The message from the latest ICGFM global PFM survey could be summarized as "don't let a good crisis go to waste." The survey, funded by Grant Thornton, found that the financial crisis encouraged PFM reform and PFM innovation. (This is the 4th global survey since 2005). The survey found reform across financial management including audit, procurement and transparency.
Do we need time-lapse photography to track the slow progress of global Public Financial Management (PFM)? Or, is PFM cyclical where we see the reforms come and go over time? Fortunately, the Internet provides a “way-back machine” – here, turned back 5 years to a June 2008 ICGFM presentation by Bill Dorotinksy. Dorotinsky is a co-author of Financial Management Information Systems from 2011.
Dorotinsky explored the current, as of 2008, PFM trends. He analyzed trends and the success of reforms in context of strategic planning, management control and operational control.
My observations, 5 years on:
Accrual accounting seems to be no longer a fad – although there has only been limited progress in implementing accrual. More governments aspire to accrual than in 2008. Maybe that makes it a fashion rather than a fad.
The lesson to not try too many reforms at once seems to be slipping – based on many of the RFPs that we have received in the past five years. There seems to be a bit of an arms’ race in reforms among governments where countries try to appear better than peers.
The Treasury Single Account (TSA) remains the most effective low-hanging fruit for PFM reform.
Budget preparation capabilities have not improved significantly since 2008 despite so much MTEF “capacity building.”
Less developed countries continue to focus on payroll as an important element of civil service reform although in greater numbers than in 2008. More developed countries have more of focus on human resources management through improving salary scales, improving recruitment and talent management. What is different is that lower developed countries are implementing capacity building and training programs within human resources software.
We’ve turned the corner on Integrated Financial Management Information Systems (IFMIS) and capacity building. At least we have at FreeBalance.
Dorotinsky spoke in 2008 about the notion that the “I” in IFMIS was considered among some circles as somewhat unnecessary. This has changed significantly beyond the general need for system interoperability. Integration ensures controls and compliance across systems. It reduces corruption opportunities. And, it enables transparency and management information.
Is PFM reform sequencing still more of an art form than a science? PEFA assessments have become more common. We’ve developed tools that are more prescriptive.
Dorotinsky pointed out that governments should not try to create the perfect Chart of Accounts (COA) to support management reporting and performance management. He suggests that governments can change their COA when they change IFMIS systems. It’s true that changing the COA is very difficult and complex in Enterprise Resource Planning (ERP) systems, but not so in Government Resource Planning (GRP) systems like the FreeBalance Accountability Suite that support a multiple year COA.
I attended the book launch earlier this afternoon at the IMF in Washington. The “Spring Meetings” are in progress with large banners, TV projectors and party tents off Pennsylvania Avenue. So, a good time to launch a new book with a panel discussion. There’s 14 chapters written by numerous PFM experts in 4 parts. I hope to review the book in the coming weeks.
There seems to be some persistent tension between ideas in Public Financial Management that includes:
Those who see real progress in reforms to date vs. those who see little improvement
Those who believe that there are objective “best practices” in PFM vs. those who believe PFM is more art than science
Those who think that reform has been too fast vs. those who think that reform can be accelerated
Those who believe that technology enables reform vs. those who think reform is all about people and institutions
The first two issues were discussed at length with some disagreements among panel members. Panelists seemed to agree that reform momentum has been too fast and that people and politicians are key to reform success.
The third released document, embedded below, describes good practices in Government Resource Planning (GRP) sequencing. This is one of the most difficult subjects in PFM. I can’t tell you how many times that I’ve heard the notion that reform sequencing is an art form rather than a science. The consensus seems to be that country contexts differ so much that there cannot be a set of principles or guidelines.
I fundamentally disagree with the notion that good practices in PFM reform sequencing cannot be formalized. We’ve had a lot of experience in developing countries going back more than a decade and have seen patterns emerge. We’ve also formalized an internal process called Governance Valuation that we’re updating thanks to the explosion in open data. I’ve embedded a presentation from last year explaining this process.
“He carries on by keeping his nose clean and trying to provide an example to a young generation of Afghan public servants. His integrity and skill have paid off. The Finance Ministry is viewed as one of the country’s most efficient departments.”
Capacity Building and Public Financial Management
Ms. Armstrong gets to the heart of success in PFM reform success: capacity building. Foreign consultants often provide operational financial management in post-conflict countries. The key factor to making reform sustainable is to build human capacity. This reduces costs and makes government self-reliant. And, less reliant on vendors like FreeBalance.
The National Post article could give the impression that the Budget Office is part of the Treasury Department. It is not. This might explain the different approach and success rates in capacity building between the two departments.
The reality is that our software is a tool to enable reform. It implements faster and enables change better than competing tools. But that doesn’t mean that anyone is actually going to leverage financial controls or modernize processes to improve efficiency. That requires leadership in the government.
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.
That’s the interesting conclusion from the 2010 International Consortium on Governmental Financial Management (ICGFM) and Grant Thornton annual survey: Public Financial Management Responses to an Economically Challenging World. This appetite for reform was confirmed at the recent ICGFM Winter Conference [blog].
While developed country governments descend into melancholy, 76% of respondents indicated a commitment for Public Financial Management reform. 80% of governments are adopting international standards.
The financial crisis was cited as a motivation for reform. Transparency and PFM reform were part of many stimulus packages. Transparency was considered infrastructure by many.
