GRP or Integrated Financial Management Information Systems (IFMIS) can be cornerstone to anti-corruption

Doug Hadden, VP Products

We were asked last week about how FreeBalance software contributes to reduced corruption in developing countries. There can be a significant effect on reducing corruption.

What is the linkage between “anti-corruption” and GRP?

• Governments implement Government Resource Planning (GRP) or Integrated Financial Management Information Systems (IFMIS) to improve fiscal management and governance as part of Public Financial Management (PFM) reform
• GRP systems and PFM reform have been found to improve governance where governance is the door to anticorruption
• Countries with better-performing PFM systems have lower corruption perception indexes because robust PFM systems raise the risk of detection and the cost for bad behavior
• The reduction of corruption is the result of a committed desire to change and the use of appropriate tools, like GRP, to affect change
• There are no systematic assessments of the impact of IFMIS impact on corruption but the literature considers that IFMIS can have a deterrent function on corruption by increasing the risks of detection and the absence of an IFMIS is considered an enabling factor for corruption
• GRP addresses three principal-agent framework dimensions of institutional structure that are most critical in reducing opportunities for corruption: (1) the  monopoly power of officials;  (2) degree of discretion that officials are permitted to  exercise; and (3) degree to which there are systems of accountability and transparency in  an institution
• The computerization of public financial management processes can create new opportunities for corruption by monopolizing information access and control, so additional institutional and capacity factors are needed to leverage GRP for anti-corruption efforts
• GRP systems when combined with the proper institutional environment augments anticorruption efforts although not all forms of corruption can be detected by these systems
• The anticorruption capabilities of GRP systems are augmented when leveraged via e-governance transparency portals and it has been suggested all types of petty  bureaucratic corruption can be diminished through the increased transparency achieved by  using modern electronic media

What is the linkage between “governance” and “anti-corruption”?

• Governance: the manner in which the acquires and exercises its authority to provide public goods & services
• Corruption: the use of public office for private gain and is an outcome – a consequence of the failure of accountability relationships in the governance system

What is the consensus on the role of PFM for anti-corruption?

The relationship between sound and orderly PFM systems and reduced levels of corruption is also receiving increased attention. Mapping freedom from corruption (using Transparency International’s (TI) Corruption Perception Index (CPI)), against the quality of PFM (using the World Bank’s Country Policy and Institutional Assessment (CPIA)), suggests that higher quality PFM systems correlate with lower perceptions of corruption (Dorotinsky and Pradhan 2007). Heilbrunn (2004) argues that the creation of anti-corruption commissions is a token effort that lacks substance, if reforms in PFM do not take place.

GRP has a significant effect on financial institution and investor corruption and is enabler for reducing corruption by executives.  Based on the World Bank study in 2000 , GRP has a possible positive effect on more than half of attributable corruption in developing countries.

What are the corruption effects on public finances?

• a one-point increase in the corruption index reduces tax revenue collected by 2.7 percent of GDP
• estimated $400 Billion lost worldwide through procurement corruption because the procurement of goods and services by public bodies amounts on average to between 15 and 25 percent of a country’s Gross Domestic Product (GDP)
• estimates of annual worldwide bribery of about US $1 trillion dollars annually

Where are the PFM vulnerabilities to corruption?

There are numerous corruption PFM vulnerabilities throughout the government budget cycle including:

• Budget Execution: is considered fertile ground for corruption because it provides opportunities to undertake transactions and for money to exchange hands through gaps between formal processes and informal practices
• Budget Preparation: vulnerability for corruption is considered to be low at the stages of planning and preparation but is important to have full budget coverage
• Extra-budgetary accounts: or “off-budget” accounts funneled through foreign aid or other methods
• Payments: includes authoring officer withholding the issuance of a payment order on account of cash flow shortage while in effect, his real reason is expectation of a bribe and in the form of payments to ghost companies or workers, for the delivery of no goods or services, queue jumping, retention of payment in return for quick backs, transfer of less than the stated amounts and pocketing the balance, and favoritism in approving eligibility
• Payroll: including “ghost employees”, dead pensioners and demands by managers for payroll kickbacks
• Procurement: is a common source of corruption and can include violation of procurement laws and regulations, ordering of unauthorized goods and services, exceeding budget ceilings, bid-riggings, orders addressed to fictitious companies, acceptance of inflated prices
• Public Investment Projects: as a special case for procurement where some individuals or political groups [gain] opportunities to receive “commissions” and executives have significant degree of discretion in influencing the scope of these projects
• Tax Administration: can be a major problem to tax and customs administrations including bribes to reduce or evade tax
• Treasury: The manipulation of bank accounts outside the control of the Treasury

How do GRP systems detect corruption?

GRP systems are used to detect corrupt activity through:

• Audit: audit trails in GRP tools identifies who entered, adapted and approved every step in a government process enabling fraud pattern recognition
• Exceptions: identifies exceptions to normal operations
• Reporting: GRP reporting tools and analysis by internal and external stakeholders detects fraud
• Transparency: publishing of budget plans and budget reporting opens up information to civil society scrutiny

How do GRP systems prevent corruption?

Internal controls within institutions are considered the most effective for GRP anti-corruption:

• Controls: through automation to ensure legal processes followed and appropriate approvals for government eliminating opportunities for corruption because of the link to the transaction cycle, preventing the circumvention of procedures and blurring of cash disbursements and reducing informal practices
• Decentralization: of functions to impede centralized corruption
• Payments: eliminate cash payments through secure cheque printing and electronic funds transfer making financial transactions fully traceable and reducing cash fungibility including use of the Treasury Single Account to prevent manipulation
• Reporting: knowledge that fraud patterns can be uncovered in reporting or audit changes the behaviour of politicians and public servants
• Segregation: of duties for processes across many people reduces the ability of any one person to commit fraud

Countries with low perceived corruption enjoy higher human development

What forms of corruption are restricted through the use of GRP?

