Sustainable Public Financial Management

This series examines different scenarios and the impact of Government Resource Planning (GRP) to improve governance. [Framework described in more detail.]

Information and Communications Technology (ICT) initiatives such as Government Resource Planning (GRP), sometimes known as Financial Management Information Systems (FMIS) for government, are seen as an expression of PFM reform. Diamond and Khemani suggest that “the establishment of an FMIS has consequently become an important benchmark for the country’s budget reform agenda, often regarded as a precondition for achieving effective management of the budgetary resources. Although it is not a panacea, the benefits of an FMIS could be argued to be profound.” 

IMPACT: General agreement that Public Financial Management and institutional reform is critical to improving governance

PROBLEM: The pace of PFM reforms often slows because of the inability for information systems to adapt to new needs

OTHER FACTORS: Sequencing of reformsdiffers because of differing country contexts  

SCENARIO: Continued and sustained activation of required PFM functionality based on country governance needs

Matt Andrews has pointed out the importance of regulative, normative, cultural-cognitive mechanisms to understanding the country governance context. Richard Allen suggested that there is no consensus model for sequencing.  The need for more in-depth understanding of context in government is further complicated by what Cindy Jutras describes as a lack of agility in Commercial-Off-The-Shelf (COTS) Enterprise Resource Planning (ERP) systems that are often used in government. This series demonstrates how GRP can be used to improve governance and enable governance reform.

Government Resource Planning Progressive Activation

The GRP “progressive activation” lifecycle can be described as:

1. Technical GRP Platform consisting of one of more modules is installed in a government organization after a thorough needs analysis
2. This needs analysisis used in a system configuration to meet government PFM needs
3. Governments modernize and create new PFM laws through legal reform that can include new procurement guidelines, transparency initiatives and support for international standards
4. Governments also  develop improved processes through process re-engineering
5. Governments build civil service capacity to improve fiscal discipline and efficiency
6. These changes require functional improvements that need to be configured in the GRP Platform that can include more advanced functions and new modules
7. A typical initiative is to improve citizen delivery and decision-making through decentralization that requires some devolution of responsibilities yet maintaining budget controls
8. Government Performance Managementfunctions such as audit enables governments to identify opportunities for governance improvements in areas such as anti-corruption, risk management and efficiency improvements
9. Dashboardsand other analytical methods also identify opportunities for reform
10. Progressive Activationenables sustainable PFM reform as the cycle returns to GRP Processes where the GRP system can adapt to multiple stages of reform 

Governance Toolset

The progressive activation scenario requires the ability for GRP systems to adapt to changing requirements:

• Centralized method for change across all GRP modules is preferred to complex “Master Data Management” exercises across modules from different vendors
• Reliance on software code customization (code development, call-outs to code, and complex scripting languages) adds significant costs and time at all stages of reform, especially when this code is in proprietary software languages owned by the COTS vendor
• Methodology and process is intertwined with technology otherwise governments are often faced with entry-level custom developed software that does not reduce poor practices or inappropriate “out-of-the-box” functions from COTS vendors

There are GRP governance tools operating at every stage in the PFM reform lifecycle including:

• Controls
• Chart of Accounts that aligns all government financial activity to budgets, users, purpose, organizational structure and accounting types for fiscal discipline – the COA tends to change because of government reform to introduce program budgeting, performance measures, standards support or accrual accounting
• Segregation of Duties ensures proper fiscal discipline – duties tend to change as governments decentralize, and reorganize
• Integrationensures that controls and functions operate consistently across multiple modules – integration requirements tend to increase as new modules and users are added
• Procedure Workflow articulates proper processes and controls – the workflow tends to change as governments introduce more advanced functional

Some governance tools augment specific parts of progressive activation lifecycle:

• Needs analysisis augmented by methodology tools that generate system blueprints (that often include multiple stages) following appropriate good practices
• Configuration includes changing parameters, adding fields of information, adjusting business rules and workflow as part of controls
• Legal reformand process re-engineering is enabled through change management methodology tools that ensures appropriate reforms for the country context and effective socialization of those reforms – and the linkage with policy
• Capacity building is enabled through configuration controls  including e-learning, user certification and localized help and terminology that adapts to meet increase in civil service knowledge
• Functional improvements requires controls to upgrade parameters, information fields, business rules and workflow that includes typical initiatives like movement to accrual accounting
• Decentralizationis supported through the configuration controls
• Auditing includes compliance and performance audits decision-making tools that provides information to eliminate practice deficiencies through controls  and typically uses the technique of benchmarks within government and with peer governments
• Performance management includes results systems decision-making tools that enable connecting government spending with outputs and outcomes that can improve decions and provide insight into controls changes

