2012 09-10 fmis-training_at_crown_agents

Version 7 section

• brief discussion
0. IFMIS ~ GRP Training &
Introduction to Good Practices

Version 7 section
1. Intro to FreeBalance 5. Sequencing PFM technology -
– 15 minutes Governance Valuations
– 90 minutes
2. FMIS/GRP Introduction
6. Financially sustainable GRP,
–
90 minutes
governance structures, lessons
3. Technology Leapfrog
learned
– 45 minutes
– 45 minutes
4. Performance Management in
7. GRP and Anti-Corruption
PFM
– 30 minutes
– 60 minutes
8. Future of PFM technology
Agenda – 30 Minutes
9. “Parking Lot”

. Valuable learning experience section
Version 7
. Contrast public and private 7 section
Version sector
accounting & management
. Training course, not a
demonstration
. Breadth of financial management
in government
. Strategic, tactical, futures
. Vendor-neutral “good practices”
. Share lessons among group
. Voice lasts until end of day
. Address specific ideas, concerns

Version 7 section
Version 7 section


4

Version 7 section

1. Introduction to FreeBalance

“free balance”

+ Budget
- Commitments
- Obligations
- Actuals
= Free Balance

Version 7 section
FreeBalance solutions

for public financial management support
reform and modernization to improve
governance, transparency and accountability.

Version 7 section
FreeBalance7 section
in a Nutshell
Version around the accelerate country
• Help governments
growth, improve stability and reduce poverty through
improved governance
• For Profit Social Enterprise focused on
governance
Why • Customer-centric to ensure customer
sustainability
• Laser focus on the public sector in products and
How processes
What • Configuration approach rather than
customization
• Comprehensive Government Resource Planning software
• Implementation participation to improve success
• Capacity building to achieve government self-sufficiency
• Steering Committee to ensure alignment with customers

Version 7 section


FreeBalance Offices and Regional Support Centres
Version 7 section

• brief discussion Ulaanbaatar

Ottawa Bishkek
Pristina
Washington Kabul
Lisbon
Ramallah

Guatemala City Monrovia Kolkata

St. Johns Bangalore
Freetown
Kampala

Dili

• services & support
• sales, business development & marketing
• product management & development
• corporate services

Version 7 section
Version 7 section


PLEASE EXCUSE THE ANY BIAS…

Version 7 section
Version 7 section


BIAS 1:
“GRP”
VS
“ERP”

Version 7 section
Version 7 section


BIAS 2:
INTEGRATIVE APPROACH
VS
“SYSTEMS INTEGRATION”

Version 7 section
Version 7 section


BIAS 3:
PHASED APPROACH
VS
“BIG BANG”

Version 7 section
Version 7 section


BIAS 5:
PERSPECTIVE ON CORRUPTION AND
DEVELOPMENT ~ “GOOD PRACTICES”
VS
“BEST PRACTICES”

Version 7 section

First Strategic Second
Generation Inflection Generation
“ERP Era” to Point 2007- “GRP Era”
2007 2010 2010+

BIAS 5: MARKET IS CHANGING VS
STAYING SAME

Company Summary Version 7 section
Canadian
Company

High GRP
Success
Rate Leader

Global
PFM
Modern Provider 100%
Web Government
Technology Focus

Covers
ISO-
Budget 9001/2008
Cycle

Version 7 section


Version 7 section
1. Intro to FreeBalance 5. Sequencing PFM technology -
– 15 minutes Governance Valuations
– 90 minutes
6. Financially sustainable GRP,
–
90 minutes
governance structures, lessons
3. Technology Leapfrog
learned
– 45 minutes
– 45 minutes
7. GRP and Anti-Corruption
PFM
– 30 minutes
– 60 minutes
8. Future of PFM technology
Agenda – 30 Minutes

9. “Parking Lot”

What's special in Government?

Reality Check

Stakeholders

Shareholders
hundreds

Reality Check Citizens
millions

Ownership?1
• By definition, [public sector organizations] do not 'own
themselves' in the way that commercial organisations do,
and so cannot, for example, switch from producing widgets
to making jam if they so choose. Indeed, the concept of
'successful' public sector organisations is itself elusive, for
this reason. The common currency of profit and
shareholder value that defines the private sector
clearly does not apply to public organisations, and
attainment of other goals gives no guarantees for their
future. As the requirements of public service and political
imperatives change, public sector organisations are often
reorganised, reformed or even eliminated, regardless of
their past level of achievement or recognition
1. Better Management.com

Lines of Business?

One of the most
successful and
largest business
conglomerates
across many lines of
business

Lines of Business?
Agriculture and Agri-Food Canada , Atlantic Canada Opportunities Agency , Atlantic Pilotage Authority Canada , Atomic Energy of Canada Limited , Auditor General of Canada, Office of the , Bank of
Canada , Business Development Bank of Canada , Cadets Canada , Canada Border Services Agency (CBSA) , Canada Business Network , Canada Council for the Arts , Canada Deposit Insurance
Defence
Corporation , Canada Economic Development for Quebec Regions , Canada Firearms Centre , Canada Industrial Relations Board , C anada Lands Company Limited, Canada Mortgage and Housing
Commissions Welfare
Corporation , Canada Pension Plan Investment Board , Canada Post Corporation , Canada Revenue Agency (CRA), Canada School of Public Service , Canada Science and Technology Museum
Corporation , Canada Transportation Act Review , Canada-Nova Scotia Offshore Petroleum Board , Canadian Air Transport Security Authority (CATSA) , Canadian Artists and Producers Professional