• Accrual Accounting: prevents hiding arrears and assets that are possible in cash accounting
• Asset Management: reduces theft of public goods by cross-reference of asset inventories with equipment purchase
• Audit and Reporting: reduces theft of public funds through fraud detection and automatic exception alerts
• Human Resources: reduces nepotism, ghost employees through audits, kick-backs by tracking payments, comparing addresses, using national identification cards, cross-referencing birth and death records, civil service and executive financial disclosure, coherent alignment of salary scales to responsibilities and recruitment controls
• Procurement: controls aimed to detect and deter corruption and can provide feedback about irregularities from competitors through on-line reporting
• Revenue: controls show full revenue collected for fees, fines and taxes, the introduction of computerized support for the processing of customs documents provides the opportunity to implement standardized procedures that leave little to the discretion of the officials
• Tax Administration: reduces tax fraud through land ownership and vendor records and rent-seeking from revenue collectors
• Tendering: reduces “contract steering” fraud by  cross referencing employee and vendor information and quotes from fake vendors

What factors in the GRP system are necessary for anti-corruption?

• Comprehensiveness: the GRP system is covering a significant portion of the PFM system otherwise fraud will occur in manual and non-integrated systems and must common standards, rules and procedures, with the view to reducing risks of mismanagement of public resources
• Integrity: the GRP software and underlying database have maintained data integrity and built-in integrity checking identifies data manipulation attempts
• Reconciliation: GRP sub-systems like bank statements, tax administration or payroll need to be frequently reconciled to trap fraud
• Secure: the GRP system provides good access controls on secure networks to reduce data manipulation

Can we put corruption in perspective?

Although there has been a strong narrative about corruption in developing countries, it should be noted that under much more propitious conditions, the rampant corruption in the United States that spanned from the late nineteenth century through the early twentieth century was presided over  by the industrial robber barons and Tammany Hall leaders and took decades to overcome and some PFM reforms in these countries have taken up to two centuries to evolve.

How does transparency and e-governance reduce corruption?

The ability of the public to review the full performance and financial statements of government entities leads to confidence and trust in the public sector and roots out corruption. PFM transparency should be considered a major force to animate civil society engagement and protest by turning on the capacity of the society to interact with data:

• Bribery: transparency minimizes the  opportunities for public officials to monopolize access to relevant information and to  extract bribes from clients
• Comparability: budget transparency enables civil society to compare expenditures across multiple years to identify corruption patterns
• Freedom of information: along with open data, enables civil society to act as corruption watchdogs,  credited with combatting corruption
• Monitoring: civil society leveraging transparency to identify where and how corruption is actually taking place
• Independent reporting: through social media enables the  public to uncover corruption patterns and augment government auditing
• Procurement manipulation: competitors and civil society can object to fraudulent tendering, find collusion between vendor and procurement officer, identify  patterns of bribery, favouritism, patronage systems and bid rigging
• Surveys: Public Expenditure Tracking surveys, when made public and linked to public information campaigns, can contribute to reducing leakages

What additional factors are needed to achieve anti-corruption potential for GRP?

• Autonomous audit: can have a critical role in  strengthening government accountability if structural dysfunctions in the system of fiscal control are eliminated
• Capacity: ICT, PFM, investigative services and legal capacity among public servants and citizen education to leverage transparent government information
• Civil service reform: create a culture of professionalism and ethical values with instilling meritocracy while providing workers with salaries comparable to the private sector
• Decentralization: effects on anti-corruption are largely depend on the design of the fiscal transfers from the central government
• Discretion limitation: where politicians have limited discretionary authority
• Institutional practices: internal audit, external audit, anti-corruption commissions and strong rule of law are need to make corruption accountable
• Internet access: internet access is positively associated with reductions in corruption
• Legislative oversight: by strengthening of the rights of members of parliament in the budget preparation process
• Media competition: ensures good quality of information provided to citizens helps to reduce public acceptance of corruption
• Mobile infrastructure: mobile and social media enables rapid organization to create critical mass of protesters and closes the digital divide
• Political will: clear commitment of authorities and effective political motivations are required to ensure capacity building and relevant institutional practices
• Revenue de-concentration: separation of functions is a  trend in revenue administration has been to organise activities by function e.g. audit services, collections, rather than by tax type e.g. Value Added Tax (VAT) or Income Tax, in the belief that this increases collections and reduces the potential for corruption
• Risk management: risk mitigation strategies that results in changing processes
• Rule of law: legal ramifications and accountability when corruption is detected
• Tax simplification: reduces discretion in tax collection and reduces exemptions

What is the linkage between corruption and aid effectiveness?

• Corruption and lack of transparency, which erode public support, impede effective resource mobilisation and allocation and divert resources away from activities that are vital for poverty reduction and sustainable economic development. Where corruption exists, it inhibits donors from relying on partner country systems.
• Donors are more likely to fund projects “off-budget” when there is high perceived corruption. This increases transaction costs for reporting and introduces inefficiencies because of the lack of coordination and harmonization among donors and with governments.

Why should donors use “country systems”?

Country GRP systems can reduce aid fungibility when the whole of the state’s revenues should be accounted for in its official budget.

• The Paris Declaration on Aid Effectiveness, the associated emphasis on the use of country systems… placed PFM reform in centre stage, both from a poverty reduction and sustainable peace (in post-conflict countries) perspective. For donors, the importance of sound PFM systems in recipient countries also relates to concerns about funds not being used for intended purposes and the associated impact on development effectiveness and their own reputation.
• When donors avoid using government systems designed to guarantee a degree of integrity, this provides the opportunity for corruption. This has been especially true in countries with a large donor presence
• There is a lack of evidence to show that corruption lessens when expenditures use a donor’s PFM system rather than reasonably strong PFM systems of a post-conflict country. In fact, there are numerous cases of well-publicised abuses when donors deliver aid directly.
• There is an international donor commitment to use country systems, including GRP, to improve aid effectiveness

What are some real-life examples of GRP anti-corruption success stories?

