Michael Siegfried from FreeBalance addressed this question by examining the past, present and future of "Integrated Financial Management Information Systems (IFMIS)" at a meeting of the East and Southern Africa Association of Accountants General (ESAAG) in Cape Town South Africa. He used the example of the Timor Leste Transparency Portal that integrates a Government Resource Planning (GRP) back office system to automatically provide budget, procurement and performance results transparency.
The critical need in Africa, is for financial sustainable IFMIS. These are systems that have a low "Total Cost of Ownership (TCO)", adapt to on-going government reform and modernization and enable self-sufficiency.
Do we need time-lapse photography to track the slow progress of global Public Financial Management (PFM)? Or, is PFM cyclical where we see the reforms come and go over time? Fortunately, the Internet provides a “way-back machine” – here, turned back 5 years to a June 2008 ICGFM presentation by Bill Dorotinksy. Dorotinsky is a co-author of Financial Management Information Systems from 2011.
Dorotinsky explored the current, as of 2008, PFM trends. He analyzed trends and the success of reforms in context of strategic planning, management control and operational control.
My observations, 5 years on:
Accrual accounting seems to be no longer a fad – although there has only been limited progress in implementing accrual. More governments aspire to accrual than in 2008. Maybe that makes it a fashion rather than a fad.
The lesson to not try too many reforms at once seems to be slipping – based on many of the RFPs that we have received in the past five years. There seems to be a bit of an arms’ race in reforms among governments where countries try to appear better than peers.
The Treasury Single Account (TSA) remains the most effective low-hanging fruit for PFM reform.
Budget preparation capabilities have not improved significantly since 2008 despite so much MTEF “capacity building.”
Less developed countries continue to focus on payroll as an important element of civil service reform although in greater numbers than in 2008. More developed countries have more of focus on human resources management through improving salary scales, improving recruitment and talent management. What is different is that lower developed countries are implementing capacity building and training programs within human resources software.
We’ve turned the corner on Integrated Financial Management Information Systems (IFMIS) and capacity building. At least we have at FreeBalance.
Dorotinsky spoke in 2008 about the notion that the “I” in IFMIS was considered among some circles as somewhat unnecessary. This has changed significantly beyond the general need for system interoperability. Integration ensures controls and compliance across systems. It reduces corruption opportunities. And, it enables transparency and management information.
Is PFM reform sequencing still more of an art form than a science? PEFA assessments have become more common. We’ve developed tools that are more prescriptive.
Dorotinsky pointed out that governments should not try to create the perfect Chart of Accounts (COA) to support management reporting and performance management. He suggests that governments can change their COA when they change IFMIS systems. It’s true that changing the COA is very difficult and complex in Enterprise Resource Planning (ERP) systems, but not so in Government Resource Planning (GRP) systems like the FreeBalance Accountability Suite that support a multiple year COA.
PROBLEM: The pace of PFM reforms often slows because of the inability for information systems to adapt to new needs
OTHER FACTORS: Many initiatives designed to improve government effectiveness in financial management, procurement, taxation, decentralization and anti-corruption require some changes in civil service management.
