Functional Review of the Public Finance Sector -...

The World Bank

Europe and Central Asia Region

Beneficiary: The General Secretariat of the Government Project title: Functional Review of the Central Public Administration in Romania - I Functional Review of the Public Finance Sector SMIS Code: 19881 Co-financed by the European Social Fund, through the Operational Program Development Administrative Capacity, during the period July 5th, 2010 - July 4th, 2011

Table of Contents

EXECUTIVE SUMMARY ........................................................................................................................... i

I. INTRODUCTION ................................................................................................................................ 1

II. OBJECTIVE, SCOPE AND METHODOLOGY OF THE FUNCTIONAL REVIEW ....................... 1

Objective of the Review ............................................................................................................................ 1

Scope of the Review ................................................................................................................................. 2

Principles Guiding the Review ................................................................................................................. 2

Data Sources ............................................................................................................................................. 3

Structure of the Review ............................................................................................................................ 3

III. ORGANIZATIONAL REVIEW ...................................................................................................... 4

Assignment of Functions .......................................................................................................................... 4

Organizational Structure ........................................................................................................................... 6

Size of the Public Finance Administration ............................................................................................... 9

Allocation of Human Resources across Functions.................................................................................. 10

IV. REVIEW OF CORE FUNCTIONS AND CAPABILITIES .......................................................... 13

Budget Formulation ................................................................................................................................ 13

Budget Execution and Treasury Functions ............................................................................................. 26

Coordination of EU Structural and Cohesion Funds............................................................................... 36

Revenue Administration ......................................................................................................................... 40

Management of Information Technology ............................................................................................... 46

Human Resource Management and Internal Communications ............................................................... 54

V. MANAGING CHANGE ..................................................................................................................... 57

ANNEXES .................................................................................................................................................. 59

Figures

Figure 1 Re-Balancing the Public Finance Function .................................................................................... ii

Figure 2 Core Reform Areas ......................................................................................................................... ii

Figure 3 Organizational Structure of the MoPF ............................................................................................ 7

Figure 4 Distribution of MoPF Staff across Functional Areas ................................................................... 10

Figure 6 Fiscal Position .............................................................................................................................. 14

Figure 7 Deviation between Budget and Out-turns..................................................................................... 14

Figure 8 Proposed Organizational Structure of Directorate General for Fiscal Policy ............................... 16

Figure 9 Monthly release of funds and TSA ............................................................................................... 28

Figure 10 Proposed Organizational Structure of Treasury Function at Headquarters ................................ 34

Figure 11 EU Fund Absorption Rates in EU10 Countries (end of 2009) ................................................... 36

Figure 12 Disbursement and Contracting Rates across Operational Programs ......................................... 38

Figure 13 Taxpayer Segmentation .............................................................................................................. 41

Figure 14 Current MOPF Application Portfolio ......................................................................................... 47

Figure 15 Staff Survey Results 1 ................................................................................................................ 55

Figure 16 Staff Survey Results 2 ................................................................................................................ 55

Tables

Table 1 Functions of Ministries of Finance – Romania and International Comparison ............................... 4

Table 2 Organization of Ministries of Finance – Romania and International Comparison .......................... 8

Table 3 Size of Core Public Finance Staff – Romania and International Comparison ................................. 9

Table 4 Deviations across Expenditure Items ............................................................................................. 15

Table 5 Financial Performance across Operational Programs (as of end of 2009) ..................................... 37

Table 6 Workload distribution across regional tax offices ......................................................................... 45

Table 7 High Level Functional Gap Analysis ............................................................................................. 49

Table 8 Electronic Signatures in EU Member States .................................................................................. 50

Table 9 Prioritization of Reform Measures ................................................................................................. 58

Boxes

Box 1 Performance Management of State Owned Enterprises ................................................................... 12

Box 2: International Experience in Ensuring Independent and Professional Revenue Forecasts .............. 17

Box 3: International Experience in Top-Down Budgeting ......................................................................... 19

Box 4: International Experience in Fiscal Impact Assessment of New Legislation ................................... 21

Box 5: International Experience in Spending Reviews............................................................................... 24

Box 6 Treasury General Ledger – Functionalities and Country Examples................................................. 33

Box 7 Reorganization of Federal Cash Offices in Germany ....................................................................... 35

Box 8 Actions to improve absorptive capacity in selected EU 10 Countries ............................................. 39

Box 9 International Experience - Tax Administration Reforms ................................................................. 46

Box 10 IT Modernization in France and Germany ..................................................................................... 53

Annexes

Annex 1 Action Matrix ............................................................................................................................... 60

Annex 2 Comparative Review of Organizational Structures of Ministry of Finance ................................. 67

Annex 3 Options for organizational structures ........................................................................................... 70

Annex 4 Linking Performance with Budget Allocations –Issues and International Comparisons ............. 71

Annex 5 Job Descriptions for Budget Analysts .......................................................................................... 77

Annex 6 Proposed Indicative Integrated Planning & Budget Calendar ...................................................... 79

Annex 7 Questionnaire Staff Survey Ministry of Public Finance ............................................................... 82

Annex 8 Partial Lists of Persons Met.......................................................................................................... 84

Acronyms

ANAF National Agency for Fiscal Administration

BPGD Budget Programming General Directorate

CHU Central Harmonization Unit

CoA

DG

Chart of Accounts

Directorate General

EC European Commission

ESA European System of Accounts

FBS Fiscal Budget Strategy

FRL Fiscal Responsibility Law

GFS

GSG

HNWI

Government Financial Statistics

General Secretariat of Government

High Net Wealth Individuals

IMF International Monetary Fund

IPSAS

LTD

MAFPGD

International Public Sector Accounting Standards

Large Taxpayer Department

Macro-economic Analysis and Financial Policy General Directorate

MoPF Ministry of Public Finance

OP Operational Program

PEIR Public Expenditure and Institutional Review

PIAMGD Public Institutions Accounting Methodology General Directorate

PIFC

SOE

Public Internal Financial Control

State-owned Enterprise

TPAGD Treasury and Public Accounting General Directorate

TPDGD Treasury and Public Debt General Directorate

TRANSPOND Real Time Clearing System

TREZOR Treasury information system

TSA Treasury Single Account

PREFACE

This functional review is commissioned by the Ministry of Public Finance of Romania as part of a

Functional Review Project financed by the EU and the Government of Romania. The report was prepared

by a core team led by Sebastian Eckardt and comprising David Shand, Daniel Tommasi, Ken Torp, and

Joop van Lunteren with input from Bogdan Constantinescu, Catalin Pauna, Cem Dener, Clelia

Rontoyanni, and Munawar Sultan Khwaja. Aileen Morse, Luisita Guanlao, Denisa Popescu, and Steven

Reichenbach prepared an enterprise architecture review of the MOPF that constitutes the basis of the

section on information technology. Raluca Marina Banioti, Ana Otilia Nutu, Andreea Silvia Florescu and

Molyneau R. DuBelle provided logistical support.

The team would like to express its gratitude to government officials of the Ministry of Public Finance

(MOPF) and various government agencies of the Romanian Government for their constructive

collaboration. The team in particular would like to thank Minister of Finance, Mr. Gheorghe Ialomitianu,

Mr. Sorin Blejnar, President of ANAF as well as State Secretary Gheorghe Gherghina and State Secretary

Bogdan Drăgoi at MOPF for their effective leadership of the functional review process. The team would

like to thank Mr. Octavian Deaconu, Director of International Cooperation, Ms. Mihaela Nedelcu, Public

Manager, Public Policy Unit, MOPF, and Mr. Gabriel Popa, Public Manager, General Secretariat of the

Government for the excellent support in facilitating the meetings in Bucharest. In addition, the team is

indebted to the numerous staff of the MOPF, ANAF, Ministry of Agriculture, Ministry of Education,

Ministry of Communication and Information Society that took the time to meet with the team. A partial

list of persons met during the mission is attached in Annex 1.

The team worked in close consultation with Mr. Bernard Myers (Task Team Leader of the Functional

Review Project) and under guidance from Mr. William Dorotinsky (Sector Manager, Public Sector and

Institutional Reform, Europe and Central Asia Region) and Mr. François Rantura (Country Manager,

Romania). The report was peer reviewed by Holger van Eden (IMF FAD), Michael Engelschalk (IFC),

Jim Brumby (Acting Director, PRMPS, World Bank), Richard Allen (World Bank), Andrew Bird

(Independent PFM Consultant) and Sorin Ionita (Romanian Academic Society).

i

EXECUTIVE SUMMARY

Objective and Context

The objective of this review is to analyze the public finance and revenue administration

function across the Government of Romania and to identify opportunities for enhancements in

strategy, processes and organization. The review provides a strategic, medium term vision for the

development of the public finance function while being responsive to immediate problems and

challenges.

The current fiscal adjustment has reinforced the importance of strong fiscal institutions and

public financial management systems. The Government is in the midst of implementing fiscal austerity

measures and maintaining the current fiscal adjustment path will be required to achieve its 3 percent

budget deficit target by 2012, especially in light of the slow pace of economic recovery. Beyond these

acute consolidation pressures, effective and efficient use of scarce public resources, including of EU

funds, is a prerequisite not only for economic recovery but also for achieving national policy priorities

and economic convergence with other EU member states.

Romania has already taken important steps to improve public financial management but

progress has been uneven. There are best practices alongside unreformed areas. Framework legislation

for budget management has been in place since the organic budget law 500 was passed in 2003. The legal

framework has more recently been reinforced, especially with regard to macro-fiscal discipline, through

the new Fiscal Responsibility Law (FRL). The transposition of Aquis requirements into national law

resulted in changes in the internal control environment, most importantly the establishment of internal

audit units across the Government. An efficient electronic payment system and a comprehensive treasury

single account have been created to support the execution of the budget. Reforms have also been initiated

in budget formulation, including attempts at implementing program budgeting, but these are complex

endeavors and further attention is warranted to make the budget process a more effective tool for resource

allocation and spending efficiency. Financial and management reporting during budget execution also

needs further development to supply timely and reliable financial data for informed budget management.

Finally, major initiatives reforming revenue administration and unifying tax and social security

contributions collection in the National Agency for Fiscal Administration (ANAF) have been taken.

However, major challenges remain, in particular, with regard to revenue collection performance and

facilitating voluntary tax compliance.

Notwithstanding past achievements, there is room for further strengthening of the public

finance function, especially in continuing to shift its focus and capabilities from transaction related

control to more policy and efficiency oriented tasks. The Ministry of Public Finance (MoPF), ANAF

and financial management units in line ministries still dedicate much of their time and resources to

transaction related control and compliance functions, which limits their ability to provide wider policy

analysis, monitor fiscal impact, manage the macro-fiscal position and risks and improve performance and

efficiency in revenue collection and public spending (Figure 1). Measures could be taken to rebalance the

public finance function towards a more policy and performance oriented role, including streamlining of

core business processes, realignment of staff and skills sets, and IT investments to further automate

routine tasks (such as transaction processing) thereby liberating time for more analytic and performance-

oriented activities, both within MOPF and the line ministries.

ii

Figure 1 Re-Balancing the Public Finance Function

Priority Reform Areas and Recommendations

In consultations with the MoPF, the functional review has identified specific reform

opportunities that could further improve the public finance function. The review identified the

following eight reform areas that directly address current performance challenges: 1) Improve Budget

Credibility and Macro Fiscal Discipline, 2) Strengthen Policy Based Expenditure Prioritization, 3) Further

Modernize Budget Execution Functions, 4) Accelerate EU Structural and Cohesion Fund Absorption 5)

Modernize Revenue Administration, 6) Strengthen the MOPF organizational structure 7) Introduce more

Strategic Management of IT Resources to support Automation and Information Management and 8)

Introduce more Strategic HR Management and Corporate Communications. The proposed reform

program proposes 21 reform measures to address these priorities. Indicative sequencing for each of the

measures is provided below (Short Term= 1 year; Medium Term 2-3 years; Long Term=4-5 years). The

proposed actions are also categorized by expected impact based on three criteria: 1) The potential impact,

or benefit, of addressing the problem, 2) The potential cost of addressing the problem and 3) The cost of

not addressing the problem. Critical impact reforms tackle key binding constraints. High impact reforms

are important but often reflect areas where progress is already underway. Enabling reforms are important

but will only achieve significant impact if implemented in conjunction with other reforms.

Figure 2 Core Reform Areas

Improve Budget Credibility and Macro Fiscal Discipline

Strengthen Policy Based Expenditure Prioritization

Further Modernize Budget Execution and Treasury Functions

Accelerate EU Structural and Cohesion Fund Absorption

Modernization of Revenue Administration

Introduce more Strategic Management of IT Resources to Enable Automation and Better Financial Information Management Introduce more Strategic HR Management and Corporate Communications

Strengthen the MOPF Organizational Structure

iii

Reform Area 1: Improve Budget Credibility and Macro Fiscal Discipline

Romania’s budget has lacked credibility, thereby undermining macro-fiscal discipline. The

actual budget, as implemented, deviates significantly from the original budget both in terms of the fiscal

aggregates and composition of the budget. The causes of deviations are unrealistic revenue estimates,

substantial supplemental budgets and in-year expenditure increases often due to spending mandates

created by laws adopted outside the budget process without adequate consideration of their fiscal impact.

The lack of budget credibility has undermined fiscal transparency and predictability and has contributed

to the rise of fiscal imbalances. The FRL has established stronger requirements for aggregate fiscal

discipline, including commitment to medium term macro-fiscal targets and review of the forecasts by the

newly established, independent Fiscal Council.

Reform Options

1.1 Institutionalize Prudent Revenue Estimation: Use best technical

revenue estimates and insulate revenue estimation from all non-

technical revision. Enhance independence and status of the MOPF

Macro-Fiscal Unit by subordinating it directly to Minister. Implement

the provision of FRL for the Minister of Public Finance to attest to

the accuracy and completeness of the information provided in the

Budget Policy Strategy. Promote external validation and

contestability by increased transparency and independent review of

Macro Fiscal Framework by Fiscal Council (as mandated by FRL).

Short Term Critical

Impact

1.2 Institutionalize Top Down Budgeting: Institutionalize a Cabinet

level Ministerial Finance Committee Process as part of the budget

process to create collectively binding commitments to ceilings

aligned with Government priorities. Integrate the Budget Policy

Strategy (FRL requirement) with the budget process and ensure

consistent fiscal targets. Preserve the MOPF‟s right to unilaterally

adjust spending requests of Line Ministries if submissions exceed

ceilings. Allow Line Ministries to allocate resources within the

ceiling.

Short

Term/Medium

Term

Critical

Impact

1.3 Monitor and Control Fiscal Impact of New Legislation: Enforce

requirement for legislative proposals which are submitted to Cabinet

to contain a fiscal impact assessment prepared by MoPF. Authorize

Fiscal Council to initiate and publish independent fiscal impact

estimates for legislation as it deems necessary and especially if fiscal

neutrality may be violated.

Medium Term High

Impact

Reform Area 2: Strengthen Policy Based Expenditure Prioritization

The current budget process is predominantly concerned with costing of inputs with limited

attention to prioritization and spending efficiency. Consequently, the ongoing fiscal retrenchment has

largely relied on input based across-the-board cuts, for example of civil services wages, rather than

targeted cuts in non-Reform Area spending programs. Improving prioritization and targeting of spending

will enable Romania to sustain the results of the fiscal consolidation and -once the economy recovers -

finance new initiatives in a fiscally responsible manner.

Reform Options:

2.1 Refocus Budget Dialogue on Policy and Efficiency Issues:

Institutionalize Strategic Budget Phase (in conjunction with Top Down

Medium –

Long Term

High

Impact

iv

Budgeting) to drive expenditure re-prioritization. Require sector

ministries to separate baseline budgeting (funding required to continue

existing policies based on previous year‟s forward estimates) New

initiatives should be justified and at least partially financed from

identified efficiency savings in the line ministry‟s baseline budget

(thereby allowing line ministries to re-allocate across programs them and

to retain part of the efficiency savings). Conduct periodic spending

reviews to identify efficiency gains and low value programs. Redevelop

ministry strategic plans on a program basis and strengthen link between

these plans and the budget.

2.2 Build Capacity for Budget Analysis in the Budget Department:

Review and adjust the job descriptions and associated qualification

requirements of the positions in the Budget Department to encompass the

tasks associated with budget analysis Conduct a training needs

assessment and provide training program to both MOPF and sector

ministries on budget analysis, including specific sectoral issues.

Medium –

Long Term

High

Impact

2.3 Synchronize Budget Calendar: Harmonize the budget calendar of Law

500 and FRL. Integrate strategic planning and budgeting processes.

Short Term Enabling

Reform Area 3: Further Modernize Budget Execution

Performance across core budget execution functions, including cash management, payment,

accounting and reporting services is uneven. Transactional banking services for processing of revenue

receipts and payments and a comprehensive Treasury Single Account (TSA) are very well developed.

However transaction processing remains labor intensive and further development of automated

services is the logical next step in improving efficiency. Reporting and accounting functions have well

developed policies, including a unified budget classification and Chart of Accounts, but the current

reporting systems and processes heavily rely on manual intervention for collection, verification and

validation of financial information, limiting timely operational reporting and analysis. Financial

information, other than aggregate cash balances, has to be obtained from about 14,000 individual

spending units on a monthly and quarterly basis. The consequent lack of reliable, timely and detailed

revenue, expenditure and commitment data for budget planning, monitoring, expenditure control, and

reporting negatively impacts on budget management. Budget releases (Budget Credit Openings) are based

on imperfect information and largely driven by cash availability rather than cash needs, undermining line

ministry financial operations. Organizationally, core budget execution functions (credit opening, payment

processing, accounting and reporting) appear fragmented which is also reflected in a lack of integration in

the stand alone IT systems supporting these closely related functions (also refer to Reform Area 6).

Reform Options:

3.1 Further Streamline Transactional Banking Services: Clarify the

regulatory framework for electronic authorization of transactions

(eSignature requirements). Expand the use of eBanking services,

including roll out of e-Account Statement pilot (short term), automation

of credit opening procedures, and electronic submission of payment

orders. Further automate verification and controls in transaction

processing. (medium term)

Short-

Medium

term

High

Impact

3.2 Improve financial reporting capabilities: Expand the functionality of

the computerized Treasury General Ledger that accounts for all financial

transactions related to budget, commitments, and cash by integrating the

accounting and reporting system with the payment system. Develop

Short/Med

ium/Long

Term

Critical

Impact

v

interfaces to transfer approved budget to the treasury data base and to

record commitments in the central treasury data base. Automate

Reporting Function from TG/L.

3.3 Integrate Budget Execution Functions: Create budget execution

department responsible for credit openings, transactional banking

services, accounting and reporting. Further strengthen the interface with

the debt and cash management department. Once operational processes

have been modernized and automated, evaluate the business needs for

extensive territorial branch network.

Medium

Term

Enabling

3.4 Further Improve Debt Management Functions: Enhance cash

planning by establish cash management committee and recording of

short cash plans of spending units. Improve Institutional Framework and

Infrastructure for Market Participation. Enhance Risk Management

Function of Debt Management Department (State Treasury). Automate

debt service payment procedures.

Medium

Term

High

Reform Area 4: Coordinating the EU Structural and Cohesion Funds

Increased absorption of EU funding is a key Government and MOPF priority. Increasing

absorption rates will require concerted and systematic efforts. While the MoPF is only one of many

relevant players, as the coordinating authority for EU structural funds, it is expected to play a key role in

leading this effort. Absorption is adversely affected by a number of constraints at the level of beneficiaries

and managing authorities. Liquidity constraints in the financial sector have worsened lending conditions

and access to funds for pre- and co-financing of projects, in particular for private sector beneficiaries but

also for local governments. The Government is trying to address this problem through a guarantee fund. A

second set of issues relates to the administrative capacity to process, appraise and approve project

proposals. This concerns the staffing, skills and processes in managing authorities and authorizing

agencies. Lastly, investments in raising awareness among potential beneficiaries about the opportunities

available through structural funds and enabling them to design and prepare sound project applications

could help improve quantity and quality of applications.

Reform Options:

4.1 Enhance Financing Capacity: Enable strategic re-allocation of co-

financing shares to disbursing programs and projects. Strengthen the link

between EU programming framework, namely the operational programs

and budget allocations, as part of the annual budget process.

Short Term High

Impact

4.2 Enhance Administrative Capacity: The Government needs to fully

implement the ordinance to prioritize staffing allocations, including

transfers of staff, related to the implementation of EU programs. Specific

efforts are required with regard to the Ministry of Transport, the

managing authority for the transport OP, including an immediate staffing

needs analysis. Project approval procedures need to be streamlined to

prioritize large and important projects, with a particular focus on the

Ministry of Transport.