• Afghanistan: around seven signatures were needed for every payment in the paper-based system and each signature required a small bribe.  This avenue for corruption was eliminated with the implementation of the Afghanistan Financial Management System. To date, only one case has been reported where there was an allegation of improper use of the system and the individual was caught. It should be noted that the vast majority of corruption found comes external to the Afghanistan Financial Management Information System. A transparent financial system guarantees fast economic growth of a nation.  AFMIS provides controls, delegation of authority and audit trails that limits the opportunity for corruption to informal systems. The  AFMIS has helped the government in the management and execution of budget, control of public  expenditures, reduction of corruption, collection of revenues and on-time payment of salaries to government  employees . The Ministry of Finance publishes an accounting manual and regular monthly budget reports to improve transparency in public finances. The beneficiaries of manual  financial system in Afghanistan were the corrupt officials.
• Morocco: 225 wage suspension and about 363 radiations between 2005 and 2007
• Sierra Leone: the introduction of IFMIS and subsequent improvement of record management helped uncover anomalies in personnel records of 2000 civil servants, leading to 16% of the subset employees being immediately suspended from the payroll as a result

What are some useful corruption indicators?

Many corruption indicators are based on public perception surveys. There is growing concern among anti-corruption agencies that perception-based indexes are not accurate measures. There is also some evidence that there can be gaps between informal procedures and technical PFM reforms leaving room for discretion and corrupt practices.   Good corruption and transparency indices include:

• Global Integrity Index
• Open Budget Survey
• Revenue Watch Index
• Transparency International Corruption Perceptions Index
• World Governance Indicators: Control of Corruption

What are some of the problems with GRP-enabled anti-corruption?

• Cost and Failure: can be high costs of automation, and there is a high failure rate of among automation projects, particularly in government
• Graft shifting: corruption can move from the procurement officer level to those with control  over the new automation system
• ICT sophistication: civil servants with superior ICT skills could manipulate systems

How can GRP anti-corruption issues be overcome?

• Data Integrity: in back-end databases and validation for data input and data imports identify transaction manipulation
• Oversight ICT training: so that auditors are capable of managing  system audits in addition to financial audits
• Patterns: through the development of fraud patterns that produce alerts and are used in exception reporting
• Phased implementation: through approaches to FMIS implementation that reduce the risk of failure, and build capacity and to allow absorption of key government  reforms
• Security: through encryption, controlled audit trails, integrated controls and tying user permissions to the government organizational structure and chart of accounts
• Systems configuration: rather than customized or custom-developed GRP that can introduce poor practices

What GRP good practices aid anti-corruption efforts?

Doug Hadden, VP Products

I’ve been working on a paper for the Association of Budgeting and Financial Management (ABFM) conference in October. I’ll be on a panel discussion on October 15th on Online Expenditure & Performance Reporting. There is growing evidence that government budget management is maturing.

Budget preparation is transitioning from an internal expert/technocrat to a community model through the use of social media.  Government organizations have leveraged outside experts, civil society and businesses for input for many years. But, new technology tools and citizen demand is creating the demand for more open and transparent participatory budgeting. Hence: Budget 2.0.

Towards a Budget 2.0 Roadmap

The difficulty in mapping out this modernization because there are so many overlapping avenues. And, modernization is inconsistent among governments where some governments are showing significant reform on some budget avenues but not others. The modernization to Government performance management, open data, accrual accounting and participatory budgeting appear to be consistent – part of a virtuous circle. For example, accrual accounting enables government performance management. Open data enables participatory budgeting that can improve government performance. Performance information improves open data.

My preliminary work is shown as a mind map below. (The paper and accompanying presentation will be easier to consume. I’ll provide links when completed.)

Avenues of Budget Modernization

Some of these budget modernization avenues include:

• Budget Preparation including the process for creating and approving budgets
• Oversight including internal government and external stakeholders
• Citizen Engagement includes methods of communicating to external stakeholders
• Transparency Mechanisms leveraged by governments
• Budget Comprehensiveness including all government tiers, parastatal organizations and coverage of all revenue and expenditures
• Accounting Methods from cash through accrual accounting
• International Standards Support for public sector and transparency standards
• Policy Formulation including the process of building policy and aligning policy to budgets
• Budget execution including how execution is controlled to meet budget objectives
• Government Communications Medium from published documents through to open data
• Timeliness on information provided to parliaments and citizens

There are significant barriers to modernization including:

• Governments that operate on a federal model can be legally prevented from providing comprehensive budgets across all tiers of government
• Budget confidentiality embedded in law prevent open interaction and participatory budgeting
• Transparency generates political concerns as does forms of performance management and accrual accounting that show the “true value” of the government
• Data quality concerns can prevent the timeliness of information publication restricting the ability to support citizen participation
• Culture of experts in government restricts engagement with external stakeholders

From Budget 1.0 to Budget 2.0

My assessment is that the modernization avenues can be categorized as:

• Budget 1.0: Traditional mechanisms of budget management that are primarily internally focused where control and compliance are major concerns
• Transitional: Increase of externally focused budget management where holistic budget management, transparency and government performance are major concerns
• Budget 2.0: Social mechanisms that attempt to leverage the network effect to improve government performance and service delivery

Doug Hadden, VP Products

(white paper draft)

The Integration of Donor and Recipient Government Financial Systems

The International Aid Transparency Initiative (IATI) “aims to make information about aid spending easier to access, use and understand.” IATI seeks to improve aid effectiveness through transparency. Transparency can improve aid harmonization and reduce aid transaction costs throughout the entire aid lifecycle from donor funding through to result.

The IATI Technical Advisory Group (TAG) has been studying methods for aid data integration among all aid participants. The integration of data between donor systems and recipient government budget systems is critical to IATI success. This integration can reduce administrative transaction cost. It can improve the coordination of donors and governments to achieve results. And, it can lead to direct budgetary support that ensures that aid better meets recipient government objectives. It’s all about improving aid effectiveness.

The TAG has encountered technical issues with donor and recipient government integration. Stakeholders from donors, civil society, governments and NGOs have differing aid effectiveness improvement objectives. Some stakeholders are concerned about the quality historical statistical information, while others seek a better understanding of transactions. Aid sector categories differ among stakeholders. There are differing needs for the level information granularity. Current standards in use by International Financial Institutions (IFIs) and governments operate at cross purposes, satisfying few stakeholders.

These difficulties are seen as technical metadata integration problems – data structures from operational systems used among donors and recipient governments cannot be rationalized.

