will improve agility and accountability.

It’s not surprising that technology vendors that make money on shared services use a little hyperbole.

Standardization and Good Government

1. Standardization does not improve agility. The more standard the processes, the less agile the organization.
2. Standardization does not improve discretion. The more standard the processes, the less discretion public servants have to make decisions that will improve performance.
3. Standardization does not improve accountability. The more standard the processes, the less ability public servants have to demonstrate merit. Accountability requires discretion and agility.

At least standardization improves government efficiency. Or does it? Generic processes can introduce inefficiencies, can limit streamlining, can add management burden.

At least standardization improves government risk management. Or does it? Standardization can provide an atmosphere of risk adversity, reducing effectiveness and innovation.

Searchin’ for light in the darkness of insanity?

As captured by Mr. Costello’s version of the lyrics, we need to consider a shared services approach that weighs all factors. My sense is that many financial management software vendor shared services implementations lack the ability to achieve the right balance between standardization and accountability.

The ideal financial management shared services platform should adjust to the standardization – accountability balance:

• Enable thick standardization rather than thin. Thin standardization takes lowest common denominator, typically a part of a process. This often leaves orphan processes that are automated through custom development – or not automated at all. Thick standardization enables government organizations to share the processes that are appropriate.
• Respect mandate and agility. Different legal and organizational mandates mean that government organizations have many unique processes. These processes should be supported by multiple configurations. Those processes that should be standard are standardized, those that are unique remain unique. All operating in the same data centre or private cloud to achieve IT cost savings.
• Bottom-up governance. Standards must change to reflect changes in government objectives and recognition of good practices. This is enabled through governance mechanisms that adapt to real-life situations. Shared services must not be static and must not inhibit change.

Standardization, agility and accountability is serious stuff indeed.

Liza Benkovitch, FreeBalance Washington

With the current state of tech innovation spreading in Europe, Asia & North America, it is not surprising to see the rise in tech communities in Africa. Technological revolution fosters new growth of local businesses and provides a better infrastructure for sustainable development within the continent. This trend is often termed ICT4D or Information and Communications Technologies for Development.

Africa: The Continent of Opportunity

According to Gallup Survey, entrepreneurship in Africa is becoming a popular notion, with 1 out of 5 African young adults are planning to start a business in the next year. This will help overcome the negative stereotypes and rebrand Africa as a continent of opportunity, sustainability and a land of capacity building initiatives.

Given the current IT infrastructure limits in Africa, the high growth rate of African start-ups is impressive.  In sub-Saharan Africa alone, over 90% of business operations are conducted through SMEs and they contribute around 50% of GDP. Hence, more people have started their own small businesses and internet ventures. Obinna Ekezie, for example, is a Founder of a Nigerian start-up, www.wakanow.com. Wakanow is an online travel booking company that provides customers with convenience and flexibility to make online travel arrangements within Africa. E-services range from online tickets, corporate travel, hotel booking and even airport pickups.  And to add to the convenience factor – the Wakanow mobile app was just launched.

Funding African Startups

The nature of start-ups in Africa is evolving. Start-ups been funded primarily by venture capitalists and philanthropic investment firms, with the support of intermediary organizations. Active SMEs investors in Africa include Soros Economic Development Fund, Omidyar Network, and Google. Omidyar is known to fund companies and organizations that promote capacity building, government transparency and accountability projects. In Africa, the Omidyar Network is a financial backer of many organizations, including iHub, a Nairobi based incubator, known as the “nerve center for technology.” iHub is particularly interesting because it supports sustainability initiatives in Kenya by hiring local people to run the center and encouraging entrepreneurs to invest in their country by establishing small business enterprises (SMEs).  The brainchild behind this innovative project is Erik Hersman, a technology influencer and startup guru. iHub, and other incubators such as ActivSpaces (Cameroon), Bantalabs (Senegal, Paris, London), MEST Incubator (Ghana), all serve as an essential nexus for technology, financial capital and skills.

Government Transparency and Accountability Trends in Africa

Part of Omidyar Network’s investment strategy thus far has been to invest in the government transparency initiatives.  Most recently, the Omidyar Network and a Dutch NGO, Hivos, launched a multimillion dollar Nairobi fund, the Africa Technology and Transparency Initiative (ATTI). The purpose of ATTI is to invest in technological platforms that help citizens track government activities & expenditures throughout the country.

African countries are also committed to the International Aid Transparency Initiative (IATI) and Extractive Industries Transparency Initiative (EITI).

As many African countries are becoming hotbeds of tech activity, government transparency and accountability has become more critical in Africa. Good governance is considered critical to improving development outcomes and to improving the business climate.

