Posts Tagged ‘USAID’

The Accountability – Democracy – Human Rights – Governance Linkage

Tuesday, December 17th, 2013

Doug Hadden, VP Products

One of the advantage of living in Washington is access to events at the Brookings Institution. There is a lot of analysis in issues that touch global public financial management and good governance. There was a very interesting discussion early today about the linkages between democracy, human rights, and governance. I’ve attended enough discussions about this linkage to question how simple these connections are. Here’s my observations:

Is Aid Working?

Tuesday, February 15th, 2011

Global Poverty

Entertainer and activist Bono tells the Globe and Mail to forget the past mistakes in foreign aid. “The present aid is working” [video]. This is a contrast to the ‘aid is just a waste of money’ and ‘it’s better to give at home’ narratives promoted by some politicians in developed countries.

As Owen Barder has pointed out:  most people don’t need to be convinced that development is desirable; they need to be convinced that aid works. However, rising budget deficits have given rise the notion of reducing foreign aid.

Developed country governments have fallen short of past commitments and now more is threatened. This has created concern in the aid community as reflected by the Modernizing Foreign Assistance Network in the United States who pointed out:

For around 1% of the federal budget, experts from the United States Agency for International Development (USAID), the Millennium Challenge Corporation, and other agencies are empowered to work hand-in-hand with our diplomats and members of the Armed Forces to help build accountable institutions and increase stability in “frontline” states like Afghanistan, Pakistan, Iraq, Somalia, and Yemen.  These professionals are also deployed to help boost private-sector and middle-class growth and reduce poverty in developing countries, the fastest-growing markets in the world. Our development efforts in these countries are crucial to opening up export opportunities for American businesses and building stable, long-term trading partners and allies. Were we to pull back, the void left behind would surely be filled by other countries that do not share our values.

Cutting aid may reduce security in developed countries as pointed out by US Secretary of State Hillary Clinton. Much of the security and aid debate relates to military and government aid to maintain stability. But, it is clear that improving the economic conditions of any country increases stability.

Towards a Rational Aid Debate

Aid targeting the sources of poverty and instability could be orders of magnitude more effective than securing borders and building intelligence and military capacity. Fixing the symptom is typically less expensive that mitigating the problem.

Foreign aid may also have more impact than local aid – especially with so many people living in poverty.

There is no question that aid effectiveness could improve. This is one of the benefits of the International Aid Transparency Initiative. The international community is improving results and leveraging transparency. There is a growing recognition of the power of harmonizing aid with government priorities and the need to untie aid.

But what about the other 99% of government budgets? Is there the same scrutiny to improve outcomes for national investment? It seems as if politicians are willing to promote spending based on inputs (the money provided for projects) rather than outcomes, with techniques such as “earmarks“.

Don’t get me wrong, there remain opportunities to improve aid effectiveness. Transparency data with visualization techniques holds much promise. It might be time for governments in developed countries to improve outcomes for internal national programs too.

 

 

Towards a Scorecard for Public Financial Management Technology Maturity

Thursday, July 29th, 2010

Doug Hadden, VP Products

Phasing of Public Financial Management (PFM) “reform, through achieving gradual manageable steps (DFID 2005)” is considered a good practice. In fact, if any thing in PFM is considered a best practice – it’s the phased implementation of PFM reform and supporting information systems as we’ve pointed out before and validated at numerous conferences.

The sequence of reform depends on the country context. “Implementing public finance reforms of any kind requires an understanding of the entire public finance system in place in that country. It requires an understanding of the institutional arrangements (Rodin-Brown 2008).” As a vendor specializing in the government domain, Government Resource Planning (GRP), FreeBalance has developed a methodology called progressive activation that enables governments to modernize over time. That’s because, unlike the private sector, technology solutions like GRP need to follow reform. A company can easily change a chart of accounts to improve performance tracking or adopt secure electronic cheques with electronic signatures. Governments often need to change the law to support these “business process” improvements.

There is no established sequence of reform (Allen 2009) except at a fairly high level. David Nummy from Grant Thornton provided a good PFM framework at our FreeBalance International Steering Committee meeting in 2008.

It is rather frustrating to government PFM practitioners to determine the sequence of technology adoption to follow reform. Some technology adoption does not require legal reform. As I discovered in the Kyrgyz Republic, there is an appetite to understand the benefits of financial, budget and civil service automation to help determine priorities for legal reform. We have always identifed the three dimensions of sequencing GRP technology:

  1. Modules or functionality that is implemented by governments. We’ve created a PFM component map that provides an overview of general modules used in government GRP.
  2. Decentralization or the rolling out of functionality to other government entities.
  3. Modernization or reconfiguration of existing modules to support reform.