The report concludes:
Public financial managers face some of the most challenging times in decades in meeting their responsibilties, but they have faced them not only with a variety of policy measures but with an unprecedented commitment to transparency.
Why is there such an appetite for reform?
Good public financial management lessons learned in previous crisis have made many developing countries more resilient to the current crisis
Another busy conference at the International Consortium on Governmental Financial Management in Washington this week. Lots of content uploaded to the ICGFM Blog – as my “second job” as VP Communications for the organization. International accounting standards in the public sector might not be top of mind for everyone. Yet, I wonder whether using the International Public Sector Accounting Standards (IPSAS) could provide the context we need to understand the debt crisis in Greece, Ireland or the United States. For one thing, government transparency is opaque if everyone is using different standards.
IPSAS was a major focus on the conference and the International Journal on Governmental Financial Management Volume 2 issue:
Many of the attendees at the conference came from developing countries. Many are adopting the cash-based IPSAS. Those from aid-dependent countries were vocal about the need for aid transparency and aid harmonization. There was some very interesting discussion from the presentation on the International Aid Transparency Initiative with takeaways from Malawi and Rwanda. Aid remains inefficient because of the lack of harmonization to country needs, high transaction costs and duplication. Panelists agreed that getting timely data was more important than full accuracy in data. Otherwise, budget planning and budget execution are interrupted.
The ability to provide transparent data via the web was selected in the ICGFM poll as having the greatest impact. This is reflective of the appetite for transparency in developing countries.
As one participant pointed out, many governments in developed countries do not want to change national standards for sovereignty reasons or because they feel their standards are superior. This makes it difficult to compare national debt across multiple countries. We may see a leap forward as countries like Georgia and Honduras move ahead of the G7 in support of standards – then move ahead in accural accounting and performance management.
We’re seeing this trend with many of our customers. The sophistication of the Chart of Accounts in Sierra Leone remains a wonder – in my opinion, much better than the COA used by most donors. Timor-Leste continues to advance transparency with a portal from FreeBalance and is forging ahead with performance management functionality for managers and ministers. Kosovo has rapidly adopted International and European standards.
La reforma de la gestión financiera pública es sin duda, un aspecto importante para lograr la mejora en la calidad del gasto, lo cual impacta positivamente en la mejora de la calidad de vida de los ciudadanos, que dicho sea de paso, es el objetivo más importante de los Estados. ICGFM Survey of Government Finance Managers, Spanish
Es interesante observar a través de la encuesta realizada por Grant Thornton, que los problemas y acciones recomendadas respecto del tema, son compartidos en forma global por los líderes de finanzas gubernamentales. Al respecto es importante resaltar que es bueno implementar buenas prácticas y aprender de experiencias de otros países, analizando y definiendo la estrategia para aplicarlas al País en particular, toda vez que las mismas, no son recetas que se pueden copiar, sino más bien la estrategia debe tomar en cuenta las necesidades particulares y adoptar las medidas necesarias para que dicha reforma sea irreversible y sostenible en el largo plazo. Al respecto se consideran importantes el liderazgo (al mas alto nivel posible), una clara hoja de ruta con objetivos claramente establecidos en el corto, mediano y largo plazo, así como los marcos conceptuales y jurídicos, procedimientos y normas, que constituyen la base de las reformas gubernamentales. La estrategia debe incluir el blindaje necesario para evitar que el cambio de corrientes políticas la desvíe de sus objetivos en el largo plazo. Al respecto es importante convertir el proceso en una política de Estado a fin de institucionalizarla.
La coordinación inter-gubernamental tanto horizontal como vertical (con los diferentes niveles de gobierno) es fundamental para llevar a cabo la reforma de la gestión financiera pública, toda vez que cada Institución debe hacerse responsable no solo de realizar su función conforme los límites y ámbito establecidos por la Ley, sino también de colaborar y coordinarse en forma eficaz con el resto de Instituciones según corresponda.
Como parte de las herramientas fundamentales para hacer sostenible la reforma, se considera el papel que la tecnología juega a través de los Sistemas de Gestión y Administración Financiera Pública, toda vez que los mismos permiten incorporar e implementar los procedimientos, controles, análisis, evaluaciones en tiempo real y apoyo a la toma de decisiones así como proveer de los insumos que permiten mejorar la transparencia.
Il y a sans doute eu des progrès qui ont été accomplis par les gouvernements au cours des dernières années dans la gestion de leurs finances publiques. Malheureusement, ce n’est pas le cas pour tous et ceux qui ont réussi se doivent partager leurs expériences avec les autres gouvernements afin qu’ils puissent éviter de faire les mêmes erreurs de parcours. L’assistance technique est représentée à sa juste valeur car la capacité interne à supporter une telle reforme est souvent impossible sans elle. Comme cette enquête l’indique, un des problèmes les plus couramment observés est l’habileté à diriger ainsi qu’à gérer le changement. Les anciennes méthodes et processus de gestion financière sont bien souvent ancrées dans la culture d’une organisation et ces habitudes sont très difficiles à changer. Même des modifications législatives ne sont parfois pas suffisantes pour modifier ces méthodes. Les dirigeants financiers des gouvernements doivent s’assurer que leurs finances publiques soient gérées de façon correcte tout en suivant les normes comptables internationales. Cela mènera inévitablement à une amélioration des connaissances, une meilleure adaptation aux fluctuations économiques et une plus grande transparence face a son public.