A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

The Central Bank was responsible for cash execution of the budget through its network of
branches. Spending units had Bank accounts outside the control of the MOF and the MOF trans-
ferred money to these accounts periodically. Sizable idle balances could build up in spending
unit bank accounts while the MOF was in deficit in overall terms. The MOF had no information
on balances in these accounts nor had any control or means to exercise control to ensure that
expenditures are in accordance with budget appropriations.

Monthly budget execution reports were prepared by the MOF from reports received from the
Central Bank. Reports on expenditures, classified by institutions and economic composition,
were not available until quarterly reports were received from the budget organizations through
their controlling ministries. These were received and collated with substantial lags.

The MOF had no means of ascertaining actual government expenditure vis-à-vis the budget allo-
110
cations in a timely manner and could not effectively monitor compliance with strategic priorities
or initiate in-year remedial measures. There was a lack of reliable, comprehensive and timely
accounting information and administrative capacity to adjust the budget in response to changing
circumstances or base line data for budget preparation. There was a clear indication of the criti-
cal need for more effective budget execution and expenditure management systems capable of
exerting fiscal control.

Accordingly, the IMF and the Bank worked with these governments to help them formulate poli-
cies and assist in setting up the legal framework and institutional structures required for financial
management.

Project Design: Since the problems encountered in each of these countries were broadly similar,
the solution suggested to address these issues in each of these countries also had similarities.
Basically, the reform projects in each of these countries had two elements:

• First, it was necessary to, formulate policies and set up institutional structures required
for management of government finances ab initio to enable the MOF to regain control
over the financial resources and ensure that expenditures are in accordance with budget
appropriations.
• Second, it was necessary to set up automated systems that ensure that these policies are
implemented without exception.

Key policy actions that were pursued during the projects are detailed below:

• The development of a comprehensive Budget Management Law which provides a frame-

work for the proper management of public moneys and property with specific emphasis
on: (a) the establishment of the Treasury and its functions (b) budget preparation and bud-
get execution procedures and responsibilities for the receipt and custody of public moneys
(including the banking arrangements); (b) public expenditure management (including con-
trol processes and the linkages with appropriations); (c) the accounting system; (d) the role
and responsibilities of officials; (e) control and management of public property; (f) borrowing
and investment (specifically the management of the public debt); and (g) reporting and audit.
• The adoption of a GFS consistent budget classification system and design of a treasury chart
of accounts embodying this budget classification for implementation.
• Creation of a Treasury Ledger System (TLS) based on a new chart of accounts (COA). This
ledger system, which is also called a Treasury General Ledger (TGL), and is kept by the
Central Treasury, included ledgers for financial accounting as well as for monitoring of bud-
get implementation. The new COA reflected the new budget classification of revenues and
expenditures. The TGL also had provisions for recording data on original budgets, revisions
 AFRICA OPERATIONS SERVICES SERIES

as approved by the Budget department, warrants issued by the Treasury and sub-warrants
by line ministries at regional level.

The program of setting up the Treasury Department included centralization of all Government
payments through the Treasury and consolidation of bank accounts to a single account at the
Central Bank—the Treasury Single Account (TSA). All receipt processes would be re-engineered
to ensure revenues are directly deposited in the Government account. A network of Treasury
offices would be established at the regional (oblast level) and district (rayon level) which would
take over budget execution and primary accounting responsibilities from the Central Bank. Fiscal
monitoring and control functions would be centralized in the MOF. All SU bank accounts would
be closed. The regional offices were made responsible for ex-ante control of all payment orders
raised by SUs against their sub-warrants, and for calculating the division of designated tax rev-
enues between the central government and the local governments, and for advising the Central
111
Bank regional branches of the allocation of revenues.

The second element of the project design envisaged the design and implementation of a modern,
automated and integrated Treasury System for government financial management to support the
re-engineered Treasury processes and procedures.

The system would encompass the functional requirements for the budget implementation and
accounting processes and would cover the appropriation, commitment, funds allocation, and
payment processes for both the investment and current budgets. The Core functional processes
and information flows associated with the system have been discussed earlier in Chapter III and
IV. These two elements of the reform program taken together would ensure:

• Better fiscal control

• By ensuring that expenditures are in accordance with budget appropriations, commit-
ments and cash allocations
• Close monitoring of outstanding bills, cash in Government bank accounts, arrears and
fiscal deficits
• Better cash management
• By bringing all government accounts under the control of Treasury and consolidation
in a Treasury Single Account (TSA)
• By reducing idle balances in Government Accounts and improved planning for cash
• Timely and accurate reporting for Economic management and for Preparation of statu-
tory financial statements
• Improved quality of baseline data for budget preparation

The organizational structure for the Treasury as implemented in these three countries is shown
below in Figure 27.