In mid-June, the Government of Liberia launched the Integrated Financial Management Information System (IFMIS) at the Ministry of Finance. The IFMIS is the FreeBalance Accountability Suite software that enhances “government’s credibility with its citizens and development partners, and demonstrate its continuous commitment to transparency and accountability,” said Minister of Finance, Augustine Ngafuan.

The Government of Kenya launched an Open Data Initiative, a data web portal that enables official government information to become accessible to the general public.  The World Bank, along with Google and iHub assisted with the publication of the data and the Government of Kenya has contributed to the launch. The data sets are readily available through an online portal, where users can view the information on a local, national and constituent level.

Closing the Digital Divide: Africa Success Stories

The rise of small business enterprises and tech communities has influenced the political and economic landscape of many countries. Governments are now held accountable by financial institutions for all the loans, grants and credits. Now governments are accountable to citizens.

ICT4D has  become an indispensible tool for achieving development goals in Africa. It has created a window of opportunity for ‘out of the box’ tech entrepreneurs to leverage resources and improve their socio economic conditions at home.  African leaders have caught-on to the importance of investing in ICT and have made it a priority to provide communication technology services to citizens. Rwanda is a great example of a country that is committed to its ICT goals, especially when President Paul Kagame won the 2006 ICT Award for the second time in a row in Accra, Ghana. President Kagame was selected as the best head of state in Africa in support of ICT policy, surpassing South Africa, Ghana and Tanzania.  The success of the policy is attributed to Rwanda’s commitment to its ICT visions and “we in Rwanda have no intent to stand still as the rest of the globe moves forward at an ever increasing pace,” stated President Paul Kagame.

Speaking of moving forward, the technology boom in Egypt is also one not to be missed. International Finance Corporation reported that in 2011, out of 183 economies, Egypt’s “Starting a Business” ranking rose to 18 from 23 in 2010. Those who relied on social media to ignite the uprising in Tahrir Square are now creating businesses to jumpstart the economy.

Sustainability is a major theme in Africa entrepreneurship

Also exciting are the “made in Africa” solutions. These solutions tend to be more environmentally sustainable and operate better in the African context than products and services designed in “the West”.  The South African government has recently commissioned the first large scale solar panel facility in the country, while Nokia Siemens network has launched an energy solutions program to help reduce  network operating costs and power consumption through the use of renewable energy. Leading telecom operators in Africa, MTN and Vodacom, are also looking into renewable energy to power the stations in Sub-Sahara Africa.

South African green media company, Eco-Bin, transforms the use of advertising to promote eco sustainability. The ads on the back panel of the bins are used for educational purposes, while the E-lite material offers brand exposure all day, without using any extra power. Eco-Bin is a one stop shop for earth-friendly and sustainable products for South African communities.

The digital divide is closing in Africa through emerging tech- savvy nations and entreprenuers.

Doug Hadden, VP Products

Charles Grodin remarks in the movie Dave, “If I ran my business like this…” It’s a standard view – if only governments ran like businesses. As many former businessmen have discovered (and not a few enterprise software vendors), it’s not as easy as it sounds. And, aid effectiveness is perhaps an order of magnitude more complex.

Corporate Performance Management

Corporate performance management uses techniques like key performance indicators (measure what is important) and balanced scorecards (show what is important) to improve performance. Government organizations use many of these same techniques.

Don’t let it fool you, it isn’t simple in government.

Private sector organizations have a bottom line: profit. There are established measurements like market share, and return on assets. Output measurements like the number of customer complaints handled, and outcome measurements like customer satisfaction survey ratings are factors that influence financials – profitability. If all the KPIs are green and the company is not making a profit, than the indicators are incorrect.

There is no bottom line in government. Outputs and outcomes are the results. Financial – in this case, budgets, is the input. This makes it very difficult to determine whether the KPIs are correct.

(On an aside, performance management links to accountability. Accountability has generally hurt government stakeholders more than the private sector, as CEO salaries show. The NewsCorp/News of the World hacking scandal is the exception that proves the rule.)

Aid Effectiveness and Performance Management

Does aid work? Some like Dambiso Moyo in Dead Aid, claim it doesn’t. Hans Rosling provides compelling visualization in gapminder.org that aid does work. Owen Barder of the Center for Global Development suggest that we need to consider what type of aid works.

Despite information overload, we don’t have enough data to overcome the narrative that aid is a waste of money. That’s because the aid environment is not a closed system. There’s foreign direct investment, climate and geography (droughts, floods) and many other factors that conspire to make aid appear more or less effective than it is. And, yet there is enough information for interpretation – to act as confirmation bias.

