How is Sustainability Driving Public Finance Reform?

Geplaatst op augustus 12, 2024 in Financieel beheer van de overheid, Blogs over openbaar financieel beheer, Duurzame ontwikkeling

The Association of Chartered Certified Accountants (ACCA) highlights PFM reform momentum in Africa

By: Doug Hadden, Executive Vice President, Strategy and Innovation

You can be forgiven for thinking that public finance reform progresses slowly in emerging economies. My sense is that the combination of reform fatigue, with practice change inertia, adds friction to good intentions. There is only so much reform that public servants can absorb. Gaps between legal reform and informal practices widen, and best practice public financial management (PFM) laws become partly implemented, at best.

Recent sustainability initiatives promise to overcome PFM reform inertia. Sustainability is highlighted in the recent ACCA publication, PFM Performance in Africa and featured in the ACCA Virtual Africa Public Sector Conference (AVPSC2024) a few weeks ago. In his foreword to the publication, ACCA’s Director for Africa, Jamil Ampomah, suggests that “while public financial management (PFM) in Africa has significantly evolved over the last decades, the pace of reform continues to be challenged by systemic issues and deficiencies that undermine major investments from governments and development partners.”

How does sustainability lead to a shared PFM reform mission?

Notions of sustainability and support for the Sustainable Development Goals (SDGs) seem abstract in many advanced economies. Yet the lack of sustainability is visceral to those in Small Island Developing States (SIDS), Sub-Saharan Africa, Latin America, Eastern Europe and developing Asia, as a result of increasing fragility, migration, poverty and instances of natural disasters and conflict. As well as increasing instances of these events, the impact of natural disasters and economic disruptions tend to be more significant within emerging economies.

Challenging this through public finance sustainability requires two angles of attack: governments need to both mitigate the impact of crises, but also work to prevent them occurring in the first place.

Efforts to deliver the first focus on developing public finance resilience (fiscal space, revenue mobilization, value-for-money etc.). And prevention of future crises motivates development of infrastructure, and social public investment excellence (inclusivity, poverty reduction, “build back better” etc.).

In both cases, there needs to be a shared understanding of the goals of the reform. This alignment of goals is critical in embedding transformational change, such as the journey to accrual accounting or performance budgeting.

What is driving public finance sustainability momentum?

There are a range of factors driving public finance sustainability efforts around the world, including:

• recent crisis experiences and public finance impacts
• commitments and pressure to achieve the SDGs
• creation of sustainability in public finance practices and assessments:
  • Climate en Gender Overheidsuitgaven en financiële verantwoording (PEFA)
  • Climate Public Investment Management Assessment (PIMA)
  • Duurzaamheid reporting for International Public Sector Accounting Standards (IPSAS).

How do governments deliver against sustainability objectives?

Als we wrote in 2022, there are four areas of focus needed by governments if they wish to achieve sustainability and reduce the impact of crises. In each area, there is a need for both a PFM process adjustment en support from specific financial software (which we call overheidsmiddelenplanning (GRP)):

Focus Area	PFM Requirement	GRP Enabler
Sustainability planning and implementation	Multiple-year program and performance budgeting planning (inclusief SDG-steun), integrated with public investment management processes	Chart of Accounts (budget classification) side tables with limited changes to core structures, integrated with output- en resultaatmetingen in zoiets als een diagram met doelstellingen.
Beheer van duurzaamheidsrisico's	Budget planning processes to build in risicofactoren as a basis for monitoring and evaluation, with fiscal risk management consistent with the PEFA Prestatie-indicator 10 Rapportage fiscale risico's	Support of “beheer van bedrijfsrisico's” structures in budget planning that integrates with monitoring and evaluation dashboards.
Duurzaamheid grondstoffenverbruik	Use of activity-based costing approaches to track resources used, including carbon footprint, that can be leveraged through “cost drivers” in budget planning to forecast energy and carbon usage	Integration of begrotings-, aanbestedings- en contractprocedures om de middelen te volgen die worden verbruikt door de verandering in het aanbod
Natural resources assets and liabilities	Use of accrual accounting including methods to value natural resource assets, while accounting for natural resource and contingent liabilities in areas such as extractives and agriculture	Leverage multiple-year budget preparation modelling tools, while moving towards accrual accounting, extending asset and property accounting to uncover the real value of a country

How can an Integrated Financial Management Information System (IFMIS) help achieve sustainability goals in developing countries?

