What’s new at FreeBalance?

This weekly news update provides the Government Resource Planning (GRP) community with a brief overview of recent FreeBalance developments and relevant industry news.

Government of Suriname Accelerates Public Financial Management Reform with FreeBalance

FreeBalance recently announced that the Government of Suriname is deploying a comprehensive FreeBalance solution including software, services, support and capacity building. FreeBalance Accountability Suite software is being deployed throughout the government starting with the Ministry of Finance. The implementation will include all line ministries, sub-national governments and parastatal entities (public works and education).

Read more about the Suriname project >>

ICGFM Call for Speakers/Panels/Papers

Five years after the beginnings of the global financial crisis, economic adjustments continue to take place. ICGFM will explore both the proactive measures that have taken place as well as the response that have been undertaken to manage through this period of adjustment. This overall theme will frame the focus of both of its upcoming international conferences. ICGFM solicits proposals for speakers/panels/papers that address good practices in public financial management. Deadline for submitting proposals for the Spring conference: February 22, 2013

Find out more on the ICGFM website >>

Using GRP Systems for Anti-Corruption

We released a set of Public Financial Management (PFM) documents last week following on our mandate of sharing good practices for the community. The fifth released document describes good practices in anti-corruption through the use of Government Resource Planning (GRP) systems. Back and front-office GRP systems can be powerful tools to prevent and uncover financial corruption such as ghost employees, tax evasion and procurement collusion. It’s clear that political will and accountability mechanisms are required to leverage tools. Independent audit and the rule of law are clearly required.

Read the full Good Practice document >>

Strategy in Government Internal Audit

Changes have been brewing in the audit profession for some time. Performance and strategy are now major themes in the public and private sectors. This generated a refreshing and passionate discussion by Jorge da Silva of the Inter-American Development Bank at the International Consortium on Governmental Financial Management (ICGFM) DC Forum yesterday.

Read more>>

The Philippines enhances performance monitoring with IT

A capacity building workshop was held for the legislative staff of local government units to enhance their skills on using IT in tracking and monitoring local government performance, as part of the government’s efforts to promote transparency and greater excellence in local legislation. The activity was organised by the Local Government Capacity development Division of the Department of the Interior and Local Government (DILG) regional office, and was attended by representatives from the municipalities of Aglipay, Cabarroguis, Diffun, Maddela and Nagtipunan.

Read the full article on the Futuregov site >>

Doug Hadden, VP Products

Changes have been brewing in the audit profession for some time. Performance and strategy are now major themes in the public and private sectors. This generated a refreshing and passionate discussion by Jorge da Silva of the Inter-American Development Bank at the International Consortium on Governmental Financial Management ( ICGFM ) DC Forum yesterday “storified” below.

Strategy in Government Internal Audit

It’s not every day that you hear a spellbinding presentation on internal audit in government. Yet this was the case at the ICGFM DC Forum on February 6th. from Jorge da Silva of the Inter-American Development Bank

Storified by · Wed, Feb 06 2013 13:42:45

Doug Hadden, VP Products

Future of PFM

I summarized a notion of citizen audit in public financial management at the International Consortium on Governmental Financial Management (ICGFM) Spring Conference on Monday. The conference subject, “PFM in the 21st. Century,” is an ideal venue to discuss the impact of transparency and social media in government. And, a number of attendees were fascinated with the concept. Many countries do not have sufficient government auditors. Audit limitations could  be overcome by enabling citizens, businesses, media and NGOs. There are compliance, fraud and performance citizen audit dimensions. Citizen audit is enabled through open data (proactive disclosure of public financial management information on the Internet) and social media collaboration (Internet enabled feedback and discussion.) Will local government lead to citizen as auditor? Will this become a civic duty?