Legislature
Relations Tribunal , Canadian Broadcasting Corporation , Canadian Centre for Occupational Health and Safety , Canadian Centre on Substance Abuse , Canadian Coast Guard , Canadian Commercial
Corporation , Canadian Dairy Commission , Canadian Environmental Assessment Agency , Canadian Food Inspection Agency , Canadi an Forces Grievance Board , Canadian Grain Commission ,
Museums
Canadian Heritage , Canadian Human Rights Commission , Canadian Human Rights Tribunal , Canadian Institutes of Health Research , Canadian Intellectual Property Office (CIPO) , Canadian
Agriculture
Intergovernmental Conference Secretariat , Canadian International Development Agency , Canadian International Trade Tribunal , Canadian Judicial Council , Canadian Museum of Civilization Corporation
, Canadian Museum of Nature , Canadian Nuclear Safety Commission , Canadian Pari-Mutuel Agency , Canadian Polar Commission , Canadian Police College , Canadian Race Relations Foundation ,
Health
Canadian Radio-television and Telecommunications Commission , Canadian Space Agency , Canadian Tourism Commission , Canadian Transportation Agency , Canadian Wheat Board , Cape Breton

Mint Industry Police and Security
Development Corporation , Cape Breton Growth Fund (CBGF) , Citizenship and Immigration Canada , Climate Change (Government of Canada) , Commissioner for Federal Judicial Affairs, Office of the ,
Commissioner of Official Languages, Office of the , Commissioner of Review Tribunals CPP/OAS, Office of the , Commissioner of the Environment and Sustainable Development , Communications
Security Establishment , Communications Security Establishment Commissioner, Office of the , Competition Bureau , Competition Tribunal , Copyright Board Canada , Correctional Service Canada (CSC)
, Courts Administration Service , Defence Construction Canada , Defence Research and Development Canada (Defence R&D Canada) , Elections Canada , Employment Insurance Board of Referees,
Research Natural Resources
Enterprise Cape Breton Corporation , Environment Canada , Environmental Protection Review Canada , Ethics Commissioner, Office of the , Export Development Canada , Farm Credit Canada , Federal
Export Banking
Bridge Corporation Limited , Federal Court , Federal Court of Appeal , Federal Labour Standards Review , Finance Canada, Depa rtment of , Financial Consumer Agency of Canada (FCAC) , Financial
Transaction and Reports Analysis Centre of Canada (FINTRAC) , Fisheries and Oceans Canada , Foreign Affairs Canada (FAC) , Freshwater Fish Marketing Corporation , Functional Communities of the
Taxation
Government of Canada , Governor General of Canada , Great Lakes Pilotage Authority Canada , Hazardous Materials Information R eview Commission, Health Canada , House of Commons , Human
Resources and Skills Development Canada (HRSDC), Immigration and Refugee Board of Canada , Indian and Northern Affairs Canada , Indian Claims Commission , Indian Residential Schools Resolution
Canada , Industry Canada , Information Commissioner of Canada, Office of the , Infrastructure Canada , Inspector General of the Canadian Security Intelligence Service , Interagency Advisory Panel on
Legal Prisons
Research Ethics , International Centre for Human Rights and Democratic Development , International Development Research Centr e , International Joint Commission , International Trade Canada (ITCan),
Post Office Granting
Justice Canada, Department of , Law Commission of Canada , Leadership Network, The , Library and Archives Canada, Marine Atla ntic , Military Police Complaints Commission , NAFTA Secretariat -
Canadian Section , National Advisory Council on Aging , National Arts Centre , National Battlefields Commission , National Ca pital Commission (NCC) , National Crime Prevention Strategy , National
Defence, National Energy Board , National Farm Products Council , National Film Board of Canada , National Gallery of Canada , National Joint Council , National Literacy Secretariat , National Research
Environment Foreign Affairs
Council Canada , National Round Table on the Environment and the Economy , National Search and Rescue Secretariat , Natural R esources Canada , Natural Sciences and Engineering Research Council
Broadcasting
of Canada , Networks of Centres of Excellence, Office of the Secretary to the Governor General , Pacific Pilotage Authority C anada , Parks Canada , Parliament of Canada , Passport Canada , Patented
Medicine Prices Review Board , Pension Appeals Board , Policy Research Initiative , Prime Minister of Canada, Office of the , Privacy Commissioner of Canada , Privy Council Office, Public Health Agency
of Canada , Public Safety and Emergency Preparedness Canada, Public Sector Pension Investment Board , Public Service Commissi on of Canada , Public Service Human Resources Management Agency,
of Canada , Public Service Integrity Office , Public Service Labour Relations Board , Public Service Staffing Tribunal , Publ ic Works and Government Services Canada , Queens Quay West Land
Corporation , Rebuilding Afghanistan , Receiver General for Canada , Review Tribunal (Agriculture and Agri-food) , Royal Canadian Mint , Royal Canadian Mounted Police (RCMP), Security Intelligence
Regulatory Boards
Review Committee , Senate of Canada , Service Canada , Social Development Canada (SD), Social Sciences and Humanities Researc h Council of Canada , Species at Risk Act Public Registry , Standards
Transportation Insurance
Council of Canada , Statistics Canada , Status of Women Canada , Superintendent of Financial Institutions, Office of the , Su preme Court of Canada , Tax Court of Canada , Team Canada inc , Technology
Partnerships Canada , Telefilm Canada , Transport Canada, Transportation Appeal Tribunal of Canada , Transportation Safety Bo ard of Canada , Treasury Board of Canada Secretariat, Veterans Affairs
Canada , Veterans Review and Appeal Board Canada , VIA Rail Canada Inc. , Voluntary Sector Initiative , Western Economic Dive rsification Canada.