The technical problem of project, transactional and statistical information integration among donor and recipient government budget systems is thought to be too complex and too expensive to contemplate. Nothing should be further from the truth. At its core, the IATI technical integration challenge is integrating donor budget with recipient government budget systems. Project data and statistical data are hierarchical constructs of budget and financial transactions. Additional data elements, including documents, project and statistical information can be linked directly to this transactional data.

What’s the Technical Problem?

Timely, effective, and automated integration among financial and project systems across the aid lifecycle requires the adoption of good practices in financial management systems – the use of program classifications. Herein lies the problem.

Developing nation governments, particularly FreeBalance customers, use program classifications. (And, the software enables progressively activating program classifications.) Many donors are not using this established good practices and have financial software systems that are too rigid to quickly and inexpensively adopt this good practice. (Financial software designed for the private sector often provides rigid classifications because these change infrequently. Government COAs change frequently to reflect modernization, reform, government restructuring, adoption of performance management, support of standards – including new standards like IATI.) Some donors pull project information from documents and have to manually reconcile with transactions.

Towards Donor to Government Integration: Automating the Financial Aid Lifecycle

The integration of donor systems with recipient government budget systems for on-budget aid projects includes the following elements:

1. Donor budget preparation systems where donors determine upcoming project budgets. These systems could integrate directly with recipient government budget preparation systems that include anticipated on-budget aid resulting in legally mandated budget
2. Alternatively, and perhaps preferably, the donor budget preparation and system could integrate with aid management systems. Aid Management systems enable donors and recipient governments to collaborate in the definition, funding and management of aid projects. Also recipient government budget preparation systems could integrate with aid management systems to enable budget planning and to harmonize the government and aid budgets.
3. The resulting budget prepared in the donor budget preparation system is formalized in the donor financial management system for disbursements during the fiscal year.
4. Disbursement information from the donor financial system could integrate with the recipient government financial system. The recipient government receives the funds against the budget item and provides authority to spend through appropriations or warrants.
5. Alternatively, and perhaps preferably, the donor financial management provides disbursement information to the aid management system that also integrates with the recipient government financial management system. This provides disbursement information to all stakeholders to improve aid harmonization.
6. Outcome and project reports are generated from the Aid Management System.
7. Outcome and project reports from the donor financial management and recipient government financial systems can also provide output, project and outcome information.
8. Recipient government financial systems typically output statistical data using the IMF GFS standard.
9. Output, project, outcome and statistical data can be compared to support historical analysis.

Budget Preparation

All public sector organizations operate using commitment accounting techniques for financial management. Budgets are developed that become the legal embodiment of government policy in recipient governments. Bi-lateral donors are government entities and operate based on the legal budget. Multi-lateral donors also manage financials based on commitment accounting to satisfy funders.

The budget preparation cycle is similar among public sector organizations whether special budget preparation software or spreadsheets are used.

Recipient Government Perspective:  Aid intentions from donors, regardless of the certainty of that aid, are critical to forming budgets. Recipient governments require harmonizing with donor budgets to achieve government objectives. The fact that a donor might commit to funding is important because the recipient government can identify this likelihood and be prepared should these funds be disbursed later.

1. Numerous factors are analyzed during the budget preparation process. This includes organizational objects, or the general policy of the organization, macroeconomic analysis and historical information to determine budget assumption for the upcoming year, typically in the form of a budget circular. This budget circular is scheduled during the current fiscal year for planning for a subsequent fiscal year. Many government organizations plan ahead on a medium term; therefore, the historical information includes preliminary information about the upcoming fiscal year and multiple year projects and commitments.
2. The budget circular typically provides guidance on budget assumption in the form of budget ceilings to organizational units.
3. Government organizations follow an iterative process of numerous internal budget proposal or versions with project and cost justifications. These versions are rolled-up to budget organizations and analyzed. Scenarios are examined.
4. The budget organization completes a detailed budget document or budget book for approval.
5. The budget is adapted by legislative processes through a vote.
6. The result of the budget vote is a budget law in government.
7. The budget law provides the allotment or appropriation information for budget execution in the government financial system.

Aid management

1. Donors prepare budgets based on donor objectives
2. Donor objectives are harmonized with government objectives to determine areas of mutual interest
3. Projects that meet objectives are proposed
4. That include a set of risk factors and performance measurements for expected outputs and outcomes
5. Projects that are approved for funding are shown in donor and recipient Budget Preparation systems
6. Budget information is shown in the Budget Execution module of donor and recipient government Financial Management systems
7. Funds are disbursed by donors to the recipient governments and progress shown in a Monitoring and Evaluation module
8. Funds received by donors are executed by the recipient governments, with progress shown in a Monitoring and Evaluation module
9. Results from the projects can be tracked against risk factors and performance measures in a Monitoring and Evaluation module

Budget Execution

Budget execution includes the financial management of all revenues and expenditures controlled by the budget. The budget can be adjusted throughout the fiscal year based on cash availability, macro-economic changes and availability of new revenue sources.

Recipient Government Perspective: Budget execution is difficult for many developing countries to effectively manage. These governments tend to experience cash shortfalls. Some governments are not able to spend the entire budget, hence reducing the effectiveness of many initiatives. Many donors examine recipient government disbursements as an indicator of progress. Yet, budget execution processes can expose in-progress spending through commitments and obligations to give a better indication of the recipient government project budgets.

1. The budget law developed during formulation creates the annual budget. The budget typically includes annual spending limits that are aggregated by organizational unit, fund source, project and type of expenditure such as capital or recurrent. The budget law also includes detailed line-item budget estimates that are used for advisement in most governments. Some government organizations use full line-item budgeting. The appropriations including authority to spend typically include the aggregate annual budget, some elements of the line item information and period budgetary controls. Many governments operate with monthly or quarterly controls that are more detailed than the annual appropriation to enable more effective fiscal control.
2. Expenditures in government financial management systems leverage commitment accounting functions. Funds are set aside during expenditure cycles to ensure that budgets are overspent. Many governments support two phases of commitments where money is set aside during the requisition stage as a soft commitment or pre-encumbrance. Good practices in government financial management ensure that contractual obligations set aside funds when purchase orders are created.
3. Goods and services are received by the government are paid for through disbursements.
4. Government revenue may be higher or lower than expected based on macroeconomic changes. There may be cash and liquidity issues. These situations often change expenditure budgets and appropriations.
5. Governments often receive supplemental budgets. Recipient government receive project funds when fiscal years are not aligned with donors and there is no budget preparation integration. Special supplemental budgets are often created because of macroeconomic shocks, such as stimulus packages or because of natural disasters.
6. The spending status against the budget can be analyzed. Budget deficits and surpluses can be predicted. It is considered a poor practice to under-spend because this will reduce outputs and outcomes. Appropriations can be loosened to encourage spending or tightened to reduce spending.
7. Budget reports showing outputs and variances are produced.