Institutional governance enablers that are critical to progressive activation include:

• Capacity of stakeholders including businesses, executive and civil society to create an environment for governance improvements
• Public Service capacity and incentives is important otherwise informal practices will dominate and laws will not be put into practices
• Political Will by stakeholders such as the executive and senior public servants to champion change
• Standardsused in public financials that provides better information to stakeholders
• Accounting procedures used by the government that provides appropriate fiscal discipline using good practices and integrated with controls
• Complianceprocesses and norms within the government

There are other institutional characteristics that are important during the lifecycle include:

• Legislature institutional capacity to ensure debate and passage of appropriate PFM laws
• Focus on improving the efficiency of government processes through automation and functional improvements
• Decentralizationof appropriate controls to enable devolution and improved citizen services
• The independence and enforcement options forinternal and external audit institutions and public service organizations to enable future reforms

It can be argued that appropriate institutional arrangements for PFM reform sequencing will have limited impact without an effective underlying technology system:

• Auditors will be forced to track budget, revenue and spending effectiveness through paper files or across incompatible information systems
• Public servants will not have access to data that measures efficiency or effectiveness in order to recommend changes
• Informal processes will dominate public financial management without automated controls
• Errors in financial processing will not be easily trapped except with an automated system that will show where user capacity needs improvement

Governance Signs

There are numerous signs that are used to measure the governance effectiveness of PFM in this scenario:

• Public Expenditure and Financial Accountability(PEFA) assessments are widely accepted as showing the PFM state-of-the-art in any country. PEFA provides detailed analysis of the comprehensiveness, efficiency and quality of PFM processes
• Quality of Governance Institute measure that provides an index for government corruption, bureaucratic quality and the rule of law

Governance Linkages

In this anti-corruption scenario:

• GRP systems support automated governance tools that enforce fiscal procedures
• Governance tools within the GRP help to improve efficiency and performance
• Features of the GRP optimize government capacity and methodologies ensure capacity building as part of the professionalization of the public service
• Governance tools are progressively activated to enable more advanced functions in sequence with improved capacity
• Improved efficiency and public service capacity can improve the World Governance Indicator, Government Effectiveness

PEFA Impact

Progressive action using GRP with tools and enablers will help to improve ratings for:

• PEFA B Comprehensiveness and Transparency
• PI-5 budget classification could be improved to support program budgeting, reorganization, performance indicators and accrual accounting
• PI-6 increase in the comprehensiveness in budget documents thanks to improved data classification
• PI-7 reduced amount of unreported government operations through decentralization and integration
• PI-8 improved transparency of inter-governmental fiscal relations through decentralization and integration
• PEFA C(ii) Predictability and Control in Budget Execution
• PI-16 improved predictability in the availability of funds for commitment of expenditures through improved budget classification and controls
• PI-17 automation to improve the recording and management of cash balances, debt and guarantees
• PI-20 improved effectiveness of internal controls thanks to effective automated controls
• PEFA C(iii) Accounting, Recording, Reporting
• PI-22 improved timeliness of accounts reconciliation via integration and automation including integration across GRP modules
• PI-23 improved availability of information from service delivery units through increased GRP coverage government-wide
• PI-24 improved quality and timeliness of in-year reports through integration, automation and the use of international standards and good practices in accounting procedures
• PI-25 improved quality and timeliness of in-year reports through integration, automation and the use of international standards
• PEFA C(iv) External Audit and Scrutiny
• PI-26 improved scope of external audit through independence, capacity and access to the procurement audit trail
• PI-28 improved legislative scrutiny of external audit reports because of improved information and increased legislator capacity

Governance Indicators and Outcomes

The improvement of meta governance indicators such as Government Effectives improves trust and investment in countries. Improved effectiveness improves policies, laws and regulation of those laws. These indicators are used by credit agencies and private businesses. Foreign Direct Investment (FDI) can increase.

It is true that exogenous factors and informal processes can reduce the PFM reform pace. Appropriate GRP technology can enable “small wins” and incremental improvements that enhance institutional efforts and capacity building.

Case Study: Kosovo

PFM reform in Kosovo began with the United Nations Mission in Kosovo (UNMIK) in 1999.UNMIK created an administrative structure creating the “Central Fiscal Authority (CFA), later renamed the Ministry of Finance and Economy. The FreeBalance Accountability Suite was selected and implemented in 26 days to support a new Chart of Accounts, support budget controls and issue payments.