Timor-Leste Transparency Portal enables Citizen Audit

Compliance Use Cases

Fiscal discipline in government is partly achieved through following good practices. Public financial management in practice should follow government rules. This can be audited by citizens:

• Procurement: Identify any procurements that did not follow government standards such as not enough time to respond, illegal requirements, not enough bids solicited etc. Procurement transparency requires e-procurement portals.
• Budget Preparation: Identify any elements in budget preparation that did not follow rules such as not enough time for the legislature to consider the budget or improper support for budget estimates. Budget preparation transparency requires open budgets and the publication of budget books.
• Recruitment: Identity improper government recruiting that does not follow civil service rules. Recruitment transparency requires e-recruitment portals.
• Financial Reporting: Identify late government reporting such as failure to close accounts and report in a timely manner that does not follow the government financial law. Financial reporting transparency requires the publication of budgets, budget books and public accounts.

Fraud

Citizens can audit government financials to identify cases of fraud and corruption. Civil society can be trained to analyze government financial information. Audit opportunities include:

• Revenue and Tax: Identify whether corporate taxes have been properly paid and entered the government treasury. Revenue transparency requires revenue portals and support for EITI.
• Civil Service Expenditures: Identify whether senior public servants or politicians have incurred unreasonable personal and travel expenditures. Civil service expenditure transparency requires reporting on web portals.
• Procurement: Identify whether companies have illegally manipulated the procurement process. Procurement transparency requires e-procurement portals that display winning bidders.
• Bribery: Enable citizens to report when a public servant requested a bribe. Bribery transparency requires anonymous web site reporting.

Performance

The audit function in government has matured to focus in government efficiency and effectiveness. This is an emerging opportunity for citizen audit.Performance audit opportunities include:

• Citizen outcomes: Enable citizens to report on government outputs and outcomes such as taking pictures of infrastructure program progress or reporting
• Participatory budgeting: Enable citizens to participate in the budget preparation process, possibly policy formulation.
• Government results: Enable citizens to evaluate whether government objectives were achieved and whether outcomes were aligned to objectives.

The advantage to government is that of citizen performance audit can enable improving performance measures. That’s because performance measures in government is so difficult to find because there is no bottom line like the private sector (profit) – as I described in an earlier post.

Doug Hadden, VP Products

I’ve been having some interesting conversations about security in software for Public Financial Management software. My assumption at first was that the discussions would be about IT security: encryption, biometrics, database access, firewalls etc. It turns out that there is more to holistic GRP security than IT.

Not that IT security is unimportant. It’s just that there isn’t much difference among enterprise software vendor security capabilities whether it’s biometrics, public key infrastructure, or SSL support. And, web technology provides firewall, VPN and intrusion detection.

Flexible and Comprehensive Controls in FreeBalance Software

Budget and Appropriation Controls as Security

Software designed for the private sector like typical ERP or HRMIS software have little or no budget integration. (I am unaware of any HRMIS system, other than from FreeBalance, that integrates with budgets and commitments.) The primary mechanism to ensure compliance with regulations is through managerial approvals. Here’s where we’ve seen some problems with private sector COTS (and custom developed) software used for GRP:

• No budget or appropriation controls that results in spending over budget ceilings (i.e. organic budget law or the “vote” in some countries) in procurement and payroll
• Inability to support complex segregation of duties across multiple segments in the Chart of Accounts (COA) making for non-compliant spending
• Line-item budget controls resulting in numerous budget transfers, sometimes on a daily basis, for simple purchasing that results in poor fiscal discipline
• Lack of budget surplus or deficit forecasting based on spending trends resulting in creating arrears, particularly when running accounting on a cash basis
• Poor comprehensiveness of controls that may not support monthly controls or cash warrants resulting in liquidity problems
• Inability to properly model budgets in budget preparation software or to develop a comprehensive COA

How does FreeBalance deal with Controls?