1. Arvenson
Comparing Strategy1
Strategic Feature Private Sector Public Sector
General Strategic Goal Competitiveness Mission effectiveness
General Financial Goal Profit, Growth, Market Share Cost Reduction, Efficiency
Values Innovation, Creativity, Accountability to public,
Goodwill, Recognition Integrity, Fairness
Desired Outcome Customer satisfaction Citizen
Customer satisfaction
Stakeholders Stockholders, Owners, Taxpayers, Inspectors,
Market Legislators
Budget priorities set by: Customer Demand Leadership, Legislators,
Planners
Justification for secrecy: Protection of intellectual Nationalprotection of
& Security
capital, Proprietary
citizen rights
Knowledge
Key success factors Growth Rate, Earnings, Best Management Practices
Market Share, Uniqueness, Sameness
Advanced Technology Standardized Technology

Government Financial Management
Goals1 Parry 1.

Goal Explanation
1. Effective Fiscal Management Management of fiscal flows, balances
and risk
2. Allocation of Resources In To ensure that Government priorities are
Accordance with Government Priorities identified and articulated as budgetary
objectives, and at all levels of
government reflected in the allocation of
resources.
3. Management of Resources to Achieve Timely and relevant information to better
Value for Money manage allocated resources to achieve
efficiency, economy, effectiveness and
value for money.
4. Best Practice in Transparency and To implement best international
Accountability standards of fiscal transparency and
accountability.

The objective of implementing
a computerized IGFMIS system:

Increase the effectiveness and efficiency of state
financial management and facilitate the adoption
of modern public expenditure management
practices in keeping with international standards
and benchmarks1.
1. Points

Definitions

Integrated Financial Management System (IFMS)
or 1. Dener
Integrated Public Financial Management System (IPFMS)
or
Integrated Financial Management Information System (IFMIS)

IFMS is a common information and communication technology (ICT) platform which
integrates core public financial management (PFM) functions (e.g. budgeting, treasury
operations, accounting, cash/debt management, auditing/reporting) to ensure
efficient management of public resources.

IFMS is usually a centralized system which supports distributed (countrywide)
operations of PFM organizations on a unique central database containing all financial
information.

Reliable databases, enhanced business processes and consistent information flows
between various PFM modules increase overall operational efficiency, improves
planning and decision making process, and enhances transparency.

Technology in Context

Government Objectives

Modernization and Reform

Public Financial Management

IFMIS

Technology

Government Objectives
Modernization and Reform
IFMIS
Technology
Technology Vendor Viewpoint

• Typical term: Integrated Financial Management
Information System (IFMIS)
– Our term: Government Resource Planning
(GRP)
• IFMIS in context of PFM
– Technology foundation for implementing PFM reform
through political reform
– IFMIS implementations must be sequenced to the
unique country context
– IFMIS systems must be flexible to adapt to changes
and budget reform evolution
– IFMIS implementations must be sustainable

Reality
• Reform comes first
• An IFMIS must support on-going PFM
modernization
• Technology enables the GRP
• Technology is not government
modernization

Public Sector requires different
approach
• Several governmental agencies in the US,
Germany, Australia, and Malaysia have
reported that the integration of agencies
and systems in the public sector can be
quite different from the private sector,
requiring the use of a different approach
and model.

1. Wagner, Antonucci

Private Sector
The key financial concept is:

Profit
(Loss)

Public Sector
The key financial concept is:
Budget

Private Sector
The key control is:

Profit
(Loss)

Public Sector
The key control is:
Budget

Bottom Line? Reality check:
Governments are more concerned
about whether money was spent
where it was planned to be spent
rather than whether it did any good.

Private Public
Sector Sector

profit free balance

The Budget is THE LAW

• Approved by legislature and executive
often described as the “organic budget
law”
• In many countries, the budget is the
expression of parliamentary
“confidence”

Commercial Financial Management1
Inputs Business Outputs
(measured in $) Process (measured in $)

Difference = Profit

• Input decision driven by need to
maximize profit
• Clear concept of business entity
• Funding directly linked to business
process
• Legal requirement to value entity’s assets
and liabilities
1. Parry

Key Private Sector Reports and
Concepts
Future value Net days outstanding
Profit and Loss
Price earnings ratio
Statement
Balance Sheet
Net present value
Weighted Average Cost

Gross Profit Margin Goodwill
Statement of Cash Flow
Earnings before
depreciation, interest, taxes Shareholder’s Equity
Reality check: Equity Investments
Shareholder’s Equity
How many of these concepts
Return on equity are important in government? Borrowing
Debt to Equity Ratio Return on sales Working Capital
Return on equity Weighted average cost of
Earnings per share Capital

Process1
Planning Budgeting 1. Parry
Resource Policy Medium Annual
ceiling objectives term budget budgets

Programs & projects Budgeted performance
targets

Budget Execution
Cash& Debt
Feedback for monitoring & control Management

Reporting & Accounting Fund release

Monitoring General Performance
Financial statements ledger recording

Financial & performance Asset HRM &
reports to managers management Payroll

Definitions Public Financial
Management Cycle
Policy Development Budget Budget Execution
and Review Preparation [ Treasury System ]

Audit and Mgmt of Budget
Evaluation Authorizations 1. Dener

Fiscal Reports & Commitment of
Budget Review Funds
FMIS Procurement/
Web Portal Purchasing

Debt and Aid Payments and
Management Receipts Mgmt
Asset /
Inventory Mgmt
Cash Payroll Calcs
Management HR Mgmt

Version 7 section
 Budget Controls

 Appropriations
 Budget Books
 Expenditures
Budget Law
 Procurement
Planning
 Receipts

 Civil Service
 Forecasting
 Payroll
Policy
 Treasury
Analysis
 Materials

 Social Programs

Government Resource Planning (GRP)

Government Financial Management1
Inputs Business Outputs
Inputs = Appropriations
(measured in $) Process (service delivery)

Comparison = Value for Money
• Input decisions driven by budget as the legal
embodiment of public policy
• Definition of government entity difficult,
boundaries different for fiscal and business
management
• Funding not linked to business process
• No legal requirement to identify assets and
liabilities Seeing change in the 1. Parry
last 2 points.