The GRP system in Kosovo adapted to new reforms by the UNMIK and the Government of Kosovo after independence was declared in fiscal management, public procurement, human resources, budget, decentralization, corruption, cash and debt management.  PEFA assessments also improved with use of GRP functionality cited as partly responsible. Today, Kosovo has rolled out GRP software to all budget organizations are all government tiers. Budget transfer and purchasing responsibilities have been decentralized to improve decision-making and service delivery while maintaining compliance with fiscal controls.

Conclusions

The pace of PFM reform needs to be sustainable to have lasting governance improvements. The information systems must enable rather than prevent reform. There have been numerous failures when inappropriate software is used for government financial management. GRP software can enable reform through:

• Progressive activation of business rules and workflow to support modernization
• Integration of additional software modules that increases automation across government
• Decentralization of processes and responsibilities in concert with capacity improvements
• Government-specific methodologies for needs analysis and change management that includes tackling incentives and informal practices

These tools and techniques are best leveraged by governments with political will, good civil service, legislative and civil society capacity with audit organizations with sufficient capacity, independence and enforcement.

Governance Enablers

Institutions and institutional characteristics such as capacity and political will are necessary to effectively leverage the governance capabilities of GRP. 

Doug Hadden, VP Products

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

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

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

Government Resource Planning and Anti-Corruption

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

Doug Hadden, VP Products

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

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

FreeBalance and Substantial PFM Progress

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

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

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

Sequencing PFM Reform with Capacity Building

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

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

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

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

Budget Execution Lesson Learned

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

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

New Dynamic for PFM Reform

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

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

Real Governance Outcomes Achieved

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

Doug Hadden, VP Products

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

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

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

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

Doug Hadden, VP Products

Coincidence?

The governments of Timor-Leste (May 20, 2002), Kosovo (February 17, 2008) and South Sudan (July 9, 2011) use the FreeBalance Accountability Suite for managing public finances. (Also, the newest Canadian Territory, Nunavut (April 1, 1999).

And, post-conflict countries who run FreeBalance software have shown better public financial management reform results than those that do not.

Unfair Reputation in Post Conflict?

Many have remarked that FreeBalance is the de facto standard for post-conflict government financial management. And, the de facto standard for fast implementations. (Kosovo: 26 days, South Sudan: 30 days).

These remarkable successes can give a false impression about FreeBalance. Many observers wonder about the ability of FreeBalance software to operate in more advanced economies. Here are some interesting facts:

• FreeBalance software is used by more Government of Canada departments than any other financial management vendor.
• The ability to work under stressful conditions makes FreeBalance a low-risk solution in any emerging economy.
• FreeBalance software is progressively activated – without the need for expensive software code  customization to meet government needs.
• Unlike enterprise ERP vendors, the latest version of FreeBalance software is fully web-based: no client/server.

Prognosis for Government Resource Planning (GRP) in South Sudan

Like many countries, development in South Sudan should follow increasing government capacity and be based on country-specific needs. PFM modernization is enabled through the FreeBalance Accountability Suite through the addition of functional modules, activation of more advanced functions and decentralization. The experiences in Timor-Leste and Kosovo bode well:

• Modules: Kosovo expanded into Revenue and Purchasing, Timor-Leste to Human Resources, Budget Management, Dashboards, Procurement, Assets and Transparency Portals
• Progressive Activation: Kosovo and Timor-Leste have advanced functionality to support international standards and improve decision-making
• Decentralization: Kosovo has rolled out FreeBalance software to all government entities and decentralized decision-making. Timor-Leste is moving forward with decentrlization.

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

Ottawa, Canada (April 16, 2011) – FreeBalance, a For Profit Social Enterprise (FOPSE) software company that helps governments around the world to leverage robust Government Resource Planning (GRP) technology to accelerate country growth, is pleased to announce that the governments of Afghanistan, Kosovo, and Sierra Leone recently received a rating of “substantial” for public financial management (PFM) rebuilding and reform progress. For more details, please refer to the April 2011 World Bank Economic Premise note titled “Strengthening Public Financial Management in Postconflict Countries.”

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

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

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

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

FreeBalance Accountability Suite Version 7 offers a pure web-based platform that has been optimized for rapid government deployment, operational effectiveness. It is ideal for the needs and requirements of emerging and post-conflict governments. The FreeBalance Accountability Suite covers the entire budget cycle including financial and human resources transparency to improve governance and trust. The FreeBalance Accountability Suite is distinguished by strong and flexible budget control. Recent innovations from FreeBalance include Transparency and Procurement portals to improve government accountability. 

FreeBalance is active in 19 countries, including Antigua & Barbuda, Afghanistan, Panama, Canada, Iraq, Kosovo, Liberia, Mongolia, Namibia, Pakistan, Sierra Leone, Southern Sudan, Timor-Leste, and Uganda among others. FreeBalance software manages more than a quarter trillion ($US) annual budgets worldwide. More than 70,000 users around the world use FreeBalance software to manage a global civil service workforce of 1,500,000.

