Sustainable Public Financial Management

Doug Hadden, VP Products

We’ve discussed the current state-of-the-art in government shared services. There’s some discontent among government users for technology shared services. Despite a rather obvious set of benefits from standardization and consolidation of similar GRP functions such as budget, financial and human capital management. Gartner Group concluding that “shared services” is on the descent to the trough of disillusionment.

Process standardization is a key benefit experienced in the private sector. Standardization reduces cost for training, support and upgrading software. Private sector companies can benefit from best practices. They adjust their processes to achieve greater efficiency. Government doesn’t work that way. Adjusting processes to achieve greater efficiency or standardization often requires changes to the law. Privacy,agency  independence, de-centralization and other problems can make standardization exercises difficult. Shared services initiatives begin with analysis of the current situation. There can be significant commonality among government organizations.

The pattern of dissimilar processes expands based on the number of organizations compared. Even small government agencies can have significant differences in mandate. Problems encountered with standardization include:

• Disjointed processeswhere only parts of shared processes are standardized. The comprehensive “line of business” cannot be fully automated leaving government ministries, departments and agencies with the option of manual processes or creating special purpose tools. This has been a general problem in government IT that standardization can worsen rather than aleve.
• Diminishing returns where adapting organizational processes to the standard reduces efficiency or service delivery.
• Legal and processbarriers where standardization cannot be implemented by some organizations. This can dramatically reduce the return on investment for setting up an expensive shared services infrastructure if it cannot be leveraged by all government organizations.

The primary difficulty in achieving government shared services for “lines of business” isn’t standardization – it’s the technology tools used. Many shared services initiative use Enterprise Resource Planning (ERP) software developed for the private sector. This software has some unfortunate characteristics:

• Customization: the use of code customization to achieve government needs that increases the Total Cost of Ownership (TCO). This makes it difficult to transition sets of customized code to standard processes.
• Single instance: the design of private sector software expects a single entity operating standard processes. Many government shared services initiatives requires hosting multiple different instances, which defeats the purpose of shared services in the first place.
• Reliance of industry practices: this use of so-called “best practices” makes it difficult to standardize a complete process across multiple organizations. And, very difficult to support legal reform and modernization of financial processes.

We have been very adamant that software technology can be designed specifically for government. We’ve developed an innovative shared services technology approach. This approach is based on three important “non functional requirements” for the design of Version 7 of the FreeBalance Accountability Suite:

• Configuration where the broad spectrum of government processes can be easily configured and requires no customization.
• Multiple configurations where a single hosted system can support different configurations.
• Reliance of government good practices proven around the world to support change and modernization.

The FreeBalance approach to shared services supports a different deployment model:

• Standardization of many processes facilitated through the configuration approach. These processes will be standard and identical.
• Semi-standardization through a configuration rangewhere government organizations can select processes within a narrow approved range. Once again, this approach is supported through parameters in the FreeBalance Accountability Suite. Semi-standardization enables governments to achieve the benefits of consolidation by broadening the shared services footprint without significantly increasing costs.
• Local or central hostingof functions unique to the government organization. These functions may need to be separate from shared services because of legal requirements. Or, the processes are so unique as to make central hosting cost ineffective. The FreeBalance Accountability Suite supports this approach through hybrid deployment where processes can be hosted in more than one location.
• Phased migration of configurations where government organizations can move to compliant and mandated standard processes over time. This reduces the training costs and lack of productivity associated with switching solutions abruptly.

Configuration? Customization?

There is some confusion in the Government Resource Planning (GRP) market. Vendors like FreeBalance promote software configuration as an advantage. Other vendors promote customization. Generic software vendors tend to promote a broad array of options. This can be confusing – particularly when some of these options can be very expensive. It can also be misleading governments into thinking that requirements can only be satisfied through the code customization approach. It’s high time for someone to score configuration and customization options provided by enterprise and government vendors.

Configuration Methods

Parameters

• Description: Use of parameters or settings in software set-up pages.
• Implication: No change in source code. Parameters supported in upgrade to new versions.
• Generic Software Approach: Tends to support general system and basic set-up. Not intended to be comprehensive because of support for many markets.
• FreeBalance Approach:  All functions parameter driven. Intended to be comprehensive for governments (with other configuration methods). Supports progressive activation of features and functions over time.

Graphical Drag and Drop

• Description: Ability to configure complex concept through drag and drop methods with rich interface.
• Implication: No change in source code. Designed to facilitate complex configuration
• Generic Software Approach: Sometimes provides “wizards” to enable configuration.
• FreeBalance Approach:  Support of rich graphical drag and drop for complex design for Chart of Accounts, Logic Maps and Organizational Charts.

