February 2, 2014Doug Hadden
Modern enterprise software ought to make fiscal transparency a breeze. Automatic data collection and controls should facilitate reporting. It was rather interesting to see the contrast between my recent guest post on the Publish What you Fund blog and the post by Sarah Jones in the Guardian about the International Aid Transparency Initiative (IATI). Jones suggested that organizations grapple with mapping underlying categories with the IATI standard. My post suggested that good financial management practices facilitate IATI support.
It’s an open secret: many of the leading software solutions used today inhibit change. It’s also true that many organizations do not support recognized good fiscal management practices.
Technology as Inhibitor
Some financial management software applications and most ERP software lack flexibility for change. IATI support may require that organizations adapt their charts of accounts to support program, location and fund source information. Alternative methods of rolling up detailed financial data to the IATI standard. This is easily handled by FreeBalance software, including the support of multiple year charts of accounts.
Most ERP applications were developed on the premise that implementation comes after business process reengineering. Changing financial structures is fraught with danger. I’ve encountered situations where government organizations find it more expensive to buy new software and migrate data than change budget classifications in the software currently used.
If you have one of these customized ERP systems, it might be time to upgrade to new technology. You might think that you have something modern based on vendor hyperbole. Gartner, the leading technology analyst firm, calls highly customized ERP – ‘legacy.’ Gartner is right, any financial software operating using client/server code, proprietary software languages that uses code customization as the primary vehicle to meet unique needs is no so much an investment as a money pit.
Process as Inhibitor
Organizations build up corporate cultures. They derive formal and informal methods of fiscal management. Practices adapt over time based on the organization context that often means resistance to evolving good practices. Some organizations that were once practice innovators have fallen behind.
I had a curious discussion with a representative of an organization a few years. She was resisting the call for IATI support with some interesting arguments. (three years later, that organization is supporting IATI.)
- Aid transparency will not improve aid effectiveness. She suggested that donor coordination was unlikely to happen. And, her organization was already highly effective. It’s odd to consider a scenario where a highly effective aid organization would shy away from publicitiy.
- Program management is a bad practice. She thought that organizations were moving away from program management. It wasn’t clear why she thought this. Some organizations lack the capacity to easily upgrade from functional to program budgeting. I’ve yet to see a compelling argument about not supporting program management if you’ve got the capacity.
- Aid is fungible, so IATI won’t make aid transparent. Yet, aid fungibility and corruption was a major impetus for IATI. That’s because of the trend to use country systems. This enables tracking and auditing the aid life cycle from budget through disbursement and results from donors through to governments and NGOs. The more electronic this lifecycle, the less fungible aid becomes.
- IATI won’t reduce transaction costs. Her view was that aid transaction and administrative costs were minor. This is far from the case when you think of all the reports that NGOs and recipient governments need to produce. Often different report formats in different currencies across different fiscal years. Thus could all be eliminated through single IATI reports.
- It’s all political. Yes, but that doesn’t make it a bad thing.
Why Consider Good Practices in COA Design
The exercise required to support IATI has organizational management advantages:
- Program Management. Organizations need to track the costs and successes for investment. Similar investments should be grouped as programs to enable comparison and to manage to objectives. There are often many health objectives supported by governments,donors and NGOs. There are many projects within each objective. Many of these relate to MDGs and other international initiatives.
- Fund Source. Recipients of aid often have conditions about where, when and how the aid an be disbursed. Controls can be built into financial systems to ensure compliance.
- Location. Aid information is augmented by geographic systems that shows unexpected outcome patterns. It does matter where aid is disbursed. Location information, including geocoding is critical to uncovering these patterns.