Short Term High

Impact

Reform Area 5: Modernize Revenue Administration

The fiscal crisis has brought renewed attention to raising revenue administration

performance while minimizing collection costs and reducing compliance costs for taxpayers. Major

organizational initiatives have been taken to unify the collection of tax and social security under a single

vi

organization, National Agency for Fiscal Administration (ANAF), and to introduce taxpayer

segmentation. Risk-based audit selection, e-filing and e-payment have also been launched, but the use of

these services remains limited. Despite these measures, major challenges still remain, in particular, in

improving the performance of the revenue collection system and facilitating voluntary tax compliance. In

2009 revenue collection decreased considerably and the tax/GDP ratio dropped to 26.5 percent. An

extensive network of territorial offices contributes to increased tax collection costs draining a large

amount of resources for routine processes while diverting focus away from core audit and compliance

functions. The compliance burden on taxpayers is also high: the World Bank Group‟s Doing Business

2010 Report ranks Romania only 149th with regard to the ease of paying taxes, with the number of annual

tax payments totaling 113 – one of the main reasons for the low ranking1.

Reform Options:

5.1 Strengthen Compliance Policy: Further advance tax payer

segmentation and review the thresholds for large and medium sized

taxpayers. Institution-wide risk management should be developed

deploying resources according the level of risk involved and amount of

revenue at stake. In the large taxpayer segment compliance should be

encouraged through specialized taxpayer services and more frequent

audits. In the medium size taxpayer segment compliance costs should be

reduced and computerized risk management should be developed. For

small private and business taxpayers the main objective will be to reduce

the need for direct contact with the tax administration and to enhance

voluntary compliance. Further development of the High Net Wealth

Individuals segment should also be pursued. A training program for new

staff members and existing staff will need to complement organizational

and procedural reforms.

Short –

Medium

Term

High

Impact

5.2 Reduce Administrative Costs: Reduce number of separate tax

payments. (Short Term). Modernize business processes with further

automation. Promote e-filing and reduce face-to-face interaction with tax

payers. Improve computerized risk based audit selection and case

management to better direct audit resources. (Medium Term)

Consolidate territorial organization. (Long Term)

Medium-

Long Term

High

Impact

5.3 Reduce Compliance Costs: Restructure the returns filing which would

require a smaller number of returns. Promote e-filing and restructure the

payments system to make cash payments largely redundant. Improve tax

payer services.

Medium-

Long Term

High

Impact

Reform Area 6: Strengthen the MOPF Organizational Structure

Romania has created a relatively lean and functionally focused Ministry of Public Finance.

Further consolidation of the organizational structure together with a re-alignment of human

resources to strategic priorities is desirable to achieve higher efficiency and to strengthen support to

core areas. All major functions currently performed by the MoPF can logically be subsumed under the

rubric of public financial management and, as such, are appropriately located in the MoPF. The current

assignment of functions provides for a focused span of control while avoiding fragmentation of core

public finance functions across separate entities. Building around this strong core set of functions, some

adjustments in responsibilities could be undertaken to further strengthen the public finance focus of the

1 Romania ranks 182th out of 183 countries analyzed with regard to the number of tax payments required; only

Ukraine requires more tax payments than Romania.

vii

Ministry. With 35 top-level operational units the highest level of non-political line management of the

MOPF seems fragmented. A more consolidated line management structure would be conducive to

streamlined operations.

Reform Options

5.4 Consolidate first tier management structure of the MOPF: Organize

first tier management structure around the core public finance functions.

Short-

Medium

term

Enabling

Reform Area 7: More Strategic Management of IT Resources to Support Automation and Business

Intelligence

The public finance IT environment is fragmented and based on disparate, stand-alone

applications that support major business processes. Existing applications for budget formulation,

payment processing, accounting and reporting are not well integrated and data cannot be seamlessly

shared across functional boundaries. In addition, critical financial information is held separately at the

county level treasuries (for example credit openings) or at the level of budget holders (for example

detailed accounting data). Apart from aggregate reporting on cash disbursements, no other fiscal data is

readily available across all counties. A lack of end-to-end automated processes creates the need for

extensive manual intervention. Decision making on IT investments and management is fragmented and

largely driven by ad hoc requests responding to particular problems as they arise.

Reform Options:

7.1 Strengthen IT Governance: Establish IT governance board, comprised

of the IT department and key business units as the main decision making

body to guide IT investment and management. A comprehensive and

detailed IT Audit is recommended to assess the MoPF's information

systems, practices and operations. Develop IT strategy and (costed)

investment plan aligned with Ministry strategic plan.

Short Term Enabling

7.2 Integrated Financial Management Information System: Introduce

efficient, computerized data exchange mechanisms between related sub-

systems across the expenditure management cycle, most importantly

between the budget, treasury and reporting system. Centralize treasury

data base and create general ledger to record all stages of the transaction

processing from appropriations, opening of budget credits, commitment,

purchase, payment request, reconciliation of bank statements, and

accounting of expenditure. Build Operational Data Store and then Data

Warehouse as central repository for all financial data records. Pursue

business process simplification for selected processes within MoPF.

Medium -

Long Term

Enabling

7.3 Modernize IT Support to ANAF: Migrate to integrated shared IT

environment supporting major business processes, including taxpayer

registration, e-filing, declarations, audit case management, etc.

Medium -

Long Term

Enabling

Reform Area 8: HR Management, Corporate Strategy, and Communications

The public finance function at all levels is staffed with highly educated and dedicated

professional staff. However, staffing patterns across the organization have not changed to meet

changing workloads, partially due to rigidities in civil service rules. The compensation system at the

MoPF is largely perceived to lack fairness and transparency. Numerous bonuses, that are unequally

distributed across the organization account for about 30 percent of the Ministry‟s wage bill. However,

viii

this is being overhauled with the implementation of the Unified Pay Law. As in all public institutions, the

fiscal austerity program, the hiring freeze, pay cuts and the need to downsize have put considerable

pressure on the MOPF as an organization and HR management is severely challenged by these external

conditions. While a strategic plan has been elaborated, less attention has been given to effectively

communicating the overall strategic direction of the Ministry internally and externally with other

stakeholders. Only about half of surveyed MOPF staff felt they were well informed about the strategic

direction of the MOPF.

Reform Options:

8.1 Enhance strategic, forward looking HR Management: Develop a HR

strategy aligned to the MOPF strategic plan supporting the business

objectives of the MOPF. Strengthen appraisal and performance

management systems.

Short Term Enabling

8.2 Strengthen corporate communication: Dedicate modest resources to

allow for more continuous internal communication, either in the external

communication division or the public policy unit. Use MOPF intranet to

communicate key corporate priorities. Increase frequency of direct

communication between leadership and staff through regular town hall

meetings, etc.

Short Term Enabling

Managing Change

The eight priority reform areas require varying commitment levels, timing and resources. Realistically, not all can be done at once. Many of the proposed reforms are long term and complex in

nature. It is estimated that implementation of an initial reform program would require about 5 years.

Further work is needed to develop a Government-owned, long-term and actionable road map that

sequences changes in strategy, processes, organization, and systems. The roadmap should combine larger

strategic efforts, such as the introduction of a computerized Treasury general ledger, with near-term

foundational “quick win” initiatives, such as a commitment recording capability in the treasury system.

The roadmap should also identify clear milestones, responsibilities and investment needs. Resource

requirements are significant, both financially and in terms of staff and leadership attention needed to

move this forward. While a detailed costing is beyond the scope of this exercise, implementation of the

proposed change program would likely require investments of approximately US$ 100-140 Million2 over

a period of 5-7 years, mostly to finance modernization of the IT environment within MOPF and ANAF

and training. Finally, the multitude of technological and procedural change envisaged in the

modernization program will need a systematic change management approach, dedicated staff and

continuous engagement by the executive leadership of the MOPF and ANAF.

2 This is a very rough estimate of costs associated with IT investments in the tax administration and expenditure

management systems. The cost estimate would have to be refined with more detailed technical specifications and

investment need assessment. The IMF FAD estimated the costs of comprehensive tax administration reforms at

about US$ 100 Million consistent with the project costing of an earlier IBRD project that was prepared with NAFA

in 2007/08. The average costs for the implementation of Integrated Financial Management Information Systems in

the Europe Central Asia region between 2000 and 2010 was roughly US$ 16 Million (except the Russian Treasury

Development Project, which is exceptionally large) depending on project scope and complexity. The costs of these

systems have been declining and more recently designed projects were estimated in the range of USD 10-12 Million

Moldova, Kyrgyz, Tajikistan and Georgia. A larger FMIS solution was estimated to cost around $55m in Ukraine

(to be based on one of the commercial packages). For the purposes of this review, it is assumed that the

implementation of an IFMIS (based on one of the commercial packages) would require about US$ 40 as a

preliminary estimate.

1

I. INTRODUCTION

1. In the wake of the global economic crisis, the Government of Romania is facing substantial

fiscal challenges but also unique opportunities to deepen and accelerate reforms. The Government is

in the midst of implementing severe fiscal austerity measures to contain the deficit in a difficult economic

environment. Maintaining the current fiscal adjustment path will be required to achieve the 3 percent

budget deficit target by 2012. Beyond these acute consolidation pressures, effective and efficient use of

scarce public resources, including of EU funds, is required not only to underpin economic recovery but

also to achieve the medium term policy objective of economic convergence with other EU member states.

2. These current fiscal challenges have reinforced the importance of strong fiscal institutions

and public finance management systems. The Government has recently adopted a new Fiscal

Responsibility Law to strengthen the institutional foundation for more responsible fiscal policy making. If

properly implemented, the FRL will trigger profound changes to the way public finances are managed.

The law reinforces a multi-annual budget planning process through a fiscal budgetary strategy,

strengthens the authority of the Ministry of Public Finance (MoPF) to impose fiscal discipline, and

establishes a Fiscal Council to provide an additional layer of independent review and external scrutiny of

fiscal policy. With the legal framework in place, a key priority is now to adapt core public financial

management processes to the new requirements.

3. The expanding demand on the public finance management function will have to be met

while a significant down-sizing in the civil service, including in the MoPF and the National Agency

for Fiscal Administration (ANAF), is underway. While demand on core areas of public financial

management is growing with the current fiscal policy challenges and the implementation of the Fiscal

Responsibility Law, the Government-wide 25 percent wage cuts, hiring freeze and the anticipated

reduction in the size of the civil service are affecting the MoPF like any other public sector organization.

These pressures will inevitably affect staff morale and performance which must be restored to achieve a

high-performing MoPF. They also make strategic and more efficient management of MoPF internal

resources critical to ensure that core parts of the Ministry have adequate resources to address growing

functional needs and to respond to Government priorities.

II. OBJECTIVE, SCOPE AND METHODOLOGY OF THE

FUNCTIONAL REVIEW

Objective of the Review

4. The objective of the functional review is to analyze the current structure and operations of

the public finance management function and to provide reform options for improvements in

processes, organization, and systems to enable the Government to respond more effectively to

current challenges. The review seeks to provide a strategic, medium term vision for the development of

the public finance function. In the absence of a clearly articulated strategic direction, reacting to

immediate problems with a short-time horizon seems rather unlikely to result in sustainable and

significant improvements in public finance performance. The review suggests actions in several areas,

including streamlining of core business processes, realignment of staff and skills sets with core functional

needs, and investments in IT systems to enable further automation of routine tasks (such as transaction

processing) and enhance financial information management and business intelligence functions.

2

Scope of the Review

5. The functional review provides a focused assessment of core public financial management

functions and capabilities of the Government of Romania. The review has two parts: First, it reviews

the current assignment of functions and organizational structure of the MoPF and its relationship with

other parts of the Government. Then, it examines four core functions in more detail: 1) Budget

Formulation, including macro-fiscal policy and expenditure programming, 2) Budget execution, including

payment processing, debt and cash management, accounting and reporting, and 3) Revenue

Administration 4) Coordination of EU Structural Funds. In addition, two MOPF corporate services 5)

Human Resource Management and 6) Information Technology are included in the review because of their

significant role in enabling a high performance public finance function.

Principles Guiding the Review

6. It is essential for the public finance function and related business processes to be structured

in a way that promotes the achievement of core public finance objectives. Public finance management

shapes and regulates the policy and process of generating and allocating public resources for carrying out

government functions. It is commonly expected to serve three objectives: i) Preserving Macro-fiscal

discipline, e.g. reconciling demands for spending with the available resource envelope, ii) Strategic

allocation of resources, e.g. aligning spending to Government priorities, assuming they are articulated

somewhere, iii) Facilitating operational efficiency, e.g. providing incentives for productivity increases and

better service delivery.

7. While fiscal governance arrangements vary across countries along with their specific

political, institutional and legal traditions, some general principles can be identified:

Fiscal discipline can be enhanced by procedures that give a strong role to the prime minister or

finance minister (supported by the cabinet), limit parliamentary amendment powers, establish

medium term expenditure limits, anchor fiscal policies in fiscal rules, enforce strict execution of

the budget law, and provide a greater level of budget transparency.

Strategic allocation of resources can be enhanced by a centralized challenge function performed

by the finance minister supported by a strong budget department, by a medium term expenditure

framework, clearly articulated policy priorities, by use of performance information and regular

spending reviews aimed to identify non-priority programs.

Operational efficiency can be enhanced by increased managerial flexibility to deploy resources to

achieve objectives combined with strong accountability mechanisms that comprehensively and

transparently monitor and enforce budget decisions.

There is extensive evidence both qualitative and increasingly quantitative that has shown that these

institutional processes and mechanisms tend to be associated with better fiscal outcomes.

8. These principles together with practical examples and comparisons with good practices in

other EU member states and OECD countries will provide strategic reference points for the

following review of the public finance function in Romania. Throughout the report, good practice

examples of the outlined principles will be drawn upon to illustrate proven strategies to improve public

finance management.

3

Data Sources

9. The review employed a number of approaches to collect data used to analyze the current

performance of the public finance function. The review combined the following principal qualitative

and quantitative sources of information:

a) Expert discussions with management and staff in the MOPF, ANAF, the Court of

Accounts, the Parliament and selected line ministries

b) MOPF staff survey which was conducted as part of the functional review allowing MOPF

staff to respond anonymously, and give feedback on a few basic questions related to the

MOPF management, processes, and general ministry operations. 324 respondents participated

in staff survey (about 23 percent of total MOPF staff).

c) Client survey which was sent to the financial management units in all 60 primary budget

holders to gain a client perspective on key services provided by the MOPF. 13 Line

Ministries responded (21 percent of all primary budget holders).

d) Document reviews, including of the Law 500 on Public Finance, the FRL, the MOPF

strategic plan, existing TA reports by the IMF, the World Bank, etc.

e) Documentation of international experience in selected functional areas, particularly from

other EU member states, to draw on proven strategies to improve public finance management.

f) Available quantitative data, including fiscal data, HR data, etc.

Structure of the Review

10. The Report is organized as follows. In addition to this introduction, there are three principal

sections: III) Organizational Review of the Public Finance Function (IV) Review of Core Functions and

Capabilities, including Budget Formulation, Budget Execution, Revenue Administration, Coordination of

EU Structural and Cohesion Funds, IT Management and Human Resource Managements; and V) Change

Management.

4

III. ORGANIZATIONAL REVIEW

11. Romania has a relatively lean and functionally focused Ministry of Public Finance to serve

as the backbone of its fiscal governance arrangements. The MoPF with its current functional

responsibilities and structure is the result of a number of re-organizations. In 2003 the tax administration

functions and local treasury operations were moved to the Agency for Fiscal Administration (ANAF)

which is a semi-independent agency subordinated to the MOPF. Non-fiscal economic policy and

regulatory functions were transferred to a separate Ministry of Economy, Commerce and Business

Environment. These changes have provided the MOPF with a much more solid foundation for carrying

out its core functions. However, there is still scope for further enhancements that will increase the

effectiveness and efficiency of the MoPF.

Assignment of Functions

12. All major functions currently performed by the MoPF belong in the area of public financial

management and, as such, are appropriately located in the MoPF. These, most importantly, include

1) Budget formulation, including macro-fiscal policy and expenditure programming, 2) Budget

execution, including payment processing, cash and debt management, accounting and reporting, 3) tax

policy and 4) regulatory and policy functions concerning internal audit and control 5) Coordination of EU

Structural and Cohesion Funds, and 6) regulatory and control functions related to public financial

management systems, including on internal controls, internal audit, public private partnerships, and

procurement. The current assignment of functions provides for a focused mandate and span of control

while avoiding fragmentation of core public finance functions across separate entities. The assignment of

functions and the MOPF‟s role in public financial management resemble that of other Ministries of

Finance in the EU.

Table 1 Functions of Ministries of Finance – Romania and International Comparison

Function France Germany United

Kingdom

Romania

Macro-fiscal forecasting and analysis OM CM3 CM CM/SA

Fiscal policy formulation OM CM CM CM

Budget preparation CM CM CM CM

Treasury Operations CM CM/SA OM4 CM/SA

Accounting policy CM CM CM CM

Internal Audit Policies CM CM CM CM

Preventive Financial Control n.a. n.a. n.a. CM

Cash Management CM CM/SA SA CM

Debt management OM/SA SA SA CM

International finance and liaison with

international organizations

OM CM CM CM

Coordination EU Structural and Cohesion Funds OM OM5 OM

6 CM

Tax policy OM CM CM CM

Tax administration CM OM7 SA

8 SA

3 While the Federal Economics Ministry is in the lead for macro-analysis and forecasting, there is an obligation to

come to a consensus with the ministries of finance and labor. 4 In practice, this function is largely devolved to line ministries.

5 In Germany with the exception of very few federal programs the implementation of EU structural and cohesion

funds is the responsibility of the states. 6 Department of Trade and Industry, Regional European Funds Directorate.

5

Customs administration CM SA SA SA

Intergovernmental fiscal relations CM CM CM SA

Regulation of financial institutions OM OM OM9 OM

Management of public assets and oversight of

SOE

SA/OM CM CM n.a.

Note: CM=Central Ministry, SA=Subordinated Agency, OM=Other Ministry, n.a.=not available.

Source: Based on Richard Allen and Peter W. Kohnert, Anatomy of a Finance Ministry, 2010, unpublished draft.

Bundesministerium der Finanzen, Her Majesty‟s Treasury, Ministère du Budget, des Comptes publics et de la

Réforme de l'État.

13. Building around this strong core set of functions some adjustments in the responsibilities

could be undertaken to further strengthen the public finance focus of the Ministry. While the

analysis suggests that no major reassignment of functions across ministry boundaries is warranted, some

functions could be strengthened:

Core Public Finance Functions that are currently not assigned to MOPF:

The MOPF mandate regarding oversight of State owned enterprises is limited. While the

budgets of all state-owned enterprises (SOEs) are presented by the relevant sector ministry to

MOPF for approval, it is not clear whether these approvals are based on any overall policy of

financial targets.10

The exercise of ownership rights is the responsibility of the respective line

ministries, e.g. the Ministry of Transport, etc. The issue of SOE oversight is important in

Romania given the size of its public enterprise sector. There are about 200 SOEs, including

major ones covering railways, mining, electricity, gas and the postal service. Loss making SOEs

drain budget resources. The financial situation of loss making public enterprises may also create

contingent liabilities for the budget, for example, through the accumulation of arrears to the

budget and to private suppliers. In the medium term the MoPF could play a more direct role in

managing the state‟s assets, particularly its stakes in SOEs, and monitor associated liabilities.

Romania could improve the state‟s oversight of SOEs by centralizing this function in a single

Government body, which could be either a dedicated unit in the MoPF or a specialized agency

subordinated to the Ministry. Centralized oversight of SOEs is the foremost good practice

recommended in the OECD Guidelines on Corporate Governance of SOEs.11

This body would be

responsible for developing Government policy regarding the state‟s ownership function,

including by reviewing how SOEs contribute to public policy objectives, exercise oversight to

ensure that SOEs‟ are managed efficiently and in accordance with their defined functions, and

provide consolidated reporting on SOE‟s financial and non-financial performance. This function

would enable the Government to have a more accurate picture of the asset, liabilities, and

performance of SOEs. It woud help to ensure that the state maximizes its utility as an owner of

SOEs, while minimizing potential fiscal risks emanating from SOEs and reducing inefficient

expenditure in SOE subsidies that are not necessary to provide essential public services.

7 In Germany the tax administration is subordinated to state Governments.

8 H.M. Revenue and Customs was formed in 2005 as an integrated revenue authority, following the merger of the

Inland Revenue and H.M. Customs and Excise Departments. 9 The Financial Services Agency is the main regulator of financial institutions in the U.K.; in addition both H.M.

Treasury and the Bank of England have significant powers in this area. 10

This function is handled by a small directorate of asset management which also exercises the MOPF role of sector

or parent ministry in relation to 3 enterprises – the state bank, the state lottery and the state mint. 11

OECD, 2005, Guidelines on Corporate Governance of State-Owned Enterprises; see also OECD, 2010,

Accountability and Transparency: A Guide for State Ownership.

