Doug Hadden, VP Products

I had a few interesting exchanges on twitter yesterday, the first concerning the improvement from 21% to 59% made by the Government of Afghanistan on the Open Budgets Survey . (See below for the “storiefied” version)

The International Budget Partnership provided links to news stories about this achievement.

• “Open Budget Survey Ranks Afghanistan as Second Greatest Improver,” Asia Foundation, 23 January 2013
• “Afghanistan achieved progress in Open Budget Index,” Wakht News Agency, 23 January 2013
• “Global report ranks Afghanistan as one of the fastest improving countries in enabling its citizens to understand and influence budget decisions that affect their lives,” http://pro-act.org, 26 January 2013

My sense is that many are incredulous that Afghanistan has a rating just below Italy.

The point is that Afghanistan makes 6 of the 8 documents that should be public by the OBI public. The other 2 are used internally. Public engagement was rating weak and there is room for improvement. Publishing the additional 2 document and increasing public engagement will improve the rating.

The Government of Afghanistan uses the FreeBalance Accountability Suite. This enables the government to publish budget information if there is political will to do so. The Government of Timor-Leste publishes information directly from our software in a Transparency Portal and the Government of Liberia has announced an electronic billboard project to show government expenditures. I suspect that Liberia will also be using FreeBalance back-office software to support this initiative.

The governance news from Afghanistan is usually grim, as I have said in the past. The truth is that there have been achievements in Afghanistan including a good Public Expenditure and Financial Accountability (PEFA) assessment in 2008, rating of achieving substantial PFM progress and evidence of how software reduced corruption in Afghanistan.

To be clear, I am not saying that our software is a magic anti-corruption/good governance pill. I’m saying that the tool, when there is political will and commitment can be used for transparency and accountability. And, the governments of Afghanistan, Honduras and Liberia should be acknowledged for their governance achievements.

Open Budgets Controversy?

Interesting exchanges from the launch of the "increasing the Pace of Budget Transparency" event at the World Bank (http://live.worldbank.org/increasing-pace-budget-transparency) yesterday.

Storified by · Wed, Feb 06 2013 06:10:12

Doug Hadden, VP Products

Transparency International published the 2012 Corruption Perception Index yesterday. Corruption has become a dominant theme in the media these days. The media doesn’t seem to be very interested in reporting improved anti-corruption efforts in countries around the world.

Yet, many countries have dramatically reduced corruption perception over the past year. These include remarkable achievements by FreeBalance government customers.

• Timor-Leste has improved 30 places
• Mongolia has improved 26 places
• Liberia has improved 16 places
• Sierra Leone has improved 12 places
• Kosovo has improved 7 places

Government Resource Planning and Anti-Corruption

FreeBalance is a provider of GRP software and services. The FreeBalance technology has been used by governments to reduce corruption. Of course, GRP is a tool within the anti-corruption toolkit as I‘ve written in detail in a previous blog entry. GRP systems can prevent and detect corruption in public finances. But, there needs to be government commitment to reduce corruption.

Doug Hadden, VP Products

The World Bank published a new report Public Financial Management Reforms in Post-Conflict Countries: Synthesis Report that studies eight countries with an interesting video.

As I described a few days ago, FreeBalance has been instrumental in bringing good public financial management practices through Government Resource Planning (GRP) automation to countries ranging from post-conflict to G8.

FreeBalance and Substantial PFM Progress

The Synthesis Report follows a World Bank Economic Premise note last year. Both show that countries that implemented the FreeBalance Accountability Suite have shown substantial PFM progress.

These studies provide some validation that we’re on the right track in enabling sustainable public financial management reform. These studies mention FreeBalance but provide no endorsement of our software or implementation methodology. (That being said, it’s a far sight better than recent analysis of ERP implementations in the United States Department of Defense.)

The closest to an endorsement is the following: “”The revision of the chart of accounts has often been linked to revising budget classifications as well as the introduction of a FMIS as experienced in Afghanistan, Kosovo, Liberia, and Sierra Leone.“

Sequencing PFM Reform with Capacity Building

Nevertheless, there is ample evidence in the studies to support the notion that countries should implement a financial management system first (my assessment above on the FMIS approach may not be entirely correct) and sequence reforms as capacity is built.