Rule and Workflow Parameters

• Description: Use of table-driven parameters to adjust business rules and workflow.
• Implication: No change in source code. Simple method of defining processes. Easy to adjust these to support progressive activation.
• Generic Software Approach:Generic vendors unable to provide simple table-driven methods because of the breadth of markets supported. Workflow often requires more complex Business Process Management approach (see below).
• FreeBalance Approach:  Uses table-driven parameters for workflow and rules. Supports progressive activation.

Adding Fields

• Description: Ability to add fields of information to support unique requirements.
• Implication: No change in source code.
• Generic Software Approach: Enables additional fields. Many are treated as generic text. Often not able to affect business rules or reports without code customization.
• FreeBalance Approach:  Full support of custom domains that enable adding tables, fields, field rules and validation. Used in reports and workflows.

Language and Localization

• Description: Methods used to support different languages and character sets to enable translation.
• Implication: Ease of translation and adjustment of terminology important for capacity building.
• Generic Software Approach: Support of many i18n methods. Requirement to localize large portions of software that may not be leveraged in public sector. Multiple entry points for translation – help, labels, documentation etc. Difficult and expensive to support and maintain.
• FreeBalance Approach:  Multi-lingual software. Unique translation method uses spreadsheet and uploads method. Easy to support and maintain. Ideal for countries with unique national language. Single entry point to translate help, documentation and e-learning.

Accelerators

• Description: Pre-configured set of default modules and default values for one of many vertical markets.
• Implication: No change in source code. Public sector often one of many verticals.
• Generic Software Approach: Accelerates implementation relative to other generic applications. Often includes so-called “best practices” from other markets. Some customization is typically required.
• FreeBalance Approach:  By definition, the FreeBalance Accountability Suite supports a single market – government. Rich out-of-the-box government functionality. Support of XML enables importing parameters and migrating data from existing systems to accelerate data migration.

Configuration Scorecard

Generic Software Approach:

FreeBalance Approach:

Customization Approaches

Call-Outs

• Description: Ability to augment processes with call-out or exit to additional code.
• Implication: No change in original source code. Ability to add custom software code linked to existing code. Adds new source code that needs to be maintained.
• Generic Software Approach:Typical approach. Most enterprise software does not support atomic Service Oriented Architecture (SOA), so call-out is limited to what is exposed by the vendor. Approach often uses proprietary APIs. Sometimes requires the use of the vendor’s technical platform.
• FreeBalance Approach:  Support for component SOA. Atomic-level integration with augmented code is available. However, the focus on public financial management reduces the need for this approach because primarily handled via configuration.

Business Process Management

• Description: Use of workflow-based authoring tools to develop and adapt business processes.
• Implication: Like Call-Outs, can augment existing code. Creates new source but does not affect original source code. Workflow tools tend to be generic and require some programming or scripting. Approach can reduce the burden of upgrading, however, provides ability to change workflow to support poor practices.
• Generic Software Approach: Used by some generic software vendors in order to adapt processes and integrate with acquired software companies. (There has been a debate about this approach between the two leading ERP vendors.)
• FreeBalance Approach:  Table-driven workflow provided rather than complex because of FreeBalance single market focus. The workflow engine in FreeBalance software supports the WfML standard, so generic BPM suites are compatible. The call-out support can call-out to BPM workflow.

Code Customization

• Description: Adjust existing software code to meet unique requirements.
• Implication: Modifications change the software code making it difficult to development, test, maintain and upgrade.
• Generic Software Approach: Code customization is the typical approach to meet unique government requirements. Code is customized by system integrators or by the government.
• FreeBalance Approach:  Code customization rarely required. FreeBalance typically provides the code and exposes code as parameters for long term support. Nevertheless, code customization is available.

Custom Development

• Description: Develop software components using an Integrated Development Environment (IDE).
• Implication: Creation of new source code. Complex to develop requirements, design architecture, write code, maintain quality, and handle changes.
• Generic Software Approach: Technical platforms provide comprehensive tools for software development. COTS vendors with Financial Management applications view this option to be used for highly specialized applications that integrate with COTS. Governments looking to develop software in-house tend to start with generic technical development platforms.
• FreeBalance Approach:  Government-specific platform includes technical platform and set of reusable Government Entities to accelerate development and facilitate maintenance. Governments can acquire this platform to develop applications from “scratch”.

Customization Scorecard

Generic Software Approach:

FreeBalance Approach:

FreeBalance Accountability Suite

Fiscal Transparency in Public Finance

Governments across the world are modernizing or reforming public financial management (PFM) systems. Public financial management reform is a complex process enabled by integrated information technology. Government financial reform is essential for economic growth and successful competition in the global economy. The government budget is a key mechanism for government financial management.