6

Functions that could be transferred to a subordinated agency:

It is noteworthy that among the ministries of finance reviewed here, Romania is the only

country where debt management remains part of the core Ministry. In Germany, France and

the UK the debt management function has been transferred to agencies (France: Agence France

Trésor, Germany: Finanzagentur, UK: Debt Management Office) allowing among other things for

more flexible remuneration needed to attract high caliber financial talent to this function

Authority of the MOPF in Government

14. Finally, while its functions provide the MoPF with many levers to support sound finance

management, it is important that these functions are reinforced by sufficient authority. It needs to

be recognized that financial management is not just a “technical” exercise. It is, even more than other

parts of the public administration, subject to political processes and pressures. For the Ministry of Public

Finance to play the role of the steward of state finances it has to be enabled to withstand political

pressures that naturally arise in the distribution of public funds. To achieve this, in many countries the

Minister enjoys a position of primus inter pares within cabinet. For example, the German federal budget

code provides the Minister of Finance with the right to veto Government decisions on financial grounds,

even against a cabinet majority. In other countries, like Slovakia or Bulgaria the Minister of Finance

serves ex officio as the deputy prime minister. Such a formal reinforcement of the authority of the

Minister, and by extension the Ministry, does not currently exist in Romania.

Organizational Structure

15. Consistent with prevailing administrative structures in Romania, the MoPF is led by two

levels of politically appointed leadership. Below the Minister, MoPF‟s portfolio is divided into three

functional areas, each headed by politically appointed state secretaries. In addition, there are corporate

services which report to the secretary general, the highest ranked civil servant in the ministry, and some

functions report directly to the Minister. The portfolios of state secretaries are clustered around broad

functions: i) Budget formulation and execution related functions, ii) Tax policy and iii) Debt Management

and EU Structural Fund Coordination. While the number of political appointees is similar to other

European countries, which had an average of 3.4 political appointees (Annex 2), their role in managing

the ministry differs from practices elsewhere, an issue that will be analyzed in more detail in the following

paragraphs.

7

Figure 3 Organizational Structure of the MoPF

SECRETARY OF STATE

MINISTER

SECRETARY OF STATESECRETARY OF STATE

Legend

Politically Appointed

Career Civil Service

MINISTER'S OFFICEMINISTRY'S COLLEGE

GENERAL DIRECTORATE FOR LEGAL ISSUES

GENERAL DIRECTORATEFOR IT ISSUES

GENERAL DIRECTORATE FOR

SYNTHESIS OF BUDGET POLICIES


BUDGETARY PROGRAMMING


ACCOUNTING METHODOLOGY

GENERAL DIRECTORATE

FOR TREASURY AND PUBLIC ACCOUNTING

DIRECTORATE FOR LEGISLATION

AND REGULATIONS IN THE FIELD OF STATE-OWNED ASSETS


GOVERNING DIRECT TAXATION

DIRECTORATE FOR LEGISLATION GOVERNING VAT


GOVERNING EXCISE DUTIES


ECOFIN PREPARATION AND COMMUNITY ASSISTANCE

DIRECTORATE FOR LIAISON WITH THE PARLIAMENT, TRADE UNIONS

AND EMPLOYERS' ASSOCIATIONS

DIRECTORATE FOR SCHENGEN AND POST-ACCESSION PROGRAM


GOVERNING THE CODE

OF TAX PROCEDURE

UNIT FOR COORDINATION AND CHECKING OF

PUBLIC PROCUREMENT

CENTRAL UNIT FOR

HARMONIZATION OF INTERNAL PUBLIC AUDIT

DIRECTORATE FOR

MACROECONOMIC ANALYSIS AND FINANCIAL POLICIES

DIRECTORATE FOR

INTERNAL PUBLIC AUDIT

CORPS OF ADVISORS

FOR EU AFFAIRS

GENERAL INSPECTION

CLASSIFIED INFORMATION

AUTHORITY FOR CERTIFICATION AND PAYMENT

GENERAL SECRETARY

GENERAL DIRECTORATE FOR HR MANAGEMENT

DIRECTORATE FOR INTERNAL BUDGETS AND ACCOUNTING

GENERAL DIRECTORATE

FOR INVESTMENT, PUBLIC PROCUREMENT AND

INTERNAL SERVICES

CENTRAL UNIT FOR

THE HARMONIZATION OF FINANCIAL MANAGEMENT

AND CONTROL SYSTEMS

DEPARTMENT OF

COMMUNICATION, PUBLIC RELATIONS, MEDIA AND

TRANSPARENCY


TREASURY AND PUBLIC DEBTS

DIRECTORATE FOR STATE AID,

UNFAIR AND REGULATED PRICES

GENERAL DIRECTORATE

FOR THE MANAGEMENT OF

SPECIFICALLY-REGULATED AREAS

OFFICE FOR PHARE PAYMENTS AND CONTRACTS

AUTHORITY FOR THE

COORDINATION OF STRUCTURAL INSTRUMENTS

CENTRAL UNIT FOR THE

COORDINATION OF PPPs

EX-ISPA

MANAGEMENT AUTHORITY

PUBLIC POLICY UNIT

SUBORDINATED AGENCIES:

1. NATIONAL AGENCY FOR FISCAL ADMINISTRATION

2. LAND RESTITUTION AGENCY3. NATIONAL FORECASTING COMMISSION

16. Romania’s administrative system lacks a high level non-political management structure

overseeing operational management, akin of the permanent secretaries in the UK or Germany. While there is a secretary general position, its role and responsibility is focused on administering the

Ministry. Unlike the permanent secretaries in the UK or Germany, in Romania this position lacks line

management functions and oversight over operational units. The politically appointed state secretaries

appear to perform fully operational line management functions. This feature has important effects on the

management of ministries, where potential for political influence on operational management is deeper

than in administrations that have senior level of management staffed with independent career civil

servants that serve as chief executives to the department. A sample of European countries averaged five

such senior management officials below the politically appointed leadership (Annex 2). For example, in

the UK the Permanent Secretary performs the role of a chief executive of the Ministry and he is supported

8

by 5 Managing directors that oversee the main departments of the Treasury. A similar tiered senior

management structure exists in Germany.

Table 2 Organization of Ministries of Finance – Romania and International Comparison France Germany United Kingdom12 Romania

Politically

Appointed

Leadership

2 Ministers Minister

2 Parliamentary State

Secretaries

Minister (Chancellor

of the Exchequer)

5 junior ministers

Minister

3 State Secretaries

Senior Management 1 General Secretary 3 (Permanent) State

Secretaries

1 Permanent

Secretary

1 General Secretary

Top Level

Operational

Management

17 Operational Units 9 Director Generals 5 Managing Directors 34 Operational Units

Management board Cabinet meeting Senior Management

Committee

Treasury Board13

Ministry‟s College

Main

Directorates/Groups

General Secretariat

Public Finance

Budget

Customs and Excises

State Modernization

Inspectorate General

Anti Fraud

Administrative

services

Fiscal policy

Budget

Customs and excises

Tax policy

Relations to federal

states

Financial markets

Management of real

assets,

Privatization

European affairs

Permanent

Secretary‟s Group14

Public services and

growth

Budget, tax and

welfare

International and

finance

Macroeconomic and

fiscal policy

see

Figure 3

Subordinate

agencies

n.a. Federal customs

administration

Federal office for

central services

Federal Central

Agency for Taxes

Center for IT services

Others15

H.M. Revenue and

Customs

Debt Management

Office

Office of Government

Commerce

see

Figure 3

Source: Based on Richard Allen and Peter W. Kohnert, Anatomy of a Finance Ministry, 2010, unpublished draft.

Bundesministerium der Finanzen, Her Majesty‟s Treasury, Ministère du Budget, des Comptes publics et de la

Réforme de l'État.

17. Consequently, the highest level of non-political line management and the departmental

structure of the MOPF are fragmented. Below the secretary level, the first layer of non-political

management comprises the heads of the first tier operational units. There are a total of 35 such first tier

operational units. Other European MOFs averaged about eight major top-level operational departments

(Annex 2). While MoPF‟s organizational structure is impacted by restrictions in the public administration

regulations, including staffing norms for types of administrative units, such as directorates general and

directorates, some organizational streamlining may be desirable not only to realize efficiency gains

through consolidation, but also to strengthen the management structure of the Ministry.

12

These figures are derived from the Annual Reports of H.M. Treasury and H.M. Revenue and Customs for 2008-9. 13

Comprises the Permanent Secretary, Managing Directors, Director of Human Resources and Finance, CEO of the

Office of Government Commerce, and four Non-Executive Directors 14

Comprises strategy and communications, finance and procurement, corporate services, internal audit, and legal

services 15

These comprise various agencies that are organized in the form of limited liability companies and are not included

in the federal budget. They are responsible for a broad range of tasks including the management of real estate, issues

related to German unification, postal services and telecommunications; and borrowing and debt management.

9

Size of the Public Finance Administration

18. The overall size of the core Ministry is broadly commensurate with its functions, although

some efficiency gains are possible. The Ministry currently comprises 1,867 authorized positions, of

which only 1,432 are filled. In particular, the number of authorized positions far exceeds those of other

(larger) European countries. 16

A comparison of the number filled positions also suggests that efficiency

gains are possible, in particular with further automation of business processes. Using other EU member

states as benchmarks a MOPF with around 1,000-1,200 would appear attainable without threatening its

core capabilities. Some opportunities in this regard are suggested below.

Table 3 Size of Core Public Finance Staff – Romania and International Comparison

France Germany United

Kingdom

Romania

Number of Staff Core Ministry

(Occupied Positions)

99117

1 ,339 1,240 1,432

Number of Staff Revenue

Administration

94,38418

111,988 19

89,000 25,394

Number of Staff Treasury Operations 51,86720

1,000 n.a. 5,139

Other Subordinated PF Agencies n.a. 1,110 330 n.a.

Total Number of Staff in Public

Finance Function (CM+SA)

146,858 114,098

90,570

32,013

PF Staff/ 1,000 Population 2.4 1.4 1.5 1.5

Population 61,414,062 82,110,097 62,277,097 21,513,622

Source: Bundesministerium der Finanzen, Her Majesty‟s Treasury, Ministère du Budget, des Comptes Publics et de

la Réforme de l'État.

19. Operational tasks related to budget execution and revenue administration have been

transferred to a subordinated agency (ANAF) which employs most of the public finance staff and

maintains a wide branch network across the country. Such a separation of policy formulation and

implementation tasks has advantages in terms of creating greater accountability and more focused

organizational arrangements. It is found across EU countries, for example Sweden and the UK, although

some countries, like France and Spain, have so far retained both functions in the central ministry. In

terms of size, these operational units vary greatly across countries driven by the size of the client base

they serve, i.e., number of tax payers, size and complexity of the budget and number of spending units.

ANAF, not surprisingly, is the smallest among the countries included here: It has 34,027 authorized

positions of which 30,533 are currently filled, including about 25,000 staff working in revenue

administration and more than 5,000 staff in the regional treasury offices. Efficiency measures, such as

public finance officials per population suggest that the overall size of the public finance administration is

in the same range as that of other European countries.

16

While there are some economies of scale in the management of a countries public finance system, smaller

countries tend to have smaller MOFs, for example: Sweden (Population: 9 Million, MoF: 470 staff), Finland

(Population: 5.2 Million, MoF: 420 staff), Norway (Population: 4.6 Million, MoF: about 300 staff).

17 Staff other than Direction générale des finances publiques and Direction générale des douanes et droits indirects.

18 Staff in Direction générale des douanes et droits indirects and Direction générale des Impôts, including the state

pension administration Le Service des retraites de l'État (SRE). 19

Of which 34,310 are in customs and the remainder in tax administration. In Germany, only the customs

administration is a federal agency, sub-ordinated to the Federal Ministry of Finance whereas taxes, including those

apportioned to the federal budget, are collected by agencies under the jurisdiction of the states, subordinated to state

ministries of finance. 20

Staff in Direction générale de la comptabilité publique.

10

Allocation of Human Resources across Functions

20. The MOPF, like other public organizations in Romania, is under pressure to deliver its

services with increasing efficiency, requiring that the allocation of its human resources be

determined on the basis of strategic priorities. There is an acute need to downsize the public

administration in the short term to contribute to the fiscal consolidation targets. Untargeted budget cuts

could endanger the functioning of expenditure management and revenue collection in the short run. The

following section offers some observations to inform this short term agenda and to support a more

efficient allocation of human resources in the context of a medium term strategic view of the Ministry‟s

operational and staffing needs.

Figure 4 Distribution of MoPF Staff across Functional Areas

Source: MOPF. World Bank Staff Estimates.

21. The allocation of staff does not appear to be fully aligned to current needs. Like in any

organization, the distribution of staff across MOPF is, at least to some extent, a result of organizational

history rather than a reflection of current needs. A realignment of human resources to strategic priorities is

desirable to achieve more efficiency and to strengthen support to core areas. The following observations

are made in this regard:

There are obvious areas that face declining business needs, allowing for a rebalancing of

staffing levels. For example, about 12 percent of the Ministry‟s staff is employed by the units

managing the EU pre-accession funds, an area that will wind down over the coming years.21

Equally, the Central Harmonization Unit (CHU) for internal financial control which performs ex

ante financial control in 26 line ministries will phase out by 2011. Together these units account

for about 200 staff or 15 percent of the total staff of MOPF.

The staff resources allocated to the fiscal policy area seem limited, given the importance of

this function. Currently, 41 staff are working on macro-economic policy. While this seems to be

adequate staffing for the current function performed in this area, the role and functions of this unit

21

Staff with experience in EU procedures may be absorbed in the unit responsible for post accession EU funds

where demand is on a steep ascending trend.

Fiscal Policy, 1.4% Budget Formulation, 9.6%

Budget Execution, 6.7%

PFM Policies and Controls, 14.1%

Coordination of EU Funds and Payment Certification, 10.6%Corporate

Services, 20.7%

Management and Mangement

Support, 3.9%

Pre-Accession Programs, 12.4%

Others, 6.2%

Revenue Policy, 7.5%

Debt Management, 8.2%

11

could be strengthened to include fiscal impact analysis, fiscal risk monitoring and analysis and

oversight of SOEs.

There may be room for efficiency gains in streamlining the corporate support services. At

about 20 percent, the administrative overhead of the ministry is sizeable. The largest corporate

services unit is the procurement unit which has 110 staff serving MOPF. This is a sensitive area

as other line functions depend on efficient performance of this unit and understaffing may create

bottlenecks for the functioning of procurement. However, the Ministry may explore ways to

simplify procedures and processes which could allow for a significant reduction in this unit.

Other corporate services, IT most importantly, may have to be staffed up, as adequate IT support

and management will become even more critical as the Ministry modernizes its operations.

More reliance on information technology to automate routine tasks could free up resources

to be deployed for higher value analytical services. Large numbers of MOPF and ANAF

employees continue to perform essentially clerical tasks, including manual verification of

transactions. For example, regularly scheduled debt service payments (internal or external) are

labor intensive; the process is paper based, requiring multiple levels of approvals within the

MoPF. In the core Ministry, transaction-intense areas with manual processes include, inter alia,

the debt management department (in particular the back office function) and the budget execution

area (particularly the reporting process). In ANAF, potential gains from automation are even

more significant given its largely transaction related functions. The review of core functions,

namely budget execution and revenue administration will address this issue in more detail.

In addition to possible adjustments in the distribution of staff, skill renewal is required to

enable staff to respond to changing business needs. The increasingly complex tasks performed

by the MOPF require a broad range of technical, analytical and managerial skills. In some areas

capacity development should be a key focus to support change in the functional processes. For

example, this review suggests that capacity to carry out more policy oriented budget analysis is

critical to keep pace with the demands of a modern budget function.

Reform Options:

Assignment of Functions

22. The analysis suggests that no major reassignment of functions across ministry boundaries is

warranted. Some options for minor adjustments to strengthen the focus of the MoPF around core public

finance functions include:

Strengthening of SOE oversight function. A financial performance framework should be

developed to cover all public enterprises. MOPF should take the lead in the development of this

framework, in consultation with the Ministry of Economy and relevant sector ministries.

Consider creation of debt management agency as a long term strategic goal.

12

Organizational Structure

23. A consolidation of the first tier management structure could be considered to enable more

streamlined operations and better coordination across functionally related areas. There is no one

right way or international best practice to structure a ministry of finance that can be copied with

universally positive results. Rather, the organizational structure will evolve with MOPF objectives and

reflecting the uniqueness of its history and national context, as well as specific requirements realted to the

management and control of EU funds. Several options exist for the structure and portfolio of directorate

generals and their allocation across different secretaries of state. Based on discussions with MOPF

leadership options for a consolidation of the senior line management structure with fewer first tier

organizational units structured around core public finance functions include the following (some options

for organizational structures are included in Annex 3):

Creation of a DG Budget Formulation, overseeing units for budget synthesis, budgetary

relations with the EU and expenditure programming, monitoring of budget execution

Creation of a DG Budget Execution and Public Accounting, overseeing units for the treasury

operations oversight, budget execution monitoring and cash release (credit opening), the

accounting methodology and financial reporting functions, corporate accounting

Creation of a DG Revenue Policy and Legislation, combining the existing directorates related

to tax legislation, administration, customs and excises

Creation of a DG European Affairs, combining the departments for ECOFIN relations, Post

Accession and Schengen.

Allocation of Human Resources

24. The following recommendations are offered:

Permanently reduce the number of authorized positions of the core MOPF to the current staffing

level, i.e., around 1,400, as a first step in consolidating the staffing level of the MOPF.

If further cuts are needed that could be targeted to areas that face declining business needs and/or

do not constitute core public finance areas such as EU pre-accession programs, preventive

financial control.

Review workload and processing with a view to streamlining corporate services, in particular in

the procurement unit.

Box 1 Performance Management of State Owned Enterprises

France: The French Government Shareholding Agency (Agence des participations de l'Etat), an agency subordinated to the treasury department in the Ministry of Economy oversees the SOE sector in France. Acting as an interface between companies and the Government as a shareholder, the APE looks after the following aspects: Monthly reporting implementation, Regular financial book meetings and preparation of important milestones, Audit reviews, special oversight of capital operations.

New Zealand: The New Zealand Crown Ownership Monitoring Unit (COMU). This unit operates as a unit of the New Zealand Treasury (Ministry of Finance). Under the State Owned Enterprise Act 1986 the Minister of Finance and the Minister of State Owned Enterprises are the joint shareholders in all public enterprises. Enterprises are required by the law to operate on as a successful business and have full responsibility for decisions on resource use, and for pricing and marketing of the goods and services they produce. Thus they have full managerial autonomy and operate at “arms length” from the government. An annual statement of corporate intent (SCI) covering financial and other performance targets is negotiated with each enterprise. Ministers may issue directives to enterprises but such directives must be published. COMU assists the ministers in these negotiations, monitors the performance of enterprises during the year and advises ministers on the appointment of board members.

13

Further automate transaction processing, in particular in the debt management department (back

office function), the budget execution function.

Areas with potentially increasing staffing needs include fiscal policy formulation and macro-

economic analysis, Information Technology, and EU structural fund coordination.

IV. REVIEW OF CORE FUNCTIONS AND CAPABILITIES

Budget Formulation

25. Romania’s has a strong legal framework for budget formulation, but it will be important

that the recent changes introduced by the FRL are effectively implemented. The legal framework is

established by the Law 500 on public finances which was passed in 2002 and has recently been

complemented by the new Fiscal Responsibility Law. Despite minor inconsistencies between the laws,

which are discussed in more detail below, the legal framework clearly defines the budget calendar, related

procedures and the role of the main players involved, including the MoPF, Line Ministries, Parliament

and a newly established Fiscal Council. Procedural and institutional changes introduced by the FRL, most

notably the preparation of Fiscal Strategy with binding spending and deficit commitments and the

establishment of the independent Fiscal Council to provide external scrutiny, do have the potential to

strengthen the foundations for prudent fiscal management. However, it appears too early to assess whether

these changes are a success or even if they have been fully implemented. It will be important to gradually

adapt actual practice to the new requirements.

Organizational arrangements, roles and responsibilities for budget preparation

26. Within MoPF there are three core units involved in budget preparation:

The Macro-economic Analysis and Financial Policy General Directorate (MAFPGD), which is

responsible for macro-fiscal planning, most importantly the preparation of revenue estimates. The

DG also prepares the convergence report for the EC.

The Directorate General for Budget Synthesis which is responsible for determining aggregate

allocations across different government functions and organizations. This DG has been charged

with leading the preparation of the Fiscal Budgetary Strategy required under the FRL. As

discussed below it manages the cash releases and therefore plays a key role in budget execution

and cash planning in addition to its functions in expenditure programming and budget

preparation.

The Directorate General for Expenditure Programming which is responsible for compiling,

reviewing and reconciling budget requests from line ministries. It is organized along portfolio

lines with directorates assigned to economic, social and administrative sectors, and a separate

directorate overseeing capital expenditure.

The two latter Directorates-General report to the State Secretary responsible for budget management. The

MAFPGD currently reports to the Minister.

Budget Credibility and Macro-Fiscal Discipline

27. The MoPF is responsible for the preparation of the Macro-Fiscal Framework and plays a

key role in setting the overall fiscal policy of the Government. The macro-fiscal framework is built on

official four-year (t+3) macro-economic projections, including GDP, sectoral demand, inflation,

unemployment, wage growth, external balances and exchange and interest rates, which are provided to the

MoPF by the National Forecasting Commission, an agency subordinated to the MoPF. Individual tax and

non-tax revenues are projected from GDP-based estimates of major taxes with inputs from the ANAF. In

14

conjunction with a deficit target, the revenue projections establish the overall resource envelope available

for budgetary expenditures. These are prepared by the Macro-Economic Analysis unit which is

technically strong, not only in terms of forecasting but also in terms of analyzing the overall macro-

economic environment and identifying available fiscal policy choices. The unit, for example, prepares the

Convergence report to the EC which contains detailed policy and risk analysis which could inform the

annual budget process. The framework is typically calibrated against IMF, EC and World Bank

benchmarks, especially during the current IMF/EC adjustment program.