The FreeBalance Accountability Suite is designed exclusively for government. Budget controls represents the core of our software. The control characteristics include:

• Budget and appropriation controls in all modules including procurement and civil service management.
• Multiple controls operating at the same time. This can include line item budget controls or warnings, multiple aggregate controls across multiple COA segments and time periods and cash controls. (And, with warnings and tolerances).
• Segregation of duties tightly integrated with the COA.
• Budget preparation software that ensures the development of credible budgets with proper controls
• Good control practices recommended by our implementation team
• Progressive activation to adjust controls based on knowledge gained from experience and analysis of the audit trail (including adapting the COA to meet this need)

The special case of Human Resources

You may be surprised to know that every Government of Canada client of a particular brand of ERP uses FreeBalance software to manage salary budgets. (And, many of the other major ERP brand despite a custom developed solution.) Why is that?

Government of Canada salary budgeting is very complex. The government negotiates with Trade Unions for collective agreements. These agreements create complex salary scales and benefit structures. Salaries represent a significant or the most significant expenditure for many Government of Canada departments and agencies. FreeBalance Performance Management software is used to model and build salary budgets. The budget is compared to actual payroll expenditures at every pay period and re-forecasted.  Vacancy rates, seasonal employment, overtime, certification, training usage, natural disasters and other factors can have a material effect on expenditures. Government organizations need to know if they will exceed the vote. And you can’t do that with ERP or HRMIS software.

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.

Customer Presentations and Panel

FreeBalance government customers presented information about country Government Resource Planning (GRP) implementations, Public Financial Management (PFM) reform and lessons learned at the FreeBalance International Steering Committee (FISC) conference in Madeira Portugal.

PFM Challenges

Public management and reform challenges described by governments at FISC included:

• Financial Control: Liquidity and fiscal deficits
• Inefficiencies: Structural inefficiencies requiring streamlining

PFM Accomplishments

Accomplishments made by FreeBalance government customers, some leveraging the FreeBalance Accountability Suite:

• General Financial Management: improved PEFA assessments, reform plans based on PEFA assessments, clearance of backlog in annual reports, timely production of budget and statutory reports, better budget execution
• Standards: support for IPSAS, GFS, COFOG standards
• Treasury: automated cheque printing, electronic signatures, electronic funds transfer, automated bank reconciliation, better cash and liquidity forecasting
• Performance: management reporting including OLAP and dashboards with Key Performance Indicators (KPIs) and analytics, automated budget planning and budget book creation, program budgeting and performance management in the Chart of Accounts
• Civil Service: reduction in ghost employees, more rapid generation of payroll
• Receipts and Revenue: faster recognition of cash receipts
• Audit: improved audits, unqualified audits, better audit trails and fraud reduction
• Procurement: improved purchasing and payment efficiency
• Decentralization:  decentralization of accounting, purchasing and budget functionality to line ministries and sub-national governments

PFM Lessons Learned

FreeBalance international customers completed the FISC Survey prior the conference. FISC members rated “government ownership” over PFM reform as the most important lesson learned in implementing Government Resource Planning (GRP) systems.

FISC member agreed that Project Management and a project steering committee are essential to GRP implementation success. They disagreed that Information Technology personnel should manage the project.

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).

The FreeBalance Customer Survey

The FreeBalance Customer Survey helps achieve a very important company mission: public financial management knowledge transfer, as a For Profit Social Enterprise (FOPSE). It also helps us improve customer-centric processes by gauging satisfaction and measuring trends.

More results of the FreeBalance Customer Survey will be presented on this blog during the FreeBalance International Steering Committee conference in Madeira Portugal. Many of the items on the agenda are built from the survey, so discussions here in Madeira will add more context to the survey results.

Doug Hadden, VP Products

Sharing Good Practices in Public Financial Management Reform

Delegates from the Government of Liberia Ministry of Finance recently visited Sierra Leone for a study tour to learn good practices in “macro-economic and fiscal projections and analysis; revenue tax policy, forecasting and analysis.” Study tours are particularly effective because the sequence of PFM reform differs based on country context. Study tours provide the depth needed for governments to understand what works under different circumstances.

Of course, the governments of Sierra Leone and Liberia share many characteristics that made this study tour effective. Both are post-conflict countries with similar macroeconomic situations. Sierra Leone has successful implemented the FreeBalance Accountability Suite

GoSL first Electronic Cheque

. Liberia has acquired the same software and the project is in development.