Government Resource Planning Approach for Civil Service Management
Managing the civil service is enabled through GRP systems:
Government Performanceincludes logic mapping that aligns government goals (budget inputs, outturns, outputs and outcomes) with capital, operating and salary spending where alignment and objectives change over time
Where the special characteristics of salary planning can be modeled including union agreements, salary scales, vacancy rates, deductions, bonuses, expenses and leave accruals
Core Civil Service Planning includes workforce management that includes the entire government “establishment”, public servant profiles and salary structures to help create standards
With the automation of payroll to reduce errors and corrupt practices
And training programs for capacity building to improve public servant capabilities
The GRP leverages an enterprise-grade ICT Platform as foundation including a secure infrastructure
User group controlshave been defined in the ICT Platform
More advancedCivil Service Management functions can be implemented over time such as recruitment to attract candidates with desirable education, skills and experience
When appropriate, talent management methods can be introduced to provide additional training, mentoring and advancement
With the introduction of merit-based pay for performance to provide additional incentives for improving civil service performance
The civil service management scenario requires the ability for GRP systems to support the progressive activation of good practices in public service reform:
Support for modeling complex salary structures for planning with re-forecasting the salary spend based on actual payroll
Support for multiple civil service payment methods including secure cheque printing, voucher, pay masters, electronic funds transfer and debit card support based on the financial services situation in the country
Focus of non-financial functions of civil service management on capacity building and talent management
There are GRP governance tools operating at every stage in the PFM reform lifecycle including:
Segregation of Duties ensures proper human resource management discipline and reduces the opportunity for favouritism
Approvals for all stages in the civil service lifecycle such as hiring, promotion, bonuses and dismissal
Integrationensures that controls and functions operate consistently across multiple modules especially interfacing with core financial, budget and payment systems
Some governance tools augment specific parts of progressive activation lifecycle:
Logic mappingincludes analytical tools that support program management, outputs and outcomes, and Key Performance Indicators (KPIs) to better align public servant performance with government objectives
Salary panning includes analytical tools used for general budget planning that uses historical information and using complex salary structures used in government organizations
Workforce management that usesanalytical tools to adjust and rationalize salary scales through benchmarking across government organizations
Payroll controls through payment management aligned with workforce management that can eliminate phantom employees, improveattendance and reduce corruption opportunities endemic when payroll is provided through cash
Capacity building through controls to ensure that training is used to ensure public servants have appropriate knowledge and courses are provided to only those who qualify
Secure infrastructureis augmented by control tools such as data integrity that prevents manipulation in underlying databases, encryption that prevents people from accessing certain types of data, and general IT security such as virtual private networks to reduce ICT manipulation
User group controls is augmented by user management such as password controls
Recruitment functions to attract public servants with needed skills, education and experience when appropriate to do so that includes front-office transparency functions with e-recruitment and workflowcontrols to make hiring less subjective
Talent management functions including workflowcontrols and analyticsdecision-making tools to advance public servants who are contributing to performance improvements through promotions and training as part of a process of professionalizing the public service
Pay for Performance using workflowcontrols and analyticsdecision-making tools to provide more incentives for performance
Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP.
Institutional governance enablers that are critical to progressive activation include:
Public Service capabilities and incentives need to be adjusted to support professionalization
Political Will by stakeholders such as the executive and senior public servants to champion change
Independence of the civil service organization to pursue changes
Standardsused in human resource management is required to develop proper pay grades, incentive scales and needed civil servant qualifications for positions
Complianceprocesses that ensures dealing with phantom employees and workforce changes such as promotion
There are other institutional characteristics that are important during the lifecycle include:
Capacity of public servants must improve over time in order to sequence more advanced functions such as recruitment and talent management
Informal processesthat encourage patronage need to be examined and changed
It can be argued that appropriate institutional arrangements for civil service reform sequencing will have limited impact without an effective underlying technology system:
Informal processes will dominate human resources without the imposition of automated controls
Phantom employees will be difficult to identify without electronic identities, address tracking and electronic funds transfer
Capacity gaps within the public service will be difficult to uncover without sufficient data
Many public servants could be underpaid or overpaid
Budget estimates will be inaccurate without a computerized model based on the government establishment
There are numerous signs that are used to measure the governance effectiveness of PFM in this scenario:
Public Expenditure and Financial Accountability(PEFA) assessments are widely accepted as showing the PFM state-of-the-art in any country. PEFA provides detailed analysis of the comprehensiveness, efficiency and quality of PFM processes with some elements reflecting payroll
In this anti-corruption scenario:
GRP systems support automated governance tools that enforce fiscal procedures
Governance tools within the GRP help to improve efficiency and performance
Features of the GRP optimize government capacity and methodologies ensure capacity building as part of the professionalization of the public service
Governance tools are progressively activated to enable more advanced functions in sequence with improved capacity
Improved efficiency and public service capacity can improve the World Governance Indicator, Government Effectiveness
Professionalization of the public service with proper pay and incentives can also reduce corruption, the perception of corruption and the World Governance Indicator, Control of Corruption
Progressive action using GRP with tools and enablers will help to improve ratings for:
PEFA C(i) Comprehensiveness and Transparency
PI-11 orderliness in the annual budget process will be enhanced through salary planning and budget models that will provide more accurate estimates, particularly in government where salaries are often the largest expenditure category and governments are the largest employer
PI-12 multi-year perspective will be enhanced through the salary models
PEFA C(ii) Predictability and Control in Budget Execution
PI-18 effectiveness of payroll controls will be enhanced through payroll and payment systems and human resources workflow
PEFA C(iii) Accounting, Recording, Reporting
PI-22 improved timeliness of accounts reconciliation via integration and automation including integration across GRP modules including payroll
PI-24 improved quality and timeliness of in-year reports through integration between payroll and financial systems
PI-25 improved quality and timeliness of in-year reports through integration between payroll and financial systems
Governance Indicators and Outcomes
The improvement of meta governance indicators such as Government Effectives and Control of Corruption improves trust and investment in countries. Improved effectiveness improves policies, laws and regulation of those laws. These indicators are used by credit agencies and private businesses. Foreign Direct Investment (FDI) can increase.