28. Establishing control over consolidated balances remains a key priority. While cyclical in

nature the current fiscal crisis has structural roots. Romania's economy boomed in the run-up to its EU

accession in 2007, but high growth rates were associated with rising fiscal imbalances which deteriorated

as the economy weakened with the onset of the global economic crisis in 2008/09. The years before the

crisis saw a pro-cyclical expansion of expenditures that exceeded increases in revenue despite the robust

economic growth of those years. Government spending doubled between 2005 and 2008 in nominal

terms, bringing the Government‟s share of GDP to 37 percent, up from 32.2 percent in 2005. This not

only undermined the Government‟s fiscal position but also contributed to the overheating of the economy.

A public sector wage hike combined with an expansion of public sector employment contributed to

mounting expenditures. The wage bill accounts for 23 percent of Government expenditures, among the

highest in Europe, equal to approximately 9% of GDP. As a result, Romania entered the crisis with an

already high fiscal deficit of 4.8 percent of GDP which deteriorated further during the crisis and continues

to be under pressure in view of the slow economic recovery.

Figure 5 Fiscal Position

Source: IMF. World Bank.

Figure 6 Deviation between Budget and Out-turns

32.2 32.335.4 37

39.2 39.4

31.4 31.6 32.3 32.2 31.8 31.3

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010

Pe

rce

nt

of

GD

P

Consolidated Government Expenditure

Consolidated Government Revenue

-0.8 -0.7

-3.1

-4.8

-7.4-8.1

-0.6

-2.1

-4.3

-6.9

-5.4

-3.3

-10

-8

-6

-4

-2

0

2005 2006 2007 2008 2009 2010

Pe

rce

nt

of

GD

P

Fiscal Balance

Structural Fiscal Balance

2.5%

-7.7%

-17.0%

6.5%

-5.9%

-10.7%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

2006 2007 2008

Deviation Revenue (%)

Deviation Primary Expenditures (%)

15

29. Prudent Macro-Fiscal Management has been undermined by weak budget credibility. Romania‟s actual budget, as implemented deviates significantly from the original budget both in terms of

the fiscal aggregates and composition of the budget, meaning the approved budget is not a credible

document. The causes of deviations are unrealistic revenue and expenditure estimates, substantial

supplemental budgets (e.g. five in 2008, four in 2009), which are often due to spending mandates created

by laws adopted outside the budget process with insufficient attention to their fiscal implications. The

deviations cover a wide range of expenditure items (Table 4). In turn, the lack of budget credibility has

undermined fiscal transparency and predictability and it has contributed to the rise of fiscal imbalances as

the fiscal position tends to deteriorate during the execution of the budget.

Table 4 Deviations across Expenditure Items

2006 2007 2008

Functional

Public authorities 33.3 -3.7 -3.4

Defense -7.1 -28.6 -23.1

Public Order 4.2 0.0 4.2

Education 8.1 -19.2 -25.0

Health 6.1 -5.1 -15.6

Social assistance, pensions 2.1 0.0 -5.0

Environment -25.0 0.0 0.0

Industry 50.0 0.0 0.0

Agriculture 0.0 -27.3 -50.0

Transport, Communication 20.0 11.1 2.6

Economic

Goods and services -3.1 -16.4 -19.8

Wages 45.5 28.1 29.2

Capital spending 34.4 0.0 -29.7

Subsidies 10.0 30.8 0.0

30. Fiscal profligacy is a result of institutional weaknesses in the budget system, in particular

the absence of a strong top down budget process. The budget process, at least prior to the introduction

of the new legal framework, has been largely driven by demands for spending, as opposed to resource

availability. While technically sound, revenue estimation has reportedly been subject to upward political

pressures to allow for artificial increases in the available resource envelope. The estimate is also used as a

revenue target for the ANAF and as such it is deliberately optimistic. Line ministry budget requests did

not typically comply with the ceilings issued by MoPF based on the available resource envelope. Instead,

line ministry‟s budget requests would often exceed affordable spending limits. This practice would not

only result in time-consuming negotiations between MoPF and line ministries about funding levels, but

trigger further upward revisions of aggregate expenditures to accommodate requests. A notional medium-

term expenditure framework is included in the budget documents but the forward estimates do not

constitute binding expenditure limits and are not reconciled with the estimates used during the annual

budget process. Consequently, the actual budget remains a strictly annual affair only weakly related to a

medium term fiscal outlook. In the absence of a credible medium term budget strategy to guide annual

budget decisions, fiscal policy will continue to deviate from the medium term sustainable path.

31. As many of these weaknesses in the institutional framework have been addressed by the

FRL, it is now essential that it be strictly implemented. While fiscal policy is currently anchored in the

Source: MOF. World Bank.

16

IMF/EC-supported adjustment program, which provides an additional external constraint, it is vital to

build domestic institutional checks to ensure that macro-fiscal discipline is maintained beyond the current

circumstances. The FRL has established stronger centralized requirements for aggregate fiscal discipline,

including commitments to medium term macro fiscal targets that are endorsed by both the executive and

Parliament. It also strengthened external validation through the establishment of a functionally

independent Fiscal Council. These provisions are highly appropriate and enforcing them will be critical,

but not easy. Ensuring that the FRL is adhered to will require firm commitment from the highest levels of

government including the Prime Minister, Cabinet, and Parliament, not just the Minister of Finance.

Reform Options:

1.1 Institutionalize Prudent Revenue Estimation:

32. Realistic revenue forecasting is the lynch pin of credible budgeting. While unforeseen

fluctuations are always possible, especially given the current macro-economic volatility, it is essential that

the revenue forecasts are prudent, technically sound and independent from political interference. These

principles are reflected in the financial responsibility laws of a number of countries, which in some cases

also remove the Minister of Finance from any involvement in the macroeconomic and fiscal forecasts.

Box 1 below provides some examples.

33. The fiscal policy formulation function should be strengthened. The macro-economic DG in

the MoPF has strong technical capabilities to prepare sound forecasts and also to advise the Ministry and

Government more broadly on the appropriate fiscal policy stance and emerging fiscal risks. To strengthen

fiscal policy formulation, the Directorate General for Fiscal Policy could be subordinated directly to

Minister. Finally, the FRL requirement for the Fiscal Budget Strategy (FBS) to include a statement signed

by the Prime Minister and Minister of Finance attesting to the fairness and completeness of the

information included in the FBS should strengthen the Minister‟s ability to resist pressures to increase

revenue estimates to an unrealistic level.

Figure 7 Proposed Organizational Structure of Directorate General for Fiscal Policy

34. External validation and contestability of the macro-fiscal framework can provide an

important check. The requirement in the FRL for the independent Fiscal Council to analyze and

comment on the official macro-economic and budget forecasts addresses this concern. It is important that

the Fiscal Council have adequate technical staff, separate from the MOPF to carry out this task. It would

also be desirable to publish revenue forecasts together with underlying assumptions (economic growth,

interest and exchange rate, etc.) including comparisons with independent market estimates and those

provided by the National Bank and IMF. Finally, quarterly public reporting of updated forecasts

incorporating sensitivity and fiscal risk analysis could further increase transparency and contestability,

thereby strengthening the validity of the macro-fiscal projections.

Directorate General Fiscal Policy

Macro-Economic Forecasting and Policy Research

Fiscal Risk Analysis and

Monitoring

Fiscal Impact Analysis SOE Oversight

17

1.2 Institutionalize Top Down Budget Process

35. Strengthening the top-down elements of the budget process can help to achieve aggregate

fiscal control and to drive expenditure prioritization. Top-down budgeting essentially divides the

budget process into to a number of discreet and sequenced decision points. First, a binding decision is

established on the available resource envelope. This decision is taken based on fiscal aggregates that are

consistent with macro-economic stability regardless of sectoral spending needs. Second, once the

aggregate expenditure level is determined broad strategic, inter-sectoral allocations are decided and

translated into (multiannual) ceilings for individual sectors. These decisions are informed by Government

policy priorities, as well as by the cost of existing policy commitments which will constrain the room for

re-prioritization in any given year. Finally, detailed decisions about allocation between different programs

and activities are determined (by the line ministries) within the established sectoral ceilings. It is clear that

under such a system the budget preparation is driven by what is fiscally affordable with allocative

decisions at each decision point being constrained by previously established expenditure limits. This

Box 2: International Experience in Ensuring Independent and Professional Revenue Forecasts

Different approaches exist to ensuring prudent revenue estimates. Some countries, like the Netherlands, Austria, Slovenia, Belgium, Canada, Chile rely on external (in some cases consensus) estimates for their budget. In others, like New Zealand, Germany and the UK, the Government remains responsible for the preparation of the estimates but there are high degrees of external validation and contestability.

New Zealand: The FRL requires the Treasury (MOF) to prepare regular three year economic and fiscal forecasts using its best professional judgment. These forecasts are included in key public documents such as the Budget Policy Statement (BPS) which is published before each budget and the Fiscal Strategy Report (FSR) which is published along with the budget and with the pre-election update published generally four to six weeks before each general election. The Minister of Finance may not influence these forecasts. However the Minister affirms that all government policy measures have been communicated to the Treasury and the Secretary of Treasury affirms that Treasury has used its best professional judgment in preparing the documents.

Austria: All major economic assumptions used in the budget process are prepared by the independent Institute for Economic Research. The institute is funded by the federal and state governments and by the business and trade union sectors and functionally independent from the Government.

Chile: The Minister of Finance appoints two expert panels who prepare the economic forecasts on which the budget is based. The first panel comprises 14 expert economists and their separate forecasts are averaged after the two “extremes” are discarded. The second panel is solely concerned with forecasting the price of copper, which given the importance of copper production in the Chilean economy has major budgetary implications. This panel, which also includes industry representatives, operates in a similar way to the first panel.

Canada: Department of Finance officials meet with the chief economists of major banks and private sector economic forecasting firms to agree on a set of economic assumptions used for projecting fiscal aggregates over a five year period, based on existing policy assumptions. The DoF makes two adjustments to the private sector estimates: 1) a safety margin for fiscal prudence is build into the assumptions, meaning the assumptions are adjusted downwards, based on a risk analysis in regard to major assumptions GDP and interest rate and 2) an annual contingency reserve is programmed to provide an extra measure of back-up against errors in the economic forecasts.

United Kingdom: The Finance Act 1998 requires the National Audit Office to examine and report on conventions and assumptions underlying the treasury’s fiscal projections, to ensure that the assumptions used are reasonable and prudent. The examination includes a three-year rolling review of the assumptions previously audited. Following the recent election, the UK Government assigned forecasting responsibility to the newly established Office of Budget Responsibility which is separate from the treasury but part of the Government.

18

requires that the decisions made are respected and adhered to by all players involved in the budgeting

exercise. Examples of well established top-down processes are given in Box 2.

36. A robust cabinet level decision-making process reinforced by a strong MoPF is required to

make the top-down budget process work in practice. The FRL and Fiscal Budget Strategy (FBS) aim

to reinforce the top-down elements of the budget process. Both the determination of the overall spending

limit and the allocation of any available fiscal space (or indeed spending cuts) need to be supported by a

collective commitment by a politically strong alliance of players in the budget process to adhere to agreed

decisions. A structured process of cabinet or sub-cabinet meetings can help to facilitate a collective

bargaining process that formalizes the decision points in the budget process. The Swedish budget retreat

provides a good example of such a coordinating mechanism (Box 2).

37. Top-down budgeting would also require the MoPF to have the authority to enforce fiscally

responsible decisions. This is needed, for example, if budget requests exceed the ceilings issued by

MOPF. The FRL provides that MOPF may reject and unilaterally adjust any budget requests submitted by

sector ministries which are not in accordance with the FBS. Enforcing this provision, together with

realistic and credible budget ceilings, will be crucial to making the intended top-down budget process

work in practice.

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1.3 Monitor and Control Fiscal Impact of Legislation

38. Legislation with significant budgetary implications is routinely passed outside the budget

process and its impact needs to be monitored and managed to protect fiscal sustainability. Such

legislation, for example covering wage or pension increases has in the past undermined responsible

budgetary management. This issue is not unique to Romania. A recent OECD report cites that about 80

Box 3: International Experience in Top-Down Budgeting

Sweden: Sweden undertook significant fiscal governance reforms during the major consolidation effort after a financial crisis in 1993 caused the Government deficit to exceed than 12% of GDP. Today Sweden is widely considered to have one of the strongest fiscal governance systems in Europe with impressive results: Between 1998 and the onset of the recent crisis in 2009, the Swedish government run surpluses every year, except for 2003 and 2004. Sweden’s annual budget is anchored in a medium term framework with firm, nominal spending limits for 3 years (current budget year and two out-years). Every year the overall expenditure limit for the third year and allocations for 27 expenditure areas are collectively decided based on a proposal by the Minister of Finance during a two day cabinet budget retreat, which takes place in mid March. Changes to sectoral expenditure ceilings need to be accommodated within the aggregate spending limit and have to be agreed upon by all Cabinet members, including those that absorb compensatory cuts.

Canada: At the height of the Canadian debt crisis in 1994, the country had a budget deficit of around 9 per cent of GDP. The following year, the Government unveiled what became known as the "bloodbath budget", in which departmental spending was reduced by an average of 20 per cent. By 1997 the deficit had been eradicated. However, health and education budgets were slashed and thousands in the public sector lost their jobs. In this process Canada transformed the way spending rounds were carried out. With the prime minister's support, the treasury board issued target cuts for each department. Departments in turn proposed how to achieve these cuts and a committee of four senior ministers reviewed the claims of each department before their budgets are agreed.

South Korea: Budget reforms in South Korea were initiated in 2004. While the financial crisis in the late 1990s triggered the initial impetus to reform public finances, fiscal reforms in Korea were driven by longer term concerns, namely the need to realize the fiscal space needed to manage rising social spending requirements. The reform put heavy emphasis on introducing top down budgeting elements and a medium term expenditure framework to rationalize the allocation process. This included instituting the issuance of ceilings to line ministries at the beginning of the annual budgeting process to align budgeting closer to both fiscal realities and government priorities. Previously, line ministries submitted their budget requests without regard to and which typically resulted in requests of about 30% above the previous year and 4-5 times higher than what was affordable within the increments in the resource envelop. The introduction of ceilings has brought budget requests to more realistic levels.

Netherlands: The Dutch system combines elements of top-down budgeting with bottom-up budgeting. Medium Term fiscal policy is set in the coalition agreement closed at the beginning of a Government term. It contains i) binding four year expenditure limits that are determined (by the independent Netherlands Bureau of Economic Policy Analysis, the so called Tinbergen Institute) and ii) indicative spending allocations for the main budget accounts. These initial limits are set in real terms and translated into nominal terms at the beginning of the fiscal year. Concurrently, Line Ministries submit the Policy Letters to the Ministry of Finance containing baseline funding requests for the continuation of existing policies, policy priorities for the next year and request for funding of new initiatives. These requests are reconciled by the MOF with the fiscal plan of the coalition agreement. The MOF determines whether room for new initiatives is available or if expenditure cuts are needed and prepares a Framework Letter that is submitted to Cabinet in April. The Cabinet discussion culminates in binding decision on expenditure limits for the 25 budget chapters which are communicated to Line Ministries in early May in the Letters of Total. Within these ceilings Line Ministries prepare the detailed budget plans which are submitted back to MOF in June.

20

percent of public resources are typically committed outside the budget process. However, it is important

that the legislative process gives due consideration to affordability and fiscal impact.

39. The existing framework for fiscal impact assessment of new legislation should be enforced

in practice. Romania has a formalized system for providing fiscal impact analysis as part of the

substantiation note that is attached to all legislation initiated by the Government, but these have not

effectively constrained fiscally unsustainable legislation from being passed, in some cases initiated by the

legislature. The fiscal impact analysis should be focused on the budgetary implications as opposed to

broader regulatory impact assessments which would also consider boarder economic costs associated with

legislation. The FRL also provides that Parliament may not change the FBS to increase the level of

expenditures in the consolidated budget nor to increase the level of the deficit. A number of steps could

be taken to consistently implement the existing provisions.

First, the Government General Secretariat (which is subject to a separate functional review)

should ensure that only compliant draft legislation is tabled in Cabinet meetings.

Second, the MoPF should assign the budget department and the Macro-fiscal analysis unit with

the review of draft legislation before sign off. Efficient review procedures should be established

that identify legislation with major fiscal impact (with a specific threshold value) which would

require more comprehensive and detailed costing analysis. Legislation with minor fiscal impact

should not be subjected to the same rigorous analysis to avoid clogging the system. Initial

preparation of detailed costing could be made the responsibility of the initiating institution, with

external support as needed; but it should be reviewed and approved by the MoPF.

Third, in addition to costing the substantiation note should also be required to identify financing

sources or off-setting expenditure cuts to comply with the fiscal neutrality condition.

Fourth, the fiscal impact analysis should be made publicly available through appropriate means,

for example the MOPF or GSG website.

Fifth, the Minister of Public Finance should be assigned formal veto power to suspend any

legislation that does not comply with the fiscal neutrality clause of the FRL. This does not

constitute an infringement of legislative powers because the legal grounds for such veto power

are provided by the FRL, which allows the MOPF to over-ride other laws that trigger budgetary

expenditures inconsistent with the FBS, and a veto right would merely formalize this provision.

Fifth, the Parliament should change its internal rules and procedures to make them consistent with

the new FRL provisions

21

Strategic Expenditure Prioritization

40. With revenues expected to remain below pre-crisis levels for some time, it is critical to

improve prioritization and targeting of spending to sustain the consolidation effort while ensuring

adequate funding for key Government priorities. A recent public expenditure review carried out by the

World Bank indicates that there is significant room for expenditure realignment and rationalization to

eliminate low priority spending in order to generate savings that can be directed to priority, high-return

investments to boost productivity and competitiveness, and to targeted social assistance. It notes an

oversized and inefficient public administration, an un-restructured public enterprise sector draining

considerable resources and weak links between spending increases and outcomes in the education, health

and transport sectors. It identifies a number of opportunities for reprioritizing expenditures, as

summarized below:

In the education sector, there is scope to increase class sizes (that declined in view of a shrinking

student population) and thus reduce the number of teachers, consolidate schools, and thereby to

reduce capital and recurrent expenditure.

In the health sector, recurrent spending is high, accounting for almost half of the Government

goods and services expenses. Spending is biased towards hospitals at the expense of preventive

and primary care and there is scope for increased user charging.

Box 4: International Experience in Fiscal Impact Assessment of New Legislation

Canada: Canada has well developed procedure to estimate the fiscal impact of new regulatory initiatives. The process is based on the 1986 Regulatory Process Action Plan. The procedure is based on a layered system with different requirements for high and low impact legislation. The initiating institution is responsible for the preparation of the analysis and the treasury board ensures compliance and provides technical guidance and advice (http://www.tbs-sct.gc.ca/ri-qr/index-eng.asp).

Germany: The costing of new legislation is required under the general government rules of procedure since 1996 (further revised in 2000). The costing requires the quantification of i) budgetary costs, including direct costs (e.g. increased entitlements) and administrative costs and ii) compliance costs for citizens and businesses. The preparation of cost estimates is the responsibility of the initiating institution, but they are reviewed by a designated entity in the Federal Ministry of Finance. The ultimate decision rests with the Cabinet.

US: To assist the Budget Committees and the Congress with enforcement of the budget resolution, the non-partisan Congressional Budget Office (CBO) analyzes the spending or revenue effects of specific legislative proposals. It prepares cost estimates of pending legislation and tracks the progress of such legislation in a scorekeeping system. CBO's cost estimates and scorekeeping system show how individual legislative proposals would change spending or revenue levels under current law and help to determine whether those budget effects are consistent with the targets in the Congress's most recent budget resolution. As required by the Unfunded Mandates Reform Act of 1995, CBO includes in cost estimates an assessment of whether legislation contains federal mandates and provides an estimate of the costs imposed by those mandates on state, local, and tribal governments and the private sector. In 2009, CBO completed approximately 480 federal cost estimates as well as about 420 estimates of the impact of legislation on state and local governments, including the identification of any unfunded mandates contained in such legislation, and about 420 estimates of the impact of any unfunded mandates on the private sector.

United Kingdom: In 1998 the UK established the Regulatory Impact Unit in the Cabinet Office responsible for carrying out impact assessments for proposed legislation. The system has since undergone some restructuring to streamline procedures and the unit has been renamed to Impact Assessment unit. Costing is now only required for legislation with an expected fiscal impact exceeding a threshold value of 5 Million Pounds.

22

In the transport sector, there are many uneconomic or unnecessarily large capital projects and

large subsidies to rail companies which could be reduced.