The Government of Sierra Leone has achieved significant progress in RFP reform and governance despite trying circumstances. We’re in process of completing a Case Study of PFM Reform for Sierra Leone, similar in scope to the recent study of Kosovo. We hope that our Case Study series will help the knowledge transfer of what works.

“The Government of the Republic of Liberia is committed to advancing key governance reform initiatives in support of its reconstruction efforts,” said the Honorable Tarnue Mawolo, Deputy Minister Administration. “The FreeBalance Accountability Suite will serve as a tool to support reform initiatives and will provide the foundation for economic growth and transparency. By building a more transparent government, public trust in the Government of Liberia will only increase.” 

Among the good practices leveraged by the Government of Sierra Leone, according to the 2007 Public Expenditure and Financial Accountability(PEFA) assessment, is an excellent budget classification and good reporting. We’ve heard since 2007, at our FreeBalance International Steering Committee meetings that Sierra Leone has achieved:

• Improved purchasing and procurement control
• Decentralization of PFM processes
• Reduction in financial management processing time
• Clearance of all backlog of annual financial statements and timely preparation of annual Accounts
• Legal reform for PFM and sequencing of reform and transparency
• Integrated Public Financial Management Reform Program (IPFMRP)
• Improved governance through the proper segregation of duties and availability of audit trails

The first phase of the Sierra Leone FreeBalance Accountability Suite implementation went into production in June of 2005 – 7 months from project inception. The Government of Sierra Leone current uses the following Government Resource Planning (GRP) modules and is very active in our software enhancement initiatives:

• FreeBalance Financials
• FreeBalance Revenue
• FreeBalance Purchasing
• FreeBalance Assets
• FreeBalance Human Capital
• FreeBalance Performance Budgeting

Liberia and Sierra Leone are continuing to improve governance mechanisms despite technical infrastructure and capacity challenges. This is why the Sierra Leone experience in capacity building is critical for Liberia.

Case Study describes sequence of successful PFM reforms in Kosovo from 1999

Ottawa, Canada (August 16, 2010) – FreeBalance, a global Government Resource Planning (GRP) software company, today released a Case Study that details the Government of Kosovo’s success at improving governance through PFM reform. The Kosovo PFM Case Study covers the sequence of PFM reform in Kosovo from 1999 to the present day. PFM reform is critical to improving good governance. Good governance is critical to economic development. This Case Study is the first in a series to be published to assist governments around the world achieve country growth.

2010-07-26 Kosovo PFM Case Study

The Kosovo Financial Management Information System (KFMIS) is based on the FreeBalance Accountability Suite. The KFMIS has supported the Government of Kosovo agenda of reform and modernization.

“The advances of the KFMIS are very important for the Public Financial Management reform of the Government of Kosovo,” said Lulzim Ismajli, Treasury Director, Ministry of Finance & Economy, Government of Kosovo. “We have been working with FreeBalance since 2000. We’ll continue our cooperation towards continuous advancement of the KFMIS in order to drive public finances in the way of advanced management so as to be comparable with PFM systems of developed EU countries.”

The PFM Case Study analyzes Public Expenditure and Financial Accountability (PEFA) assessments. The Government of Kosovo has achieved excellent results (B and higher) for over half of the assessment criteria. The country context of economic, capacity and sustainability challenges are described. The PFM Case Study describes the Government of Kosovo goals of improved governance and transparency, and provides a GRP modernization scorecard.

“FreeBalance congratulates the Government of Kosovo on its remarkable achievements in PFM reform,” said Manuel Pietra, President & CEO of FreeBalance. “The Kosovo PFM Case Study illustrates how the Government of Kosovo has strengthened governance with the resulting economic benefits this brings to its people.”