Software1
• Features required for government financial
management software
– System driven by budget as legal authority to raise taxes
and spend money
– Manage multi level fund release against budget
authorisation – warranting and commitment accounting
– Able to provide complex expenditure analysis to meet
internal and international requirements = complex chart
of accounts structure
– Accounting systems typically still cash based so must be
able to record transactions initiated by cash
– If accrual accounting used must also be able to provide
cash flow information
– Comply with IPSAS and IMF requirements
1. Parry

Example of the Public Sector
Difference1 1. Parry

Financial Statement
Budget • Government Perspective
Actual Difference
for 2005 for 2005
– Surplus to Consolidated
Revenue $500 $800 +$300
Fund
Cost $300 $480 +$180
– Excess spending =
Surplus $200 $320 +$120 budget overrun
– Result = problem
• Commercial Entity Perspective
– Excess revenue = sales success
– Excess costs = necessary costs
– Results = success

What are governments trying to
achieve?
• General: efficiency and effectiveness
through automation
• Reduced fraud and corruption through
controls & audit
• Improved cash management, decision-
making, value for money through
reporting & analysis
• Improved decision-making through
decentralization

Simplified World Bank Treasury
Reference Model: Organization
Ministry of Spending Revenue Central Bank Audit
Finance Agencies Agencies Organization
Planning / Budget
Budget Preparation
Ledgers,
Controls
Financial
Reports
Procurement Purchasing ,
Procurement
Treasury Cash, Debt, Foreign
Bank Exchange
Public Service Payroll,
Pensions

Accounting 101
• Assets, Liabilities, Equity
• Debit, Credits
• Journals and Ledgers
• Financial Reports

“Commitment Accounting is...”

where spending controls
are enacted that ensure
that no budget executor
can exceed their annual
appropriations .

Four Types of Accounting
• Financial Accounting: reporting results to
external stakeholders consistent with G.A.A.P.
• Tax Accounting: reporting results to
government consistent with the laws of that
nation.
• Cost or Managerial Accounting: providing
actionable information
• Fund or Commitment Accounting: accounting
method used for not for profits, educational
institutions and governments 
– Budgetary Control
– Keeping track of in-progress expenditures

Key Advantages
of Commitment Accounting
• Ensures sufficient funds will be reserved
against a budget to meet contractual
obligations.
• Guarantees that budget funds will not be
spent inadvertently on unauthorized
costs.
• Helps in planning for anticipated and
future costs.

What is a commitment?
• It is the stage between the establishment of
an agreement between parties (whether that
be signing a contract or passing legislation)
and the fulfillment of the requirements of the
agreement by one or more parties.
• The reservation of funds for a specific
purpose and its formal entry into agency's
accounting system so recording the
reservation.

Types of Commitments
• Planned/Intended Expenditures or Travel
Plans
– Soft Commitments/Pre-encumbrances
– Requisitions For Goods or Services
• Purchase Orders or Contractual
Obligations
– Hard Commitments/Obligations/
Encumberances

Commitment Accounting
Practices
• Requirement to commit funds for
anticipated or contracted future
spending
• Delegation of authority to commit funds
(commitment thresholds)
• Monthly review of commitments
(monitory discharge and de-commitment
of committed funds)

Financial Accountability -
Commitments in the System
• Commitments indicate what budget
funds are required to pay for future
purchases & labour costs.
• When commitments are paid they
become actual expenditures –
“actuals”

Above and Below
Fiscal space

Above the line  Budget •Control arrears
•Budget execution
•Budget control
•Management and forecasting

Below the line  Actual
Accounting
Reality check: •Ledgers
Private sector applications •Accruals
focus “below the line” •Financial Statements
•Legal obligations
•Who and how much due

Simplified Example
Budget: Budget:
100 100
Commitment: Commitment:
25 0
Obligation: Obligation:
0 25
Available: free balance: free balance: free balance:
100 75 75 75

Approve

General General General General
Ledger: Ledger: Ledger: Ledger:
0 0 25 25

Accounts Payable, Liabilities, Expenses, etc.

Commitment Accounting benefits

1. Track actual expenditures
2. Predict future expenditures based on
commitments
3. Ensure that the budget is not overspent
4. Ensure that the budget meets the law

A Requisition

Allotment 1
Transaction Data
A Purchase O.
Allotment 2 Flow
GRN/GRTN
Budgets C

Commit Expense V. Payment
B

A
B AP

G. Ledger Journal V. Sales Invoice
B AR adjustment

Cash Sale Cash Receipt
balance - integrity

A Requisition

Allotment 1
Transaction Data
A Purchase O.
Allotment 2 Flow
GRN/GRTN
Budgets C

Commit Expense V. Payment
B

A
B AP

G. Ledger Journal V. Sales Invoice
B AR

Cash Sale Cash Receipt

What is the Chart of Accounts?
• Defines how accounting information is:
– Categorized
– Collected
– Reported
• COA issues include:
– Best way to roll up granular information to
summary
– Best way to enable security
– Best way to manage controls
– Appropriate level of granularity required

Chart of Accounts This is a SAMPLE

Chart of Account Groups (Example)

Fund Organization Program Project Location Object
Object Code is the only mandatory
element for FreeBalance.