Canada and Uganda are two countries with similar sized public services and British heritage. These countries are at different levels in the professionalization of the public sector and face different challenges.
Information systems to handle human resources and financial management systems have been primarily decentralized in the Canadian federal government to departments, agencies and commissions. Payments are made centrally but planning has been highly decentralized. Canadian federal government organizations are faced with Commercial-Off-The-Shelf human capital and payroll systems that have no concept of budget. These systems are unable to predict salary budget deficits and can authorize payments that exceed the budget vote.
The decentralized nature of payroll in the Government of Canada can result in payments made to public servants who have changed departments or on secondment.
The most widely used tool to manage these problems in the Government of Canada is FreeBalance Performance Budgeting for Human Capital (PBHC) for organizations with more than a handful of employees. PBHC includes complex Government of Canada salary scales including modeling collective agreements with unions. Salary budgets developed by these organizations include all salary expenditures including training and travel.
PBHC acts as a hub for salary management. PBHC examines actual payroll figures to adjust forecasts. For example, higher vacancy rates and lower training costs in a pay period will show potential surpluses. On, the other hand, increased travel, training and certification will show potential deficits. Human resource professionals are able to use this information to make better decisions while ensuring meeting budgets.
PBHC also generates journal vouchers in financial systems, including ERP software where used, for accruals and intergovernmental transfers.
The Government of Uganda received a FreeBalance Public Financial Management Award of Excellence for Data and Process Migration. The IPPS team continues to sequence human resource functions based on capacity improvements and socializing changes. The final planned stage of IPPS will include salary planning and budgeting. At this time, the payroll and human resource integration across the Government of Uganda using the IPPS `shared service` could be equivalent in many ways to that in Canada.
The opaque ceremony of revealing the Government of Canada budget is in full swing. The Minister of Finance has bought new shoes. Journalists have been sequestered. Armed guards might be protecting the Queen’s Printer .
Canada has a tradition of “budget confidentiality”. Cabinet ministers and senior public servants can interact with citizens to develop the budget. But, it is a criminal offence to reveal budget details ahead of the speech.
Budget confidentiality apparently doesn’t mean leaking tidbits to the press in order to drive suspense. Journalists are speculate based on these tidbits.
Does our budget processes an international public sector good practice?
I concluded last year that we could learn a lot from international Public Financial Management (PFM) good practices that are use in developing countries.
Of course, the budget is a political document. Yet, it is the most critical annual deliverable from the government. It is the embodiment of government policy. Yet, Canadians will have less than 10 days to consider it because the new fiscal year begins on April 1.
Specific deficiencies in the Government of Canada budget formulation process, that fails to meet international good practice include:
We have lost our public financial management leadership mojo
There was a time when, as a Canadian company, we could point to our country’s sterling record in the stewardship of public funds. And, the use of e-government.
Yet, as a provider of Government Resource Planning (GRP) software used in Canada and 19 other countries, we find the tables have turned. A decade ago, the software designed to meet Government of Canada needs was considered too advanced for many countries. (Fortunately, the design enabled us to dial back functionality and to enable the progressive activation of features.).
Today, much of the software functionality that we support for developing countries is more advanced than is used in Canada. This includes program management, performance dashboards, budget planning, procurement and transparency portals.
I’m not blaming the current government. This is a tradition that goes back over many years and many governments.
It’s high time that we question our budget traditions. To support international good practices. And, to go beyond superficial citizen outreach.
It was a privilege earlier today to engage in a graduate class at the Harvard Kennedy School of Government. One of our mandates at FreeBalance, as a for profit social enterprise, is to build and share good practices in Public Financial Management (PFM). This is a unique labor of love for us – to share our experiences to help countries grow. We do not restrict this knowledge to only our government customers.
