Sustainable Public Financial Management

Doug Hadden, VP Products

Future of PFM

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

Timor-Leste Transparency Portal enables Citizen Audit

Compliance Use Cases

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

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

Fraud

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

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

Performance

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

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

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

Doug Hadden, VP Products

As described in a post yesterday, 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.

The premise of the paper is that government budget management is modernizing to “Budget 2.0″ that leverages Web 2.0 technology and social media. The roadmap to Budget 2.0 includes:

• 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

The following shows the work in progress.

Budget 2.0 Roadmap Interaction

Budget Preparation Modernization

Towards participatory budgeting

Oversight and Engagement Modernization

Towards citizen oversight

Transparency Mechanisms Modernization

Towards open data

Budget Comprehensiveness Modernization

Towards treating whole of government as an enterprise

Budget Execution and Accounting Method Modernization

Towards true value of government and government performance

International Public Sector and Technical Standards

Towards true financial comparison between governments

Timeliness

Towards timely data to enable timely decisions

Policy Management

Towards participatory policy

Proper Government 1.0 Also Required

Doug Hadden, VP Products

Public sector unions have been demonstrating in Greece and Wisconsin because of public-sector austerity measures. The debate about these measures seem to rely more on dogma than fact. Unions and politicians leverage old media and industrial methods to present cases to the public. A so-called “court of public opinion.” And, not an open court.

So, it’s come to this….

The “winner” in these disputes might be the side that loses the least credibility. Losing trust in politicians or public employees results in losing trust in government across the board. The winner and loser both become losers. That’s why transparency and citizen engagement are cornerstones for 21st. century governance. Government 2.0 is needed to overcome this environment of political partisanship that turns citizens angry of apathetic.

A Government 2.0 Prescription

with a touch of back-office government financial systems

1. Are public employees properly compensated? Full salary spend information, including benefits and travel expenditures needs to be tracked in back-office systems and presented to the public. Are public employees properly compensated?That’s up to the public to decide.
2. Is public employee talent optimized? Training, performance appraisal and certification program information fro back-office civil service management information needs to be presented to the public. Merit systems must be transparent. The public service needs to be a career option for the very best in any country. Is public employee talent optimized. That’s up to the public to decide.
3. Is government effective? Government outputs and outcomes need to be tracked for efficiency and effectiveness. The political debate is often about inputs (the amount spent) rather than performance. Is government effective? Is it too big? That’s up to the public to decide.
4. Is government improving over time? Financial information collected from back-office systems needs to be presented in open data formats to citizens for visualization. Government financial management is complex. Government reports and documents make comparison difficult. Are governments improving over time? That’s up to the public to decide.
5. Is government focused on what is important? Government needs to engage citizens on a regular basis. As Umair Haque points out. “voting is the most brittle kind of democracy, built on the tiniest of conversation.” In particular, budget and policy processes need to be opened up. Participatory budgeting that engages experts and citizens beyond those who traditional wield influence is necessary to improve government trust. It will also improve government performance. Is government focused on what is important? That’s up to the public to decide.

But at What Cost?

Transparency isn’t free. Many question the return on investment of open data and Government 2.0. It can be considered a “nice to have”. Yet, Gartner analyst Andrea di Maio has pointed out that Government 2.0 could be effective should the US federal government funding end next month.

Labour disputes cost everyone. Lack of efficiency and effectiveness costs everyone. Should the public be prepared to fund these current costs through taxes? Or, is the public purse better served with transparency?

Doug Hadden, VP Products

There is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle than to initiate a new order of things.

Niccolo Machiavelli

Last year, a gentleman attending my Financial Management Institute presentation on government performance management sat attentively with a rather bemused look on his face. He’d heard it all before. The enthusiasm for some technology-driven change. Some technology adoption, but no change.

I reflected on this a few months ago suggesting that open government isn’t “getting any respect“. As I said about change:

Change is not easy for large organizations. We’ve written about the skills necessary to lead Government 2.0 change. And there any many examples of culture change and Government 2.0 adoption.  Change is unevenly adopted.  That’s why we talk about early adopters. There is a culture of expertise in large organizations. Knowledge is power in traditional organizational structures. So, we cannot expect widespread immediate culture change. At the same time, we cannot expect that no change will occur.

We’ve Got Government 2.0 All Wrong

The Government 2.0 adoption debate centers around assumptions for technology-induced change:

1. Narrow categorization view: we debate about the differences among technologies like Government 2.0, e-Government, and collaboration, so we don’t see the real trends
2. Narrow time view: we debate about cause and effect over very short periods of time, so we don’t register the change effects
3. Narrow technology view: we debate about the technology in isolation of other societal drives, so we don’t see the results in cumulative

Historical Perspective

Government structure, culture and mandates are in constant flux. Harold Innis described how empires were structured and developed based on dominant method of recording and communications whether stone, papyrus or velum. Marshall McLuhan described how the technology medium results in societal change.