COA Purpose

Fund

Economic Code
Organization
Accounting
Code
Approve

Objective
Responsibility
Program

Project Performance
Location

Report
GFS
MDG
Tier Activities

COA Arrangement

Fund Organization
Objective Accounting
Program Code

Tier

Approve Performance Project

Responsibility

Activities
Economic Code

Location
Report
GFS
MDG

Sample Chart of Accounts
Organization Fund Program/ Project Location Object

Organization

Organization Type
(1)

Sector Councils Reporting Groups
(1) (3) (2)

Divisions
(5)

Cost Centres
(7)

Fund

All Fund
(1)

General Gov.
(1)

Source Type Fund Table Donor Type
(1) (1) (1)

Source Group Fund Source Donor Table
(3) (3) (3)

Project/Program

MDG Pillars Project Project Type
(2) (1) (3) (1)
Themes
(2) Objectives Component GFS Function 1
(1) (4) (3)
Priority
(1) Sub Group Sub Component GFS Function 2
(1) (6) (4)

Activity Group Activities GFS Function 3
(3) (8) (5)

Location

Province
(1)

Districts
(3)

Divisions
(4)

Ward
(5)

Object

Account Type
(1)

GFS L1 Main Category
(1) (1)

GFS L2 Sub Category
(2) (2)

GFS L3 Item Group Expenditure Type
(3) (2) (1)

GFS L4 Object Group Sub Type
(2) (3) (2)

GFS L5 Object Code
(5) (4)

Typical Scenario Government
Financial Budget

• Guideline amounts selected
• At the detail level: general ledger coding block
• Typically no controls at the “financial budget”
– Too granular to be “material:
– Restricts managers from making decisions
they are authorized to make

It is all about the chart of accounts

Financial Budget

Appropriation

• Amount approved by legislature or Ministry of Finance
• Is at a summary level
• May represent money to be released for the entire year
to a high level of authority (lots of scenarios possible)
• Act as budget control
• Often called “Allotment”

Financial Budget

Appropriation

Warrant

• Amount released for use
• Controls, but typically not at the granular level
• Often represents money to be spent during a fiscal
period
• Usually at the decision manager level

COMMITMENT CYCLE
MULTIPLE Version 7 section

appropriations

commitments

expenditures
CONTROLS

obligations
receiving
transfers
budget
different
• brief discussion of
segregation
organizational
configurations
duties & workflow
aggregate

configured
MULTIPLE
CONTROL
CONTROLS
LEVELS
flexible

detailed TOLERANCE
strict LEVELS
monthly yearly
PERIOD

Financial Controls

Fund Type Fund Indicator Locations Object Organization Project

COFOG1 Sector (3)
COA Example GoM Functions COFOG2 Sector (4)
(2)
COFOG3 Sector (5)
Fund
Allotment 2 Economic Type Ministry/Agency
(1)
(2) (4)
Y/N, W, T GFS Code
(5)
Project
Status
Allotment 1 Fund Atoll Economic Type Ministry/Agency (1)
(1) (3) (2) (4)

Budget Fund Source Fund Cash Indicator Location
(2) Economic Item Ministry/Agency Project ID
Y/N, W (1) (1) (3) (5) (4) (4)

Commit/ Fund Source Fund Cash Indicator Location Economic Item Project ID
Ministry/Agency
Obligation (2) (1) (1) (3) (5) (4)
T (4)

EXP. CS, SI, SV, Fund Source Fund Cash Indicator Location Economic Item Ministry/Agency Project ID
CR, DN, CN (2) (1) (1) (3) (5) (4) (4)
M
Journal Voucher

General Ledger Fund Source Fund Cash Indicator Location Economic Item Ministry/Agency Project ID
G/L Offset Code (2) (1) (1) (3) (5) (4) (4)

Allow to Exceed: Economic Group Coding Block
[Y/N]: Yes’,’No’, (2)
1. May be up to 50 characters
[W]: ‘With Warning’ in length
[T]: Tolerance Allowed Economic Type 2. May consist up to 10
Asset/ Liability / Revenue / Expenses / Retained Earnings
[M]: Message if Overspent (2)
segments
3. Can be up to 12 characters
Asset / Liability / Revenue / Expenses / Equity Category (1) long
4. Each segment can have an
Income Statement / Balance Sheet Main Category unlimited number of roll
(1) up tables

Financial / Statistical Account Type
(1)

• Two levels of “commitments”:
– Soft commitment or commitment
– Hard commitment or obligation
• Not all governments utilize two levels
– Is a best practice
– Provides a better view for the status of the
commitment
– In our experience, customers who implement
purchasing or procurement have two levels

Obligations vs. Commitments

Commitment or Soft Commit Obligation or Hard Commit

What is accrual?
• Transaction and events are recognized
when they occur rather than when cash
is paid or received
• Cash accounting is not always
representative of what is really going on
• Assets, liabilities, net assets, revenues
and expenses recognized
• All assets and liabilities are measured on
the historical cost basis, sometimes with
the re-measurement to the fair
value of certain assets and liabilities

Why is this a problem in
government?
• Corporations with shareholders and auditors
must operate on an accrual basis
• Accrual determines the real value of a company
• There is no “real value” of a government entity
• Accrual accounting is an order of magnitude
more difficult than cash bookkeeping
• Accounting capacity issues in Developing
Nations
• Hence, the notion of a hybrid approach

Good-bye Accrual World1?
Cash • Cash accounting reports cash transactions
when received or paid. Consequently, financial
statement items such as amounts owed to or
by the government or other non cash items are
not recorded.
Modified • Modified cash accounting follows cash
Cash accounting principles, but at year-end
adjustments are made recognizing some non-
Methods of
cash items such as AR and AP
modified accrual
Modified • Modified accrual follows full accrual principles
differ among
Accrual governments.
with one significant departure — not
recognizing capital assets on the statement of
financial position. Instead they are recognized
fully as expenditures when bought. 1. CA Magazine

State of the Art
• Most governments in hybrid state.
– Canada is modified accrual (mostly).
– New Zealand in accrual.
– Developing Nations tend to be cash or
modified cash.
• Slow move towards accrual.
• Private Sector is almost always accrual.
– Presents challenges for
private sector financial
software.

