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Scenario in Automating Good Governance: Government Resource Planning (GRP) Progressive Activation of Public Financial Management (PFM) Reform

 

May 15, 2013

 

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. 

 

 

 

 

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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