The FreeBalance team has been building up our methodology on reform sequencing for the past few years based on our experiences in 20 countries and the engagement with the greater PFM community. This was our first opportunity to present an new and comprehensive framework for technology-enabled governance.
The second released document, embedded below, describes good practices in budget formulation. Governments are budget driven and use commitment accounting. Profit is the key concept in private sector accounting. Budget is the key concept in government.
That’s why budget formulation is so critical in government.
Budget is linked with policy and government objectives. It’s the formal and legal expression of government policy. That’s why many countries call a budget “the vote” or the “organic budget law”.
I’ve seen governments fall in Canada by losing the budget debate.
There are many budget formulation applications designed for the private sector. These software programs focus on fulfillment planning: logistics, manufacturing, assembly. Sure, financial planning is part of that. But the result of the planning is rarely multiple aggregate controls across different periods into the financial system. And, rarely handles supplemental budgets, virements, transfers, continuing resolutions and adjustments to tolerances.
And, let’s face it: budgets in the private sector are guidelines.
Esta actualización semanal de noticias proporciona a la comunidad de Planeación de Recursos de Gobierno (GRP*) una visión general de los últimos acontecimientos de FreeBalance, además de noticias relevantes de la industria.
PFM en un mundo cambiante – La Perspectiva de Harvard
Varios ejecutivos de FreeBalance tuvieron la oportunidad de participar la semana pasada en el programa de Administración de Finanzas Públicas en un Mundo Cambiante en la Escuela de Gobierno John F. Kennedy de la Universidad de Harvard. Al programa asistieron más de 60 profesionales de Administración de Finanzas Públicas de 33 países. El programa reunió con éxito a funcionarios gubernamentales que participan en reforma al PFM con expertos de dominio de instituciones financieras internacionales y del sector privado.
7 Asuntos sobre el 7mo Comité Directivo Internacional de FreeBalance
Nos estamos preparando para la conferencia de Comité Directivo Internacional de FreeBalance (FISC, por sus siglas en inglés) de este mes en Ottawa, muy cerca de nuestra oficina principal. ¿Al fin de cuentas, quien no quisiera estar en Ottawa en enero? La temperatura mínima promedio en enero es de −15.3 °C (4.5 °F) en la cual se llevará acabo nuestra séptima conferencia anual. Esto no lleva a las 7 principales cosas que las muy agiles compañíax de software pueden aprender de nuestro aproximación para ser más centradas en el cliente. Principalmente, este es un comité directivo, no una conferencia de usuarios, lo que puede parecer un matiz sutil ya que hemos adaptado la tecnología estándar de conferencia de usuarios para ser más efectivos.
¿Salvar el mundo a través de los medios sociales? Cómo el desarrollo se vuelve digital
Los medios sociales y las tecnologías móviles ofrecen una amplia gama de beneficios para las personas que trabajen en el área de desarrollo: una forma potencialmente barata y eficiente de vincular a los ciudadanos con sus gobiernos, la oportunidad de supervisar el progreso de los proyectos en tiempo real y la capacidad de conectarse con personas desde lugares remotos del mundo para compartir experiencias y enseñar las mejores prácticas. No es sorpresa que haya un flujo interminable de proyectos de desarrollo que buscan explotar estas tecnologías. En muchos casos, todavía es temprano para determinar qué diferencia marcarán estas iniciativas, pero cinco de ellas llamaron nuestra atención.
Las consultas arrojan poco consenso sobre IPSAS en la Unión Europea
Una consulta sobre si todos los países de la Unión Europea deberían usar los Estándares Internacionales de Contabilidad en el Sector Público (IPSAS, por sus siglas en inglés) ha revelado una notable división de opiniones. Solo un poco más de un tercio (38%) de los encuestados considera a los IPSAS adecuados para implementarse en toda la UE ya sea en su totalidad o con ‘obstáculos menores’ a superar, 31% dijo que eran parcialmente adecuados y 28% señaló que no son adecuados. La consulta, realizada por la agencia estadística Eurostat en febrero, preguntaba si los estándares eran necesarios para mejorar la vigilancia fiscal. Entre los participantes se incluían oficinas estadísticas nacionales, departamentos gubernamentales, oficinas de auditorías y cuerpos de contabilidad como CIPFA.