100% 90%

80%

Macro-Economic Analysis

Legislature and Executive Budget Law



International Organizations Government Objectives 
Budget Book

 
Previous Plans
Budget Office 

 Historical  
Information
  Version

Version

10%
10% 10% Version
 10% 10% Approve Budgetary Controls Government Fiscal
Revenue 10% 10% Regulations International
10% 10%
10%
Assumptions Financial
Government What If Scenarios, Standards
Budget Cost Assumptions Iterative Versions and Approvals
  Circular



 PFM

Line Ministry
Version

Version
Approve
Version
Version Approve

Version

Version

Ministry What If Scenarios, Iterative
Versions and Approvals
Divisional What If Scenarios, Iterative
Versions and Approvals

Budget Transfers
Budget

from budget to allotment

Account

Account
Across fiscal periods
from one account to another
from one type segment to another
• Budget transfer (virements) depend on authority and are different from one
government to another
• Often legal constraints on transfers
• Can tighten or loosen controls during the fiscal year
• Can move money to sub-nationals or other departments

Some comments
• Adoption of “proper” MTEF limited
success
– MTMF (macroeconomic framework)
– MTFF (fiscal framework)
– MTBF (budget framework)
– MTSS (sectoral strategies)
– MTPF (performance framework)
• Program Budgeting preceded
Performance Budgeting [typically]

Budget Ceremony
• +/- %
• View that budget = outcomes
• Lack of zero-based budgeting concepts
• Few tools that enable end-to-end budget
preparation for government

“Treasury” Function

Investment Debt
Management Management

Optimize Bank Predict Cash
Accounts Requirements
Treasury Single
Account

• Corruption
Why TSA? • Liquidity
• Predictability

Government Spending as % of GDP
http://anepigone.blogspot.com/2008/03/government-spending-as-
percentage-of.html
0 10 20 30 40 50 60 70 80 90 100
1. Iraq
9. Hungary
17. Qatar
25. Austria
33. Yemen
41. Germany
49. Ghana
57. Namibia
65. West Bank/Gaza
73. Burundi
81. Rwanda
89. South Africa
97. Senegal
105. Morocco
113. Burkina Faso
121. Honduras
129. Congo, Dem. Rep. of
137. Taiwan
145. Cameroon
153. Costa Rica

Government Wage Bill as % of Expenditures
World Bank 2000-2008 Average
Bahrain, Kingdom of
Jordan
Thailand
St. Kitts and Nevis
Afghanistan
Malta
Argentina
Ireland
Mongolia
Australia
Slovenia
Ukraine
Congo, Republic of
Hungary
Angola
Slovak Republic
Armenia
Czech Republic
0 10 20 30 40 50 60

Payroll and PFM
• Wage bill is material to government
expenditures
• Corruption opportunity
• Variability in payroll
– Seasonal, emergency employment
– Training, travel & other costs
• Significant cash management implication
• Requires planning, forecasting and
controls

Audit
• Internal Audit
• External Audit “Supreme Audit
Organization”
• Maturing
– Compliance
– Risk Management
– Performance
• CAAT

International Standards
• World Bank Treasury Reference Model
• International Monetary Fund Code of Good Practice on
Fiscal Transparency
• International Monetary Fund Government Finance
Statistics (GFS)
• International Federation of Accountants International
Public Sector Accounting Standards Board International
Public Sector Accounting Standards (IPSASs)
• UN Common Functions of Government
• Medium Term Expenditure Frameworks (MTEF)
• Generally Accepted Accounting Principles (GAAP)
• International Aid Transparency Initiative (IATI)
• eXtensible Business Reporting Language (XBRL)

World Bank Treasury Reference
Model http://devportal/files/Additional%20Treasury%20Reference%20Model.ppt
• Purpose
– Development tool for fiscal managers and system
developers, intended to help implement good
practices in fiscal accounting and expenditure control
• Key Principles
– Facilitating the process of designing a treasury
system project and preparing technical specifications
for a tender document that will meet World Bank
procurement standards.
– Improved analytical standards for fiscal reporting
• Implications
– Guidelines to identify completeness

IMF Code of Good Practice on
Fiscal Transparency
• Purpose
– Method to assess government fiscal transparency with
practical advice for improvement
• Key principles:
– Roles and responsibilities of and within government
should be clear
– Comprehensive reliable information of fiscal activities
should be available to the public
– The processes of budget preparation, execution, and
reporting should be open
– Integrity of information should be assured
• implications:
– Controls and transparency

IMF Government Finance
Statistics Manual
• Purpose: http://devportal/files/Additional%20GFS.pdf

– Provide a comprehensive conceptual and accounting
framework suitable for analyzing and evaluating fiscal policy
and performance of the general government sector and
broader public sector of any country.
• Key Drivers:
– Improve government accounting and transparency in
operations
– Need for ways to assess the effectiveness of spending on
government and/or donor funded programs (e.g. poverty
reduction, sustainability of fiscal policies etc.)
• Implications:
– Chart Of Accounts design that incorporates both
GFS classifications and countries specific needs
– General capabilities and GFS based reporting

IFAC IPSASs
http://devportal/files/Additional%20IPSAS.ppt
• Purpose
– Report requirements for government and public sector
organizations
• Key principles:
– Transition from cash-basis to accrual accounting
– 21 Reporting Standards
– Sets preliminary benchmarks
• Product implications:
– Ability to transition customers from cash to full accrual
– Support specific reports

Medium Term Expenditure
Frameworks http://devportal/files/Additional%20MTEF.ppt
• Purpose
– Rational planning and budget formulation process
within which the government establishes a credible
and transparent criteria for allocating public
resources to strategic priorities while ensuring
overall fiscal discipline
• Key principles:
– 3 Year planning.
– Sector Effectiveness and Efficiency Review process.
– Performance Indicator Framework for measuring
agency performance against committed
deliverables
• Implications:
– Budget management software operates with 3+ years
cycle, need for a strong fiscal framework, performance
planning and performance reporting

UN Classification of the Functions
of Government
• Purpose
– Functional classification to report government
statistics to the IMF
– "Functional" classifications identify the "functions"
-- in the sense of "purposes" or "objectives" -- for
which groups of transactors engage in certain
transactions
• Key principles:
• "Functional" classifications identify the "functions"
-- in the sense of "purposes" or "objectives" -- for
which groups of transactors engage in certain
transactions
– COA Set Up

Generally Accepted Accounting
Practices (GAAP)
• Purpose
– A collection of rules and procedures and conventions
that define accepted accounting practice; includes
broad guidelines as well as detailed procedures.
– Somewhat different among countries.
– Focused on “financial accounting” not managerial or
fund accounting
• Key principles:
– Many accounting practices that cover public and private
sector.
• implications:
– Support standard accounting principles, support
auditable data. Much of GAAP does not apply to the
public sector.
– US GAAP burdensome, International Financial
Reporting Standards (IFRS) may be more applicable.