Commitment Accounting Transactions

Commitment Accounting is sometimes considered as part of the Budget Execution cycle. PFM transactions combine the traditional accounting transactions used in the private sector with budget controls.

Recipient Government Perspective: The status of commitments and obligations provides a better indicator of project progress than disbursements. It should also be noted that there can be delays in payment cycles after expenses have been approved. Therefore, the goods received and expense voucher stages in expenditures can also provide insight to project progress because these indicate goods and services completed but not yet paid.

The commitment accounting transaction structure includes the following:

1. Budget law provides one or more appropriations that act as expenditure controls
2. Internal purchase requisitions are checked for budget availability in some countries. The estimated amount of the expenditure is committed or set aside.
3. Purchase Orders are checked against budget availability. Differences with requisitions are adjusted. The purchase order represents a contractual obligation or hard commitment. The obligation is set aside.
4. Goods and services are received and returned via Goods Receipt and Goods Returned Notes are accrued if the government is using modified accrual or accrual accounting.
5. Goods and services that are accepted are approved for expenditures through Expense Vouchers that are shown in the Accounts Payable sub-ledger. PFM systems tend to post Accounts Payable transactions to the General Ledger immediately in order to show the true cash and budget situation.
6. Cash Receipts, revenue from taxation and other sources of government income are provided to Bank accounts and shown in the Accounts Receivable sub-ledger, posted in real time to the General Ledger.
7. Payments are posted to the Accounts Payable sub-ledger and honoured by the Bank.
8. The Bank information is reconciled with the General Ledger.
9. The recipient government manages Cash and liquidity based on Bank information, expected payments from Accounts Payable and the commitment cycle, revenue expected from Accounts Receivable, forecasts based on Appropriations, investments and debt.

The Classification of Aid Information

Classifying data is a typical information management problem. Information systems need to catalogue and classify data to support process workflow, analysis, decision-making and reporting.  Information systems classify data based on needs. This data classification is known as “metadata.” Organizations often require using “master data management” tools to harmonize data across multiple information systems. These systems reclassify and transform data to create common information. These systems also rationalize differing levels of detail required in information systems.

International data exchange standards like IATI provide a standard data target to facilitate integration. Organizations use MDM tools to import and export data.

The aid lifecycle includes project, budget and financial information. This metadata associated with aid information tends to be multidimensional and hierarchical. For example, budget classifications often include multiple data segments. Each segment includes a hierarchy of details.

There are numerous COA practices including:

• Budget classification structures tend to change over time as donors and recipient governments change objectives, accounting methods (i.e. accrual accounting) and items to measure
• Organizations tend to modernize from a simple structure including fund, organization, object/economic item to add programme and output segments.
• Mid developed countries are often less likely to support international standards and multiple segments. Lower developed countries are most likely to follow international standards. High developed countries have mature national standards that are often at a par with international standards.
• International and some national standards are supported via side tables or side concepts. These items roll-up transactional data in alternative methods through mapping ranges of data to a different structure. Budget and accounting users should not be exposed to most statistical, project, and performance objects.

The Government of Sierra Leone utilizes the program segment of 8 characters with 5 levels of hierarchy. Users enter budgets and accounting transactions where:

• Character 1 = Project Type
• Characters 2 & 3 = Project
• Character 4 = Component
• Characters 5 & 6 = Sub Component
• Characters 7 & 8 = Activity

COA rules are able to take the 8 characters to infer 3 levels of Government Financial Statistics support, 2 additional levels of project reporting, 4 additional levels of output or performance information and 1 level of Millennium Development Goals.

The use of Side Concepts, supported by financial management systems used in almost all donors and most developing countries is conceived to be the method to support IATI reporting and integration.

Aid Management Classifications

Aid management systems track information and transactional information related to projects. This can vary from government to government, but the data structure for any project typically includes:

• Project identification including title , description , objective , purpose , agreement number and agreement date
• Planning information including project start and end dates , extension dates if any and project status
• Project implementation information which includes whether it is implemented at national/sub national level and the sector.
• Alignment of project to national priorities or MDGs
• Project implementing and beneficiary partners
• Government and donor focal point contact information

Integrating Structure across Systems

Integrating donor and recipient government systems is enabled because these systems hold more detailed information than is needed by the IATI standard. The structure of the budget data is different among stakeholders. However, there is sufficient commonality to infer or roll-up to the aggregate project and statistical information required by the IATI standard. The process is conceptually no different than donors supporting CRS or recipient governments supporting GFS.

1. The donor budget system includes Chart of Accounts that describes objective, project, sector, recipient and object code. This information could be in as few as 2 segments structured hierarchically. The objective, project, sector and recipient government information can integrate with an aid management system through a mapping process. Mapping data structures is well understood in information technology using Extract, Transform, Load (ETL), Enterprise Application Integration (EAI) or Business Process Management (BPM) tools.
2. The same information provided to the aid management system can integrate with the recipient government Chart of Accounts. The conditions of the donor can be integrated through the fund and object segment and controlled through valid code combinations to prevent improper spending.
3. Documents and other material such as assessments, reviews and proposals can be linked directly to elements of the budget and aid classifications.
4. The highly detailed transactional information can be exported from donor budget systems through side table COA structures or via mapping tools.
5. The less detailed transactional information can be exported from aid management systems through reports or via mapping tools.
6. The highly detailed transactional information can be exported from recipient government budget systems through side table COA structures or via mapping tools.
7. Common elements from DAC/CRS produced by some donors and GFS could be used to enhance the IATI data set or simplify the process of reporting. Of course, the IATI data structure can align with data elements found in documents. Navigating and drilling through IATI data could include document discovery.