We have our first draft of a simplied scorecard to help identify the level of maturity of a government financial management software system. I’d very much like input and ideas. This will help all PFM practitioners regardless of software technology used.  The items in the “modernization” column may imply the acquisition of additional modules or it could be activating functionality that already exists. Governments can utlize the scorecard to show what is current implementd and what could be implemented in the future.

 

FUNCTIONALITY

DECENTRALIZATION

MODERNIZATION

PUBLIC FINANCIALS MANAGEMENT

  • Budget controls
  • Assets
  • Audit
  • Line ministries
  • Regions
  • Municipalities
  • Segregation of duties
  • IPSAS & GFS
  • Accrual accounting

GOVERNMENT TREASURY MANAGEMENT

  • Cash management
  • Cash controls
  • Debt management
  •  Investment management
  • Delegated treasury
  • Bank reconciliation
  • EFT
  • Treasury Single Account
  • Cash forecasting

PUBLIC EXPENDITURE MANAGEMENT

  • Expenditure Controls
  • Purchasing
  • Delegated purchasing
  •  Procurement
  •  e-Procurement
  •  Procurement transparency
  •  Grant management

GOVERNMENT RECEIPTS MANAGEMENT

  • Non-tax revenue
  • Income tax
  • Customs
  • Local tax collection
  •  Case management

CIVIL SERVICE MANAGEMENT

  • Payroll
  • Pensions
  • Workforce management
  • Civil service planning

 

  •  Recruitment
  •  Talent management
  •  Capacity building
  •  Performance appraisal
  •  Succession planning
  •  Self-Service

GOVERNMENT PERFORMANCE MANAGEMENT

  • Budget classifications
  • Management reporting
  • Budget preparation
  • Budget circular

 

  • Budget delegation
  • Bottom-up Budgets
  • Local PEFA assessments
  • Citizen services
  •  PEFA assessments
  •  Program budgeting
  •  MTEF
  •  Budget transparency
  •  Macro-fiscal framework
  •  Scenario planning
  • Performance budgets
  • Outcome measures

 

Evidence of Afghanistan Progress in Public Financial Management

Wednesday, July 21st, 2010

Afghanistan_PEFADoug Hadden, VP Products

There really seems to be no hope for Afghanistan. Select “Afghanistan corruption” in Google News and you’ll find thousands of press articles. Gives the impression that there is little progress in anti-corruption. As Newsweek  reports, the Government of Afghanistan “vows to fight the Taliban harder, spend international aid money more wisely, end corruption, and promote good governance in order to win the embattled population over to his side.” AFP, like other reports, indicated that donors committed to “putting more aid money through government coffers, and applying international standards of accountability should reduce levels of corruption and embezzlement.” Integrity Watch Afghanistan has published a study showing that “Corruption is rampant and has become more entrenched in all areas of life in Afghanistan, and the Afghan government is under increased pressure to address the issue.” It doesn’t help to have bundles of money being flown out of the country even though the BBC and other press outlets reported that the Afghan Minister of Finance Omar Zakhilwal “said foreign contractors were to blame for taking the bulk of $4bn (£2.6bn) that has reportedly left the country in recent years. He said his government had little control over foreign aid money.”

If Only Corruption was Simple

Corruption is a multi-faceted and complex problem to overcome. A 2008 Study by Altai Consulting on Aid Effectiveness recognized the complexity of this “cross-cutting” issue. Some of the factors include:

  • Cultural practices that go back hundreds of years
  • Public sectorwages that are too low requiring supplemental sources of income
  • Systemic ethnic and political stresses that requires building power bases
  • Foreign aid money flowing into the country with limited oversight
  • State capturewhere politicians reward businesses who supported them

The mechanisms for anti-corruption are also complex to coordinate:

  • Public sector reform to create a professional public service
  • Legal reform to provide recourse when corruption is identified
  • Capacity building to reduce corruption and increase oversight
  • Political will to support anti-corruption measures
  • Information systems that can reduce the opportunity of corruption and identify suspected corruption
  • Good anti-corruption lawsand enforcement in donor countries
  • Banking systems with electronic funds reducing the movement of illegal cash
  • Fiscal decentralization to reduce the ability to hide funds

Why using the Afghanistan Government Resource Planning (GRP), AFMIS Assists Anti-Corruption

It is no surprise that the recent  “conference ended with the approval of a 10-page communique that restated strong support for channeling at least 50 percent of development aid through the Afghan government within two years while the government reforms, reduces corruption and strengthens its public financial management systems”, acording to the AP. Why? The use of country financial systems reduces transation and administrative costs, enables more effective budget planning by having full visibility over funding, and encourages the building of capacity. The study by Altai Consulting on Aid Effectiveness indicated that “the reasons cited for not using public financial management systems include lack of confidence by donors in system and associated corruption.” Perhaps the bundles of money leaving Afghanistan by not using the country system is a bit of wake up call.