International Aid Transparency
Initiative (IATI)
• Purpose
– IATI aims to make information about aid spending easier
to access, use and understand.
– Its purpose is to help implement the transparency
commitments made at the Accra Agenda for Action in
the most consistent and coherent ways. The Accra
Agenda for Action arose from the March 2005 Paris
Declaration on Aid Effectiveness.
• Key principles:
– Aid transparency & move to using country systems.
– Reporting and integration standard.

eXtensible Business Reporting
Language (XBRL)
• Purpose
– Global standard for reporting and exchanging business
information.
– Simplifies by providing 1 type of output for all
stakeholders
– Primarily method for business to report to government,
but being considered in government
• Key principles:
– metadata set out in XBRL taxonomies, which capture
the definition of individual reporting concepts as well as
the relationships between concepts and
other semantic meaning. Information being
communicated or exchanged is provided within an
XBRL instance.
Product implications:
– Reporting and integration standard, XML support

Typical Challenges1
• Lack of Engagement and Political/ Management
Support.
• Inadequate Preparation (Vision, Policies,
Capacity)
• Weak Governance Arrangements.
• Over Complicated Expensive Systems
• Inadequate acquisition and contract
management. 1 Murphy

• Unrealistic action plans.
Also lack of knowledge
• Non participation, lack of dedicated teams.
transfer from consultants.
• Inadequate training
• Weak, contractor with technical/commercial
focus

Developing Nation Issues
• No luxury for massive technology footprint – The
Complexity Trap
• Functional and technical capacity challenges – The
Capacity Trap
• Cost and upkeep of commercial infrastructures and
vendor lock-in
• Bandwidth and digital divide limitations
• Sustainability and knowledge transfer
• However: little technical and
functional baggage holding back
change

GRP Practices
Best? Good
• Double Entry Bookkeeping • 2 – Phased Commit
• Commitment Accounting • Aggregate Controls
• Treasury Single Account • Decentralization
Maybe • Program Budgeting
• Modified Cash • International Standards
• Multiple Year COA
Maybe
• Accrual Accounting
• Performance Management

Version 7 section

3. Technology & Transparency
Leapfrog
& Case Study

Congress cuts transparency funding

How can Timor-Leste afford
government transparency?
Timor-Leste United States Comparison
Independence 2002 1776 3.4%
GDP Per Capita $2,600 $47,400 5.5%
GDP Growth 8% 2.7% 338%
Unemployment 20% 9.7% 206%
Below poverty line 42% 12% 350%
Life Expectancy 67.95 78.92 86%
Literacy 58.6% 99% 59%

5

Democratic
Republic of
Timor-Leste
(RDTL)
Transparency
Objectives

build citizen involvement
in government

improve government performance

3
Benefits of Transparency

AUSTRALIA
HIGH

2
Government Effectiveness and GDP*
Normalized Government Effectiveness Index

1

PAPUA NEW GUINEA
UGANDA

0

-1

Higher the government
-2 effectiveness = higher the
LOW 209 Countries country GDP Per Capita

-3 GDP Per Capita (PPP, logs)
Source: The World
Bank
* At purchasing power parity
Strengthening Public Financial Management
in Timor-Leste

3

HIGH
Voice and Accountability and GDP*

AUSTRALIA
2
Normalized Voice and Accountability Index

PAPUA NEW GUINEA
1
UGANDA

0

-1

Higher the government
-2 accountability = higher the
country GDP Per Capita
LOW 207 Countries
.
Source: The World
Bank
in Timor-Leste

3

AUSTRALIA
HIGH

2
Control of Corruption and GDP*
Normalized Control of Corruption Index

1

PAPUA NEW GUINEA
0
UGANDA

-1

Higher the control of
corruption = higher the
-2
204 Countries country GDP Per Capita
LOW

Source: The World
Bank
in Timor-Leste

Version 7 section
leapfrog theory…


Version 7 section
entrenched technology


26

review

Transparency and Accountability
The next generation of public financial
management technology will allow the public to
track the budget live, to see where every dollar is
being spent, and to gain renewed confidence in
the process

Democratic Republic of Timor-Leste Vision

Public Financial Management –
Foundation for Country Growth


Decentralization
Human
GoTL LAWS Resource
Autonomous FMIS Development
Agencies (software and
hardware)
Procurement Capacity
Ministries Commission Building
(Training)

IPSAS
International Public Sector Accounting
Standards

in Timor-Leste

EITI
Extractive
Industries
Transparency
Initiative

GFS
Government Financial Statistics

MTEF
Medium Term
Expenditure Frameworks

IATI
International Aid
Transparency Initiative

manages
correspondence with
senior managers

repository for freedom of information

review

government tenders published
vendor alerts

integrated with back-office
procurement & commitment
accounting within IFMIS

tender results published
Strengthening Public Financial Management in Timor-Leste 45