Conclusions

• Aid information including transactions (and transaction stages),  project information (including documents) can be integrated because charts of accounts provide the linking metatdata
• Differences among charts of accounts can be facilitated through the use of side tables or side concepts
• Members of the aid ecosystem need to adopt program budgeting to enable integration – this cost will enable timely aid reporting including monthly
• Manual methods of integration compromises data quality and timeliness resulting is less coordination and less effective aid
• Integration can be accomplished with aid management, budget preparation and budget execution systems
• Tracking disbursements from donors and payment by recipient governments does not show progress so aid transparency and effectiveness can be improved by following the commitment cycle

Steven Symansky, formerly with the International Monetary Fund, was the keynote speaker at the FreeBalance International Steering Committee (FISC) conference. Dr. Symansky spoke about Public Financial Management (PFM) Reform and Donor Funding in Post-Conflict Countries. He has practical experience in Afghanistan, Iraq, Kosovo, Liberia and Timor-Leste. Dr. Symansky published a short paper on the subject.

He reflected on his experience in financial management software that works in post-conflict countries – FreeBalance. Dr. Symansky suggested that FreeBalance software could be considered part of good practice in PFM reform. Dr. Symansky described his rich academic experience followed by work at the Federal Reserve, World Bank and the IMF.  He characterized this background as similar to what most post-conflict countries face, little or no experience. He quickly abandoned his pre-conceived notions. The most important lesson learned: best is the enemy of good.

Dr. Symansky described the genesis of selecting FreeBalance software in Kosovo. Installation including development of the Chart of Accounts and printing cheques within 2 months. He described the experience implementing FreeBalance software in Timor-Leste and Afghanistan. The  financial management system in Afghanistan was good on paper. There was great resistance in automating the system. Many experts thought that study was needed. But the experience in Kosovo and Timor-Leste showed that a financial management system could be implemented quickly and adapt to reform.

Dr. Symansky described the International Financial Institutions (IFI) focus on “policy” in post-conflict countries as ill conceived. Post-conflict countries have no basis for policy according to Dr. Symansky. “You got to get the nuts and bolts right.” Dr. Symansky recently produced a discussion paper for the Overseas Development Institute. He was interviewed during the 6^th Annual CAPE ODI Conference.

Fragile states tend to have missing or weak human and physical capital. Many local experts leave according to Dr. Symansky. There is often a massive foreign influx of experts and funds which is not always a blessing. Many foreign experts impose systems from their own countries and often do not listen to local concerns and think that they know best. They often come with developed country attitudes and values. Dr. Symansky recommends that foreign experts should listen to government public servants.

There is often a limted source of domestic revenue in fragile countries according to Dr. Symansky. Much of the foreign money coming into countries goes outside the financial management system leading to duplication of effort.

Advice from Dr. Symansky, ”in public financial management, one size fits all, but no harm in borrowing what works elsewhere, like FreeBalance.” He also suggested that “best is the enemy of good”. For example, countries should not implement accrual accounting or program budgeting if the cash processes are not understood. He recommended that countries use existing structures, including the legal framework whenever possible.

“Budget execution is more important than budget preparation”, according to Dr. Symansky, “Someone at the Cape Conference put it better than I did: ‘Get the plumbing right or there is no sense having a well-designed house.’ We know that the budget reflects policy but in these cases, the budget is often meaningless since so much takes place outside the government budget. It is more important to legitimize the budget and the way to do that is by showing the international community that the government can be trusted and the way to do that is by setting expenditure rules with accountability and ensuring a proper audit trail. This was exactly what was done in Kosovo, Timor Leste and Afghanistan. For this to work, you need computerization. Interesting that the IMF tended to reject this arguing that it takes time to set up the right procedures. But I think that this is wrong. Better to set up a system that has the basics of budget execution but is easily configurable to adapt to a changing environment.”

Dr. Symansky described the reasons why the FreeBalance Accountability Suite was an ideal solution for post-conflict countries:

1. IT has been quick to implement
2. Designed and structured for government rather than modified to fit government
3. Easily configurable unlike traditional business software
4. Needs less support than most other software
5. Expandable, can grow from the Ministry of Finance to Line Ministries and sub-national government

“Government systems to show the international community that it had proper controls on spending, strong reporting, proper accountability and audit trails. Success in this area would provide the government with information to develop budgets and donors could trust the system,” according to Dr. Symansky. International organizations do not want to put money through government budgets. Yet in Afghanistan, the US government has begun to put money directly in the government budget. The corruption in the country is primarily outside of the financial system according to Dr. Symansky. (As we have written previously.) He described how corruption was reduced dramatically in Afghanistan through automation. “That doesn’t mean that you don’t need good audit,” according to Dr. Symansky.

Dr. Symansky urges International Financial Institutions to provide direct budgetary support.Donor coordination for technical assistance is needed. He suggested that donors should report to the government to the government Chart of Accounts. He suggested some other practices:

• Manage administratively but report by program as a first step to program budgeting
• Political buy-in of PFM systems can help, but successful implementation can produce political support
• Avoid overly centralized control and micro managing
• Control at the aggregate level rather than at the “pencil” level
• Work with the existing civil service structure and avoid expensive foreign consultants

He concluded his presentation with the controversial view that donors should be taxpayers in countries.

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).

About Steven Symansky

Steven Symansky retired from the IMFin 2009 as an Advisor in the Fiscal Affairs Department. While in the IMF, he served as the Division Chief of the Fiscal Surveillance and Policy Division, and the mission chief for Afghanistan for 3 years during which he negotiated the Staff Monitored Program and the program related to the Poverty Reduction and Growth Facility. Also, Mr. Symansky was in the Research Department at the IMF for about 8 years. Before that, he spent two years in the Research Department at the World Bank and eight years in the International Division at the Board of Governors of the Federal Reserve after he earned his PHD in economics from Wisconsin. He led a number of fiscal technical assistance missions to post-conflict countries (i.e. Kosovo, East Timor, Afghanistan, Iraq and Liberia). He also led several public expenditure and macro-fiscal technical assistance missions to a variety of countries.