The report concludes that “reforms of organic budget laws tend to happen over a period of time rather than early in the process, so rushing adoption of new laws too early is not necessary in many cases.” Long reform cycles prior to the adoption of financial management software does not seem to be a good practice.

The report concludes that “while capacity can be short-circuited through substitution (such as donor-funded staff in line positions), developing sustainable capacity remains a challenge and needs greater and more sustained attention.” We’ve seen some excellent examples of capacity building in Afghanistan and Kosovo. The key lesson here is to progressively activate financial software functionality as capacity is built. Systems can be first installed with basic controls and progressively modernized to support the entire government financial lifecycle with more complex accounting functions and decentralization.

And, capacity is not associated with progress according to the report. “Afghanistan and Sierra Leone, with very low per capita incomes and at the very bottom in terms ofhuman development indicators, have progressed further and faster than Cambodia or Tajikistan with relatively higher per capital incomes as well as human development indices.”

Budget Execution Lesson Learned

Budget execution was found to be the PFM area of greatest improvement. The report concluded that “budget execution reforms tend to be more successful, while some rethinking of reform approaches targeting budget planning on the one hand, and control and accountability on the other hand may be needed.” This validates the experience of Steve Symansky as presented the Overseas Development Institute in 2010.

It really should come as as no surpise that budget preparation lags behind budget execution progress. This is similar in developed countries where multi-year budgeting, program and performance measures are not adequately used.

New Dynamic for PFM Reform

I’ve made the argument that donors pushing for reform is but one force for PFM reform. The report touches on the impact of Official Development Assistance for reform. It’s clearly a factor because donor funded the FMIS implementations in Afghanistan, Kosovo, Liberia, Sierra Leone and the West Bank. And the report concludes that “the provision of budget support also seems to be an incentive for governments to pursue PFM reform, and it can provide a more continuous incentive.” That’s despite the lack of direct budgetary support and the continued use of off-budget funding.

My sense, based on conversations with government officials around the world, is that globalization has created incentives for good governance. Government leaders understand that businesses have choices of where to do business.

Real Governance Outcomes Achieved

It is difficult to make sweeping conclusions from studying a handful of post-conflict countries. The report is clear about this limitation and calls for further study. Some insight was gained such as “progress on overall government effectiveness and control of corruption broadly correlates with the degree of PFM progress achieved in most of the cases.” That’s good news for all organizations promoting the use of government financial management systems tied to PFM reform.

Doug Hadden, VP Products

The FreeBalance Accountability Suite has had a remarkable run of success in post-conflict countries. That shouldn’t confuse people in thinking that’s all FreeBalance does. After all, Canada, the United States, Guyana, Antigua, Panama, Mongolia and other countries that have implemented our software are not post-conflict.

FreeBalance Government Resource Planning (GRP) is successfully implemented in post-conflict countries because the software adapts rapidly to reform. This is a key takeaway for more developed countries – public financial reform and modernization needs adaptable government-specific software. Otherwise: heavily customized ERP or custom-built software with high costs.

The recently released World Bank Public Financial Management Reforms in Post-Conflict Countries: Synthesis Report confirms that Financial Management Information Systems (FMIS) – what we like to call GRP, are critical to reform. And, that countries that have implemented FreeBalance have shown substantial progress in reform.

Of course, I’m not suggesting that FreeBalance software is required for substantial PFM progress. GRP should enable reform. Technology should not slow reform. That’s the key to sustainable public financial management: sustaining reform at an affordable cost.

Doug Hadden, VP Products

This is where I eat crow for complaining about the media coverage in Afghanistan. As in: Why can’t Journalists report on good news in Afghanistan? and Afghanistan Corruption? Incorrect solutions to the problem. Both from earlier this year.

National Post (Canada) journalist Jane Armstrong’s The campaign for civility in Afghanistan provides a good portrayal of Alhaj Mohammad Aqa, the Director of Treasury at the Ministry of Finance. Ms. Armstrong describes his approach approach to corruption:

“He carries on by keeping his nose clean and trying to provide an example to a young generation of Afghan public servants. His integrity and skill have paid off. The Finance Ministry is viewed as one of the country’s most efficient departments.”