Project Development Objectives (PDOs)

The overall objectives of these projects were broadly to:

• Support on going Government efforts to establish a Treasury Department and implement

associated systems and procedures.
• Assist the Government to design and implement a fully functional, automated treasury sys-
tem that (i) provides comprehensive reliable and timely financial management information;
and (ii) helps manage government expenditure effectively and serve as an effective instru-
ment for budget execution and cash management.
 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

Figure 27: Treasury Organization Structure – Russia, Kazakhstan and Ukraine

Treasury Organization Structure I

Central Central Bank

Treasury Head Office TSA

Provincial Provincial Regional Branch

Treasury Unit Treasury Unit of Central Bank TSA

Spending District District District

112 Unit Treasury Unit Treasury Unit Treasury Unit

• Provide a transparent system of accounting that shows the utilization of the financial
resources of the Government and enables management and audit of these resources

PDO Indicators

The achievement of these was to be measured by:

• The degree to which the payment processes have been centralized;

• Timely presentation of fiscal accounts for external audit
• Training of adequate numbers of financial and technical staff to operate new system
• The establishment of a Treasury Single Account established at the Central Bank; and clo-
sure of SU bank accounts at commercial banks.
• The degree to which the new management processes and expenditure controls for budget
execution were in place and functioning.
• Adoption of Revised budget classification system and budget prepared according to new
classification.
• Establishment of the Treasury ledger systems with required functionality rolled out to all
oblasts and associated rayons.
• Timely and reliable budget reports produced for MOF / Treasury / Budget Agencies by end
of project.

Project Implementation Strategy

In each of these countries, it was necessary to pursue a two pronged implementation strategy.
Since the implementation of a new Treasury system across the whole country would be a major
undertaking—possibly taking 8–10 years—there was the need to set up interim systems that
could yield immediate results.

Work on the implementation of the key policies related to setting up the Treasury started in
these countries in 1993–94. As the ideas related to the basic policies and institutional struc-
tures of the Treasury took hold, the respective Governments established a Treasury depart-
ment and a network of Treasury offices in each of the provinces (oblast) and district (rayon)
offices. A TSA was set up at the Central Bank and SU bank accounts were closed. Gradually,
all expenditure and receipt transactions started being routed through the Treasury offices and
the coverage of the Treasury extended to almost 100 percent. The so called “power ministries”
resisted bringing their budget execution processes and bank accounts under control of the
 AFRICA OPERATIONS SERVICES SERIES

Treasury, but this was overcome due to Government commitment regarding the implementa-
tion of these policies.

Systems implementation in all of these countries started with setting up basic Fox-Pro based sys-
tems with limited functionality at rayon/oblast offices to process expenditure and receipt transac-
tions. Often the different oblasts and rayons used different systems and some continued to work
manually. The quality of these systems improved over time in terms of the application software
development tools used and the uniformity of the systems across the landscape, but the func-
tionality remained limited to core processes (checking for the budget and payment processing).

The country specific features of the World Bank interventions in each of these countries are
described below.
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Kazakhstan

Preparation of the Bank Treasury modernization project started in 1994. The Bank loan of
US$15.8 million was approved in July 1996. In the first phase the Bank-financed the setting up
of an interim system, through funds from an existing project based on a locally available soft-
ware package—CORVUS). This improved the quality and uniformity of the basic Fox-Pro based
systems that were operational at the rayons and oblasts at that time but had limited functionality
as mentioned above.

Work started simultaneously on the development of the design and procurement of a full func-
tion treasury system. The functional design of the system and development of the specifications
of the new system was done by an international firm—Barents, selected after a competitive
process, and financed through the Bank loan. This was followed by the procurement of the
application software and technology platform through a two stage ICB. A consortium headed by
Hewlett-Packard and partnered with Oracle won the contract; Oracle Financials was selected as
the application software. After parameterization and pilot testing (in one oblast and all associated
rayons) the system was gradually rolled out to all rayons and oblasts. The system was originally
designed as a partially distributed system with servers located in each of the oblasts which were
to serve all rayons under its jurisdiction. This was done in view of the state of the telecommu-
nications network available at that time (1998–99). The Government insisted on moving to a
centralized architecture, with the main servers being located at the Treasury Headquarters in
the capital (Astana), and connecting all remote offices via a satellite based telecommunications
network. This was done. However, due to response time problems from remote sites caused by
the latency delays encountered in a satellite-based connection, this was later replaced by land
lines—mainly fiber optic based connections. This replacement took place after the closure of the
bank project in 2002.