The FreeBalance Government Accountability Suite is a web-based commercial off-the-shelf Integrated Financial Management Information Systems (IFMIS). The suite automates all public finance transactions related to the budget, including budget preparation, expenditure controls, government audit, procurement, monitoring, reporting, civil service and external audit.  By integrating government revenue and expenditure, information systems provide better expenditure controls and improved transparency in the budget cycle.

Programmed for Government

No customization required. FreeBalance software is optimized for public finance, with fiscal controls and government financial management rules built into the main code of the software.

Progressive Activation

Key for government self-reliance.  FreeBalance solutions can be scaled from basic capability for fast initial implementation and then gradually scaled up.

Proven Worldwide

Robust technology. More than 20 years of successful implementations, from difficult conditions in post-conflict countries to the most widely used financial software across the Government of Canada.

FreeBalance Supports Public Financial Management

FreeBalance applications support the complete lifecycle of budget management, including:

• Budget Preparation and Planning: Plan for multiple year budgets including scenarios, assumptions, budget proposals and multiple drafts to create a credible and realistic government budget.
• Budget Execution: Control all expenditures based on appropriations and business rules. Budgets can be transferred, supplemented budgets provided and controls tightened or loosened.
• Budget and Cash Forecasting: Forecast based on commitments, obligations and transactions tracked against budget with anticipated variance to enable governments to adjust controls. Leverage budget assumptions and “what-if” scenarios to improve decision-making.
• Civil Service Integration: Integrate salary budgeting. Unlike Human Resources software designed for the private sector, the FreeBalance Accountability Suite supports salary management, forecasting and budget integration.
•  Budget Reporting: Analyze budgets and actuals across many years and produce standardized financial reports.

FreeBalance Commitment Accounting and Expenditure Controls

Unlike private sector financial accounting, government commitment accounting is budget driven rather than profit driven. Commitment accounting requires numerous control mechanisms between the initial budget approval and the completion of fiscal transactions.  The FreeBalance Government Accountability Suite supports all commitment controls.  The commitment controls provided by FreeBalance are:

• Budgetary Control: The initial approved budgetary funds are mapped to the Chart of Accounts (COA) at a pre-determined COA hierarchy level for aggregate fiscal control.
• Multiple Levels of Allotment Controls: Supports approved appropriations, warrants or allocations, mapped to summary or detailed levels within the COA and to fiscal periods.
• Commitment Control: A soft commitment or intention to spend.
• Obligation Control: A hard commitment or contractual obligation.
• Multi-Funds and Project Controls: FreeBalance links Projects and Programs with fund sources, including linking budgets, projects or programs to specific revenue sources and donors.
• Tolerances: Set tolerances for controls to ensure fiscal discipline and compliance to the budget law while enabling appropriate discretion.
• Segregation of duties: Ensure compliance with government regulations through separation of duties and approval controls

FreeBalance Supports International Finance Standards

• The World Bank Treasury Reference Model: A development tool for fiscal managers and system developers, intended to help implement good practices in fiscal accounting and expenditure control.
• International Monetary Fund Code of Good Practices on Fiscal Transparency: Method to assess government fiscal transparency with practical advice for improvement.
• United Nations Common Functions of Government (COFOG): Functional classification to report government statistics to the International Monetary Fund (IMF) and the United Nations.
• The International Monetary Fund Government Finance Statistics (GFS): Provides a comprehensive conceptual and accounting framework suitable for analyzing and evaluating fiscal policy and performance of the general government sector and broader public sector of any country.
• International Federation of Accountants International Public Sector Accounting Standards Board International Public Sector Accounting Standards (IPSASs): Reporting requirements for government and public sector organizations
• Medium Term Expenditure Frameworks (MTEF): Multiple year rational planning and budget formulation processes enabling the government to establish credible and transparent criteria for allocating public resources to strategic priorities while ensuring overall fiscal discipline
•  Generally Accepted Accounting Principles (GAAP): A collection of rules, procedures and conventions that define accepted accounting practices. This includes broad guidelines and detailed procedures applied to both the public and private sectors.

FreeBalance Accountability Platform

The FreeBalance Accountability Platform  is the enabling technology used by FreeBalance and FreeBalance partners for developing web-based public financial management solutions. These solutions deliver applications on web browsers using Java application servers.

Technology for the FreeBalance Accountability Platform was designed exclusively for government operations. The use of proven open-source components reduces costs to governments and provides more choice.

The FreeBalance Accountability Platform has been developed exclusively in Java Enterprise Edition where business logic, data entities, and the rendering of user interfaces are accomplished using technology that leverages open application and web servers. The Accountability Platform supports integration with current FreeBalance applications to enable customers to easily transition to a pure web-based environment.

