March 20, 2009Doug Hadden
This is part 9 of the 9 part series on PFM knowledge sharing.
FreeBalance provides a Commercial Off-the-Shelf (COTS) IFMIS suite that is used in many countries around the world. We hope that the following is sufficiently objective to be of value to you.
Updated: June 2009
Transparency and accountability have become important themes in Public Financial Management (PFM). In fact, this is one of the major themes from the new American president.
Government transparency and accountability improves citizen and business confidence. Developing nations can increase donor funding and achieve direct budgetary support.
Integrating transparency with PFM reform is considered an excellent approach by practitioners. Budget transparency is often described as the first step. Information about budget objectives and spending programs can be presented to the public. Budget execution or “actuals” can also be presented.
Improved service delivery through “seamless government” is the next stage of transparency. Governments who focus on transparency such as showing procurement results tend to be improving service delivery. Service delivery metrics can also be provided to citizens and act as government objectives.
Need for Transparency
- Legislatures need to effectively monitor the government to improve accountability. The legislative systems differ among countries. Strong public accounts, audit and budget committees are needed to improve public financial management. (Beasley)
- Lack of transparency encourages wasteful and corrupt spending , effective governments depend on empowered citizens (Mafabi)
- Must go beyond the machinery of government to the private sector, citizens and the press to ensure good governance and transparency. (Tarallo)
- In Latin America, the 2 main triggers – not enough information + re-democratization and need to be more transparent. (Pessoa)
- Donor aid does not necessarily reduce transparency. (Ramkumar 2)
- Research has shown that majority of government deny citizens basic information on how public funds are spent. (Mafabi)
A found that “transparency and accountability” is clearly the more important benefit of PFM reform. The survey result from the group of public financial management experts was:
- Consensus on reforms to be undertaken: 2%
- A multi-year focus: 5%
- Articulation of Government and service priorities: 20%
- Improved coordination of reforms within the government: 7%
- Improved public accountability and transparency: 55%
- Improved coordination with and amongst international donor organizations: 0%
- Increased likelihood that reforms will continue in times of economic and political change: 5%
- Improved macro economic and financial forecasting: 5%
Delegates to the 23rd Annual ICGFM Conference believe that governments can do more to inform citizens about public spending.
Budget Transparency (Hawkesworth)
Budget transparency and IT: IT is a tool, not an end in itself. Obstacles include:
- Vested interests (information is power)
- Difficult to communicate (generally very technical)
- Individual citizens don’t see how budget impact them personally
- Parliaments are not active enough in scrutinizing information.
- Budget reports should include non-financial performance information. Year-end report is the key accountability document from the document. Should be audited within 6 months. Policies and responsibilities should be clear. Tax – tend to reduce taxes rather than subsidies.
Forms of Accountability (O’Brien)
- Accountability can be difficult for practitioners to define
- Answerability and enforcement represent the two stages of accountability regardless of the modality of accountability.
- Traditional horizontal accountability has executive accountable to legislature and oversight institutions and civil service accountable to the executive
- Traditional vertical accountability has Legislature and Executive accountable to citizens. New forms of accountability include oversight institutions and civil service accountable to citizens
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Service Transformation (Cochrane)
- How to build confidence in government? Transparency, accountability, service delivery
- Key enablers are service transformation and public service renewal
- Has been on a journey since 1998 on service transformation.
- Focused externally on Canadians through government on-line and service initiatives (increase client satisfaction by 10%). Internally was on the back office to make more efficient.
- Goal of GOL: seamless government
- GoC has focused too much on external customers and less so on internal.
Each department and agency, transparency disclosure, all contracts >10K, grants and contributions >25K, travel costs by senior people posted monthly + hospitality costs, financial statements and reports on plans and priorities, departmental performance reports. Robust access to information law and commissioner. (Libby)
Elements of Good Governance and Transparency
- Clear and define roles and responsibilities
- Compliance with laws, policies and regulation
- Fair, competitive and transparent procurement system
- Effective operational and financial management
- Regular audit based on international standards
- Widely published and access to accurate and comprehensive information
Risk and disclosure should be managed.
Disclosure is often driven by accounting, reporting and transparency standards like IPSAS and GFS
Is more incentive in government to hide risk. Yet there are many important benefits to disclose this rik.
This can increase confidence and reduce uncertainty for investors and taxpayers.
- Accountable and transparent accounting at decentralized level
- Independence of Judiciary
- Disclosure strategy and law required including timetable for disclosure
- Includes right to information
- Penalties for failure to disclose
- Do government financial statements help citizens make decisions?