The coverage of the system and the number of users increased from about one thousand to start
with in the early 2000s to several thousand now. The main servers have also been upgraded as
required. The latter investments have been financed by the government from budget resources.

The Kazakhstan project represents the first case of the use of the Oracle Financials application
software package as the basis for systems implementation. At this time Oracle Financials had not
developed a software version specifically designed to meet government budget execution needs,
and work-arounds had to be implemented in the basic package to meet these requirements. The
Kazakhstan Treasury project served as the test case for implementing off-the-shelf software for
Treasury systems. Oracle used the experience gained here and documented in a Bank docu-
ment—the Treasury Reference Model—to develop a government version of the software that is
now widely used.
 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

The success of the Kazakhstan Treasury Modernization project can be measured by the fact that
the policies procedures and system developed in this project introduced major changes in the
way budget management is handled in the country, and enables the Government to achieve
control of the budget process and the government’s financial resources. The Treasury system
developed in this project continues to be the core Government application that supports budget
execution processes. Work on enhancement of the coverage of system and implementation of a
full function IFMIS has continued since then, and is now well advanced.

The key success factors for this project were:

1. The project design focused on a specific key government requirement which was diagnosed
as being critical by the IMF and the Bank at that time and tried to provide a solution to that
problem. It did not attempt to solve many problems within the scope of a single project, for
114
example,. those related to tax administration, /customs administration, human resources
management, Debt management, auditing, etc. This enabled the Government and Bank
team to focus attention to all issues related to the specific problem instead of dissipating
efforts and scarce resources across multiple others.
2. The project focused on Treasury reform and the underpinning legal and institutional frame-
work and the systems that were required to put this in place. It was not viewed as an IT
project either by the Bank or the Government. The project manager from the Government’s
side was a key Treasury official from the functional side.
3. The Government showed tremendous commitment to overcome the political economy and
other challenges including those in the implementation of the system and stayed the course
for the Bank and the IMF worked closely together. An IMF advisor was stationed in Kazakh-
stan throughout the duration of the project, and continued to provide policy guidance and
ensure that the project did not stray from the core issues that it was designed to address. The
Bank’s key technical staff also stayed on the project throughout its duration.

Among the key vulnerabilities for the project, one could list the lack of adequate capacity dur-
ing the implementation stage within the MOF to manage and maintain the new Treasury system.
At project end, the government outsourced much of the systems implementation aspects to an
outside firm.

Ukraine

Work on the Ukraine Treasury reform started almost in tandem with that in Kazakhstan and again
in response to the Bank and IMF diagnoses of what needed to be done to enable Government to
regain control over its finances.

The first intervention in Ukraine was attempted under a broader Institutional Development Proj-
ect, which attempted to address several institutional issues within the Ukraine Public Sector.
However, the Treasury component of the Integrated Budget Law (IBL) could not achieve much
traction. A foreign consulting firm hired to do the design work on policies could not get the
Government’s attention. Work on Treasury reform continued outside of the ambit of the project
component and it took several years before ideas like the requirement for a Treasury, a TSA and
related systems could take hold in Ukraine.

The Bank attempted a second intervention a few years later that was more focused on Trea-
sury problems and the new Treasury Development Project (TDP) was approved by the board in
1998. Which provide for US$16.8 million for setting up the policies, procedures and systems
for the Treasury. The new project focused on the implementation of polices and institutional
structures required for the Treasury and much of the Bank-Fund dialogue over the initial years
 AFRICA OPERATIONS SERVICES SERIES

focused on the policy aspects. In view of the failed attempt under the IBL, and also in accordance
with advice from other donor partners working in the country—USAID and ADETEF—the Bank
project had more modest objectives in Ukraine as regards the type of technical solution to be
implemented. It was decided that it would be best to first set a up a robust interim system that
could serve Ukraine for the medium term and which encompassed the core functionality of the
Treasury. This could be the take-off point for a full function system which could be procured later.

In contrast to Kazakhstan, the political economy in Ukraine was such that vested interests in the
country could launch a serious challenge to the Treasury reforms and the project. For example,
the banking sector lobbied Parliament to convince them that the concept of the TSA would be
disastrous for the sector that relied mainly on government funds for liquidity. Once these prob-
lems were overcome and the project proceeded to implement policies to ensure good fiscal
control, and the TSA was actually implemented, it had a very significant positive impact on the
115
fiscal deficit and the government’s ability to manage its finances.