Capacity Building and Public Financial Management

Ms. Armstrong gets to the heart of success in PFM reform success: capacity building. Foreign consultants often provide operational financial management in post-conflict countries. The key factor to making reform sustainable is to build human capacity. This reduces costs and makes government self-reliant. And, less reliant on vendors like FreeBalance.

The Treasury Department has successfully built capacity according to a report on the IMF Blog. A World Bank report showed that Afghanistan is one of a select group of post-conflict countries that have achieved substantial PFM reform. The Treasury Department, under Director General Aqa, was able to roll-out financial management software to all line ministries and provinces with negligible help from foreign companies. Including FreeBalance – this is a significant milestone.

The National Post article could give the impression that the Budget Office is part of the Treasury Department. It is not. This might explain the different approach and success rates in capacity building between the two departments.

FreeBalance Contribution

We’d like to think that the use of the FreeBalance Accountability Suite is crucial in PFM reform. After all, all the countries listed by the World Bank as having achieved substantial PFM success have been using our software (including Kosovo and Sierra Leone). None of the countries who did not achieve this level of success were using our software at the time. (Liberia subsequently acquired the FreeBalance Accountability Suite.)

The reality is that our software is a tool to enable reform. It implements faster and enables change better than competing tools. But that doesn’t mean that anyone is actually going to leverage financial controls or modernize processes to improve efficiency. That requires leadership in the government.

Doug Hadden, VP Products

Media guru Marshall McLuhan observed that newspapers report on bad news in order to sell the good news- advertising. This seems to be the overwhelming approach to journalists covering Afghanistan. Including from such prestigious publications as the Wall Street Journal, Daily Telegraph and Reuters (as I’ve pointed out before). It’s as if there is a contest among the press to come up with the most sensational headline or negative visceral presentation about Afghanistan.

That prize might belong to the Daily Mail in the UK for the story £70m of British aid ‘paid to the Taliban’: Cash wasted on bribes and protection money, say campaigners written by Kristy Walker. The premise of the story is that corruption is causing aid money in Afghanistan to be directed to the Taliban. The added flavour here is the inclusion of three large photos of Taliban desperadoes ensconced with weapons. This gives the impression that the British government is knowingly presenting rocket launchers like bonbons to the insurgents. The cornerstone of the story is that up to 10% of British aid is being redirected to the Taliban. This is extrapolated to the “aid doesn’t work” narrative prevalent in the Western press.

Meanwhile, Scott Gilmore of the Peace Dividend Trust describes how US Govenment Success Touted as Failure in Afghanistan. He points out that the press is “reporting that a jaw dropping $360m of US govt money was lost to insurgents in Afghanistan through graft, theft, and intimidation.” Yet, this is only 1.1% of aid money lost to insurgents. One wonders whether the US government achieves 98.9% corruption-free spending within the United States.

As we have pointed out, there has been significant progress in public financial management in Afghanistan. The government has automated almost 100% of budget execution and closes 90% of revenue transactions within 24 hours. It meets international standards and the money is traceable. What Ms. Walker of the Daily Mail seems to ignore is that the reported graft occurs outside of the government financial management system because many donors are concerned about the political public relations consequences of doing so. In other words, many donors prefer methods that guarantee the fungibility of aid rather than use the proven government system. Why? Because the narrative suggests that the entire government is corrupt, facts be damned!

As you can imagine, I pointed this out in a comment on the Daily Mail site which was not accepted. And none of the other comments are visible. Which is a nice touch to maintain the narrative.

Doug Hadden, VP Products

World Bank President Robert Zoelick summed it up in the Washington Post: “Afghanistan is a poor country that can ill afford an economic reversal.” He further pointed out: “aid should go through the Afghan government.” As we have pointed out in the past, the Afghan Reconstruction Trust Fund (ARTF) combined with the Afghanistan Financial Management Information System (AFMIS) has improved financial transparency and reduced the opportunity for corruption thanks to auditable government financial transactions. But, as Mr. Zoelick points out, only 15% of aid is funnelled through this system that leverages the FreeBalance Accountability Suite.

Meanwhile, billions of dollars of aid funds, much of from the hard-to-track and hard-to-audit 85% of the aid that does not go through AFMIS leaves the country.

Mr. Zoelick points out that “development does not work without local ownership.” It also doesn’t work when there are no disincentives for corruption.