An effective IFMIS is essential in ensuring access to accurate, real-time data which enables robust and transparent financial management and service delivery.

FreeBalance provides the first global GRP solution, the FreeBalance Accountability Suite™, which is designed exclusively for PFM. This is important because governments have unique needs when it comes to budget planning, preparation, execution, and performance evaluation. Enterprise resource planning (ERP) tools aren’t developed for government contexts, and GRP is not the same as ERP.

Leveraging our purpose-built government IFMIS in tandem with FreeBalance’s adviesdiensten, enables governments to zone in on the areas identified by the ACCA as most in need of support (see diagram above):

Effective Coordination

The FreeBalance Accountability Suite™ empowers effective coordination through:

• Compliance with legislative and policy frameworks
  • The configuration of the FreeBalance Accountability Suite™ ensures compliance with the legislative and policy requirements of sustainability efforts, while supporting key agencies mandates through program budgeting
  • The FreeBalance Accountability Suite™ provides real-time data for policymakers through interoperability, management alerts, and dashboards, and uses multiple-year Chart of Accounts as key fiscal metadata.
• Delivering performance assessment tools
  • The FreeBalance Accountability Suite™ offers integrated performance monitoring, by linking Charts of Accounts with Charts of Goals for output and outcome monitoring and reporting throughout the budget cycle
  • Automated alerts and notifications, including via email and messaging systems, are built into the FreeBalance Accountability Suite™ to ensure that any move away from expected performance is swiftly attended to.
• Enabling inter-agency collaboration
  • The FreeBalance Accountability Suite™ features secure data access security, using the Chart of Accounts to group and role definitions, and separation of data and business logic layers. This supports reporting, analytics and fiscal transparency
  • Collaborative workspaces are fully supported by the FreeBalance Accountability Suite™, through task dashboards, low-code workflow management, and content management.
• Supporting stakeholder buy-in
  • FreeBalance’s proprietary, ISO-9001:2015 certified agile implementation methodology, A-i³+qM, facilitates effective change management by focusing on gaining project authorizing environments, and government-specific change processes
  • Stakeholders are assured of the benefits of PFM reforms via custom dashboards, scorecards and alerts for sector groups.

Data Integrity

Digital transformation relies on data integrity. FreeBalance helps governments to ensure the integrity of their data by utilizing:

• Impact-focused digital solutions
  • FreeBalance conducts a needs assessment with each customer, using tools from our FreeBalance’s A-i³+qM methodology to analyze what a government needs from an IFMIS, comparing “systems of record” with systems of “engagement”, “intelligence” and “innovation”
  • Our A-i³+qM methodology also helps governments through a modernization journey, covering digitization through digitalization to digital transformation.
• System integrations
  • The underlying technology for the FreeBalance Accountability Suite™ is a single open verenigd platform: the FreeBalance Accountability Platform™. This ensures interoperability and simplifies integration to financial subsystems
  • The FreeBalance Accountability Suite™ provides a single point for metadata and controls management, ensuring a “single version of the truth” and compliance with government regulations.
• Ethical Integrated Artificial Intelligence
  • Our A-i³+qM methodology supports organizations to define and implement AI governance and ethics
  • The FreeBalance Accountability Platform™ features robust data security protocols. It does this through routing all queries via the business logic layer (with no exposure of business logic in browsers), good security practices, encryption and the integration with biometrics, public key encryption, network security analysis tools, firewalls, and virus protection.
• Up-skilling public professionals
  • De FreeBalance Academie en training services provides capacity building, so that skills development goes beyond FreeBalance products to emerging technologies
  • FreeBalance’s A-i³+qM methodology supports iterative training through workshops and training courses that supports government certification needs and continues learning.