In the agriculture sector, funds should be reoriented to support medium sized farms and rural

infrastructure. Significant savings could be achieved by phasing out several national programs

which do not improve farmers‟ welfare nor the competitiveness of the agriculture sector.

The public pension system is financially unsustainable and has excessively generous provisions

for retirement age, indexation of pensions and special conditions granted to certain privileged

groups.

The capital project portfolio is weakly prioritized and “overloaded” with inadequately funded

projects.

41. The budget preparation process is largely focused on costing of inputs and has had limited

impact in supporting strategic reprioritization. The budgetary dialogue between MOPF and sector

ministries has been about perceived funding requirements for salaries and operating expenditures, rather

than on how this funding might reflect government policies and priorities, in other words “performance”.

Past attempts to link performance with the budget through a program based budget approach have had

limited success. MOPF‟s role in reviewing and assessing budget submissions is hampered by insufficient

technical capacity to challenge line ministries, and limitations in the information submitted, including the

lack of feasibility studies for investment projects. While the annual budget law includes an annex with

information on ministry objectives and associated performance indicators, the use of this information in

formulating budget allocations is limited. Since 2006 all ministries have formally prepared strategic plans,

under government directives managed by GSG. But it appears that they have not been used to determine

expenditure priorities, partly because they are finalized only in June, too late to affect the budget

allocation process and also because many are unaffordable, lack internal prioritization, are not based on

any analysis or evaluation of policies and contain poor quality indicators. Demand from the Minister of

Public Finance and Cabinet for policy oriented budget analysis and advice appears to have been limited,

reflecting the lack of focus on policies and prioritization at the centre of government (see functional

review on the Centre of Government). This has resulted in a MOFP whose budget arm lacks policy

analysis and expenditure evaluation skills. Moreover, discussions with staff of the budget directorate

general of MOFP indicate that some staff do not consider a “challenge function” to sector ministry

expenditures an appropriate role for the budget department.

42. The FRL will require the nature of the budgetary dialogue to change. The FBS is required to

explain “the expenditure priorities and the substantiation of such expenditures in detail, including an

explanation of the way in which the government intends to improve its policy, efficiency and

effectiveness”. In addition, the public investment program is required to “include priorities and their

substantiation”. Thus, the new FRL clearly requires that expenditure prioritization issues be addressed in

the FBS.

43. The first FBS presented in June 2010 set out fiscal targets for the 3 years up to 2013 and

outlined the fiscal consolidation program needed to achieve these. To achieve the fiscal targets, the

FBS confirms the general 25 percent reduction in civil service wages and the 15 percent reduction in

public pensions which had to be repealed due to a ruling of the constitutional court. It also includes

further reform plans of the public pension system included in a new draft pension law, a strategy for the

rationalization of hospitals and increased user charging for hospital services. Beyond this it does not

appear that the strategies for achieving these fiscal targets have been determined, and indeed the FBS,

perhaps reflecting the strong involvement of sector ministries in its preparation appears to envisage

increased activity and expenditures in a number of areas for which no offsetting savings appear to be

identified. This confirms the need for an in-depth analysis of sector ministry expenditures.

23

Reform Options:

2.1 Refocus Budget Dialogue on Policy and Efficiency Issues:

44. Building on the 2011 FBS, further expenditure prioritization and rationalization should be

pursued and a budget process should adopted to regularize such efforts. Improving expenditure

prioritization in Romania could be supported by a number of steps, many of which have already been

stipulated in the FRL:

First, the FBS should be used not only as a tool to instill fiscal discipline but also to align aggregate

expenditure allocation to Government priorities. The top-down budget process outlined in the

previous section will be conducive to achieving this objective, but it needs to be driven from the

political level through a robust cabinet level decision making process, for example by reinstituting the

Cabinet Strategic Planning Committee.

Second, the review of the capital budget currently underway should be used to underpin a

rationalization of the project portfolio. Building on this, portfolio management should be strengthened

with the MoPF budget department performing an important review function to ensure affordability of

approved project over a multi-year period and to avoid renewed overcrowding of the project portfolio.

In this context utilization of EU funds for capital financing should be considered as appropriate with a

priority given to provision of co-financing.

Third, line ministry budget requests should contain a separation of baseline funding required to

continue existing policies (based on previous year‟s forward estimate) and funding requests related to

new initiatives. Line ministries should also be required to identify options for savings and efficiency

gains in the baseline allocation while being allowed to retain at least some of these savings to finance

new initiatives.

Fourth, periodically, more systematic and thorough baseline reviews could be conducted to help

identify savings that can be reallocated to priority programs. (Box 4 provides international examples

of such reviews). Such spending reviews could be initiated for the 2012 budget, building on the

analysis of the World Bank‟s PEIR. The process should be led by the budget directorates-general of

MOPF with the active involvement of CGS and of sector ministries and agencies.

Fifth, the development of budget requests and their link to policy priorities could be reinforced

through an invigoration of the sector ministry plans, recognizing that prime responsibility for good

expenditure prioritization rests with sector ministries, with MOFP exercising a “challenge” function.

This redevelopment of strategic plans will require management both by GSG and MOPF.

24

Fifth, it is important to cultivate demand by decision makers, including the Minister of Finance, Line

Ministers and Cabinet for policy oriented budget analysis from the MoPF budget department and

financial management units in line ministries. This could be facilitated by redefining the specific

products and services the budget department delivers to assist the decision making during the annual

budget process, for example budget memoranda for each major budget account Budget department to

support decision making during the annual budget process. Such memoranda should analyze the

sector challenges, policy objectives, and performance track record (both financial and non-financial).

Recommendations regarding spending increases and cuts should be based on this analysis.

Finally, once meaningful strategic plans are developed, Romania should, as recommended by the

IMF, move to introduce a performance oriented budgeting system, drawing on the experiences of

Box 5: International Experience in Spending Reviews

Some countries have made regular selected reviews part of their budget procedures, where programs, including baseline allocations- are thoroughly reviewed once every few years, others perform comprehensive reviews on a more ad hoc or need basis. Spending reviews are often led by the Ministry of Finance in terms of the overall methodology and guidelines but rely heavily on the line ministries themselves since they have a superior understanding of their own operations.

Canada: The Expenditure Management System, implemented in 2007, is the framework for developing and implementing the government's spending plans, and encompasses a number of elements and activities (e.g. planning, evaluation, etc.) that guide decisions on the allocation of resources. Its various elements provide the information necessary to support the development of spending plans, the Government's priority setting process. A key pillar of this system is strategic reviews of key spending programs. All institutions receiving central appropriations are required to periodically (4-year cycle) undertake a strategic review covering 100 percent of their direct program spending and operating costs of their major statutory programs. Through these reviews organizations are required to identify reallocation options totaling 5% from their lowest-priority, lowest-performing program spending. Organizations can identify more potential savings in order to provide a greater range of options.

New Zealand: The new government elected in November 2008 has undertaken two major initiatives. First, line by line expenditure reviews were carried out by chief executives of each ministry and agency, feeding into the May 2009 budget. These reviews were aimed at identifying savings that could be freed up for the 2009 budget. The review aims to identify programs that are inconsistent with the new government’s priorities and should be discontinued, programs and expenditures that are not effective or efficient and areas where performance information is insufficient to make judgments about efficiency and effectiveness. The reviews were undertaken by chief executives and then provided to their minister for consideration. A panel of chief executives also reviewed the completed reviews to ensure that they meet the requirements laid down by Cabinet. These were then reviewed by the Minister of Finance and considered by the Cabinet Committee on Expenditure Control. As a result the 2009 budget saw some significant reallocations of expenditure particularly to major infrastructure expenditure and the health and justice sectors, and away from the education sector. Second, a system of in-depth spending reviews to examine the efficiency and effectiveness of expenditures in particular sectors has been developed. Such reviews are resource intensive and time consuming so they will be carried out as rolling reviews over a 3-4 year time period. Initially a limited number will be undertaken. It is intended to proceed cautiously and adapt procedures as lessons are learned. Each review is expected to take 3-6 months to complete.

United Kingdom: Regular Spending Reviews were introduced in 1999 and are carried out very 2-3 years. They focus on high level government priorities and lead to three-year expenditure plans for each ministry’s contribution to these priorities. Each ministry’s Public Service Agreement contains measurable targets for a range of government objectives, focusing on outcomes. Performance information forms part of the spending review negotiations and ministries but there is no automatic link between performance and resource allocation. In view of unsustainable deficits and mounting debt pressures, the newly elected Government has begun a major fiscal consolidation effort employing a comprehensive review of the spending program.

25

other countries in the region and international experiences.22

It should be stressed that introducing

performance based budgeting is a medium to long term task requiring at least 3 years for full

implementation. This will require a consistent design and specification of programs and changes to

the budget classification and chart of accounts. Annex 3 Options for organizational structures The organizational structures presented here express illustrations of the underlying principle to create a

more streamlined line management structure with fewer to level operational units. Not all aspects of the

proposed options may be feasible, especially in the short run. Any reorganization should be driven by

specific objectives, such as improving coordination in functionally related areas.

22

See World Bank, Performance Based Budgeting; Beyond Rhetoric, PREM Note 78, February 2003 and OECD,

2007, Performance Budgeting in OECD Countries, Chapter 1

26

Annex 4 to this Report provides a more detailed elaboration of these issues along with a number of

country examples.

2.2. Build Capacity in the Budget Department and financial management units in line ministries to carry

out budget analysis

45. While the budget department is well staffed with about 13023

currently occupied positions

(out of total of 190), it will need to expand the capacity of the staff in order to commence and

sustain a strategic prioritization approach to the budget. Job descriptions and skills sets of staff in

both the budget department and financial management units in line ministries would have to be adjusted

to the demands of a more policy oriented budget preparation function. Generally, the work of budget

analysts would need to encompass problem identification and resolution; compilation and analysis of

program and budgetary information gathered from a variety of sources; technical and substantive review

of budgetary data, preparation of associated documentation, reports, letters, memoranda, and the like;

liaison functions within and outside of the MOPF; identification and evaluation of alternative

programmatic ways of achieving strategic objectives; representation of MOPF at varying levels of

government. Budget analysts would routinely provide and justify recommendations that involve multi-

million RON decisions. A number of steps could be undertaken to expand the capacity of the budget

department:

Review and adjust the job description and associated qualification requirement of the positions in the

budget department and financial management units in line ministries to encompass the tasks

associated with budget analysis (exemplary job descriptions for a budget analyst (at both Junior and

Senior level) are provided in Annex 5)

Conduct a training needs assessment and provide a training program on budget analysis, including

specific sectoral issues. MOPF budget staff as well as budget and planning staff in sector ministries

would be guided by such technical assistance and receive training in expenditure analysis issues, for

example from an organization such as the Centre of Excellence in Finance, based in Ljubliana.

2.3 Synchronize the planning and budgeting calendar

46. The established calendars for the Fiscal Budget Strategy (required by the FRL), the annual

budget (Law 500), and the strategic plans (various Government Directives) of all the ministries are

not coordinated or synchronized in a way that will produce resource allocation that is more

consistent with national priorities. Currently:

The FRL of 2010 requires the Government to deliver a three-year Fiscal Budget Strategy to the

Parliament by May 30 of each year.

The Public Finance Law (#500) of 2002 requires the MOPF to deliver medium-term objectives

and expenditure envelopes to the Government by May 1 and to deliver a draft budget law to the

Government by September 30. In turn, the government is required to present the budget to

Parliament by October 15.

Each line ministry is required to produce a Strategic Plan (under Government Directives 1807 of

2006 and 158 of 2008.) that in past practice was due by July 1 of each year.

23

78 occupied positions/117 authorized positions in the expenditure programming department and 51 occupied

positions /70 authorized positions in the budget synthesis department.

27

47. An integrated strategic planning and budget calendar could support top-down budgeting,

described in the previous section and better link the budget process to the strategic planning

exercise. The strategic plans were typically not produced until July and are too late to drive the budget

process both in terms of the three-year objectives and expenditure ceilings that are due to the Government

on May 1 and the budget proposals that spending agencies are required to deliver to the MOPF by June

15. Furthermore, there is substantial overlap and duplication between the FBS and the existing budget

process. For example, the FBS which is due to Parliament by May 30 includes spending priorities in a

three-year timeframe as does the document that Law 500 requires the MOPF to send to the Government

on May 1. Further, it can be seen from the timetable above that the government has only 15 days to

consider the draft budget submitted by MOFP before sending the final proposed budget to Parliament.

This is clearly insufficient time for considered collective decision making by Cabinet on its detailed

policies and priorities, even given that the government has previously considered the FBS. A draft

annotated integrated budget and planning calendar is included in Annex 6. The following key adjustments

to the timetable should be considered.

The timelines for the provision of ministry strategic plans should be changed so that they are

available to feed into the development of the FBS

The budget timetable should be changed to allow at least one month for collective Cabinet

consideration of the proposed budget.

Budget Execution and Treasury Functions

48. The Treasury’s role as a provider of cash management, payment, accounting and reporting

services to government institutions is a significant enabler of efficient Government operations,

transparency and accountability to the public. Budget execution systems should be aimed at ensuring

efficient budget implementation, in accord with the policies stated in the budget and in compliance with

budgetary authorizations. They should also be able to respond to possible changes in the macroeconomic

environment without disturbing budget management, in particular without generating arrears and creating

inefficiencies.

49. Romania’s budget execution system suits the basic requirements for sound public

expenditure management but performance across core budget execution functions is uneven. Transactional banking services associated with the operation of bank accounts for the purpose of

processing of revenue receipts and payments and a comprehensive TSA are well developed, although with

more than 5,000 staff employed in territorial treasury offices transaction processing remains labor

intensive and further automation of payment services is the logical next step. Reporting and accounting

functions have well developed policies, including a unified budget classification and Chart of Accounts.

But the current reporting systems and processes heavily rely on manual intervention for collection,

verification and validation of financial information, limiting timely operational reporting and analysis.

Financial information, other than aggregate cash balances, has to be obtained from about 14,000

individual spending units on a monthly and quarterly basis. The consequent lack of reliable, timely and

detailed revenue, expenditure and commitment data for budget planning, monitoring, expenditure control,

and reporting negatively impacts on budget management. Budget releases (Budget Credit Openings) are

based on imperfect information and largely driven by cash availability rather than cash needs,

undermining line ministry financial operations. Organizationally, core budget execution functions (credit

opening, payment processing, accounting and reporting) appear fragmented which is also reflected in a

lack of integration in the IT support provided to these closely related functions.

50. The legal framework for budget execution is stipulated in Law 500 on Public Finance.

Structurally, Romania‟s budget execution system resembles other continental European countries. There

is a three-level system of credit holders (ordinateurs) which are state institutions that plan for, receive and

28

spend budget funds. At the central Government Level there are 75 primary credit holders with about 9000

subordinated secondary and tertiary credit holders. The primary ordinateur is the Minister or Head of

Agency, who typically internally delegates public finance functions to the secretary general. In addition,

there are about 3,200 local government credit holders, e.g., mayors, which hold autonomously approved

budgets, but use the services of the central treasury for budget execution. Each of these entities has

designated financial management staff responsible for committing funds and authorizing spending within

the allocated budget credit and for properly accounting for transactions in accordance with the prevailing

CoA.

Organizational arrangements, roles and responsibilities for budget execution

51. The main activities of the MOPF in budget execution include: (i) in-year financial planning

and release of funds; (ii) debt management; (iii) payment processing; (iv) accounting and reporting; (v)

financial control; and (vi) support to internal audit. Functions related to budget execution are carried out

by different general directorates:

The Treasury and Public Accounting General Directorate (TPAGD) supervises the payment

system and line ministries accounts. This department also oversees the 309 Treasury branch

offices, which simultaneously report to financial directorate of the counties (judet) of the National

Agency for Tax Administration (ANAF). This directorate general reports to the state secretary

responsible for budget management.

The Public Institutions Accounting Methodology General Directorate (PIAMGD) issues

accounting standards, manages the CoA and also prepares monthly, quarterly and annual financial

reports. This directorate general reports to the state secretary responsible for budget management.

The Budget Programming General Directorate (BPGD) manages the cash releases and therefore

plays a key role in budget execution and cash planning in addition to its functions in expenditure

programming and budget preparation. This directorate general reports to the state secretary

responsible for budget management.

Financial control and internal audit within line agencies are supported by the Central

Harmonization Unit (CHU) for financial management and control and the CHU for internal audit.

Such an organization is similar to the Public Internal Financial Control (PIFC) model promoted

by the European Commission.

The Treasury and Public Debt General Directorate (TPDGD) is responsible for cash planning and

manages domestic and external debt. The department is organized in a front, middle and back

office following established principles for the organization of debt management operations. This

directorate general reports to the state secretary responsible for debt management.

Allotment procedure

52. After the approval of the annual budget law, the main spending authorities (ordonatori)

draft quarterly budget implementation plans which are reviewed by the BPGD and approved by

the minister of Finance. The main spending authorities include ministers, heads of other public

authorities and specialized agencies and chiefs of autonomous public entities. Once the quarterly budget

implementation plans is approved, the main spending authorities distribute the approved budgetary credits

for their own budget and for their subordinated public entities or units, whose managers are secondary or

tertiary spending authorities. Then, the secondary spending authorities distribute the approved budgetary

credits for their own budget and their subordinate tertiary spending authorities. To ensure prudent budget

execution, the main spending authorities are required to allocate in their budget implementation plan 10%

of approved funding to a reserve, with the exception of personnel expenditures and funds related to

external liabilities, which are entirely distributed. This reserve is distributed during the second half of the

year.

29

Cash releases

Cash is released through monthly “credit opening” (deschidere de credit). Main spending authorities

present each month several requests to the BPGD for cash releases, which should be in line with the

quarterly spending limit. These requests are accompanied by a note presenting the operations that will be

financed. After reviewing these requests, the BPGD authorizes the “credit openings”, which release cash

to main spending authorities and partly to secondary spending authorities. These “credit openings” are

recorded in the Treasury payment system by the TPAGD. Then, the authorized cash releases are

distributed in cascade fashion within the line ministries or other main spending units. This process is

manual and relies on postal mail for distribution of credit openings to regional offices (Figure 8 illustrates

the process for releasing cash).

53. The BPGD exercises a tight control over credit releases, through the combination of

quarterly cash limits and monthly credit opening. Such controls may help keeping cash under control,

when the budget is not based on realistic revenue estimates. However, they create time-consuming

procedures, in particular since the workflow is paper based and operated manually. More importantly, it

may affect negatively expenditure management at the lowest administrative level. When the distribution

of “credit openings” within a line ministry is badly organized, they are distributed with some delays. This

risks generating arrears if the cash releases do not take into account the payment schedule related to

existing commitments.

Figure 8 Monthly release of funds and TSA

Ministry of Finance

Spending authorities

(ordonatori)

Main

Secondary

Tertiary

Treasury and Public

Account DG

Budget Programming

DG

Treasury and

Public Debt DG

Monthly release of funds

Agency for tax

administration

Request

Request

Request

Issues credit opening -

CO- (BPDG)

Registers CO

(TPADG)

Use or transmit

CO

Use or

transmit CO

Use

CO

Treasury

Single

AccountBorrowing (TPDDG)

Payment order

Ordonantare

Revenues (ANAF )

Payment processing

54. Banking services to the Government are provided by the Treasury branch offices network

comprising 309 local offices staffed with about 5 000 persons. The treasury network provides financial

services functions to the government by processing both expenditure and revenue cash transactions.

Accounts of central and local government entities are kept with the Treasury. Payments are made to these

accounts through the Treasury information system (TREZOR) within one day. The 14,000 budget credit

holders and other legal and natural persons that conduct financial transactions with Government

30

(taxpayers and contractors) have about 25 milllion accounts with the treasury. Annually, the treasury

network processes in the range 120 million transactions, a majority being tax payments.

55. While a majority of payments are settled electronically with limited manual intervention,

payment orders from spending units are received in paper form. Spending authorities have to bring

payment orders (ordonantare) to the Treasury branch offices. This procedure is not only cumbersome, but

also necessitates an extensive physical presence of the treasury across the country. Up to now, problems

related to the legal authorization for electronic signature prevent the automation of the transmission of

payment orders from spending authorities to Treasury branch offices and other applications of electronic

processing. At the Treasury branch offices, the payment orders are generally scanned (a payment order

includes a bar code) or manually processed to be registered in the Treasury data base. The system records

the payment at the aggregate functional (chapter) and economic (article) level and an automatic control is

performed by the system to assure that sufficient credit opening is available. Upon receipt of the payment

order, the front office performs manual verifications, including of the signature (against specimen), and

against a 10 day cash plan. The transaction is then validated and accounted by the back office of the

regional treasury office. Payments between accounts in the same location are fully automated, whereas

cross-county payments and payments to external banks are settled daily through the level 1 treasury office

in Bucharest through its direct access to the Real Time Clearing System (TRANSPOND). The treasury

issues monthly account statements to all 12,000 spending units and other clients.

Cash and debt management

56. A modern for cash and debt management function has been established and further steps to

improve this function are on the agenda. The Treasury and Public Debt General Directorate

(TPDGD) is structured around front office, middle office and back office functions in line with best

practice in debt management. Unlike the other European countries reviewed as benchmarks in this

functional review, this entity remains within the MOPF. In Germany, France and the UK the debt

management function has been transferred to agencies, allowing among other things for more flexible

remuneration needed to attract high caliber financial talent to this function.