About FreeBalance
FreeBalance helps governments around the world leverage robust Government Resource Planning (GRP) technology to accelerate country growth. FreeBalance software solutions for public financial and human resource management support reform and modernization to improve governance, transparency and accountability. Good governance is required to improve development results. For more information, visit www.freebalance.com. 

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Doug Hadden, VP Products

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

So why are so many countries accelerating PFM reform?

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

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

Should we Think of a New Platform Approach?

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

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

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

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

Thirteen FreeBalance Offices Around the World to Participate in Literacy Event

Ottawa, Canada (March 7, 2011) – FreeBalance, a Government Resource Planning (GRP) software For Profit Social Enterprise (FOPSE), will be participating in World Read Aloud Day on March 9, 2011. World Read Aloud Day is an international event organized by LitWorld that motivates children, teens, and adults worldwide to celebrate the power of words and stories. This event advocates the right for every child for literacy, safe education, and access to books and technology.

LitWorld will host a 24-hour Read-Aloud Marathon in Times Square on March 9, supported by the New York Daily News. Special guest readers at the event will include the Chancellor of Schools, Cathie Black, Deputy Mayor for Education and Community Development, Dennis M. Walcott, and many renowned authors and performers, including C. Alexander London, Adam Gidwitz, Jane O’Connor, and Jill Santopolo. A special LitWorld poem will be printed exclusively in the Daily News for New Yorkers to read together and help celebrate the power of the written word.

“Literacy is the human rights issue of our time,” said Pam Allyn, Executive Director and Founder of LitWorld. “By learning to read, we all have access to information, the power of shared stories of the human experience, and a way to connect with one another. By raising our voices to express the written word, we come together on behalf of all the world’s people who long to join the world of readers.”

“We believe it is important to actively participate in the local community in a meaningful way,” said Manuel Pietra, President & CEO of FreeBalance. “World Read Aloud Day allows our offices from around the world to engage with the community. We look forward to March 9 where together we will celebrate the importance of literacy.”

FreeBalance employees will visit local schools, SOS Children’s Villages, orphanages, or community centres in Antigua & Barbuda, Canada, India, Guatemala, Kosovo, Kyrgyz Republic, Liberia, Mongolia, Palestine, Sierra Leone, Timor-Leste, Uganda, and the United States. This year The Mixed-Up Chameleon by Eric Carle will be read. Colouring books and short story booklets will be provided to children by FreeBalance staff members. Text and activities will be translated to the local language to encourage understanding and participation. Children will receive a certificate of achievement.

FreeBalance customers span the globe and the user community includes public financial management professionals in 18 countries, including Afghanistan, Iraq, Kosovo, Liberia, Mongolia, Namibia, Pakistan, Panama, Sierra Leone, Southern Sudan, Timor-Leste, and Uganda among others. 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 LitWorld
LitWorld is a 501C3 nonprofit organization led by Founder and Executive Director Pam Allyn. LitWorld’s mission is to cultivate literacy leaders worldwide through transformational literacy experiences that build connection, understanding, resilience and strength. Founded on the three pillars of access, advocacy, and education, LitWorld works with teachers, parents, community members, and children to develop sustainable reading and writing practices to engage the world’s most vulnerable communities in the redemptive power of story. For more information, visit www.litworld.org.

About FreeBalance
FreeBalance helps governments around the world leverage robust Government Resource Planning (GRP) technology to accelerate country growth. FreeBalance software solutions for public financial and human resource management support reform and modernization to improve governance, transparency and accountability. Good governance is required to improve development results. For more information, visit www.freebalance.com.

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Matthew Olivier, FreeBalance Director of Global Marketing and Alliances, opened the last day of the FreeBalance International Steering Committee (FISC) conference in Madeira Portugal. Day 3 includes customer knowledge-sharing presentations and panels.  Topics for the panels are government performance, capacity building and public sector reform.

Customer requests have adjusted the schedule for longer demonstrations of modules of the FreeBalance Accountability Suite, particularly the Transparency Portal, e-Procurement Portal and the Chart of Accounts Builder.

The key deliverable today will be the FISC vote on the FreeBalance product roadmap.  FreeBalance customers have analyzed draft plans and have added important feature requests. Voting this afternoon will adjust this roadmap to align FreeBalance product direction with customer goals.

FISC members will also select the Chair and the location for FISC 2012. The current FISC Chair is Mr. Lulzim Ismajli, Treasury Director, Kosovo Ministry of Finance & Economy, who was also elected in 2009.

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).

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.