Simplificando los Documentos de Presupuestos – ¿Es Hora de un Estándar Internacional?
Mejorar la calidad de la documentación de presupuestos es tema central de muchas reformas destinadas a mejorar la comprensión del contenido de los estimados presupuestarios así como fomentar la transparencia y la responsabilidad. Algunas leyes presupuestarias establecen un conjunto mínimo de documentos que deben acompañar los estimados presupuestarios. Estos pueden incluir, por ejemplo, informes sobre: (i) la previsión macroeconómica a mediano plazo; (ii) políticas fiscales y tendencias del gasto público; (iii) previsiones a mediano plazo de ingresos gubernamentales, gastos, deuda y el balance fiscal; (iv) techos de recursos a mediano plazo; (v) garantías gubernamentales, pasivos contingentes y otros riesgos fiscales; (vi) gastos en programas de inversión y proyectos por sector y (vii) proyecciones sobre flujos de ayudas de donantes. En países con una tradición de Westminster, el discurso sobre presupuestos incluye buena parte de esta información; sin embargo, se pueden presentar documentos adicionales al parlamento.
Ces dernières nouvelles hebdomadaires apportent à la communauté de la planification des ressources gouvernementales (GRP) une brève vue générale des récents développements de FreeBalance et des nouvelles pertinentes de l’industrie.
PFM dans un monde qui bouge – La Perspective de Harvard
Plusieurs dirigeants FreeBalance ont eu l’opportunité de participer à la Gestion Financière Publique dans un Programme de Monde Qui Bouge la semaine dernière à l’Université de Harvard, Ecole Gouvernementale John F. Kennedy. Le programme a été suivi par plus de 60 professionnels de la Gestion Financière Publique et venaient de 33 pays. Le programme a réuni avec succès des officiels impliqués dans la réforme PFM avec des experts d’institutions financières internationales et du secteur privé.
7 points à propos du 7ème Comité FreeBalance International Steering
Nous nous préparons actuellement pour la conférence du Comité FreeBalance International Steering (FISC) vers la fin de ce mois à Ottawa près de notre siège. Après tout, qui ne voudrait pas être à Ottawa en un merveilleux mois de janvier ? [La température minimum moyenne en janvier est de -15,3°C (4,5°F)]. C’est notre 7ème conférence annuelle. Ce qui m’amène aux 7 points importants que des entreprises IT très flexibles peuvent apprendre de notre approche pour être plus centrées sur la clientèle. Une chose, c’est un comité de direction, pas une conférence d’utilisateur. Cela peut paraitre une nuance subtile car nous avons adapté la conférence d’usager de technologie standard pour être plus efficace.
Une enquête au sein de l’Europe élargie montre peu de consensus envers l’IPSAS
Une enquête, pour savoir si tous les pays de l’Union Européenne devraient utiliser les Standards Internationaux de Comptabilité du Secteur Public (IPSAS), a révélé des opinions divergentes significatives. Seulement un tiers (38%) des répondants considéraient que l’IPSAS est approprié pour être mis en œuvre soit dans sa totalité, soit avec quelques « obstacles mineurs » à surmonter, 31% ont dit qu’il était approprié en partie et 28% pensaient qu’il est inapproprié. L’enquête, lancée en février dernier par l’agence de statistiques Eurostat, demandait si des standards étaient nécessaires pour améliorer la surveillance fiscale. Les répondants étaient constitués de bureaux de statistiques, d’organismes gouvernementaux, de bureaux d’audit et d’organismes comptables comme le CIPFA (Institut Agréé de Finance et de Comptabilité Publique).
Simplification des documents budgétaires – Le moment est-il venu pour des Normes Internationales?
Améliorer la qualité de la documentation budgétaire est au cœur de nombreuses réformes visant à augmenter la compréhension du contenu des estimations de budget de même qu’à promouvoir la transparence et la redevabilité. Des lois budgétaires préconisent un minimum de documents pour accompagner les estimations budgétaires. Par exemple, ils peuvent comprendre des rapports sur : (i) la prévision macroéconomique à moyen terme ; (ii) la politique fiscale et les tendances de dépenses publiques ; (iii) les prévisions à moyen terme des revenus du gouvernement, de ses dépenses, dettes et la balance fiscale ; ((iv) les plafonds de ressources à moyen terme ; (v) les garanties du gouvernement, les obligations conditionnelles et autres risques fiscaux ; (vi) les dépenses de programmes et de projets par secteur ; et (vii) les projections de flux d’aide de donation. Dans les pays de tradition britannique, le discours budgétaire inclut la plupart de ces informations, mais des documents supplémentaires peuvent être présentés au Parlement.