Automated Financial Management

Government Resource Planning (GRP) systems do not eliminate corruption. GRP makes corruption more difficult. It can eliminate cash so that all transactions are tracked, and can be audited. It enforces rules such as the segregation of duties and spending approval mechanisms. It can highlight transactions that could be fraudulent as early as the commitment stage.

Yet many question “government systems”. Especially in a media environment where there is a strong Afghanistan corruption narrative. As Richard Allen pointed out, direct budgetary support is considered “courageous.” The fact that providing such support reduces corruption contradicts the media narrative. In fact, one report some time ago about corruption at Kabulbank suggested that ARTF would be next to go.  Good story, wrong facts. Fact: multiple donors disbursing cash across multiple recipients, many of whom have sub-contractors is a practice that enables corruption.

But, as Marshall McLuhan pointed out, bad news is there to sell good news: advertising.

Facts and Good News

• The Government of Afghanistan produces timely financial statements that meet international standards
• AFMIS manages over 99% of the government funds. Over 90% of revenue collected is cleared within 24 hours.
• All line ministries and all mustafiots (regions) are operating AFMIS. This includes those regions that remain in the news as combat zones.
• The roll out of AFMIS to the mustafiots was accomplished by Ministry of Finance personnel after building internal capacity.
• The 2008 Public Expenditure and Financial Accountability (PEFA) assessment found Afghanistan to have a more effective government financial system than peer countries.
• A 2011 study found that Afghanistan has made significant progress compared to other post conflict countries. (As we pointed out at the time, only Kosovo and Sierra Leone also had made significant progress – also FreeBalance GRP customers.)

Aid Transparency Required

As we’ve pointed out, the key to improving governance and aid effectiveness in developing countries is through aid transparency. Transparency across the aid chain will enable the improvement of controls and improve auditing.

Case Study describes sequence of successful PFM reforms and capacity building in Afghanistan since 2002

Ottawa, Canada (April 28, 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, today released a Case Study that details the Government of the Islamic Republic of Afghanistan’s success at improving governance through PFM reform. The Islamic Republic of Afghanistan PFM Case Study covers the sequence of PFM reform from 2002 to the present day. PFM reform is critical to improving good governance. Good governance is critical to economic development. This Case Study is the second in a series to assist governments around the world achieve country growth. The first was the Government of Kosovo PFM Case Study.

Read the PFM Case Study: Islamic Republic of Afghanistan >>

The Afghanistan Financial Management Information System (AFMIS) is based on the FreeBalance Accountability Suite. The AFMIS has supported the Government of Afghanistan agenda of reform and modernization. More than 99% of the government’s budget execution is captured in AFMIS on a real-time basis. In 2009, regular training on AFMIS resulted in 262 government employees being added to the AFMIS skilled workforce.

The PFM Case Study analyzes Public Expenditure and Financial Accountability (PEFA) assessments. From 2005 to 2007, the Government of Afghanistan improved governance as demonstrated by two PEFA assessments. Less than 10 countries have completed two PEFA assessments. The Government of Afghanistan improved 17 of 31 PFM measurements. The largest improvement was seen in the ‘Predictability and Control in Budget Execution’ assessment. The PFM Case Study describes the Government of Afghanistan goals of improved governance and transparency and provides a GRP modernization scorecard.

“Afghanistan has made remarkable progress in achieving good governance through Public Financial Management reform,” said Manuel Pietra, President & CEO of FreeBalance. “The Afghanistan case study illustrates how the Government of Afghanistan has built capacity and effectively decentralized budget execution.”

Achievements by the Government of Afghanistan include:

• Improved governance as demonstrated by PEFA assessments
• Effective implementation of PFM reform in Treasury
• Increased capacity in budget execution, cash management and procurement
• Decentralization of budget execution to line Ministries and Mustofiats

FreeBalance is active in 19 countries, including Antigua & Barbuda, Afghanistan, Canada, Iraq, Kosovo, 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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2011-04-25 Afghanistan PFM Case Study

World Bank Economic Premise Note concludes that FreeBalance Government Resource Planning (GRP) customers Afghanistan, Kosovo, Sierra Leone Demonstrate Most Substantial PFM Progress  

Ottawa, Canada (April 16, 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, is pleased to announce that the governments of Afghanistan, Kosovo, and Sierra Leone recently received a rating of “substantial” for public financial management (PFM) rebuilding and reform progress. For more details, please refer to the April 2011 World Bank Economic Premise note titled “Strengthening Public Financial Management in Postconflict Countries.”