57. Treasury and Public Debt General Directorate (TPDGD) is responsible for the TSA, cash

planning and liquidity management. A robust and comprehensive TSA is in place. Financial reports

covering the expenditure cycle are produced and there are effective compliance controls, at least for the

central government. The TSA is comprehensive, covering both expenditures of about 9000 central and

3200 local government spending units and all major tax and non-tax revenue receipts. The only exception

is a number of self financed entities, such as universities and hospitals, which retain revenue from user

charges and transactions in foreign currency. TPDGD prepares cash flow estimates and short term

borrowing plans to ensure that cash is available to make payments. It prepares cash flow estimates on the

basis of data such as the quarterly spending limits, cash release decisions and monthly revenue forecasts

prepared by Macro-economic Analysis and Financial Policy General Directorate (MAFPGD). To ensure

that the cash plans are based on realistic assumptions, it may correct these forecasts based on past

financial records. It has developed methods to prepare in-year and in-months forecasts. However, the

main decisions concerning cash outflows are taken by other departments, according to the processes

reviewed above. While line ministries submit 10-day operational cash plans to the local treasury offices,

these lack accuracy, are paper based and not readily accessible for consolidated cash flow forecasting

purposes.

58. Efficiency of the back office function of the TPDGD could be improved through process

simplification and automation. TPDGD prepares for each debt servicing payment a request for credit

opening and a payment order (ordonantare), which are transmitted to the TPAGD, which is the Treasury

branch office for debt servicing. These requests/orders are accompanied by an explanatory note. They are

31

processed manually and paper based. As with other requests and orders of line ministries, they are

submitted to both a preventive and a delegated control (see below), despite the fact that debt service

payments are compulsory. This has resulted in a fairly large staffing structure with currently 120 positions

compared to 35 in Agence France Trésor in France, about 90 in the UK Debt Management (which has

mandates beyond debt managemet, including fund management of public sector funds) and 180 in the

Finanzagentur in Germany ( which also has mandates beyond debt management, including fund

management of public sector funds).

Accounting and Reporting

59. Romania has made great strides in adopting its budget classification and accounting

methodologies to international standards. Main, secondary and tertiary spending authorities of the State

budget and other government entities keep their accounts using the modified accrual accounting method.

There is a unified chart of accounts for the central and local government units. The government has

already implemented, from 2003 to 2009, 18 International Public Sector Accounting Standards (IPSAS)

accrual accounting standards among a total of currently 31 standards. The budget expenditure

classification system allows reporting according to the international standards (ESA 95 and GFSM2001).

It includes an administrative (organizational), a functional and an economic classification. There is

currently no program segment either in the budget classification or in the CoA.

60. Quarterly and annual financial statements are prepared by all 14,000 spending units and

consolidated by MoPF. The financial statements include reports on budget execution which shows : (i)

the commitment authorization; (ii) the initial payment budgetary credit; (iii) the revised budgetary credit;

(iv) the budgetary commitments (reservation of the budgetary credit for a specific use); (v) the legal

commitments; (vi) the payments; (vii) the verified expenditures including unpaid expenditures (cheltuieli

effective); a balance sheet that shows assets and liabilities. In parallel, the Treasury Information System is

able to produce aggregate budget execution reports on a cash basis, nearly in real time.

61. The reporting process is labor intensive and time consuming. For the State budget financial

statements are verified and consolidated by main spending authorities for their subordinated secondary

and tertiary spending units. Then, they are centralized by the Public Institutions Accounting Methodology

General Directorate (PIAMGD) through a dedicated software application. Similarly, local authorities‟

reports are consolidated by the judet (county) public finance departments, which are divisions of the

ANAF. A detailed process analysis showed that for the quarterly reporting process for one tertiary

ordinator, around six actors consult 17 systems which involve around 20 high-level steps, including

several manual reconciliations. Based on estimates provided during the visits, it is estimated that it took

each budget holder around 15 to 30 days to prepare this report depending on the complexity of the

organization. For the Secondary and Tertiary Budget Holder, more time is needed to ensure data quality

and perform required consolidation.

62. More effective budget management and cash planning would require a shorter reporting

period for commitments and reporting the payment schedule associated to the commitments.

Quarterly reports are transmitted to the PIAMGD within 45 to 60 days from the end of the quarter under

review, meaning consolidated information on commitments made the first month of a quarter is only

available 3.5 to 4 months after the end of that month. This poses problems. Absent information on

commitments, in-year spending cuts are based on cash disbursements and have sometimes affected funds

already committed leading to arrears. Reporting commitments in a timely manner together with sanctions

for over-committing and off-budget commitments will contribute to improved fiscal discipline.

32

Budget execution financial controls

63. The internal control environment is structured after the Public Internal Financial Control

framework, in compliance with EU requirements. The Law No 500 on Public Finance defines four

stages of budget execution (commitment, verification, payment order and payment) and stresses the

principle of separation of duties. There is a system of preventive (ex ante) financial control performed by:

internal financial controllers who perform ex ante financial control of all expenditure transactions

(commitments, cash opening and payment order–ordonantare) in all ministries and main

spending units

“delegated” financial controllers who belong to the staff of the MOF CHU for Financial

Management and Control in 29 line ministries or primary spending units. They perform financial

controls on transactions above a certain amount, which are generally in the range of 30,000 to

50,000 RON (8,700 to 14,500 USD). These transactions are submitted to a “double visa” system,

consisting of both the visa of the internal “preventive” financial controller and the visa of the

MOF “delegated” financial controller.

64. The “double visa” system increases the paperwork and risks undermining the

accountability of line ministries since their transactions are verified ex ante by a MOF controller. The MOF intends to phase out its delegated financial controls within line ministries by December 2012.

After this date, only financial controllers reporting to line ministers will make preventive controls. This

desirable measure may need further actions to strengthen internal control within line ministries. Line

ministries are preparing a work program for this purpose. The CHU for Financial Management and

Control will have to review and monitor these work programs.

Internal audit and inspectorate

65. The CHU for internal audit prepares the internal audit methodology, carries out training

activities and participates in audits involving several ministries. Each main spending authority and all

public institutions with a budget of more than € 100,000 have set up an internal audit unit. There are about

3000 audit units of which 2000 at the local government level. The average number of auditors per unit is

low (1.3 at the local government level). This hampers the effectiveness of internal audit. There is,

however, a pilot project to group ten internal units of local governments into one center for operational

purposes. The development of internal audit in Romania is recent and support of the CHU for internal

audit is crucial.

66. There are also inspection bodies including the MOF financial inspectorate, line ministries

and a control body that reports to the Prime Minister. The MOF financial inspectorate covers only the

MOF and its subordinate agencies. However, the MOF is considering extending the scope of its activities

to all spending authorities. There is a risk of duplication of efforts with other inspection/control bodies. It

will be preferable to focus the efforts on improving the effectiveness of the existing bodies.

Reform Options:

3.1 Further streamline Transactional Banking Services

67. Treasury services could be developed further to keep pace with IT-enabled banking

services.

A key precondition for further use of IT-enabled services is clarification of the regulatory

framework for the use of e-Signatures and other solutions to ensure secure transactions, an issue

also discussed in the IT section of this review. A pragmatic but legally sound solution should be

brought about swiftly. It may be advisable to provide a layered system of different requirements

33

(e.g. simple e-signature, secure e-signature, and qualified e-signature in line with the respective

EU directive) based on risks associated with transactions.

Roll out electronic issuance of account statements provided the above clarification of the e-

signature requirement is accomplished.

Allow for electronic submission of payment orders by spending authorities to the Treasury local

offices. Undertake actions immediately, to implement the electronic signature for electronic

transmission of payment orders (ordonantare) to Treasury offices.

Automate the credit opening procedures in conjunction with the introduction of an integrated

financial management information system (see next recommendation). Automation of the related

business processes could be achieved on a common ERP platform covering the MOPF core

operations with interfaces to decentralized systems in line ministries.

3.2 Further Develop Computerized Treasury General Ledger

68. Information timeliness and accuracy is urgently needed to support improved financial

analysis and decision-making and to comply with new requirements stated in the FRL. The reporting

process could be streamlined through the development of a well-designed treasury general ledger module

to enhance more transparent reporting through inclusion of information on commitments, accrued assets

and liabilities utilizing integrated enterprise planning IT solutions. Actions could include:

In the short term, consider recording commitments in the treasury data base. Contract amounts

(for commitment control) and payment schedules (for cash planning) could be registered with the

first payment allowing for more timely reporting through queries to the treasury database.

In the longer run, the implementation of a full fledged integrated financial management

information system would respond to informational requirements of effective budget

management. A computerized general treasury ledger would address the central accounting and

reporting functions and processes associated with budget execution, accountability, and

cash/other asset management. This includes the collection and dissemination of financial

management and accounting information from and to agencies managing expenditure

transactions.

34

3.3 Streamlining the organizational arrangements

69. Some organizational realignment may be conducive to better coordination among core

treasury functions that are currently assigned to different general directorates. While segregation of

an integrated debt and cash management function and other budget execution functions is found in other

Box 6 Treasury General Ledger – Functionalities and Country Examples

The Treasury Ledger System includes a set of summary control accounts maintaining budget authority and actual spending against authority and handles all posting and report generation from this database. It would have the ability to create transactions, distribute authority (appropriations, apportionments and allocations), record all transaction details as appropriate and consolidate and disseminate information as necessary.

Create authority and create transactions

Distribute appropriation and commitment authorizations to spending ministries

Distribute funds allocations to spending ministries

Process electronic transfer of payment

Record transactions

Record initial budgets, as approved by the legislature

Record expenditures against commitments and funds allocations (e.g. due to purchase orders or other payments)

Record revenue and other receipts against appropriate account heads

Capture and maintain records throughout the year such as: initial and revised budgets; budget transfers for a typical spending unit; commitments incurred by spending units against approved limits and appropriations; funds allocations against appropriations and any subsequent changes

Consolidate and disseminate transaction information and reports

Print consolidated payment instructions for action by the banking system

Consolidate data from all ministries and regional offices as necessary

The system would facilitate/support easy retrieval of data in system databases in a variety of formats

The system would also have good reporting capabilities and be able to produce commonly required accounting and management reports

Country Examples:

Many countries have implemented general ledger systems. Some examples are presented below:

Australia. The Accrual Information Management System (AIMS) is the central budgeting and reporting system. The spending agencies have their own management systems and post every month accounting summaries in the AIMS. The two key outputs of AIMS are the production of the Budget documentation, including the Appropriation Bills, and the production of monthly and annual financial reports.

France. Payment orders and all cash transactions go through the treasury system without exception. A budget execution system centralizes data on commitments and payment orders. Both systems are linked with spending agencies.

Spain. All government transactions are processed through the system, which registers up to six different stages: budget allocation, commitment, verification (actual expenditures), payment request, payment order and payment. Budget preparation (with several rounds of interaction) also goes through the system. The system performs accounting and reporting functions. Electronic links are being established with all spending units.

United States. The General Ledger System registers expenditure at different stages in the budget cycle. Spending agencies have their own management systems that are linked to the general ledger and must comply with its standards. For budget preparation there is a separate system.

Source: OECD Handbook Managing Public Expenditure A Reference Book for Transition Countries. World Bank Treasury Reference Model.

35

countries, payment execution, accounting and reporting functions are often organizationally integrated

into a treasury department. The following organizational realignment may strengthen the coordination

among budget execution related functions:

The Budget Programming General Directorate should focus on budget preparation and revision.

While it has an important role in monitoring budget execution and in managing virements and out

of season budget requests.

A unified treasury department could be created responsible for payment processing, accounting

and reporting. This department would oversee the operation of the regional branch offices,

monitor and analyze disbursements and commitments and prepare monthly cash outflow plans.

These plans would be used to define monthly cash limits for payments within a treasury single

account and they would also inform the overall cash planning conducted by the cash and debt

management department. The department would also be responsible for issuing accounting

policies and consolidate quarterly and annual financial reports, together with any ad hoc reports.

The business of the department would be supported by an integrated financial management

information system.

Figure 9 Proposed Organizational Structure of Treasury Function at Headquarters

The number of Treasury branch offices (309) could be consolidated with advances in electronic

transaction processing (see Box 6). Determining the optimal size of the Treasury network will

require taking into account elements such as the size of geographical area served by these offices,

variations in transactions workload, the implementation of the registration of commitment

transactions suggested above and the new functions that could be assigned to the Treasury branch

offices, such as the review of local governments budgets. Therefore, a specific review should be

undertaken to identify the actions that can be considered to streamline the Treasury branch offices

network. Such an action should be coordinated with the reorganization of the about 400 ANAF

local offices which is discussed later in this report.

Directorate General Cash & Debt Management

Monthly Cash Outflow Plans

Territorial

Treasury

Offices

Directorate General Treasury & Public Accounting

Budget Execution Accounting & Financial

Reporting

Operations Support &

Oversight

Territorial

Treasury

Offices

Territorial

Treasury

Offices

Execution Monitoring &

Cash Release

Accounting

Methodology

Financial Reporting

36

3.4 Further Improve Debt Management Functions:

70. Building on the successful establishment of a modern debt management function further

steps could be undertaken to improve liquidity management.

Most importantly, cash planning could be enhanced by establishing cash management committee,

comprised of the Macro-economic unit, the budget execution unit, ANAF and the debt

management unit. Regular bi-weekly jour fixe could underpin short term projections of cash

needs. With advances in the Financial Management Information System, payments schedules and

short cash forecasts of spending units could be captured from spending units and made available

for consolidated cash outflow planning.

The institutional Framework and infrastructure for direct market participation of the state treasury

could be enhanced. This could include upgrade of the primary market auction system and make it

electronic via a platform to be decided upon. Clarify regulatory framework to allow e-auctioning.

In the longer run, the state treasury should also be enabled to directly trade in secondary market

(use repos and buy backs).

The Risk Management Function of Debt Management Department (State Treasury) could be

strengthened. The capacity of the Middle Office to perform financial market monitoring and

analysis would need to be expanded. Better risk analysis could provide the basis for active risk

management through debt portfolio management and hedging of market risks.

Automate debt service payment procedures. A simplification of the business process for debt

service payments could be considered, possibly including bulk approvals for legally binding

payments in accordance with loan agreements and elimination of preventive internal control

requirement for those payments. An end to end electronic payment processing for debt service

payments could be developed.

Box 7 Reorganization of Federal Cash Offices in Germany

Germany established a centralized payment system in conjunction with the introduction of a treasury single account in 1969. With the exception of the Federal Ministry of Defense (which initially maintained its own payment operations), the Federal Cash Offices (Bundeskassen) assumed responsibility for making and receiving all payments related to the federal budget. Organizationally, the federal cash offices are part of the customs administration and report directly to the head of the locally responsible federal finance office. Technically, they are subordinated to the Federal Ministry of Finance. The TSA is operated at the Central Bank and all payments are affected through this account (and its sub-accounts). Budget holders may maintain limited imprest accounts to execute cash payments.

The use of modern IT enabled payment methods has resulted in a restructuring of the cash office operations. In 2000 there were 17 federal cash offices with 1,505 staff. In addition there were 11 cash offices responsible for payments related to the Federal Ministry of Defense employing 512 staff. A gradual restructuring was initiated in 2000 to i) merge the cash offices of the Federal Ministry of Defense ii) to centralize operations in fewer locations. The territorial network was reduced to 4 federal cash offices responsible for all payment transactions, including those of the Federal Ministry of Defense employing about 1000 staff. In addition to the savings related to the reduction in staff, the reduction in locations meant lower operating costs. Further efficiency gains are expected with the further development of the IT environment employed in the cash offices and in particular with the increased use of enterprise resource planning solutions at the level of budget users.

37

Coordination of EU Structural and Cohesion Funds

71. Romania is programmed to receive substantial funding from the European structural and

cohesion funds. For the current programming cycle 2007-2013, Romania is allocated about EUR 19.2

Billion. Together with the domestic co-financing, public expenditures will amount to EUR 23 Billion,

equal, at an annual rate, to more than 2 percent of GDP or 6 percent of public expenditures. This is

roughly double the transfers received under the pre-accession programs, PHARE and ISPA). These funds

represent critical resources for the country both for short term recovery from the economic crisis and long

term convergence to EU income levels. EU funds assume even more importance, as domestic revenues

are under pressure and access to financing remains restricted. Procedures for the use of structural funds

require programmed funds to be used within a maximum of 3 years after the year of commitment ("n +3"

rule), and funds are automatically de-committed if no payment application has been received by the end of

the third year following that of the budgetary commitments.

Figure 10 EU Fund Absorption Rates in EU10 Countries (end of 2009)

Source: KPMG EU Fund in Central and Eastern Europe Progress Report 2007-2009.

72. Absorption of EU structural funds is the lowest among EU 10 countries. Most new member

states faced initial bottlenecks in the implementation of structural funds and the youngest member states,

Bulgaria and Romania are no exception. As of July 2010, about EUR 7.9 Billion, financing for more than

3,200 individual projects of both local authorities and private companies, were contracted but only EUR

0.9 Billion paid out. On a time proportionate basis24

, the contracting rate equals 38 percent (end of 2009)

and absorption 6 percent. Without acceleration in fund absorption, the n+3 rule could result in

decommitment of initial funds by the end of 2011.25

This imposes a potentially large opportunity cost in

foregone investment and may undercut future funding levels which assume absorption of EU funds.

73. Absorptive capacity seems to face constraints across the entire project cycle. The low

contracting ratio suggests problems in the project preparation, appraisal and approval stages. Once

approved and contracted, disbursement performance, measured by the ratio of disbursed to contracted

funds, lags behind the EU 10 average. By the end of 2009 Romania had paid out 19 percent of the

contracted funds, compared to 30 percent for the EU 10 average. This suggests that the rate of project

implementation, procurement and processing of payment applications needs to be improved.

24

Time proportionate contracting and absorption rates assume a leveled absorption pattern over the programming cycle. 25

A decision by the Council of the European Union suspended the n+2/n+3 rule for funds committed in 2007.

3

4

5

7

8

10

12

13

17

18

16

23

27

23

25

39

44

38

41

35

0 10 20 30 40 50

Romania

Bulgaria

Slovakia

Poland

Czech Republic

Hungary

Estonia

Latvia

Lithuania

Slovenia

Percent Paid/Programmed Expenditure

Contracted Ratio

Absorption

38

Table 5 Financial Performance across Operational Programs (as of end of 2009)

Programme

dEU

Contributio

n

Contracted Disbursed Contracting

Ratio

Disbursement

Ratio

Absorptio

n Ratio

Operational Program A B C B/A C/B C/A

Technical Assistance 170 28 1 16% 4% 0.59%

Administrative

Capacity

208 41 1 20% 2% 0.48%

Increase in Economic

Competitiveness

2554 542 120 21% 22% 4.70%

Human Resources

Development

3476 643 67 18% 10% 1.93%

Regional 3726 1166 185 31% 16% 4.97%

Environment 4512 1037 182 23% 18% 4.03%

Transport 4566 206 31 5% 15% 0.68%

Average 19% 12% 2%

Source: KPMG EU Fund in Central and Eastern Europe Progress Report 2007-2009.

74. Romania’s programming framework is relatively complex, reflecting the complexity of its

economic development challenges. The current programming framework has seven Operational

Programs (OP): Transport (EUR 4.5 billion), Environment (EUR 4.5 billion), Regional development

(EUR 3.7 billion) Human resources (EUR 3.4 billion), Economic competitiveness (EUR 2.5 billion),

Development of administrative capacity (EUR 208 million), and Technical assistance (EUR 170 million).

The complexity of the programming framework affects the number of institutions involved in the

management. For each OP, there is a designated managing authority and a single certification body. The

number of OPs in Romania is not excessive in comparison to the other EU10 countries. The average

number of OPs is 9. But it is noteworthy that the top four performers among EU 10 countries are all small

countries that have considerably less complex programming frameworks. Slovenia, Estonia and Latvia

have only three operational programs, and Lithuania has four. While the design of the programming

framework is driven by multiple considerations, including the number of eligible NUTS regions and

policy objectives, administrative design should be taken into consideration and fund management can be

improved by streamlining the programming framework, allowing for a higher degree of concentration of

administrative capacity and specialization.

75. Contracting and absorption ratios vary across OPs with the transport program, the largest

of the OPs, lagging the most. Contracting ratios vary between 30 percent in the regional program and 3

percent in the transport program. Equally, disbursements to beneficiaries stand at 5.7 in the regional OP

and only 0.6 percent in the transport program. The contracting ratio in the transport OP is low compared

to average contracting ratios of 23 percent in the transport sector across EU 10 countries, suggesting

particular bottlenecks in this sector in Romania. Delays seem to occur primarily in the approval and

contracting of projects, most likely due to the complexity and longer preparation and approval processes

required. Once contracted, downstream processes in the transport sector related to the reimbursement of

expenditures seem to be working reasonably well, at least with the current (low) transaction load. In

contrast, the low disbursement ratios (ratio of payment against contracted amounts) in the technical

assistance OP and administrative capacity OP, suggest problems related to downstream contract

implementation and/or payment procedures.