- Current government reporting is too cumbersome for the average citizen. In an AGA/Harris poll in 2008, the majority of Americans polled said that they did not get adequate information about government financials. The majority claimed that understanding the financial situation would affect their voting behaviour.
- The AGA has created a citizen-centric report located at: http://www.agacgfm.org/citizen/default.aspx.
- Some government organizations using this format and that this approach is starting to gain momentum. The U.S. Department of Defense is expected to be the first American federal government organization to use this approach.
- Need for audit – Why does Brazil have a poor rating from Transparency International? Denmark has 100 auditors for each group of 100,000 people. Brazil has 8. This means that Brazil is not well-audited. Hiring auditors is unrealistic given the financial crisis.
- Solution – enable civil sociate. The Government is training journalists and engaging civil society. This distance learning course is being taken by 35,000 people.
Challenges to Legislative Oversight
(Page) Challenges for parliamentary budget oversight including limited resources. The executive tends to have more information than the legislature. Lessons learned in Canada because of the crisis include:
- Need for improved transparency and financial reporting. This includes culture change.
- Opportunity for increased scrutiny and accessibility to economic analysis
- Manage for long-term results and effects like the aging population and the affects of climate change
International Benchmarks: Lessons Learned
PEFA – Public Expenditure and Financial Accountability
- PEFA assessments do not identify root causes of poor assessments nor does it evaluate policy. Mr Ronsholt says the trend to self assessment is a good sign, but that 3rd party scrutiny is very helpful.
- Assessment information should not be used simplistically. (Ronsholt and Bessette)
PEFA idea for high level PFM performance overview and identifying PFM weaknesses. It does not cover investigating underlying causes, selecting and implementing PFM reform. (Ronsholt and Bessette )
- PEFA enables tracking improvements in Public Financial Management (Brajshori)
OBI – Open Budget Index (Ramkumar 1)
There is a lack of will for governments to create open and transparent budgets. The three key finding for the most recent open budget survey were:
- The public is shut out of the budget process in the majority of countries. 41 of the 85 countries provide only minimal, scant, or no information.
- The lack of transparency is compounded by weak oversight institutions in audit and parliament. Donor aid may negatively affect transparency. Low scoring countries often share similar characteristics, including regional locations, dependence on oil and gas exports and foreign aid, and weakness of democratic institutions.
- Budget Transparency can be improved quickly and at little cost
Governments with more transparent budgets are more likely to receive donor funds.
OECD/DAC Procurement Benchmark
Tools are based on broadly accepted international tool. It was attended to achieve good practices in many countries across a spectrum of capacity (Bigart)
The OECD/DAC benchmarking tool is not a perfect methodology, but it has a common vocabulary (Claro).
Country personnel focused on the grading. Donors tell them not to worry about the grading, yet they worry about the grading (Claro)
Lessons learned from the use of the OECD/DAC benchmarking tool includes (Bigart):
- The tool is useful and relatively easy to use
- Standardization through the tool creates need to use flexibly in a given country – may require some customization and interpretation
- Some indicators will require adjustment after experience from over 40 countries
- Use of the tool is an input to a process so scoring is not as important as the information learned
- Results of any benchmarking exercise needs to be more clearly linked to other tools like PEFA
- Reform strategy must be integrated and prioritized on the basis of overall public sector management and public financial management strategy
- Beasley: Ivor Beasley. World Bank
- Bigart: Pamela Bigart, World Bank
- Brajshori: Behxhet Brajshori from the Government of Kosovo
- Claro: Jorge Claro, President of the International Procurement Institute
- Habibullah: Wajahjat Habibullah, the Chief Information Office of India
- Libbey: Jim Libbey, Executive Director, Financial Systems Authority, Office of the Controller General, Treasury Board of Canada
- Mafabi: Nandala Mafabi Nathan, Chairman, Public Accounts Committee, of the Parliament of Uganda
- O’Brien: Mitchell O’Brien,World Bank
- Page: Kevin Page, Kevin Page, Parliamentary Budget Officer, Canada
- Pessoa: Mario Pessoa, Fiscal Affairs Department IMF
- Pilapitiya: Husitha D. Pilapitiya of Casals & Associates
- Ramkumar: Vivek Ramkumar, Open Budget Initiative
- Ronsholt and Bessette: Frans Ronsholt and Franck Bessette PEFA Secretariat
- Sitton: John Sitton of Emerging Markets Group
- Tarallo: Roberto Tarallo, World Bank
- Van Daniker: Relmond Van Daniker, Executive Director of the Association of Government Accountants
- Velloso: Ricardo Velloso, IMF
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