In Ukraine there was a good pool of technical staff that could be used for systems development,
although their skills needed upgrading. The various government agencies insisted that these staff
could develop any systems required and that a Western off-the-shelf package was not neces-
sary. Nevertheless, the Bank continued its efforts in assisting the government in setting up the
Treasury as an institution and gradually improving its systems. Eventually, a custom-developed
system, which was partly based on a locally developed package, was completed and deployed.
This system was rolled out to all Treasury offices by 2002, and continues to this day to be the
basic system used by the treasury for budget execution. On closure of the TDP, the Bank started
to design a more comprehensive Public Finance Modernization Project (PFMP) to address mul-
tiple problems in the sector. This project was finally approved by the Bank’s Board in 2006.
However, due to various issues mainly related to the political economy in the country, progress
has been slow.

The Ukraine experience once again underlines the need for focused intervention and limit-
ing the project scope to achieve key policy reforms in a difficult environment. Compromises
cannot be made on the core policies, but for subsidiary issues like the quality of the system—
whether commercial-off-the-shelf (COTS) or custom-developed. The other Kazakhstan lessons
also apply here.

Russia

Work on the Russia Treasury project started in late 1998. The IMF had worked in the 1990s to
assist in setting up the legal framework and institutional structures. However, at start of project
preparation, the coverage of the Treasury and the TSA was minimal and Treasury systems were a
patchwork of very basic Fox-Pro based systems with inadequate functionality and coverage. The
Budget framework, including the Budget Classification Structure, also required additional work.
The legal framework and institutional structures required to enable the MOF to regain control
over the financial resources and ensure that expenditures are in accordance with budget appro-
priations needed improvement as well as increased application and coverage.

As in Ukraine and Kazakhstan, there was need for a two-pronged strategy, because the imple-
mentation of a new Treasury system across the whole country would be a major undertaking
lasting 8–10 years.

The first stage of this strategy would require that Government continue with implementation
of policy initiatives, the TSA, Budget reform with IMF and Bank advice, and continue with the
implementation of an Interim Treasury system with improved functionality and capacity. This
 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

meant improving the existing custom-developed system and additional hardware. The Govern-
ment would continue to finance this.

As part of project preparation activities the Bank financed an institutional review of the Treasury
through a Policy and Human Resources Development (PHRD) Grant in 2001–2002, which high-
lighted the institutional weaknesses and improvement required.

The second stage of the strategy included: The design of a full function Treasury System and
associated procedures (2002–2003); Procurement and development of application software and
implementation services (2004–2005); Parameterization testing of the application software (2006–
2007); and procurement of the hardware in line with implementation requirements (2008–2012).

The new systems were then implemented at 3 pilot oblasts and associated rayons during 2009
116
and then replicated systems across all sites—in 5 waves with 10–15 regions in each wave—over
the period 2010–11. To implement the system country wide, Government financed a major
upgrade of the telecommunications network over the period 2005–2010. It also financed a mas-
sive upgrade of all Treasury offices across the countries and implementation of required infra-
structure as embedded in engineering support systems.

Systems Functionality

The Treasury systems set up by the project in Russia support Budget Management, including,
Budget Apportionment; Budget Allotment; Budget Releases; Budget Transfers; Commitment Man-
agement—recording all commitments relating to intended government expenditures; Payment
Management—processing all government expenditures relating to procurement of goods and
services from current/capital budgets; Salary and Pension Payments; Debt servicing payments;
Subsidies/Fiscal transfers to sub-national levels or SOEs; Receipts Management—recording rev-
enues and other receipts; Accounting (posting all transactions as they occur); Cash Management;
and Fiscal Reporting. The core functional processes and information flows are shown in the
Figure 28.

Systems Architecture: The interim systems that had been set up were configured to rayon-based
distributed architecture due to a bad telecommunication network. The final systems set up under
the project were based on an oblast-centric architecture, with a central system which consoli-
dates information across the country.

Application Software: The interim systems were custom-developed. The FTAS is based on a
COTS package – Oracle Financials acquired through an ICB.

Spending Unit (SU) connections: Initially, SUs brought hard copies of documents to Treasury.
They gradually moved to electronic transfer of documents. Now a web portal is used for transfer
of information between SUs and Treasury.