This weekly news update provides the Government Resource Planning (GRP) community with a brief overview of recent FreeBalance developments and relevant industry news.
PFM in a Changing World – the Harvard Perspective
Several FreeBalance executives had the opportunity to participate in the Public Financial Management in a Changing World program last week at Harvard University, John F. Kennedy School of Government. The program was attended by more than 60 Public Financial Management professionals from 33 countries around the world. The program successfully brought together senior government officials involved in PFM reform with domain experts from international financial institutions and the private sector.
7 Things about the 7th FreeBalance International Steering Committee
We’re preparing for the FreeBalance International Steering Committee (FISC) conference later this month in Ottawa close to our head office. After all, who wouldn’t want to be in Ottawa in beautiful January? [The average January minimum temperature is −15.3 °C (4.5 °F)]. It’s our 7th annual conference. Which brings me to the top 7 things that highly agile software companies can learn from our approach to be more customer-centric. For one thing, it’s a steering committee, not a user conference. This might seem like a subtle nuance because we’ve adapted the standard technology user conference to be more effective. Read more>>
Saving the world through social media? How development is going digital
Social media and mobile technologies offer a wide range of benefits for people working in development: a potentially cheap and efficient way to link citizens with their governments, the chance to monitor real-time progress on projects, and the ability to connect people from remote parts of the world to share experiences and teach best practice. It is no surprise that there’s an endless stream of development projects trying to tap into these technologies. In many cases it’s still too early to tell what difference these efforts will make, but here are five that caught our eye. Read the full article on the Poverty Matters Blog>>
Consultation shows little consensus on EU-wide IPSAS
A consultation on whether all European Union countries should use International Public Sector Accounting Standards has revealed a significant split of opinion. Just over a third (38%) of respondents considered Ipsas suitable for EU-wide implementation either in full or with ‘minor obstacles’ overcome, 31% said they were partly suitable and 28% thought they were unsuitable. The consultation, launched by the statistical agency Eurostat last February, asked whether the standards were needed to improve fiscal surveillance. Respondents included national statistical offices, government departments, audit offices and accountancy bodies such as CIPFA. Read more on the Public Finance International blog>>
Simplifying Budget Documents – Time for an International Standard?
Improving the quality of budget documentation lies at the heart of many reforms aimed at enhancing understanding of the content of the budget estimates as well as fostering transparency and accountability. Some budget laws prescribe a minimum set of documents to accompany the budget estimates. These may include, for example, reports on: (i) the medium-term macroeconomic forecast; (ii) fiscal policies and public expenditure trends; (ii) medium-term forecasts of government revenues, expenditures, debt, and the fiscal balance; (iii) medium-term resource ceilings; (iv) government guarantees, contingent liabilities and other fiscal risks; (v) spending on expenditure programs and projects by sector; and (vi) projections of donor aid flows. In countries with a Westminster tradition, the budget speech includes much of this information, but additional documents may be presented to the parliament. Read more on the IMF’s PFM blog>>
Credibility of the budget – The budget is realistic and is implemented as intended
Comprehensiveness and transparency – The budget and the fiscal risk oversight are comprehensive and fiscal and budget information is accessible to the public.
Policy-based budgeting – The budget is prepared with due regard to government policy.
Predictability and control in budget execution – The budget is implemented in an orderly and predictable manner and there are arrangements for the exercise of control and stewardship in the use of public funds.
What is the budget formulation process?
Budget formulation differs among countries and levels of government. The budget formulation process typically starts economic analysis and prediction for government revenue. The process follows sets of budget rules during a budget calendar that includes a broad set of financial information.
How does budget planning fit into PFM processes?
Government budget planning begins during the fiscal year and leverages historical and current revenue and expenditure information. Budget planning processes align, in theWorld Bank Treasury Reference Model, with economic forecasting, debt management and treasury systems. Liquidity and cash management is critical to understanding the expected revenue and expenditure variations in government.
What budget categories are used by governments?