The authors, Verena Fritz, Edward Hedger, and Ana Paula Fialho Lopes from the World Bank and the Overseas Development Institute, analyzed eight post-conflict countries. Only those governments that have implemented the FreeBalance Accountability Suite achieved the rating of “substantial”. The Government of Liberia is currently in the pilot phase of implementing the FreeBalance Accountability Suite. The report found that “The three countries showing most substantial overall PFM progress—Afghanistan, Kosovo, and Sierra Leone—are also those where automation of PFM systems moved most quickly.” The FreeBalance Accountability Suite is distinguished by the ability to implement quickly and progressively activate. 

“Congratulations to the governments of Afghanistan, Kosovo, and Sierra Leone on progress achieved in public financial management progress and reform,” said Manuel Pietra, President & CEO at FreeBalance. “FreeBalance is pleased to be working with these governments as they demonstrate leadership in modernising public financial management systems. FreeBalance helps these governments achieve public financial objectives by listening to customers and focusing exclusively on the GRP domain.”

FreeBalance uniquely supports PFM reforms in emerging and post-conflict countries. According to the report, “strengthening PFM in fragile states is possible and can progress quite quickly. Achievements in Afghanistan, Kosovo, and Sierra Leone have been relatively rapid and substantial. These cases show that reform progress can be made under difficult circumstances—including high levels of continuing insecurity (Afghanistan), absence of any prehistory of independent statehood (Kosovo), and acute levels of underdevelopment (Sierra Leone).” 

FreeBalance has successfully assisted governments to implement modern PFM systems in challenging circumstances. The FreeBalance Accountability Suite has been implemented in emerging nation governments where there has been limited connectivity, low bandwidth, lack of electrical power, and low human capacity. FreeBalance has developed a methodology to improve implementation success that includes project governance, change management and progressive activation of system features.

FreeBalance Accountability Suite Version 7 offers a pure web-based platform that has been optimized for rapid government deployment, operational effectiveness. It is ideal for the needs and requirements of emerging and post-conflict governments. The FreeBalance Accountability Suite covers the entire budget cycle including financial and human resources transparency to improve governance and trust. 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. 

FreeBalance is active in 19 countries, including Antigua & Barbuda, Afghanistan, Panama, Canada, Iraq, Kosovo, 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

Many experts have warned developing nations for trying too many reforms at once. Governments need capacity: technical infrastructure and human capacity to make reforms sustainable. The “platform” approach is a practice that recognizes these constraints and provide a series of reform steps. The completion of a stage or platform enables the government to move to the next stage. Risk is mitigated. Reform follows a course set by the country context.

So why are so many countries accelerating PFM reform?

We are witnessing some remarkable reforms in FreeBalance government customers. Although, as a GRP provider, with PFM experts, we are supporting these initiatives – it is important to recognize that these are country-driven:

• Government of Afghanistan rolling out financial management to all provinces without any outside technical assistance, when it was thought by many experts to be impossible.
• Government of Kosovo decentralizing budget management and purchasing.
• Government of Timor-Leste rolling out a financial transparency portal with 10 years of budget data.

Should we Think of a New Platform Approach?

Projects tend to have preparation, pilot, production and sustainability phases. Should a government begin preparing of the next stage only after the previous stage has been fully rolled out and deemed sustainable? The skill sets necessary for each phase within a stage or platform differ.

PFM reform has a learning curve. Should the time required for a subsequent platform of the same scope be planned for a similar time frame? Should the roll-out of technology to line ministries or sub-national governments take longer than the initial stage with the Ministry of Finance?

A more agile platform approach is needed these approach should include:

• Overlapping phases or platforms based on government capacity.
• Recognition of planning can begin for a subsequent phase while completing the pilot of the previous phase.
• Focus on capacity building so that rolling out reforms will follow a learning curve and accelerate at a standard rate.
• Flexibility to adapt the goals of the next platform based on current results. For example, the outcome of Platform 1 may result in more information that adjusts the goals of Platform 3.