In addition to his technical assistance and IMF country work, he developed the IMF’s first world macro-econometric model and published numerous papers related to this work. He co-authored a paper with George Kopits on Fiscal Rules and was a co-author of two recent IMF staff position papers — one on fiscal policy during the crisis and one on multipliers. He has also published papers on debt buy-backs, real exchange rates, tax harmonization, and the macroeconomics of drugs. Most recently he has been drafting fiscal responsibility legislation for two countries in the Caribbean.  

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

Is the journey to good governance paved with good intentions? Yearly snapshots of governance indicators are effective benchmarks. Causality? That seems to be more difficult to determine. How does a government effectively sequence reform to achieve improved governance indicators? How can we predict that a government will achieve improvements in the future? I think that Public Expenditure and Financial Accountability (PEFA) assessments are the best vehicle at hand. PEFA assessments characterize the Public Financial Management (PFM) environment in government. We’ve pointed out how the Government of Kosovo has improved results from the 2007 to the 2009 PEFA assessment. And these results are superior, on average, to other PEFA assessments.

How does this compare to with other countries in South Eastern Europe? Published PEFA assessments include:

• Albania 2006
• Kosovo 2007 and 2009
• Macedonia 2007
• Serbia 2007

Only Kosovo has published two PEFA reports. Kosovo is the only South Eastern European country to have published a recent PEFA report. So, there is a rather small sample size for comparison. Kosovo has shown good results, particularly in budget execution and budget transparency.

The landmark study by Paolo de Renzio, Taking Stock What do PEFA Assessments tell us about PFM systems across countries,  for the Oversees Development Institute identified some patterns for improved PEFA assessments:

population size… results seem to indicate that larger country size is generally associated with better PFM system performance

higher level of income perform better in terms of the quality of their PFM systems

Yet, Kosovo has a lower population than all South Eastern European countries except Montenegro and has the lowest GDP per capita

The Kosovo PEFA results are remarkable. It takes time for country governance mechanism improvements to show in governance indicators. For example, World Bank indicators for Control of Corruption and Government Effectiveness are lower than the peer group.

My sense is that many of the elements in the PEFA assessment represent dependencies that result in improved governance outcomes.  There is some anecdotal evidence to support this view:

• “I am particularly pleased with the commitment of the Kosovar authorities to further strengthening the sustainability of their policy framework.” IMF Managing Director Dominique Strauss-Kahn
• “Transparency of the Budget was improved with detailed supporting documentation” USAID
• “The greatest strength of the Kosovo PFM is its treasury system” 2007 PEFA Assessment
• “the internal control structure has been established in Kosovo. The basic legal framework is sound, with clear structures of accountability.” EU SIGMA
• “Other strengths are found in the areas of internal audit and control and external audit where the process is in place and capacity is being built up for effective implementation” 2009 PEFA Assessment

The Government of Kosovo is committed to Public Financial Management (PFM) reform. PEFA or Public Expenditure and Financial Accountability provides a standard for assessingg public financial management. The PEFA Secretariat provides assessment training and publishes completed reports.  The Government of Kosovo PEFA assessments for 2007 and 2009 are available on-line.

International donors use the 28 government indicators when considering funding projects. (Donors are also assessed in PEFA). Scores range from A to D. Not all scores need to by high. The country context determines priorities.  For example, Norway achieved C or D on eight indicators.

The Government of Kosovo has shown remarkable improvement in PEFA scores from 2007 to 2009. 13 scores improved while only 7 scores decreased. 7 of the 13 improved scores were significant – increasing by more than 1 letter. The indicators roll up to six major measurements:

• A. Credibility of the budget
• B. Comprehensiveness and Transparency
• C(i) Policy-Based Budgeting
• C(ii) Predictability and Control in Budget Execution
• C(iii) Accounting, Recording and Reporting
• C(iv) External Scrutiny and Audit

A recent study, Taking Stock: What do PEFA Assessments tell us about PFM systems across countries, by Paolo de Renzio for the Overseas Development Institute, compared the measurements across 57 studies. Using the same methodology, the Government of Kosovo scores higher than average on the six major measurements.

Comprehensiveness and Transparency in the budget is particularly high in Kosovo. The government is aided by the use of the FreeBalance Government Resource Planning (GRP) software.  According to the 2009 PEFA report:

The strength of the existing PFM system in centred on the successful introduction and implementation of the Financial Management Information System.  This has ensured that commitment control is applied in budget execution and that reporting on budget execution is timely and meets the need of management for effective decision-making.

Of course, the financial management system is a tool. Software from companies like FreeBalance need to be effectively leveraged by governments. And, PEFA assessments rate government reform, practices and legislation. GRP software does not automatically provide PFM reform. This is a government activity and requires commitment. The Government of Kosovo is committed to improving these scores through the Public Financial Management Reform Plan (PFM RAP). This is clearly a Government of Kosovo achievement.

We have had the opportunity to discuss good practices with PFM professionals the the Government of Kosovo. There are numerous lessons learned – these lessons can help other countries to improve PEFA assessments. We will be publishing a full case study in the near future.

Recent financial shocks have led to accelerated adoption of Government Resource Planning (GRP) and Public Financial Management (PFM) reform in emerging countries. What about more developed countries? There has been some examples of fiscal reforms in countries like Korea, and changes in regulations for the financial sector in OECD countries. Yet, governments in Iceland, Greece and Ireland are experiencing significant fiscal shortfalls.

How can GRP help governments to adapt more effectively to unexpected financial crisis? Freezing spending and public sector wages is a typical approach. How can emerging country governments expect to better manage budget shortfalls if the budget management software in use in developing countries appears so ineffective?