Budget planning categories differ among countries. The processes used can be different depending on the categories. Typical categories include:
How do budget classifications enable budget formulation across categories?
Government budget formulation software can adapt to the planning workflow and categories used by governments through budget classifications. Government budget classifications, often called Charts of Accounts (COAs), represent the underlying meta data for Public Financial Management (PFM).
Government budget formulation software must support:
Financial functionsincluding the ability to develop budgets in any combined top-down/bottom-up process. Effective budget preparation software can take previous data and adjust by formula (such as reduce by 5% all revenue categories or increase the cost of oil by 10%). The software enables linking budget justification directly with the budget classifications. The budget passed by the legislature, often called the “organic budget law” or “the vote” is automatically integrated with the budget execution/accounting system to ensure proper budget controls.
Content. Budget formulation software needs to use data from other sources including importing spreadsheet data directly to the financial budget plan, attaching narrative to budget requests and referencing documents.
Workflow: Flexible workflow functions are necessary to follow the government budget calendar and address budget categories. Multiple budget versions are required.
Performance: Governments with higher capacity can integrate output and outcome data to the COA and develop scorecards.
Component model for budget formulation automation software.
What are the inputs for government budget software?
Inputs in the budget formulation process include:
Financial transactions from previous years (and the active fiscal year) including the tracking of multi-year commitments that roll-over to subsequent years
Budget variances from previous budgets including changes that occurred to the budget during operation such as budget transfers and virements to provide trend information
MTEF year 2 and 3 budget estimates to provide a baseline for the working budget
Macroeconomic data that predicts government revenue, identifies risks, and creates baseline budget assumptions such as currency exchange rates
Cost drivers or established estimates for products and services so that budgets use credible assumptions and align with scenario planning such as analyzing the impact of changing energy costs and currency fluctuations
Documents like budget justification, policy information and reports
Integration with underlying systems and spreadsheets
What are the outputs for government budget software?
Outputs in the budget formulation process include:
Budget controls to be integrated with the treasury system components of the Government Resource Planning (GRP) software for commitment accounting including support for warrants, supplemental budgets, continuing resolutions
Scenario plans that enables government to quickly adjust budgets should risk factors come to fruition during the fiscal year
Documents generated from the system such as budget books
Why are flexible controls required?
Flexible controls in GRP software are critical for governments to match regulations and enable modernization:
Budget laws address high-level budget items in the COA. Therefore, strict control at details or “line item budgeting” is not material to the law
Capacity is critical when determining decentralization and needs to be flexible to support more discretion in spending and budget transfers to improve results
Allotments, appropriations, warrants and cash controls differ among countries based on legal frameworks, traditions and liquidity
Treasury departments provide more value to governments by managing liquidity and adjusting allotments based on surplus and deficit forecasts than approving commitments and transferring amounts among budget line items
What budget control functions are necessary in GRP software?
Multiple Controls: numerous controls can operate simultaneously such as cash warrants and annual appropriations
Periods: different controls can be active for different time periods, typically from a month to a year
Aggregate: controls can operate from detailed line item to high level and where the total of detailed line items could equal or not equal the total for the high level controls
Tolerances: discretion enabled for some controls such as the ability to overspend some monthly controls by a fixed amount or a percentage as long as aggregate controls are not overspent
Commitment Controls: where tolerances can be applied to commitments and obligations
Segregation of Duties: workflow controls to ensure proper separation of duties for spending approvals, payment approvals and budget transfer approvals that meet government fiscal regulations
Organization Configurations: support of different control schemes for different government organizations reflecting legal status and organizational capacity
Why not use spreadsheets or simple web applications for budget preparation?
Spreadsheet and simple web applications do not provide sufficient control, error management and integration for budget planning:
Version management and approval: versions of budgets and approvals for budgets require more sophisticated software that uses workflow control
Controls: budget formulation software is required to create controls, manage segregation of duties integrate with commitment accounting
Errors: validation on data input is not sophisticated in spreadsheet and simple web applications resulting in mistakes
Historical information: integrated budget preparation and budget execution software provides accurate analytical information for budget planners
What are good practices for budget formulation?
Budgets are the legal embodiment of government policy and is critical in public financial management
Budget formulation practices should match country conditions and human capacity
The Chart of Accounts is critical for effective budget processes
Budget formulation software can help to create more credible budgets that provide fiscal sustainability and internal controls