Technology Requirements: The project required significant investments in technology in the fol-
lowing areas:

• Application Software to support functional processes: Hardware – Servers located at

various processing centers, Work stations, peripheral hardware; Middle ware – Operating
systems, RDBMS, application development tools, and system management tools.
• Telecommunications Infrastructure: WAN-Links between various Treasury offices via
telecommunications network—public switched network, leased lines, dial up lines; LANs—
connections between work stations at a particular site, and Network management systems,
Figure 28: Russia Treasury Systems – Functional Processes and Information Flows

Russia—Treasury Systems: Core Functional Processes and Information Flows

Enter:
. Approved budget/Apportionments Vendors
Budget Administrators
. Detailed budget for SUs Employees
. Budget releases warrants Pensioners
. Authorized budget transfers/
supplementary allocations
Payments

TSA Bank
MOF/Budget Administrators/ Receives fiscal and Budget
Treasury/Line Ministries and Execution reports Monitors Budget
FTAS Loans
Spending Units ExecutionDirectly or via web portal Grant Tax Payers
TREASURY
Receipts
SYSTEM

Donors
Sends:
. Direct commitments Reviews enters payment requests
. Contracts releases/schedules payment Monitor Actual receipts
Compare with Assessments
. Purchase Orders
Line . Vendor Invoices Treasury Revenue
Ministries/SUs . Payment requests Agencies
. to Treasury via web portal for Monitors Receipts Performs Bank
reconciliation Cash Management
entry to the systemReviews
AFRICA OPERATIONS SERVICES SERIES

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 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

• Back up/Disaster Recovery arrangements: Business Continuity Strategy, Power back up

systems, and information security systems.

Infrastructure

The project required very significant upgrades in infrastructure. The Government modernized
the telecommunications network with investments in excess of US $100 million to ensure that
high bandwidth connections were available from each local Treasury office to its parent Regional
office and then on to the Main Treasury department in Moscow. 2,500 regional and local Trea-
sury offices.

Appropriate and adequate security protocols and backup power arrangements have been
implemented. These include network access and physical access mechanisms to secure areas in
118
Treasury offices.

Electronic signature facilities: Public key infrastructure (PKI) has been implemented.

Scale Size: The number of active users on the system ranges from 25,000 to 30,000. Active users
in similar systems in countries with similar populations such as Indonesia, Pakistan, Vietnam, etc.
are 5,000–8,000 with costs in the range of $30–$50 million.

The size of the country required that the system be implemented across 83 provinces spread
across 9 time zones. The total number of transactions processed through the system is 30–40
million a month. about 30,000 Treasury staff were trained in the use of the system. The total
number of offices where the system is implemented is approximately 2,500 spread across the
country. About 300,000 federal government spending units are serviced by the system. In addi-
tion, regional and local governments also use the system to process approved payment requests
as part of measures to ensure that these payments are made through similar TSAs established for
their respective areas.

Costs

The main cost elements of the project are listed below. Financing came from the Government of
Russia and the World Bank.

Bank Financing

Policy and Design Consultancies cost about $10 million. This includes legal and policy frame-
work (Budget law, budget management, institutional arrangements, COA, accounting policies);
Functional design (functional processes, information flows, documents, procedures); Technical
Design and Architecture (software, hardware and Communications Specifications).

Application software, hardware, and implementation services – about $200 million, to cover
Servers, Networking (LAN and WAN), Information security, Application software and tools (+
DBMS, application development tools), etc., and Implementation services (parameterization/
customization, implementation).

Training – about $14 million, including End-User training in the day to day use of systems and
trouble-shooting, Technical training for technical staff in the use and maintenance of specific
tools used, and Management level training in the use of the systems.

Implementation support and operating expenses and fees: about $7 million.

 AFRICA OPERATIONS SERVICES SERIES

Government Financing

Additionally, Government made very significant investments in:

• Development and implementation costs for Interim Systems including hardware, software,
and their upkeep over 8 years until such time that the new system was ready.
• Upgrading/setting up WAN telecommunication networks – over $100 million.
• Upgrading physical facilities at Regional and Rayon Treasury offices – over $100 million.
• Work stations and peripherals etc. for all offices and some servers for system replication –
over $100 million.

Procurement Strategy for Hardware and Software

119
The functional and technical design of the system was developed first and used as a basis to pro-
cure the technology platform, including, Application Software and implementation services were
procured first through a 2 stage ICB—Oracle Financials selected as the application software. The
sizing and specifications for the hardware were developed on the basis of requirements given
by the software supplier to operate the application software and prepared in generic terms. H/W
was procured in several tranches through ICBs in line with implementation requirements.