The FreeBalance Accountability Suite is designed for managing government fiscal processes from the ground up. The FreeBalance IFMIS is implemented by activating functionality options through software configuration rather than bespoke programming and software source code customization.

Governments worldwide select required functionality that reflects the unique country circumstances and can activate additional features and functionality as the political process evolves. The FreeBalance IFMIS is initially scaled down for fast implementation of a simple system, which can be extended over time to reflect evolving government needs and budget frameworks.

• Localization. All translations, including terminology changes are easily accessible by the customer through simplified methods for uploading translation files. All software modules support multiple languages and multiple currencies of up to 14 digits and 2 decimal places.
• Configuration. The software configuration includes selecting and setting the Chart of Accounts (COA), accounting methods (cash, modified cash, accrual, modified accrual accounting), the government purchasing processes, fiscal periods, approval methods, valid code combinations, business rules, workflow, reporting entities and authorizations.
• Progressive activation (sequential activation of additional functionality) though allowing ongoing changes to the accounting methods, budgetary controls and initial country-specific configuration to support evolving political processes and capacity building.
• Adaptable connectors to 3^rd party software, such as Customs and Taxation systems, secure cheque printing and electronic funds transfer systems.
• Multi-tiered Government Synchronization (MTGS). MTGS enables stand-alone systems located at nodes such as the Ministry of Finance (MOF), line ministries or regional offices to be connected by a wide area network (WAN), usually through VSAT satellite communications. This deployment enables synchronization of data between the nodes and different levels of government.

This is section 5.4 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.

The technical design for the FreeBalance Accountability Platform supports government requirements. This approach included three fundamental design criteria:

5.4.1. Configuration and Progressive Activation

Configuration, rather than customization, designed to support rapid government IFMIS implementations for the country context and adapt to future government reform.

5.4.2 Software Engineering Best Practices

Modern software engineering best-practices to protect the government investment in the IFMIS, while meeting government non-functional needs.

5.4.3 Focus on Government Financial Management Requirements

Built for government to comprehensively support the entire government budget cycle.

This is section 5.4.1 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.

FreeBalance financial management solutions are designed for governments at the national and sub-national levels. These applications are in use in governments from post-conflict to G8 countries. Enterprise software such as Enterprise Resource Planning (ERP) accommodates unique customer needs through various customization schemes. ERP software was designed to support many private sector industries or vertical markets. These applications often come with toolsets that enable the customization of software  code and business processes. This model has proven to be problematic in both the public and private sectors because of the length of time required to customize software, the difficulty to maintain customizations during software upgrades, the inflexibility to support change and the high cost to maintain a highly trained product development staff.

Parameter Approach

PFM needs are similar among governments. The variability among government needs depends on level of government PFM modernization. Some application elements require more flexibility than others. The focus on a single market, government, enables FreeBalance to avoid the need for code customization. The parameter approach includes:

• Configured set-up through parameters. Configure Chart of Accounts, users and groups, permissions, licenses, languages, financial methods, fiscal periods, preferences, business rules and workflow..
• Country-specific configuration. Import of translation file, configure terminology changes, and content templates.
• Progressive activation. Adapt configurations to support reform and modernization.
• Flexible contexts: Add fields and tables and have this information reflected in business rules, workflow and reports to support unique needs.

Improved Sustainability and Reduced Total Cost of Ownership (TCO)

Large IT projects are risky. Many companies and governments have failed to achieve desired results when implementing enterprise resource and financial management systems. This includes a failure to implement on time, adapt as conditions change, or have financially sustainable systems that return sufficient benefits. FreeBalance software has been proven to implement much faster than alternatives. Governments have found that FreeBalance software cost less to maintain than alternatives.

The ability for governments for self-sustaining systems that require a minimum of consulting assistance reduces long-term costs. This is often called the Total Cost of Ownership (TCO).

The lessons learned because of this success ensured that the following characteristics were maintained in the FreeBalance Accountability Platform:

• Modular approach. Add modules over time enables governments to implement critical functions, based on the country context, quickly to achieve value.
• Support for modernization. Progressive activation to support reform and modernization.
• Reduce burden on Information Technology (IT) for support. Optimized technical footprint reduces the burden on IT to manage computer systems, networks and middleware software.

This is section 5.4.3 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.

Government financial management differs from the private sector accounting. Many other financial functions such as civil service management and procurement are more similar to private sector practices. The following checklist describes necessary core government financial management functions.

This is section 5.6 of a series of blog entries creating a Government IFMIS Technology Evaluation Guide. This includes information to assist in evaluating IFMIS options and the technology requirements for FreeBalance IFMIS implementations. These series will be combined with feedback to produce a comprehensive Technology Evaluation Guide to be published on our web site.