We reported the good news about the roll-out of AFMIS to all mustafiats yesterday. We were aware of the progress made by the Government of Afghanistan in implementing financial management across the country, and the successful completion some months ago. That’s because AFMIS is the FreeBalance Accountability Suite. The remarkable achievement is that this was implemented without our assistance in the face of military conflict. This is the definition of a sustainable implementation – can be installed and managed by public servants. Sure, it is less revenue for us, but it is critical to improving governance – and that’s what we are all about.

AFMIS is a tool that improves efficiency and effectiveness in public finances. It also provides anti-corruption tools including:

  • Tracking of all financial transactions with audit trail to enable identifying potential corruption
  • Strong budget controls and segregation of duties to reduce the opportunity for corruption
  • Support of banking integration to reduce cash and bank accounts making it more difficult to appropriate money and hide money
  • Fiscal decentralization within the software
  • Reporting to enable improving anti-corruption processes and supporting additional PFM reform 

The Ministry of Finance has a strong reform agenda that helps reduce corruption and increase accountability and capacity:

  • Improving payment and accounting services based on best international practices in the Treasury offices in the center and in provinces,
  •  Ensuring timely payment of salaries to verified government employees in full amount and according to the approved budget and establishment
  • Restructuring government financial management arrangements to ensure efficient implementation of government policies and reducing unnecessary administrative burden, while processing financial transactions
  • Improving the relevance, reliability, timeliness, and comprehensiveness of the financial reporting based on international standards
  • Ensuring adequate financial accountability of the managers of government units
  • Improving the accountability for the government assets
  • Developing and implementing policy in government banking arrangements based on the Treasury Single Account system
  • Providing clear guidance to the financial managers of the government law, regulations, and procedures in accounting and financial management
  • Ensuring improved financial management capacity of government units in the center and provinces
  • Building strong and capable civil service based staff of the Treasury in the center and provinces.
  • Promoting the development of the government accounting profession

And, the Ministry of Finance is leading in transparency with the publication of an accounting manual and regular monthly budget reports.

Success in PFM to Date

It is somewhat difficult to find current information about the state of public financial management in Afghanistan. The most recent Public Expenditure and Financial Accountability (PEFA) assessment was completed in December 2007 and published in 2008. This occured during the first stages of decentralization, yet showed improvements in indicators since 2005: “Out of total 28 PFM performance indicators, 18 indicators improved and two indicators deteriorated, while eight indicators remained unchanged.” (See chart in top left). The conclusions, 18 months ago, were promising:

Comparison with other countries shows that PFM performance in Afghanistan as of December 2007 is better than that of many other comparable countries in most categories. Indicators on budget cycle (C-(i)-(iv)) outperform even average the average for those middle income countries for which PEFA assessments are available, which suggests that there have been major improvements in this area. However, the credibility of budget (A) is lower than the average for other low income countries for which PEFA assessments have been conducted, while comprehensiveness and transparency (B) is equivalent to the average of these low income countries.

Corruption is measured in numerous ways, but mainly through perception. The World Bank governance indicators show an improvement in indicators since 1998. The corruption indicator for 2008 is down from 2003, but the standard error has been reduced. And, more sources have been used in the indicator. A 2009 study for USAID provided 6 recommendations to reduce corruption in Afghanistan. We hope that AFMIS represents a foundation element to improve the anti-corruption regime in Afghanistan – especially building on success. After all, the Ministry of Finance is rarely mentioned as a source of corruption. It is also critical that  measures designed with Afghanistan in mind – “the country context”, be used to help reduce corruption.

How can GRP Help for continuing Anti-Corruption?

GRP systems are typically phased in. Additional modules in GRP suites are added in sequence with the government reform agenda. Additional GRP modules can assist in anti-corruption:

  • Procurement systems can ensure process compliance with financial policies and identify potential areas of corruption. E-procurement portals enables civil society to assist in identifying suspect companies and transactions.
  • Civil service management systems can eliminate ghost employees and the illegal redistribution of cash through electronic funds transfer. Standard salary scales, talent management, training and other human resource functions can aid in civil service reform – identifying underpaid positions and promoting based on talent.
  • Budget preparation systems that provide transparent  publication of budget intentions and reducing the opportunity for “state capture” or influence of politicians.
  • Asset management systems that reduce misappropriation of government assets for private gain.
  • Audit systemsthat can analyze audit trails of these systems to improve processes.

Of course, GRP is a tool – a critical part of the anti-corruption solution.