39

Figure 11 Disbursement and Contracting Rates across Operational Programs

76. Absorption is adversely affected by a number of constraints at the level of beneficiaries,

managing authorities. A first set of constraints relates to financing capacity. The tightening of liquidity

after the financial crisis has worsened lending conditions and access to funds for pre- and co-financing of

projects, in particular for private sector beneficiaries but also for local governments. The Government is

trying to address this problem through a guarantee fund that can be accessed by local authorities, higher

education and research institutes. The recent step by the Council of the European Union to make available

EUR 278.4 Million for advance financing also helped ease liquidity. A second set of issues relates to the

administrative capacity to process, appraise and approve project proposals. This concerns the staff

numbers, capacity and processes in managing authorities. Lastly, investments in educating beneficiaries

about the opportunities available through structural funds and enabling them to design and prepare sound

project applications could help improve quantity and quality of applications.

Reform Options

77. Increased absorption of EU funding is a key Government and MOPF priority. Increasing

absorption rates will require concerted and systematic efforts. While the MoPF is only one of many

relevant players, as the coordinating authority for EU structural funds, it is expected to play a key role in

leading this effort.

4.1 Enhance Administrative Capacity

78. Initial steps have already been taken, including the enactment of an ordinance to prioritize

recruitment for positions related to the implementation of EU programs, and paying additional

remuneration to staff involved in EU structural funds absorption. But administrative capacity

remains an impediment. Reinforcing these efforts the following actions should be considered:

Government should fully implement the ordinance to prioritize staffing allocations related to the

implementation of EU programs.

Specific efforts should be made with regard to the Ministry of Transport, the managing authority

for the transport OP, including an immediate staffing needs analysis.

The MOPF initiative to request actions plans from all managing authorities on how to address

bottlenecks is very appropriate. Once approved, action plans should be used as a basis for

monitoring their implementation. Regular Cabinet level progress updates should be considered

together with GSG to provide the necessary political clout to assure timely implementation.

It may also be worthwhile to review the OPs with higher contracting and absorption rates to find

out whether something could be learned that would help other OPs.

0

1

2

3

4

5

6

Technical Assistance

Administrative Capacity

Increase in Economic

Competitiveness

Human Resources Development

Regional Environment Transport

Bill

ion

EU

RO

Operational Program

Disbursed Contracted Programmed

40

Finally, the low disbursement ratio under technical assistance and administrative capacity suggest

bottlenecks in the implementation of approved projects which should be examined. However,

given the small size of these OPs this may be accorded a lesser priority.

4.1 Enhance Financing Capacity

79. The Government has already begun to address financing constraints, but further actions in that

direction should be considered, especially in regards to linking the EU structural funds more closely to the

national budget :

As part of the 2010 budget preparation process (and beyond), MoPF should require all Line

Ministries (public beneficiaries) to identify where EU structural funds could be accessed to

finance capital and other outlays eligible under these programs and make sure co-financing for

EU funded projects is prioritized. Especially for key strategic sectors (transport, energy, research

and development, rural development) leveraging EU funds should become the main strategic

thrust of the national budget. To reinforce this strategic focus, close coordination between

coordinating authority and the budget department during the budget dialogue with the line

ministries is essential.

Provide Medium Term Allocations for co-financing to increase resource predictability in the

context of the development of comprehensive MTEF.

Monitor utilization of budgetary co-financing provided to public beneficiaries and allow for re-

allocation to disbursing projects.

Box 8 Actions to improve absorptive capacity in selected EU 10 Countries

Estonia: Estonia’s Government focused primarily on simplifying procedures for the implementation of OPs. It also undertook a re-assessment of the programming framework in light of the changed economic environment and allocated funding among OPs to reflect changed priorities.

Hungary: Hungary undertook a substantial reprogramming exercise to address post crisis economic recovery. The reprogramming also shifted resources from low disbursing to high disbursing OPs.

Slovakia: Slovakia reviewed the business processes and service standards for the processing of project applications and payment applications. It also improved the guidelines and outreach during specific calls for proposals to resolve possible uncertainties in advance. It also established on e common set of co-financing rules for all OPs.

Bulgaria: Bulgaria implemented a number of actions, akin of those being implemented in Romania, including simplification of processes and procedures related to the management of EU funded projects, establishment of Fund for Local Authorities and Governments to provide financial assistance to eligible local authorities and municipal enterprises, that would otherwise face liquidity constraints, to leverage funds from the EU structural and cohesion funds. The Government also restructured oversight by relocating the function of central coordination of EU funds management from the Ministry of Finance to the cabinet administration and by establishing a council for the management of EU funds to advise the Government on related policies.

Czech Republic: The Czech Republic undertook specific actions to ease liquidity access for the private sector, including the establishment of joint working group between banks and municipalities to set out common procedures for the assessment of creditworthiness of project proposals. It also increased the number of calls for some of the OPs.

41

Revenue Administration

80. Revenue administration reform is a key priority of the Romanian Government. Major

organizational initiatives have been taken in unifying the collection of tax and social security under a

single organization, the National Agency for Fiscal Administration (ANAF), which also includes the

Financial guard and Customs. ANAF headquarters is organized along functional lines and has developed

a strategic planning process. Tax administration modernization is guided by the ANAF strategic plan

2009 – 2012. Taxpayer segmentation has been introduced for better compliance management, with the

establishment of a directorate general for large taxpayers and special arrangements to manage taxation of

medium-sized businesses. The large and medium taxpayer population has been expanded with 669

additional taxpayers moved to the LTD and more than 9,000 additional taxpayers moved to medium

taxpayer offices. Risk-based audit selection and e-filing and e-payment have been introduced (although

they have not really taken up) and a call center has been set up. A centralized printing facility to issue

notices and reminder letters was established in July 2009. The efficiency of the refund system has been

strengthened, and the total amount of delayed refund payments has decreased by 43.2% in 2009 compared

to 2008. The communication and services function has been strengthened and the performance monitoring

system has been expanded.

81. Despite these measures, major challenges still remain, in particular, with regard to

improving the performance of the revenue collection system and facilitating voluntary tax

compliance. During the recent financial crisis revenue performance has declined. In 2009 revenue

collection decreased considerably26

and the tax/GDP ratio dropped from 27.8% to 27.3%. The compliance

burden on taxpayers is high: the Doing Business Paying Taxes 2010 Report ranks Romania only 149th

with regard to the ease of paying taxes, with the number of annual tax payments totaling 113 – one of the

main reasons for the low ranking.27

Tax arrears are growing rapidly, in particular arrears accumulated by

large taxpayers which have increased by 70% since the start of 2009. VAT efficiency is decreasing

noticeably. The ratio of gross VAT collection to GDP has fallen by almost 17% between the first quarter

of FY 2009 and the first quarter of FY 200828

. VAT collection for the first 6 months of 2010 are 3.6% less

than for the same period in 2009.

Organizational arrangements, roles and responsibilities for Revenue Administration

82. The National Agency for Fiscal Administration (ANAF) is responsible for all revenue

administration functions. ANAF is responsible for the administration of all national tax revenues,

including VAT, CIT and PIT as well as customs and social security contributions. ANAF has a total of

34,000 positions of which 30,000 are currently occupied. ANAF Headquarters in Bucharest has around

1,000 occupied positions. ANAF has a two tier territorial structure with regional offices in the 42 counties

(Judets) and approx. 362 sub-county offices holding around 24,000 occupied positions for tax

administration, SOE audit and treasury.29

Operational offices are organized functionally with departments

for taxpayer registration and return filing, taxpayer information, enforced collection, treasury and audit. In

addition, the customs administration is also subordinated to the President of ANAF. Customs with around

4,300 occupied positions also maintains offices in the 42 Judets and a local presence at a number of

26

Net collection decreased by 6.4% from 143,145 MLei to 133,915 MLei. 27

Romania ranks 182 th out of 183 countries analyzed with regard to the number of tax payments required; only

Ukraine requires more tax payments than Romania. 28

Net VAT collection decreased from 40,873 MLei in 2008 to 34,322 MLei in 2009. 29

Apart from revenue collection and administration, financial audit of State Owned Enterprises (SOE), price control

and treasury functions are also tasks of the regional and local ANAF offices. The treasury departments have a dual

reporting line: both to the head of the local or regional office and a functional line to the treasury within the MoPF.

The role of these local treasury offices is also discussed earlier in the budget execution section of this report.

42

locations inland and along the external EU borders with Moldovia and Ukraine. The financial guard, the

third organization reporting to the President of ANAF, also has 42 Judet offices and a staff of nearly 1,400

occupied positions.

Improving Compliance Management

83. Romania has begun to implement taxpayer segmentation to drive both the approach

towards different taxpayer groups externally as well as the deployment of resources internally, but

further refinements of this approach could improve efficiency. In line with practices in modern tax

administration segmentation of the organization and compliance approach by size of tax payers is

intended to direct more (human) resources to the small number of tax cases that really need professional

attention because of amount of tax at stake, risk of fraud or other economic or strategic reasons. As shown

in Figure 13 Romania presently has around 2.25 million active taxpayers of which -under current

thresholds- about 2,000 are classified as Large Taxpayers, 250,000 as Medium Taxpayers, and the

remainder as small taxpayers. An analysis of the revenue yield across the different segments suggests that

some refinements to the classification could potentially enhance the targeting of resources and the

compliance approach.

Figure 12 Taxpayer Segmentation

84. Large Taxpayers currently account for under 40% of the total revenue which is low by

international standards, where typically Large Taxpayer Offices (LTO’s) generate 50 to 70 % of

total revenue. Further analysis should clarify to what extent this is due to the heavy emphasis on (partly)

State Owned Enterprises (SOE‟s) in this segment, to the existing single threshold or to a lack of

effectiveness in particular in the audit function. The threshold for medium size business taxpayers (Ron

6.7 million, € 1.6 m.) appears high, causing fairly large taxpayers to escape serious scrutiny. Compliance

policy for the small taxpayer segment should involve such measures as:

a. abolishing small and inefficient taxes and levies

b. developing third party information flows

c. providing taxpayer services and education

d. diminishing the number of tax returns and payments

e. facilitating e-filing

Recently many tax administrations focus on High Net Wealth Individuals (HNWI)30

. This will be

beneficent to Romania also. HNWI increasingly, both through complex legal and business structures and

30

OECD Forum on Tax Administration, Meetings of January 2008 and May 2009.

Medium size taxpayers (±250,000)

Large taxpayers (± 2.000)

Small

taxpayers (±2 million)

43

through outright fraud, seem to evade taxation. The amounts of revenue at stake often are considerable.

Highly professional intermediaries like tax consultants tend to be involved. This segment in many

countries sets an example for society as a whole and also for that reason attracts attention.

85. Current compliance management across all segments continues to be heavily focused on a

large number of audits and enforced collection activities which are costly to both ANAF and the

taxpayer. While high risk, high revenue VAT refunds are prioritized for audit, overall risk analysis is still

at a rudimentary level resulting in limited audit capacity being stretched across in inordinate number of

cases. ANAF dissipates an unduly large amount of resources in following relatively small cases and in

scrutinizing a large number of VAT refund claims without using risk management to focus mainly on

risky claims. This is aggravated by the by the almost exclusive use of comprehensive audits or VAT

refund audits31

and the limited variation in the types of audits according to risk and revenue at stake.

86. Equally, ANAFs investigative wing, the Financial Guard, performs a large number of

investigations but only few are actually prosecuted. Criminal investigation and prosecution should be

the ultimum remedium of tax administration. Most cases of underreporting can be handled by imposing

administrative fines. The function of criminal tax cases is predominantly that of general and not special

prevention meaning they serve as a deterrent for tax fraud rather than as an instrument to recover foregone

tax revenue associated with the particular case. Good selection and preparation of cases is key to creating

the necessary high profile publicity. Tax investigation in Romania is the responsibility of the financial

guard. However out of several thousand cases per year only very few are prosecuted and in 2009 only

three convictions were achieved.32

This indicates serious problems with either the selection of cases, or

the quality of investigations and/ or arrangements with the public prosecutors.

Reform Options:

5.1 Strengthen compliance policy

87. The thresholds for large and medium sized taxpayers could be reviewed. It should be

determined whether the reason for the comparatively low yield in the large taxpayer bracket is partly due

to the (level of the) current threshold. A multiple threshold (turnover, assets, number of staff) could be

considered. Group relations should be taken into account. In the light of the fact that a recent addition of

over 500 taxpayers has not resulted in a significant rise of Large Taxpayer Revenue also the effectiveness

of current audit practices and the training level of audit staff should be reconsidered. In line with IMF

recommendations the threshold for medium sized taxpayers should be lowered to the VAT registration

threshold of € 35,00033

so as to categorize small business taxpayers as those not requested to register for

VAT, which corresponds to international good practice.

88. In addition, a comprehensive compliance policy should be further developed to better target

different types of risk, starting at the front-end drafting tax law in such a way that compliance risk

is reduced, following up through taxpayer services and education, the use of third party

information and finally through selective deployment of limited professional resources.

Selective, risk based audit and enforcement are key to effective compliance management

and efficient use of limited resources. Institution-wide risk management should be developed

31

The preference for comprehensive audits seems to stem from the idea that the auditor is personally accountable

and has liability with his private assets for the completeness and quality of his audit activity. 32

For example, while the Financial Guards sent about 5000 cases in 2009 to the prosecutor‟s office, only 3 resulted

in conviction. A more targeted investigation on fewer cases would, in all likelihood, have resulted in more

convictions and a greater deterrence to evasion. 33

Romania. Improving Tax Compliance and Further Reforms; Story, Burgess and Casey, 2010.

44

deploying resources according the level of risk involved and amount of revenue at stake. This

would include the use of computerized audit selection and more flexibility in the type of audit

with partial audits34

(like a VAT refund audit) depending on the risk assessment the tax

administration has made.

The selection of cases for investigations should also be improved to reduce the number of

investigations and improve the quality of the cases. Arrangements with public prosecutors

could be discussed on the yearly number of cases to be submitted to them and the percentage they

would actually bring to court.

In the large taxpayer segment compliance should be encouraged through specialized

taxpayer services and increased effectiveness of the audit function, in particular through

improved risk analysis and increased audit coverage. Development of audit methodology and

permanent education of audit staff should be invested in. A certain amount of specialization

within the LTO could be considered by creating specialized units for certain industries like the

financial and insurance industry or in the case of Romania the oil industry. International co-

operation and exchange of information can be especially useful in this segment.

The cornerstones of enhanced compliance management in the medium taxpayer segment

are reduced compliance costs and computerized risk management directing audits towards

those taxpayers where risk of fraud and amount of revenue at stake are significant. Simplification of the tax system and reduction of compliance costs is important for the medium

business taxpayer segment to enhance voluntary compliance and to improve the business climate,

thus generating economic growth and employment. Tax return procedures, for example, could be

limited to one yearly for corporate income tax and quarterly returns for withholding taxes, social

contributions and VAT for the majority of medium size business taxpayers, confining monthly

returns only to those businesses with larger wages and turnover (say over € 100,000). The

expansion of E-filing could contribute to reduced compliance costs. In addition, efforts of the tax

administration for this segment should aim at enhancing third party information, improving

(computerized) risk assessment and audit selection, diversifying types of audit, directing scarce

professional resources to those cases that are significant both from a viewpoint of special as well

as general prevention.

For small private and business taxpayers the main objective will be to reduce the need for

direct contact with the tax administration and to enhance voluntary compliance. The

handling of small taxpayers should absorb relatively little resources and should in due course be

computerized completely. Revenue at stake per case is small and opportunities for underreporting

can be reduced through the use of third party information. Although the 2005 changes in the

personal income tax law (introduction of a flat income tax) allow over 90% of natural persons to

stay outside the system, further simplification of the tax system could be considered. Also, the

number of tax payments, together with the number of returns, should be reduced and cash

payments should gradually be replaced by bank transfers. E-filing should be made easy and free

of charge. For information and taxpayer services the internet should be made the preferred

channel with call centers playing a supplementary role.

Abandoning the voluntary VAT registration below the € 35,000 threshold would discard

close to 400,000 VAT filers and significantly reduce administrative costs. The desirability to

do so should be seriously considered even if it might be argued that this would impose an

additional burden on capital input for small businesses. We find from ANAF data that voluntary

registration in 2009 added almost 400,000 VAT-filers with an average yearly turnover of € 6,200

receiving average yearly refunds of € 525 thus generating a negative VAT revenue of over €

200,000,000. Noting that around half of all VAT returns are negative this could also indicate that

voluntary registration facilitates considerable VAT fraud.

34

Only part of the administration could be audited, related to one year or to several years and comprising all or only

specified returns. Also selective audits could be done in reference to a specific piece of third party information.

45

Further development of the High Net Wealth Individuals segment should also be pursued.

As a result of recent changes in the law ANAF now is able to use indirect methods to establish

income and expenditures if the taxpayer does not provide requested information. The

establishment of a special intelligence unit is foreseen for later this year. It could be considered to

later on evolve this unit into an operational office for HNWI and related entities. Furthermore, a

program and rules for voluntary disclosure could be considered.

The envisaged shift in the compliance management approach will require an alignment in

human resources. Investing in an efficient training program for new staff members and existing

staff will need to complement organizational and procedural reforms. In particular, there will be

increasing need for experienced auditors and taxpayer service experts.

Reducing Administrative Costs

89. A comparison of the administrative costs of the Romanian tax administration with OECD

and a number of non-OECD countries presents a mixed picture. Benchmarked on total costs as a

percentage of aggregate revenue Romania scored 0.91% in 2007, which puts it in the lower middle

bracket although this comparison does not take into account that ANAF –unlike some of the comparator

countries- is not responsible for the administration of taxes like Real Estate Tax, Inheritance Tax, Wealth

Tax and Motor vehicle Tax, which tend to be more costly than PIT, CIT and VAT. Benchmarked on the

number of the population per employee of the Tax Administration (713; 2007) Romania is average. The

number of registered taxpayer per employee35

, however, is quite low (256 taxpayer per emp.; 2007). The

number of actual filers per employee (at 80 filer per employee), a more accurate reflection of the overall

workload is significantly lower reflecting the flat PIT which reduces the number of returns filed by

individual taxpayers.

90. The extensive office network contributes to increased collection costs and results in

significant imbalances in the allocation of resources across the organization. The current business

model of ANAF heavily relies on direct contacts with taxpayers at the local tax office which undermines

cost efficiency. As around 60% of total tax revenues are collected by the Large Taxpayer Department

(LTD) and the Bucharest offices, the contribution of many of the local units to revenue collection is

minimal. Moreover, there are significant imbalances between resources and workload between offices.

Large, and especially the Bucharest offices are overextended while small offices in rural areas with less

economic activity have much lower workloads and collect little revenue. This is shown in.

35

OECD 2008 mentions 6,5 million PIT filers for 2007. This is the potential number. The actual number of filers is

close to 2 million.

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Turk

ey

Ger

man

y

Fran

ce

Ro

man

ia

Cze

ch R

ep.

Swit

zerl

and

Po

lan

d

Bu

lgar

ia

Net

her

lan

ds

Bel

giu

m

Hu

nga

ry

Slo

ven

ia

Latv

ia

UK

Irel

and

Slo

vak

Rep

.

Jap

an

Den

mar

k

Cyp

rus

Ave

rage

No

rway

Spai

n

Can

ada

Au

stri

a

Gre

ece

Ital

y

Mal

ta

Po

rtu

gal

Fin

lan

d

Sin

gap

ore

Swed

en

Esto

nia

N. Z

eala

nd

Au

stra

lia

Ko

rea

Taxp

aye

rs p

er

Tax

Ad

min

istr

atio

n

Emp

loye

e (i

n T

ho

usa

nd

s)

46

Table 6 Workload distribution across regional tax offices

Regional office # of tax filer per ANAF employee Amount of tax and social security

revenue per ANAF employee

(Million Lei)

Bucharest 157.8 12.4

Cluj 105.1 5.3

Timis 92.8 5.4

Ilfov 83.7 9.7

Ialomita 31.1 2.2

Giurgiu 35.4 2.3

Source: ANAF.

Reform Options:

91. Taxpayer services should be shifted from direct contact in local offices to (centralized) Call

Centers and the internet. These channels are more cost effective and also allow for standardized

information and quality control mechanisms.

92. The number of territorial offices could be consolidated, once an IT enabled service delivery

model has been developed. In the longer run, offices at the county level would be sufficient, in

conjunction with specialized offices for large and medium sized taxpayers. However a thorough

downsizing of the number of local offices must be preceded by improving IT support and web-based

taxpayer services and by facilitating e-filing. Further in-depth analysis should show where potential cost

savings could be found. ANAF‟s business strategy should probably develop along the following lines:

develop an integrated IT platform that will support all core business functions:

registration

filing

audit selection

payments and collection

introduce and stimulate e-filing across the board

consolidate the field office organization

reduce the overall workforce and establish extensive retraining programs.