Need for Aid Transparency

Aid donors have performance criteria. Performance information is often not shared. There is often no consistency among donors. And, the contribution of governments to a shared goal with donors is rarely measured. That’s why aid transparency is so critical to determining how aid can be improved.

That’s why you need to sign up to making aid transparent. Over 5,000 people have done so. More is needed.

What could aid transparency accomplish?

1. Better key performance indicators for aid effectiveness
2. Alignment of many small initiatives at the micro level to more macro measurements
3. More effective coordination of donors with governments
4. More understanding of the sequence of aid initiatives based on the country context
5. Value of foreign aid for international security

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.

Doug Hadden, VP Products

Comedian Stephen Colbert has captured some of the “truthiness” of government budget politics. This could go a long way to highlight the critical importance of budgets and, dare I say, government accounting. That’s because budget processes are so important that they must become fodder for satire.

The Canadian government fell based on a vote of confidence, triggering an election. (And explained very well in the first video clip below by a somnolent BBC reporter.) There is an interesting transparency and accountability dynamic here. The Conservative Party have won two minority governments partly based on a commitment for transparency. The Federal Accountability Act included the creation of a new post: the Parliamentary Budget Officer. This post is independent of the government and an officer of the Library of Parliament. The PBO, Kevin Page, criticized the government budget for lacking sufficient information on how estimates were developed. There has been particular debate about the cost of F-35 aircraft.

So, in typical Canadian fashion, the office set up by the government has been responsible for the fall of the government. As it was with the sponsorship scandal when the previous Liberal government set up a public inquiry.

Regardless of any viewpoint on the budget itself, it is important to realize that credible budgets and budget transparency is critical for good governance. Budget transparency is also critical. Canada is not a leader in budget transparency because of the practice of budget and cabinet confidentiality. However, Canada seems to be a leader in budget satire, as witnessed by the second video below by comedian Rick Mercer.

Yes, the Library of Parliament is a FreeBalance customer, as is the House of Commons and the Senate.

By James Elrick

The Aid & International Development Forum (AIDF) is a leading global event dedicated to the effective delivery of humanitarian aid, disaster relief and development programs. It aims to facilitate networking, partnership building, information sharing and cross-organization operations amongst those involved in the sector. The event runs from June 8-9, 2011 and takes place in Washington, DC. It is a free to attend. Make sure you register to secure your place.

FreeBalance President & CEO Manuel Pietra will be speaking at AIDF. Mr. Pietra will be participating in the Finance workshop on Thursday June 9 2011 at 10:15 – 11:00. The aim of this workshop is to discuss the effectiveness of current finance solutions in the disaster relief and development sector and look at current trends and how they can be improved/adapted to increase coordination and a better approach. After his presentation, there will be time for questions.

During Mr. Pietra’s presentation, he will be discussing if a country’s Public Financial Management (PFM) system is the ideal solution to manage the post-disaster reconstruction relief funds. Can a PFM system spend resources fast enough for disaster relief and development? What level of speed is acceptable, especially regarding such immediate needs as infrastructure spending and printing checks? And more.

To learn more about the FreeBalance Government Resource Planning solution, please drop by the Finance workshop, or visit the FreeBalance booth at the show.

Interested in scheduling a meeting with FreeBalance at the show, please send us an email at info@freebalance.com.

Portal enables citizens, the press, donors, NGOs and civil society to monitor government budget execution interactively and in real-time

Ottawa, Canada (March 15, 2011) – FreeBalance, a Government Resource Planning (GRP) software For Profit Social Enterprise (FOPSE), today announced that the Government of the Democratic Republic of Timor-Leste (RDTL) has launched the web-based Transparency Portal.

The Timor-Leste Transparency Portal allows citizens to access historical and recent government financial information to monitor RDTL state funds effectiveness. Detail provided includes amounts allocated expenditure location, and program data. Citizens can investigate projects further to view budget transactions to ensure the budget is being spent as intended. This ensures honesty and transparency to improve citizen and investor confidence. 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.

“With the launch of the FreeBalance Transparency Portal, the Government of Timor-Leste demonstrates worldwide leadership in transparency, trust and accountability,” said Manuel Pietra, President & CEO of FreeBalance. “Timor-Leste continues to modernize rapidly by adopting transparency initiatives, some of which have yet been implemented in more developed countries. Transparency and accountability are dominant themes in governance and are key factors at reducing corruption. Government transparency creates participation and confidence. Oversight improves government efficiency and effectiveness, strengthens capacity, and budget execution.”