Critical Success Factors:

1. Government Commitment and Support of the MOF. The most important lesson that can
be learned from this project is that it has required the consistent and complete support of
the Government of Russia and the MOF/Treasury at the highest levels over the duration of
the project (10 years). This was possible because the project was framed as a public expen-
diture management (PEM) systems reform initiatives rather than just accounting systems
reform.
2. It is necessary to maintain continuity of critical staff with appropriate skills in the Bank team
to assist in project supervision and by provision of good, high-level technical advice based
on experience in similar projects in many other countries.
3. Changes to the legal framework and operational procedures should be introduced at fixed
times (say start of a new FY) and not arbitrarily throughout the year.
4. Customization of the Application Software should be restricted to essential and unavoidable
items. Additions of custom scripts/code on top of application software to cater to minor idio-
syncrasies of the existing system is time consuming, costly and troublesome when porting
to a new version.
5. To begin, set up the transaction processing layer of the systems. This is the most difficult and
time-consuming stage. It is necessary to have this layer in place in order to access useful and
credible information for financial operations and management reporting. Other layers would
be built on top of this layer. In Russia, the Government has now developed a reporting and
monitoring system that provides information on Key Performance Indicators (KPIs) to enable
the MOF and all budget participants to monitor and control the budget execution process.

Summary of Implementation Considerations

1. First implement modules to cater to Core Budget Execution Processes, payments and
receipts transactions across government before going on to other non-core elements, such
as fixed assets management, and human resources management.
2. First implement Treasury Centric System then De-Centralize to spending Units. An attempt
should be made to first capture payment / receipt transactions at Treasury offices then de-
centralize to Spending units—if necessary/possible.
 120
Figure 29: Russia System to Monitor Key Budget Indicators

KPI system flow chart

Data on the federal budget,

budgets of constituents of the
RF, local budgets at all levels
Data Warehouse Multi-user KPI
(updated daily) System:
Ministry of Finance
Department
FT-1
... OFT-1 Common from
Department . Baseline indicators
FT-N . Key indicators Ministry off Regional
... . Development
p
Graphic visualisations
Department . Additional analytical functions
FT-1
... Desktop
OFT-1 . The Government
G
Department Indicators
. Executive Office
FT-N Alerts
.Preconfigured reports
Scheduled reports
Presidentiall Executive
FT Main Office
Office
A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

Government agencies
External data:
. MF RF . Constituents of
. FSSS the RF
. etc.
Other external users
 AFRICA OPERATIONS SERVICES SERIES

3. To start with, budget preparation can be done outside the system or by another system, and
the final approved budget can then be loaded in the system and used to control expendi-
ture—However, all subsequent in year budget transactions, like budget releases, transfers
etc. should then be done in the Treasury system.
4. Systems should be designed along functional and not organizational lines.
5. Define the contours of the system clearly to avoid duplicative investments.
6. Budget Administrators/Vote Controllers, Treasury, and Line Ministries should use the same
system to process their transactions and should share databases.
7. Budget Preparation and Budget Execution should use the same Chart of Accounts.
8. Transactions should be captured in real time as they occur.
9. Financial controls should be applied in ex-ante mode to all transactions processed by the
system. (e.g. funds availability checking on budgeted expenditures prior to committing
funds or making payment).
121
10. Ex-post transaction posting should be avoided.
11. No expenditure transaction should be processed outside the system. Data captured only
once as an accounting transaction progresses through the system. This includes Budget
Funds-Payroll, Debt, Subsidies, Fiscal transfers, EBFs, Donor Funds, Technical revenues.
12. The FMIS database should be treated as the primary source for financial reporting within
Government—no second set of books.
13. Project Management arrangements: Project Manager – senior official from functional side
with stature within bureaucracy, adequate financial and administrative powers. This has
been the case in many successful projects; Core Team – Group of trained professionals
from core functions, who can act as change agents; Representatives of major stake holders
need to be represented on the team to manage the interface with their agencies. Project
Secretariat – should have specialist staff with experience in the installation of large scale IT
systems and IT procurement; Familiarity with IT projects and good contract management
expertise has been an advantage.

Case II – Pakistan – PIFRA – Project for the Improvement of

Financial Reporting and Auditing
Case Emphasis: This case illustrates the experience of setting up an IFMIS systems in a country
with several distinguishing characteristics:

• The legal and institutional structures required for management of Government finances
such as a Treasury and Accountant General (AG) organization, Treasury-based transaction
processing, and TSA arrangements (consolidated fund accounts) do exist but are in need
of repair. Over time mechanisms to by-pass these institutions, such as personal ledger and
assignment accounts in the name of spending units officials have been set up, ostensibly
with purpose of expediting transaction processing. This has eroded control mechanisms.
The reform project needs to repair existing financial management arrangements and sys-
tems—plugging the leaks.
• The Pakistan case is typical of some other South Asian countries, where the expenditure
and receipts processing has been departmentalized for parts of the government (such as
the Defense establishment) by placing AG staff directly in these departments. These staff do
not use the central transaction processing system for their day-to-day work but periodically
loads summaries of transactions processed by them into the central system which then
produces consolidated accounts.
• This example also illustrates a system implementation exercise in which the scope of the
system spans the functions of the MOF (Budget Department) and the Treasury and includes,
budget compilation, budget preparation and modules for payroll, pension calculations, and
 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