Version 7 section
front/back office integration


review

www.transparency.gov.tl


articles
subscribe

drill down

Expenditures, Transparency Portal

10 years of data

drill through the chart of accounts

Expenditures, Transparency Portal

export to xls, doc, pdf, html, xml

track commitments

review

examines budget execution data

integration with
macro-economic data

integrated with back-office
procurement & commitment
accounting within IFMIS


transparent presentation of public investment programs

simple classifications

56
in Timor-Leste

Lessons Learned

61
in Timor-Leste

1.
Transparency
is not an
Option

Mobile cellular telephone subscribers
Per 100 inhabitants
100

citizen
80
auditors

60

YouTube
40 Facebook
Twitter
SMS
20

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2. Transparency =
Performance > Embarrassment

Role of Civil Society
• NGO’s can help organise literacy groups and provide
materials. They can provide private education and
education for the blind. They can provide school
materials for students, and assist with school equipment
chairs and books
• NGO’s can help us organise and run technical training
courses in our villages

Timor-Leste National Vision

3. Sequenced Holistic Multiple-
Year PFM Strategy

review
Public Financial Management –
Foundation for Country Growth
Improve
government
performance

Improve
transparency
&
accountability

Improve
budget
execution

Improve
government
capacity

review
PFM Modernization
Alignment with Capacity Building

• Training beyond • Intuitive systems
software – Translation including
– IT capacity terminology
– Project management – Simple & goal-oriented
– Government accounting interfaces

• Beyond training • Mentoring
– Adaptable help
– E-Learning
– Knowledge management

5. Require Sustainability in Partner
Performance

Transition to Open Environment:
Transparency
Domain Closed Transition Open
Access to
Transparency Document Machine Readable
Information
Do not Publish as
Data Availability Data for Sale Publish as Exception
Exception
Publish, Audited & Near Real-Time
Mode Mixed
Vetted Publishing
What are they going to Government as
ROI Reason Revenue Generation
do with the data? Platform
Citizens
Target Business Community Civil Society & Press

Transition to Open Systems:
Technology
Domain Closed Transition Open
Proprietary within Support for Industry Service Oriented
Integration
Suite Standards Architecture
Proprietary = Proprietary/Open Open Standards =
Middleware
Customer Lock Tactical approach Customer Choice
Open Systems
Open Systems extend Open Systems =
Viewpoint reduce system
value Extensibility
performance
Need for vendor Low Cost Application
Extensibility High Costs
Ecosystem Assembly

Leapfrog is possible

Timor-Leste United States Comparison
GFS, IPSAS, EITI, IATI,
1. Standards EITI, OGP Leaped
MTEF
2. Document Manager Document Various Records &
Catching Up
Management Management Correspondence
Manager’s
3. Performance Various tools across
Dashboards, Results Leaping
Management government
Portal
Data.gov & others -
4. Transparency Transparency Portal Leaping
underfunding
5. e-Procurement August 15 FedBizOpps To leap

How?
Timor-Leste United States
1 Year Budgets, complex
Strategic Vision Holistic
election cycles
Government Structure Unitary Federal
Civil Society & Media Seen as Improving Results Seen as “Special Interests”
Government Intervention Seen as Good Seen Suspiciously
Ease to Move to Long History of Entrenched
1. Standards
International Standards National Standards

2. Document Management

3. Performance Multiple entrenched
Management Single system data source
systems
4. Transparency
5. e-Procurement

Version 7 section
Lessons Learned
Technology Transparency
• Re-purpose open systems • Good practices in budget
rapidly to support portal classifications
functionality • Holistic whole-of-country
• Optimal product footprint • Ministry of Finance and
• Rapid implementation Planning leadership
• Broad choice in middleware • Civil society enablement

Goodbye Conflict, Welcome
Development

Version 7 section

PFM

What is Corporate Performance
Management?

Reporting

Data Mining Scorecarding OLAP

Budget
Planning

Drivers for Corporate Performance
Management
• Too much information
• Business Intelligence tools such as
reporting are not prescriptive
• Not all indicators are relevant
• Financial information is after the fact – you
cannot change the past
• Many non-integrated Business
Intelligence (BI) tools

Corporate Performance Objectives
• “Key Performance Indicators” (KPIs) and
“scorecards” are simple to understand
• KPIs measure in progress
• Aggregates measurements from many
sources
• Utilizes capabilities of many tools
• Provides clarity for what is important

Government Performance Management
Business Government
• “Bottom Line” is clear: • Government mandates
profitability require many objectives
• Measured on quarterly • Measured on long-term
profitability outcomes
• “Bottom Line” is • “Bottom Line” is
financial outcomes
• Budget is a guideline • Budget is the law
• Simple financial • Difficult financial
measurements: measurements:
revenue, expenditures, objectives, funds,
cost centres… projects…

Performance and Budget
Scenario Budget
Planning Planning

Government
Objectives Budget Budget
Execution Forecasting

Budget Performance
Review Monitoring

Inputs, Outputs, Outcomes
• Objective
– Government development goal
• Input
– The money in the budget
• Outturn
– The money spent
– The items purchased
• Output
– Number of citizens reached, kms of road built
etc.
• Outcomes
– Non-financial measurements of results

Remember?
• MBA Harvard, 1973
• President’s
Management Agenda
• Program Assessment
Rating Tool (PART)

Current Situation
• Mixed
– Capacity issues
– Improvements in MTEF
– Remains output focused
– Better results in projects yet…
• Commercial performance management
software not budget centric

Corporate Performance Management

outcome
output
outturn
input

profit

Government Performance Management

mandate

outcome
output
outturn
input

budget

Maturing of Government Performance
budget
compliance

• Budget is executed based on budget law
• Was the money spent where it was
intended?
• Were all fiscal discipline processes
followed?

Maturing of Government Performance
budget managing for
compliance results

• Budget is tied to objectives
• Was the budget developed based on
government objectives?
• Were the results from one year used in
budget preparation?

2012 09-10 fmis-training_at_crown_agents

2012 09-10 fmis-training_at_crown_agents

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