Financial Stress and the  ’Budget Problem‘

Government financial management is budget driven, unlike the private sector. Government budgets are complex. And, constrained:

• Capital expenditures often span multiple years and generate multi-year commitments. Slowing in-progress capital expenditures can result in half completed bridges, buildings, internet infrastructures.
• Recurrent expenditures often have minimum costs that provide little room for reduced spending. Hospitals need electricity and medical supplies.
• Public Private Partnerships (PPP) bring expenses off the government balance sheet. However, governments are often liable to pick up on these projects when the private sector partner encounters financial difficulty.
• Legal constraints often mandate expenditures, such as the results of  ’propositions’ in the the American State of California. These expenditures cannot be reduced. Many governments are unable to reduce the size of the public service even when jobs are identified as redundant, as in the case of India.
• Donor projects executed by the government or outside organizations often require a legal commitment for the government. Governments may need to contribute funds to projects or provide specific deliverables. Cutting back on the government expenditure can cancel donor funded programs.
• Wages often represent a significant portion of government expenditures. Governments are often the largest employer in countries.  This is why salaries are often reduced or frozen when governments encounter budget deficits. Yet, this method often demoralizes public servants and reduces the quality of government services.
• Government objectives and priorities are difficult to manage during financial crisis. New priorities such as stimulus packages are introduced. Medium and long-term objectives often take a “back seat”.

Effective Budget Management for Governments Under Financial Stress

Many budget preparation software applications used by governments are ineffective in handling financial crisis.  Applications developed for the private sector do not have necessary features for modeling multi-year budgets. Custom applications typically manage the ceremony of budget proposals. Spreadsheet applications are not able to handle whole-of-government budget analysis.  These solutions are often unable to forecast budget surpluses or deficits during the fiscal year.

Governments can use effective budget preparation and budget execution software components of GRP to more effectively deal with financial crisis. These applications, like the FreeBalance Accountability Suite, can support the following:

• Scenario planning and what-if analysis during budget preparation and execution. Financial crisis can be modeled in budget preparation software. Governments can leverage these models should a crisis occur. Governments can also update these scenarios with actual figures to enable more effective reaction to problems.
• Forecasting provides early warning on revenue shortfalls. Governments can react quicker and more effectively.
• Wage forecasting is particularly important when managing deficit situations. Wages include salaries, benefits, training, travel, bonuses and other civil services expenses. So, wages can vary significantly from plans. Human Resources applications rarely have budget visibility. Wage forecasting and variance is critical. Elements of salary costs other than wages could be reduced.
• Multiple year visibility to budgets, budget types and budget constraints to enable decision-makers to find more effective methods of expenditure management.
• Objectives management for budgets enable governments to link expenditures with objectives and priorities.  Every expenditure is linked with one or more objectives. Priorities change during a financial crisis. Objectives management enables governments to recast budget plans during the fiscal year to focus on priorities.

Numerous speakers 3rd Global Conference on Electronic Government Procurement  held at the Inter-American Development Bank in Washington DC described the need for integration. Procurement systems need to integrate with Government Resource Planning systems to enable transparency and efficiency. e-GP is a major element for GRP or Integrated Financial Management Information Systems (IFMIS)

Integration with GRP modules included:

• Budget Planning integrated with e-GP to support procurement plans. Many capital expenditures operate across multiple years. These projects often require recurring expenditures including salaries and maintenance.
• Budget Execution and Government Accounting  integration including budgetary controls. e-GP systems need to integrate with the changing government budget, appropriation and liquidity situation. Many countries soft commit or pre-encumber funds during the tendering process for improved budget and cash management. Purchase orders, payment terms, invoicing and payments need to be integrated with the accounting system. The use of accrual accounting increases the need for integration.
• Fixed Asset and Inventory items are acquired through the e-GP system. These items should automatically update asset and inventory sub-systems. Asset responsibility, depreciation method and useful life information should be automatically integrated. Inventory special handling, stores handling and other information should also be automatically integrated.

We’ve started to distinguish FreeBalance software as Government Resource Planning. GRP is much more than a variation of generic software: it’s a unique tool for financial and information management.

We’ve talked about some of these unique characteristics in the past. It’s now time to provide a comprehensive definition of GRP.

GRP is software designed for the unique requirements of public financial management. GRP software is budget-driven through the use of Commitment Accounting, where the budget is the legal embodiment of government objectives. Commitment Accounting is used only in government and other forms of public financial management.

Budget Cycle

GRP is designed to cover the entire government budget cycle, including Budget Preparation and Budget Execution. Budget Preparation is the key mechanism for governments to determine how objectives will be met and how to improve government performance. Government revenue and expenditures are managed during Budget Execution using Commitment Accounting. Funds are set aside during procurement and hiring cycles to ensure that the budget is not exceeded. Changes in the government financial situation result in budget transfers to ensure fiscal discipline.

Government Performance Management, Government Services and Accountability

Governments carry complex mandates. Improving results requires mechanisms in GRP software for planning and analysis throughout the Budget Cycle with an emphasis on improving government services.

Governments don’t have shareholders. They report to citizens, and citizens demand transparent and open government. Citizen reports focus on planned budgets versus actual expenditures. Governments use governance mechanisms to describe how objectives will be met, and then assess whether objectives were or were not met. Many governments follow international public sector accounting standards for these reports. Releasing this information to citizens makes governments more accountable.

Reform and Modernization

Managing and reporting on government performance requires a complex Chart of Accounts (COA) design. COAs change as governments find new ways to improve services and performance. These changes need to be integrated into the fundamental building blocks of Commitment Accounting to ensure that budgets are executed properly.

There’s more to on-going government reform. The state-of-the-art in Enterprise Resource Planning (ERP) for the private sector focuses on Business Process Re-engineering (BPR). Businesses develop the most efficient processes and leverage best practices. Software is customized to achieve industry best practices, improved efficiency and unique business models. Once implemented, the software undergoes minor modifications.

There’s really no such thing as industry “best practices” in government, although there are numerous good practices. (Practices must be related to the government context – what is important to the government and the human capacity of the government.) And, governments cannot adopt better practices without legal changes. Digital signatures on cheques, for example, or accrual accounting procedures and de-centralized decision making, are all considered good practices. But these practices require legal reform and are adopted over time.

Government Resource Planning software must adapt to government reform and change. Unlike enterprise software, GRP is not predicated on the notion that the implementation requires business re-engineering in order to achieve a pre-determined “end-state”. Nor is the quest for reform confined to emerging government – G8 governments constantly look for ways to modernize their processes. Since there’s no such thing as an “end state” in government, there is never an “end state” in GRP.