interfaces to the auditing organization. This is largely due to the fact that in several South
Asian countries including Pakistan, the functions of the Accountant General include cen-
tral payroll and benefits processing, unlike the functions of the Treasury in other countries
where these functions are handled by the spending line ministries or a central establishment
division.
• Another aspect of interest is that the system implementation extends beyond the central
budget and separate but identical systems modules have been implemented for the pro-
vincial and district budgets also. This again reflects the fact that in several South Asian
countries a single cadre of accounting and auditing staff is responsible for carrying out these
functions for all levels of government.

Background
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The process of improving fiscal and financial reporting in Pakistan was initiated in the early
1990’s after observations by both the World Bank and the IMF, and a diagnostic study under-
taken by the Auditor General of Pakistan (AGP), that the (then manual) accounting and report-
ing system did not meet adequate standards for either financial or fiscal reporting. Notably,
both accounting and auditing were directed by the Auditor General of Pakistan (an anomaly
from pre-1947), budget reports by the Ministry of Finance (MOF) were not fully reconciled
with accounting reports by the AGPR and provincial AGs, the Chart of Accounts (COA) was
not compliant with IMF Government Finance Statistics (GFS) standards for fiscal reporting,
and neither financial nor fiscal reports were timely or reliable. To meet these challenges, the
Pakistan Audit Department (PAD) launched the PIFRA Program in 1995 with World Bank sup-
port. Under this program two projects have been executed, PIFRA I and PIFRA II. PIFRA I was
completed in 2005, and PIFRA II, launched in 2005, is currently ongoing and scheduled to
close on December 31, 2014.

Objectives

The PIFRA program aims at: (a) Modernizing the institutional framework for budgeting and
accounting, strengthening financial management practices, tightening internal controls to mini-
mize occurrence of errors and irregularities in processing of payments and receipts; (b) Introduc-
ing modern, automated systems to support budgeting and accounting processes; (c) Establishing
a capacity to generate complete, reliable and timely financial information to fulfill statutory
reporting requirements and facilitate informed government decision-making; and (d) Modern-
izing government audit systems and procedures and adopting internationally accepted auditing
standards.

Policy Reforms

The main policy reforms introduced under the project include:

• Separation of the Auditing and Accounting Functions and creation of a position of the Con-
troller General of Accounts (CGA).
• Introducing:
• A New Accounting Model based on Modified Cash basis
• Redesign of functional processes and accounting procedures.
• Introduction of a New Chart of Accounts (COA) and GFS conformant budget classifi-
cation structures.
• Introduction of a unified system of budgeting and accounting across all levels of Gov-
ernment—National, Provincial, District and Sub-district
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Design

As part of the project, a major mission critical country-wide integrated system, the Financial
Accountability and Budget System (FABS) is being implemented to spearhead the reforms and
assist the Government in the functional processes associated with Financial Accounting and
Budgeting at the Federal, Provincial and District levels.

FABS – Functionality includes:

• Budget Preparation: Assists in compilation of budgets, prints the budget book and associ-
ated reports, maintains a record of initial budgets, revisions, and budget releases.
• Budget Execution:
• Records commitments, receipts of goods and services 123
• Ensures expenditures are in accordance with budget appropriations, commitments
and budget releases
• Authorizes payment after checking for controls; gives payment instructions to bank
• Records revenues and other receipts, enables better control over fiscal deficits and
arrears
• Accounting and Fiscal reporting:
• Enables accurate and timely posting of all transactions
• Comprehensive reporting
• Calculates Payroll for Civil servants
• Maintains General Provident Fund Accounts for Civil servants
• Calculates Pension payments and maintains pension accounts for government retirees.

FABS has been implemented using an internationally well-known off-the-shelf application soft-
ware package, SAP, that was acquired after international competitive bidding. FABS includes
Modules for:

• Budget preparation
• General ledger
• Accounts payable
• Accounts receivable
• Payroll
• Pensions
• General Provident fund
• Cash Flow Forecasting

The Functional requirements of the system were developed by an international consulting firm.
Total direct costs related to systems implementation have been about US$40 million, compa-
rable with costs for similar projects in other countries.