Achievements by the Government of Kosovo include:

• Improved governance as demonstrated by the 2007 and 2009 PEFA assessments
• Effective sequencing of PFM reform
• Capacity built for budget execution, cash management and procurement government-wide
• Decentralization of budget execution reflecting successful capacity building
• Achieving International and European standards
• International Monetary Fund (IMF) member admittance

FreeBalance customers span the globe. This user community includes public financial management professionals in 18 countries, including Panama, Guyana, Antigua & Barbuda, Jamaica, Uganda, Timor-Leste, Afghanistan, Kosovo, Mongolia, and Canada. 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 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.

Founded in 1984, FreeBalance is a for-profit-social-enterprise (FOPSE) company headquartered in Ottawa, Canada, with sales and support offices in Washington, DC (United States), Lima (Peru), Lisbon (Portugal), London (Great Britain), Pristina (Kosovo) and St. John (Antigua and Barbuda). FreeBalance solutions have been implemented in countries across the globe, including Canada, United States, Sierra Leone, Guyana, Pakistan, Mongolia, Afghanistan, Antigua & Barbuda, Timor-Leste, Republic of Kosovo, Palestine, Panama, and Uganda. For more information, visit www.freebalance.com.

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Doug Hadden, VP Products

The Government Accountability Office in the United States has published a statement of the use of Web 2.0 by Federal Agencies.  The statement by Gregory C. Wilshusen, Director Information Security Issues, focuses on – well – information security issues. There has been an undercurrent of risk avoidance and general fear of Web 2.0 technologies in government. This statement is fair and balanced (really fair and balanced, not the tag line) with a good assessment of the privacy, access to information and records management limitations of the Government 2.0 state-of-the-art. And, Mr. Wilshusen describes some of the work taken to overcome these concerns.

The audit function in government has transformed in the past few years from compliance – making sure that rules are followed – to performance. Analyzing programs for effectiveness in meeting mandate and achieving value for money. That’s what we need here. Government decision-makers need to understand the benefits – not just the risks. Otherwise, government transformation opportunities slow.

The difficulty with most analysis of Government 2.0 is that there is little distinction made between purely internal collaboration efforts and external public-facing. There’s no question that both types of activities share some elements of benefit and risk. But, as I’ve pointed out in the past, internal Government 2.0 represents a significant opportunity for mission achievement. And, lessons from internal efforts can be used to reduce the risks associated with external Government 2.0 initiatives.

Paul Dorsey of Dulcian has written a paper in the most recent International Journal on Governmental Financial Management published by ICGFM. Dr. Dorsey is well-known in ICGFM circles for fascinating observations from personal experiences. In this case, the value of IT audits despite significant costs.  He is quick to jump into very practical, rather than theortical matters: politics, project management and knowledge transfer.  And, the audit structure advocated in the paper is comprehensive.

Dr. Dorsey believes that custom developing government Integrated Financial Management Information Systems is preferable to customizing a generic ERP system. He asserts that “COTS projects fail with the same regularity as custom development projects.”  There are advantages and disadvantages to either approach as we have pointed out in the past. Our view is that Government Resource Planning (GRP) systems – designed for governments –  is the preferable option.  This has resulted in more on-time, on-budget and sustainable implementations than alternatives. The FreeBalance Accountability Suite is Commercial Off-The-Shelf (COTS) but does not require much, if any customization. Dr. Dorsey suggests that “COTS projects have enough customization that they need the same level of scrutiny as a custom development project.” IT audits are recommended regardless of the level of cusomization. The audit can identify configuration issues in the GRP. And, the GRP sits on a technology stack of middleware and networks and databases.  He suggests that “only 30% of systems typically receive a review”, according to a 2007 ICGFM survey.

There are 4 case studies presented in the paper from Ethiopia, Tanzania and two “anonymous” countries. It is interesting how the audit results presented by Dr. Dorsey for Ethiopia and Tanzania do not match the general perception in the wider PFM community. This suggests that more work is needed to formalize IT audit standards, perhaps providing an IT audit framework similar to Public Expenditure and Financial Accountability (PEFA).

Using Periodic Audits to Prevent Catastrophic Project Failure