The Government of Timor-Leste has leveraged rich web technology from FreeBalance so that it can integrate data from multiple sources, simplify finding information and make information externally available for other systems. The Governments now has the option to display information from multiple sources, including other government financial databases. The Transparency Portal integrates seamlessly within the FreeBalance Accountability Suite.

FreeBalance has been working with the RDTL since 2000. FreeBalance has provided GRP software and PFM services supporting improved governance, accountability, and transparency. The Government of the Democratic Republic of Timor-Leste uses FreeBalance Financials, Purchasing, Assets, Human Capital Accountability, Treasury, and Performance Budgeting modules. The RDTL and FreeBalance worked closely to implement a range of products including a Minister’s Dashboard.

FreeBalance customers span the globe and the user community includes public financial management professionals in 18 countries. 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 the Democratic Republic of Timor-Leste
Internationally recognized as an independent state in 2002, Timor-Leste is located in South East Asia. After 400 years of occupation, 24 years of war, two years of a United Nation’s led transitional administration, Timor-Leste restored its independence. Timor-Leste has witnessed rapid development in recent years and has been ranked one of the top ten fastest growing economies in the world for the last three consecutive years. Tetum and Portuguese are the official languages.

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.

Doug Hadden, VP Products

Public Expenditure and Financial Accountability (PEFA) assessments have become a “gold standard” for analyzing Public Financial Management (PFM) progress.  How well have FreeBalance customers accomplished in PEFA assessments?  Quite well, using the measurements used by Paolo de Renzio in his paper published by the Oversees Development Institute, Taking Stock: What do PEFA Assessments tell us about PFM systems across countries?  This study examined 2007 results.

Of course, Government Resource Planning (GRP) software cannot generate good PEFA assessments without government commitment. This is a key point. There is no magic here. Government commitment for PFM reform is required. Our software just makes it faster and easier.

Most of the FreeBalance customers who have completed implementation and were assessed are post-conflict, yet have achieved assessments slightly lower than average for all countries. However, the average has been materially exceeded in the following four categories:

• PI-5 Budgetary Classification
• PI-10 Public access to key fiscal information
• PI-20 Effectiveness of internal controls on non-salary expenditure
• PI-24 Quality and Timeliness of in-year Budget Reports
• PI-25 Quality and timeliness of annual financial statement

How can post-conflict countries achieve good results?

It is important to recognize that governments should strive for PEFA Assessments that follow country priorities. So, many countries should not be concerned with lower ratings in some indicators. We believe that government ownership and effective computerized GRP improves governance. It is very clear that leadership and ownership has successfully leveraged automated systems (the green line). The FreeBalance Accountability Suite, in my humble but subjective opinion, seems to help – as witnessed by the purple line.

Where did we get these numbers?

The PEFA site shows many assessments. We’ve used the most recent assessment, 2007 to 2010 depending on the country. This doesn’t show the current benchmark in many countries. And, we have an unfavourable recent assessment of a non post-conflict country that brings down the average. This assessment is currently not on the PEFA site. Otherwise the red and purple lines would be higher.

Doug Hadden, FreeBalance VP of Products, described the case study methodology to promote knowledge sharing on good Public Financial Management (PFM) practices. He described the importance of international assessments such as Public Expenditure and Financial Accountability (PEFA) to government credibility. FreeBalance customers have achieved good PEFA results despite trying circumstances, according to Mr. Hadden.

Mr. Hadden described the case studies developed from experience in Kosovo and Afghanistan. These case studies are part of a series of papers to be produced by FreeBalance to share good PFM practices. These case studies leverage academic research, experience in countries and results of FreeBalance customer surveys.

The case studies provide an overview of country PFM challenges. Regional comparisons are made. Government goals are described because the sequence of reform should be based on the country context.

The most valuable parts of the case studies, according to Mr. Hadden, are the sequencing of legal reform and PFM systems, and the lessons learned.  Governments are constantly reforming PFM processes. The case studies describe the challenges ahead for FreeBalance government customers.

Mr. Hadden described how PEFA and other assessments can be leveraged to plan future reforms. He described a blueprint approach that identifies opportunities to automate based on the Public Financial Management Component Map developed by FreeBalance.

About FISC

The annual FreeBalance International Steering Committee (FISC) conference runs from January 16 – 19, 2011 in Madeira, Portugal. FISC provides an interactive forum to exchange Public Financial Management (PFM) good practices among international customers and PFM thought leaders. FISC drives the FreeBalance Accountability Suite product vision to direct FreeBalance GRP solutions. Previous FISC events were held in Mt. Tremblant, Canada (2010); Prague, Czech Republic (2009); Cascais, Portugal (2008); and London, United Kingdom (2007).