The main system users are:

• Budgeting organizations across all levels of Government including the Federal MOF; Pro-
vincial Finance Departments ; District Finance Departments
• Accounting organizations across all levels of Government including the Office of the CGA;
AGPR and Sub Offices; Provincial AGs; District Accounts Offices – DAO (105); Sub-district
and Tehsil offices; Government of Azad Jammu and Kashmir (AJK)
• Line Ministries and Provincial Line Departments
 A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

The system has been implemented in a partially distributed architecture and interfaces with
the Planning Commission, the Central Board of Revenue, the State Bank, the National Bank,
and the Debt Management Office. Five separate systems have been implemented as follows:
(a) Federal Government Budgeting and Accounting transactions are carried out on a central
server located in Islamabad. (b) Provincial Government Budgeting and Accounting transac-
tions are carried out on servers located in each of the provincial capitals, Lahore-Punjab,
Karachi-Sindh, Peshawar-NWFP and Quetta-Baluchistan. (c) District government budgeting
and accounting transactions are carried out on the respective provincial servers. The systems
architecture and the institutional interfaces with the systems are shown in Figure 30.

Implementation Status

The project is managed by a PIFRA Directorate in the office of the Auditor General. Policy guidance
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is provided by a Steering Committee with representatives from all principal stakeholders includ-
ing the MOF, the provincial Finance Departments, and the Controller General of Accounts. FABS
is now used by the Federal, Provincial and District governments to: (i) prepare and compile the
Annual Budget Estimates and fulfill associated reporting requirements; (ii) exercise ex-ante bud-
getary control on and enable processing of all government expenditure and receipts transactions;
(iii) implement commitment controls on contract amounts exceeding PKR 0.5 million; (iv) make
payments (currently by check) against Bank accounts where Government funds are held; (v) pre-
pare the payroll for some 1.9 million Government employees across all levels of Government;
(vi) make pension calculations for all Government pensioners; (vii) maintain the GPF account-
ing for all Government employees; (viii) preparation of periodic budget execution and fiscal
reports for all stake holders including the MOF/Provincial Finance Departments/Line ministries
and departments.

A large number of government staff, approximately 35,000 state functionaries (including

executives, financial managers, and accounting and auditing professionals), working on
assignments related with accounting, auditing and finance at all tiers of the government (fed-
eral, provincial, district and tehsil) have been trained to perform their day-to-day operations
using the new systems. Training interventions, coupled with change management initiatives,
have been used to facilitate acceptance of new policies, business processes, procedures and
systems at all levels of management. With the implementation of the FABS-based GFMIS, a
repository of all Government expenditure and receipt transactions is now available to the
Government’s audit organization to perform their audit functions. The audit organization has
deployed a number of automated tools to perform their work which includes ACL and other
software. The application of computer aided audit techniques (CAATs) and modern perfor-
mance and systems-based audit has made the national external audit system both timely and
more effective.

Impact

PIFRA I and II have introduced major changes to government budgeting, accounting, and finan-
cial reporting, as well as auditing. The PIFRA program has effectively addressed all of the key
issues identified in the diagnostic study and the World Bank /IMF reviews. The first project
accomplished the policy goals of: (a) Modernizing the institutional framework for budgeting and
accounting processes and separating accounts and audit (and placing the former as an attached
department of the MOF); (b) Designing a New Accounting Model ( NAM) and introducing a
Budget classification structure and COA that was compliant with international accounting and
GFS standards; and (c) Designing and implementing an automated information system to support
budgeting and accounting;
Figure 30: PIFRA FABS Systems Deployment, Information Flows, and Institutional Relationships

PIFRA—FABS
Systems Deployment and Institutional Relationships

Access to Provincial Access to District

Transaction data for Transaction data for
Auditing Organization Accounting
audit audit
Budgeting Access to Federal
Organizations
Organizations Transaction data
for audit Controller General of Accounts
Federal System Transactions/
Federal Ministry of Finance Located at AGPR Ac/Budget
Office Central Server reports

MOF, Provincial and District Departments

of Finance Load Approved Budget AGPR/AGPR Sub offices
Budget Releases, Budget Transfers and
Monitor Budget Execution Payment instructions
Bank Balances Bank
Provincial Department Provincial System Transactions/ reconciliation reports
of Finance (Provincial AG servers) Ac/Budget Provincial A. Gs
reports

District Department District System

Payment instructions Bank National State
of Finance (Provincial AG servers)
Balances Bank Bank of Bank of
reconciliation reports Pakistan Pakistan
MOF and Provincial Finance Line dept
Departments issue budget guidelines. connections to
Budget DDOs submit budget proposals FABS systems
Transaction
Federal Drawing and input from
Disbursing Officer (DDO) Accounting offices to
Federal/Provincial and
District systems and
Provincial DDO Accounting/Budget reports
from system
District Accounts Offices
Expenditure Transactions from DDOs to system
District DDO Budget monitoring reports from system to DDOs
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