Getting Government 2.0 Effects Right

It’s not a question of whether Government 2.0 will or will not be adopted. Or whether it will or will not have a material transformation on government. Government 2.0 is another signpost in government change. So, the question really is: Will Government 2.0 be able to keep up with the change or not?

Technology-Induced Change in Government

• Movable Type/Printing Press: generates rise of the “nation state” as languages become standardized and people begin to identify with ethnic and “national” characteristics
• Radio: generates rise of government dominance in communications from Roosevelt’s “fireside chats” to incendiary propaganda
• Television: increases the scrutiny of government from political debates to war reporting
• Photo-copier, fax, personal computer, mobile technology, blogs: gives individuals publication capabilities to extend discussion creating new pressures for government transparency and accountability. It also enables groups with affinities to self organize. (Also appears to enable the move to supra-national institutions and the devolution of the nation state to accommodate regional, ethnic, religious and language groups.)

The Trends of Change

Transparency has become a meme for government. It’s in almost every political debate and promise.Government 2.0 is one of may technology signposts in the long term change in government to:

• Higher levels of participation in policy and operational government by citizens, whether in participatory budgeting, idea factories or political campaigns.
• Increased focus on outcomes away from inputs and outputs as the main driver for government spending – away from what the money was meant to accomplish to what it really did.
• Collaborative government with multiple government tiers, international organizations and the private sector whether in response to fiscal crisis, trade liberalization or public-private partnerships
• Flattening of organizations to enable more efficient and effective public services whether through one-stop services, on-line services or shared services

Government 2.0 is a vehicle for higher levels of participation through on-line communities. The use of mashups and other techniques enables the focus on outcomes. (This was the main theme of my presentation last year.) Collaboration is enabled through Web 2.0 tools like wikis.

So, in the end, when we look back at this transformation in government, we may call it Government 2.0, or we may call it something else.

There are excellent sources for reading material on PFM and GRP coming from donor organizations.  We’d like to highlight some of the best material from DFID, USAID, the World Bank and the International Monetary Fund.

Integrated Financial Management Information Systems A Practical Guide http://pdf.usaid.gov/pdf_docs/PNADK595.pdf

Review of Public Financial Management http://www.dfid.gov.uk/Documents/publications/evaluation/review-pub-finan-mgmt-reform-lit.pdf

World Bank Public Sector and Accountability Series:

• Local Public Financial Management http://siteresources.worldbank.org/PSGLP/Resources/LocalPublicFinancialManagement.pdf 
• Budgeting and Budgetary Institutions http://siteresources.worldbank.org/PSGLP/Resources/BudgetingandBudgetaryInstitutions.pdf
• Performance Accountability and Combating Corruption http://siteresources.worldbank.org/PSGLP/Resources/PerformanceAccountabilityandCombatingCorruption.pdf
• Macro Federalism and Local Finance http://siteresources.worldbank.org/PSGLP/Resources/MacroFederalismandLocalFinance.pdf
• Local Budgeting http://siteresources.worldbank.org/PSGLP/Resources/LocalBudgeting.pdf
• Participatory Budgeting http://siteresources.worldbank.org/PSGLP/Resources/ParticipatoryBudgeting.pdf
• Intergovernmental Fiscal Transfers: Principles and Practice http://siteresources.worldbank.org/PSGLP/Resources/IntergovernmentalFiscalTransfers.pdf
• Public Expenditure Analysis http://siteresources.worldbank.org/PSGLP/Resources/PublicExpenditureAnalysis.pdf
• Local Governance in Industrial Countries http://siteresources.worldbank.org/PSGLP/Resources/LocalGovernanceinIndustrial.pdf
• Local Governance in Developing Countries http://siteresources.worldbank.org/PSGLP/Resources/LocalGovernanceinDeveloping.pdf
• Fiscal Management http://siteresources.worldbank.org/PSGLP/Resources/FiscalManagement.pdf
• Public Services Delivery http://siteresources.worldbank.org/PSGLP/Resources/PublicServiceDelivery.pdf

IMF Fiscal Affairs Department Technical Notes

• Modernizing Cash Management https://imf.org:443/external/pubs/ft/tnm/2009/tnm0903.pdf
• Commitment Controls https://imf.org:443/external/pubs/ft/tnm/2009/tnm0904.pdf
• A Basic Model of Performance-Based Budgeting https://imf.org:443/external/pubs/ft/tnm/2009/tnm0901.pdf
• Transition to Accrual Accounting https://imf.org:443/external/pubs/ft/tnm/2009/tnm0902.pdf