Driving People Development

• Transition to accrual accounting
  • The FreeBalance Accountability Suite™ enables the move to accrual accounting through geleidelijke activering, taking governments on a journey from cash through modified cash and modified accrual, to full accrual accounting, meeting Internationale standaarden voor overheidsboekhouding (IPSAS)
  • FreeBalance’s training services, alongside specialized courses from the FreeBalance Academy, improve skills in IPSAS cash management and IPSAS accrual compliance.
• Building capacity to promote sustainability
  • Programs offered through the FreeBalance Academy help to integrate sustainability across government budget cycles
  • De FreeBalance Accountability Suite™ program and cost accounting functionality provides data visualization tools which demonstrate progress against social and infrastructure public investment goals, spending, and outcomes.
• Transferring and retaining skills
  • Adaptable help, content and knowledge management tools within the FreeBalance Accountability Suite™ enable building knowledge bases
  • De FreeBalance Accountability Suite™ ambtenarenapparaat functions support training programs, succession, talent and career planning.

Improving Resource Efficiency

• Betrokkenheid van de belanghebbenden
  • Automated transparantieportalen are included within the FreeBalance Accountability Suite™. These enhance stakeholder engagement and public accountability around sustainability
  • The FreeBalance Accountability Suite™ integrates Charts of Accounts with Charts of Goals, enabling stakeholder analysis and feedback related to spending outputs and outcomes.
• Waar voor je geld
  • By integrating the Chart of Accounts with the Chart of Goals, the FreeBalance Accountability Suite™ supports improved links between financial performance and strategic performance. Sustainability objectives are cascaded to value considerations used in budget, procurement, and public investment planning
  • De FreeBalance Accountability Suite™ inkoopmanagement supports sustainability in value calculations while supporting results reporting, enabling a focus on both procurement process compliance and effective investment.
• Internal controls and audit
  • The FreeBalance Accountability Suite™ has ESG-sensitive controle van de vastleggingenen valid code combinations can be configured to align with sustainability objectives
  • Audit trails and audit management within the FreeBalance Accountability Suite™ supports sustainability compliance and performance audit.

How can governments structure sustainability in PFM reform and financial management software?

De oplossingen architectuur technique aligns sustainability objectives to PFM reform and the financial management technologies supporting it. Changes to Integrated Financial Management Information Systems (IFMIS) is usually part of PFM reform.

Doelstellingen Bekijken

• Government goals: government sustainability goals within visions, national strategies, pillars, and Sustainable Development Goals (SDGs) objectives
• Expected outcomes: sustainability targets set by governments, including references to relevant SDG targets and indicators.

Organisatie Zicht

• Main stakeholders: line ministries and agencies who share sustainability programs
• Involved stakeholders: donors, oversight agencies, civil society, political parties, parliamentarians.

Logische weergave

• Core functionality: doorgaans de kernfuncties van financieel beheer
• Major subsystems: zoals salarisadministratie, activa, inkoop, schulden die moeten integreren met de kernactiviteiten
• Functions supported: functions like audit, transparency, decision-making.

Toepassing Bekijk

• Core system: typically the core financial system, although could be more than one system
• Major subsystems: werkelijk gebruikte toepassingen, kan de huidige omgeving contrasteren met de toekomstige
• Supported applications: supported by systems like portals, dashboards.

Integratie uitzicht

• Naar: de systemen waaraan de systemen informatie verstrekken
• Van: de systemen waarop het systeem informatie ontvangt
• Type: the integration method like API, web services, RPC, flat file, database, ETL, screen scraping.

Informatie Weergave

• Systems and subsystems: afgestemd op de toepassingsweergave
• Data migration: toont gegevens afkomstig van te vervangen systemen
• Information sources: for data, metadata, task management, controls, organizational structure.

Technologie Zicht

• Presentation layerte ondersteunen gebruikersinterfaces
• Business logic layer: application servers, middleware, programming languages to be used
• Data layer: actual databases to be used.

Projectweergave

• Coördineer met een enkel projectoverzicht
• Afhankelijkheden vaststellen binnen standpunten en over standpunten heen
• Projecten afstemmen met hoge overheids-, donor-, lijnministerie- en projectdoelstellingen
• Genereer spelplannen, agile boards, and traditional project plans.

FreeBalance’s PFM experts work with customers to define how advanced GRP tools can support PFM reform and sustainability. Neem contact op to find out how the FreeBalance Accountability Suite™ can help your organization.