Reducing Compliance Costs

93. High compliance costs in Romania are caused by a large number of tax returns and

payments required for taxpayers under the existing procedures. In terms of the number of payments

Romania ranks 182 out of 183 in the World Bank “Ease of Doing Business” Survey 2010. This has a

negative impact on Romania‟s overall ranking in “Ease of Taxation” (149 out of 183). There are a number

of reasons for the high number of tax returns and payments, including:

The current requirement for separate returns and payments for each PIT taxable transaction, for

example rental income has undermined the advantages that are associated with the flat PIT rate

which in principle would allow most of the individual taxpayers to stay outside the system

ANAF now also collects contributions for the three social security houses. Employers however,

due to the different basis for withholding tax and each of the three contributions have in fact to

calculate and file four separate returns. An effort to harmonize the basis for the four levies is

underway. Although this is a difficult undertaking it is very important for cutting compliance

costs to achieve this harmonized basis.

47

94. The impact of the large numbers of returns and payments is aggravated by the fact that

most interactions take place through physical visits to tax offices for both returns filing and

payments. While E-filing is possible for registered taxpayers, the costs associated with the required

qualified electronic signature have discouraged the use of this channel.

Reform Options:

Reducing compliance costs is a priority since high compliance costs are damaging to business

climate and discourage voluntary compliance. A number of actions could be taken to reduce

compliance costs:

Stimulating e-filing is the first priority. Opening up e-filing for all taxpayers in 2011 at the

latest should receive serious consideration, even if this would have to be implemented as a stand-

alone option for the time being (in absence of integrated tax administration wide IT systems). The

present system, which generates the paper based tax return form with a bar code could form the

core of a temporary application, which could later be integrated into an overall architecture.

Issuing online receipts for returns should be part of the concept, since the demand for certainty is

one of the reasons taxpayers now file in person at the office.

Gradually abolishing cash payments at the tax offices should also have priority. Many

modern tax administrations have abandoned cash payments because they are costly to both the

taxpayer and the tax administration. They also create a security risk. A further move away from

cash payments to bank transfers would thus be desirable. If commercial Banks which are used as

intermediaries, charge transfer fees these could be borne by the tax administration. In addition,

electronic payment service maybe offered directly by the treasury (an issue also discussed in the

budget execution section of this report).

An effort to harmonize the basis for the four levies is underway. Although this is a difficult

undertaking it is very important for cutting compliance costs to achieve this harmonized basis.

Management of Information Technology

95. Information technology is a critical enabler for a modernized MOPF. Along with changes in

processes and procedures, strategic investments in information technology can be leveraged to yield

internal efficiencies, cost reductions and performance improvements in the way MoPF operates. It would

enable further automation of routine tasks, such as transaction processing, and enhance fast exchange and

analysis of financial information needed for effective budget management and decision making.

Box 9 International Experience - Tax Administration Reforms

Modern concepts of self assessment and use of risk based audit selection requires very few tax offices - one for

large taxpayers and a few regional offices for medium tax payers; the old approach of territorial presence of tax

offices has long been given up in many countries with the advances in IT and communications. Example: US has

just 5 data processing centers for the whole country; Bulgaria has recently reduced the number of regional

offices from 350 to 30 tax offices in synch with a modernization of processes and investments in IT. Equally, the

Czech Republic is reducing the number of regional tax offices from 210 offices to 14.

48

Current Application Portfolio

96. MOPF has invested significant resources in the modernization of its IT environment. In the

last few years, there have been major IT improvements financed by World Bank and EU programs. The

technology platform at MoPF is relatively up to date given the major IT investments in mid-2005. All

hardware is covered by appropriate support and maintenance arrangements. However, given funding

issues, upgrades and equipment replacement are not programmed in the IT investment plan even as the

assets are beyond their normal life expectancy. There are approx. 45,000 IBM PC compatible computers

in use at the MoPF, using Microsoft Windows (especially Windows XP), Lotus Notes Client and Office

applications. The MoPF possesses a significant server hardware infrastructure with approximately 800

servers with Intel and Power processors. The current network architecture uses a standard multi-zone

configuration consisting of the following zones: DMZ, applications and database zone. The various

systems in the zones are configured to be highly available using IBM's high availability cluster

multiprocessing running AIX. Systems are themselves secured using Tivoli Access Manager. The

network infrastructure is distributed over three levels: central level located in Bucharest, county level

located in each county capital and local located in the country at local community level (LAN: all

equipments connected, WAN: all 600 buildings connected, Security: firewalls, routers with encryption,

smart cards).

97. The current IT infrastructure and systems are based on a large number of custom built

applications that could be better integrated. Production systems exist to support major business

processes, including budget preparation, payment processing and reporting. Most of these application

systems have been developed in-house by DGTI staff and with support from software vendors (e.g.

Oracle) and are thus customized to the requirements of the MoPF. The current IT systems are a

combination of legacy systems supported by older technologies (e.g. Microsoft Visual FoxPro-based,

Oracle 8i), and newly developed web-based applications available on the Intranet and Extranet supported

by newer technologies (e.g., Oracle 10gR2, IBM WebSphere Application Server). Data bases are stored

on a large number of client servers at county level treasuries or at the level of budget holders. The current

strategy is to move from a Client/Server Distributed Database Architecture to a Web Applications

Architecture with a centralized Oracle Database. This migration is currently underway.

Figure 13 Current MOPF Application Portfolio

49

98. Data cannot be seamlessly shared across functional boundaries. This, together with uncertainties

about the requirements related to e-Signatures (discussed below) has posed constraints to automation.

There is a lack of end-to-end automated processes and manual intervention is required draining an

inordinate amount of human resources to validate and reconcile information. It has also resulted in a lack

of reliable and timely data on budgetary commitments and detailed budget execution. Apart from

aggregate reporting on cash disbursements no other fiscal data is readily available across all counties.

Functional Gap Analysis

99. The budget preparation module has the main functionalities required to support budget

preparation. BUDGET-NG allows for the capturing and reconciliation of budget requests and, based on

these, produces the consolidated budget documentation. BUDGET NG is not interfacing with the treasury

application.

100. A core treasury application is in place. TREZOR is used for the processing of payments.

Payment order processing is partially automated, with desktop applications used to generate payment

orders with barcodes. The payment orders are taken by representatives of the budget holder to the local

treasury, where quality controls and verifications are performed and payment is processed. Currently, the

data associated with processing of the payment orders by local treasuries is captured in local databases

and replicated daily at the center through batch files. Data is recorded at the highest level of the economic

and functional classification. The payment information also contains a unique identifier (Taxpayer

Identification Number) for the spending unit or tax payer (in case of tax payments).

101. The budget is controlled through budget credit openings which are processed manually. The

related section on budget execution provides a detailed description and analysis of this process. Credit

openings are registered centrally in CREDITE and then sent via postal mail to the designated local

treasury offices which re-enter them into the local TREZOR databases. BUDGET-NG currently integrates

with the CREDITE at the central level and automatically validates whether the credit opening is within

the approved budget. At the same time, the credit openings system (CREDITE) is integrated at the

central with treasury database to automatically verify that a payment order does not exceed the credit

opening amount. The current transition to a centralized database architecture may address some of the

manual processes mentioned above.

102. Financial and operational reporting functionalities are limited. While the Chart of Accounts

and Budget Classification Structures, as well as accounting standards and methodologies are defined at

the central level (MoPF Accounting Methodology Department, Budget Synthesis Department), the

systems supporting budgeting and accounting operations of each public institution are decentralized.

Each budget holder has its own financial management (accounting) system to record transactions. No

standard accounting software package(s) has been defined (or certified) by MoPF. More importantly,

accessing data from local systems of each public institution is addressed through one-time requests,

replication and manual transmission processes. Current processes for producing consolidated financial

reports ( monthly, quarterly, annually) entail collecting information at different levels in the current

budget holders‟ hierarchy, with data quality control, aggregation and consolidation performed at multiple

levels by different actors. The current processes involving verification, consolidation and aggregation are

labor- and time-intensive. The supporting desktop-based application, DARSAM, is complex and difficult

to use, especially for staff that are not computer literate. More importantly, since the data is consolidated

upstream and stored in local systems of the tertiary, secondary and primary Budget Holders, detailed

budget execution data is not stored centrally nor available for re-use. As such, analysis is limited to the

summary level. Analysis at a lower level of aggregation is difficult to achieve at MoPF such as analysis of

labor expenditures across public institutions.

50

103. Currently, there is no easy mechanism to conduct time-series and comprehensive analysis to

identify trends in spending and revenue collection over time. Centralized data processing facilities do

not exist, and data mining capacity is weak. A data warehouse is being implemented at MoPF but it

primarily focuses on serving the needs of the tax administration. A high level gap analysis of the support

these systems provide is shown below.

Table 7 High Level Functional Gap Analysis

Budget Preparation Support Core Systems

Electronically receive and track budgetary appropriations at line item level, based on

the Budget Code Classification.

Y BUDGET-NG

Support multi–year budgeting (budget year plus up to three years‟ Forward Estimates). P BUDGET-NG

Transfer the approved budget data into the Treasury General Ledger (TSA). N

Budget Authority Management

Store the Annual Budget Appropriations by user-defined aggregates of the budget

classification.

Y BUDGET-NG

Provide for changes in the Annual Budget Appropriations during the FY. P MODIF,

CREDITE,

manual

Permit the primary budget user to request budget credit openings and ensure all

required authorizations are obtained before quarterly/monthly credit openings become

effective.

P Manual

MODIF

CREDITE

Commitment Management and Control

Capture and manage commitment transaction records. N

Perform automatic checks whether the proposed commitment is within the available

Annual Budget Appropriation and the MTEF envelope (for multi-year commitments).

N

Payment Management

Register payment orders submitted by Bus; the system should support different input

channels for payment requests, including manual and electronic.

P TREZOR-NG

Some manual

process

Verify the amount against the credit opening established for the concerned BU. Y TREZOR-NG

Automatically generate transfer orders and provide an interface with the TRANSFOND

system (e.g., the Romanian RTGS) to draw down the TSA to make payment to the

supplier through the clearing system.

Y TREZOR-NG

Store spending and receipt transactions with all the user defined data fields, including

in accordance with the prescribed chart of accounts.

P TREZOR-NG

General Ledger (Accounting)

Maintain budgets and actual accounting for all transactions in all business areas. N

Automatically generate G/L postings, or budgetary account postings as appropriate at

the time of transaction processing.

N

Maintain G/L with flexible Chart of Accounts structure capable of generating output

with respect to internal and external reporting requirements.

N

Cash Management

Record cash flows and balances of Treasury as reflected in the TSA. P TREZOR-NG

Interface with other modules of the system to extract information regarding actual and

likely cash flows.

N

Consolidate all the recorded information on cash flows in accordance with user-defined N

51

algorithms and classification details for user-defined periodic intervals.

Reporting

Generate standardized reports on budget commitments and cash expenditures and

receipts broken down budgetary classification (CoA), and for user defined reporting

periods (monthly, quarterly).

P DARSAM

Extract, sort, and sub-total information on ad hoc, user-defined basis for use as on-

screen viewing, screen print, paper output or data file output.

P DARSAM

Provide drill-down capacity to facilitate investigation of amounts to progressively more

detailed levels.

N

Historical Data Analysis

Store and provide access to historical data records and allow reporting according to user

defined formats

N

Note: Y: Supported. P Partially Supported. N: Minimal or no support.

Security and Identity Access Management

104. Initiatives to automate current manual processes, such as debt service payments, are

hindered by the need to have greater clarity on the use of electronic signatures. This requirement is

essential in ensuring the integrity of transactions and preventing fraud. Identity and access management

are in place and linked with the application systems, based on certificates issued by the MOPF. However,

since the legal framework (Law on eSignatures) permits only qualified electronic signatures as the

equivalent of written signatures MOPF has been reluctant to replace paper processes as the ultimate form

of authorization with authentication methods that do not meet the requirements of qualified electronic

signatures, which are costly. In order to enable automation and electronic processing of workflows in the

Ministry, the legal requirements should be clarified in respective regulations. Secure (non-qualified) e-

signatures, including through certificates issued by MOPF, should be considered as means for

authentication and authorization especially where internal processes are concerned. As the need for an

integrated information environment becomes more pressing, investments in Enterprise Identity Access

Management capabilities that leverage existing capabilities for digital signatures will be needed to enable

better audit, activity tracking and monitoring and non-repudiation functions at MoPF.

Table 8 Electronic Signatures in EU Member States

Types of signatures Legal equivalence to handwritten signatures

Austria Two types are defined: "Basic" and "Secure" e-

signatures. Secure e-signatures are AES which in

addition: i) are based on a QC, ii) are created using

technical components and procedures which comply

with the security requirements as stipulated in the

Austrian regulation.

Secure e-signatures meet the requirements of

handwritten signatures, especially the requirements of

written form as defined in Austrian Civil Code. A

special law or agreement between the parties may

provide otherwise. Presumption of authenticity of

private deeds signed with a secure e-signature.Secure

e-signatures do not have the legal effects of

handwritten signatures for: i) legal transactions in

family and inheritance law requiring a written or other

special form, ii) declarations

Belgium Three types are defined: "Basic" as in the directive and

advanced e-signature (responding to the same

requirements as in the directive). Implicit recognition

of a higher level of signature (being the "qualified"

one: AES based on a QC and created by a SSCD).

AES based on a QC and created by a SSCD are

assimilated with handwritten signatures, irrespective

of the fact that the signature has been put by a legal or

natural person

Denmark 3 types: "Basic" - AES (defined as in the directive).

The law implicitly recognizes a "higher level" of

signature, the "qualified" e-signature: AES based on a

If law stipulates that electronic messages/documents

shall be provided with a signature this requirement is

met as long as a "Qualified" e-signature is used. In the

52

Note: AES: Advanced Encryption Standard, QC: Qualified Certificates, SSCD: Secure Signature-Creation Device

Source: Interdiciplinary Centre for Law and ICT, University of Leuven.

IT Governance and Organization

105. There is a total of approximately 200 IT staff at MoPF/ANAF HQ and 800 IT staff in the

territorial ANAF offices. Of the 200 IT staff at HQ, approximately 150 organizationally report to the

Tax Administration IT Director General, and approximately 50 to the MoPF Director General –

Information Technology. In the organizational structure, the 800 staff in the Territories report

administratively to the local administration. As such, the central IT Department is not able to leverage

these resources to distribute work that is heavily concentrated in the center. The IT Team at MoPF is

responsible for the following core functions to ensure smooth operations of the systems, networks and

database: hardware and software maintenance, network infrastructure support, application development,

IT procurement, IT strategy and general principles. Given that the IT Department at MoPF used to be one

group, rather than two separate directorates, IT supporting MoPF provide cross support to Tax

Administration and vice versa. Both teams work closely and collaboratively to ensure smooth operations.

106. The level of IT staffing in MoPF has remained constant at around 200 36

(both MOPF and

ANAF) since the 1990s despite the increase in the level of automation. Consequently, IT staff are

constantly multi-tasking, maintaining operational systems and developing new systems. In some areas,

such as support for payment processing systems, there are no dedicated staff to support this function.

107. At the moment, there is no systematic mechanism for IT to engage with business to prioritize

IT initiatives. Despite its limited resources, the IT team has taken strides to opportunistically modernize

IT systems to address specific business requirements, but the IT investment process is not systematically

linked with the business strategy. IT investments can be transformative for MOPF business and can

profoundly affect the performance of MOPF. This necessitates a more strategic view of the management

of IT assets and investments to assure responsiveness to business needs and to mitigate the more

substantial operational risks associated with IT failures. It has been recognized across MOPF that the

alignment between IT investments and business direction could be improved.

ANAF IT Support

108. IT support available for ANAF operations is limited and fragmented. Centralized data

processing facilities do not exist, and data mining capacity is weak. Data exchange between the tax

administration IT system and other systems requires improvement, in particular with regard to automatic

data transfer between tax and customs functions and the data exchange with property registers. Of

particular concern is the low level of electronic filing of tax declarations. Apart from the limited

availability of computers in the taxpayer population, this is primarily due to the requirement to obtain a

costly electronic signature before a return can be submitted electronically.

36

As of September 2009, total filled /vacant positions for both MoPF and ANAF IT were 183/224 of which MoPF = 23/29 and

ANAF = 160/195 (Source: Presentation on IT System of the Public Finance Ministry (PFM), Adrian Popescu, January 2009).

For 2010, for ANAF only, the total filled /vacant positions are 149/197 (Source Organigram DGTI ANAF 2010)..

QC and created by a SSCD case of electronic messages/documents to or from

public authorities, this rule applies unless special

legislation provides otherwise

Romania Three types: "Basic" / Extended e-signature (being

equivalent to the AES of the directive) / Also,

provision for a higher level of signature ("Qualified"):

Extended e-sign based on QC and created by a SSCD.

When the written form is required as proof or validity

condition of a legal document in cases stipulated by

law then: a document in electronic form shall satisfy to

this condition provided that there is an extended e-

signature attached to it which is based on a QC and

created by a SSCD.

53

109. The communication between legislative staff in the MoPF, the department that designs the

business processes and the IT department should be improved. There seems to be a lack of

understanding that the introduction of new legislation or changes in present legislation require intensive

communication between lawmakers and the administration at an early stage. Also it must be understood

that changes take time to be implemented as well in existing IT applications as in newly developed

systems.

Reform Options:

7.1 Strengthen IT Governance

110. A comprehensive and detailed IT Audit is recommended to assess the MoPF's information

systems, practices and operations. A detailed review is warranted to ensure high performance, optimal

use of IT resources and alignment of IT investments with business priorities. It would be opportune to

review the funding model, staffing levels, and distribution of functions between the IT staff at MoPF and

its territories.

111. IT governance at multiple levels (strategic, tactical and program and project levels) is

essential since limited IT resources are needed to support a modernization program and at the

same time, to keep existing systems running. Impediments beyond the IT Department‟s control (cross-

department issues, legislation, business processes, data definitions and standards) need to be addressed

with senior management leadership and guidance.

A corporate IT Governance board should be established to bring together the main business units

and the IT professionals.

An IT strategy with a costed investment plan should be prepared to guide investments.

The IT department could be organized with dedicated staff serving key departments in MOPF to

ensure consistent and responsive service capabilities.

7.2 Integrate Financial Management Systems

112. The need for a more integrated IT system to support budget management is well recognized,

but has not been implemented mainly due to financial constraints. While costly, over the medium

term, the integration of expenditure management functions with a centralized data base and general ledger

to record all stages of the transaction processing, including appropriations, opening of budget credits,

commitment, purchase, payment request, reconciliation of bank statements, and accounting of

expenditures, will provide solid returns. There are several technical options for modernizing MoPF

Financial Management systems. These options range from augmenting existing systems, replacing a few

components, introducing computerized data exchange mechanisms between related sub-systems across

the expenditure management cycle, and investing in an integrated Public Financial Management system.

Both options have unique advantages and disadvantages. Adaption and expansion of the current central

and decentralized systems could help safeguard investments already made and minimize the cost and

effort associated with the implementation. Utilization of existing ERP platform on the hand allows the

MOPF to benefit from tested solutions and optimized processes associated with these packages. Advising

on the appropriate and most cost effective solution is beyond the scope of this review, but could be

explored if this is a MOPF priority.

54

Box 10 IT Modernization in France and Germany

In conjunction with legislative and process changes IT investments are important enablers for modern public financial management. Both Germany and France have recently begun to plan and implement comprehensive IT modernization programs as levers for modernizing and rationalizing budget and accounting processes. France: France is in the process of revamping the IT environment for public financial management to strengthen operational support and compliance with organic budget law LOLF (Loi Organique Relative Aux Lois de Finances) passed in August 2001. The program is called CHORUS and aims to provide every French government agency, at both central and local levels, with a shared, integrated application for finance, budget management, accounting and reporting. In the past Ministries deployed several different information systems to manage public funds. The Chorus project will integrate all of the systems involved in state expenditures, non-tax receipts and accounting into a single, unified IT landscape. It is based on a SAP enterprise resource planning (ERP) platform and will replace existing inter-ministerial applications, while delivering part of the functionalities currently performed by each ministry’s internal management applications. Chorus will ultimately concern more than 20,000 users. As such, Chorus is the largest inter-ministerial IT investment program ever undertaken in France. The four-year project was launched in April 2007 with an estimated cost of approximately EUR 0.5 Billion. Operational project management is being led by the Finance Ministry’s AIFE information technology agency, with input and supervision by other ministries, as well as by the budget office, the state agency for government modernization (DGME) and the government accounting office (DGCP). Initial deployment is begun in 2009 with a rollout to all French government budget and accounting departments being underway. During the first deployment wave Chorus was placed in every local education, and particularly in the Departments of Defense, Interior and Justice. AIFE in parallel prepared for a major wave in early 2010 on the extension scope to cover advanced features, including management of requisitions, inventory management and a paperless document management system. Germany: In Germany, major IT investments were planned to support to move to product (program) based budgeting and accounting that was initiated in 2006. The project is called modernization of budget and accounting framework. The IT modernization is closely linked to budget reform that aim to convert the federal budget to focus on performance and resources by introducing a product based budget classification and modified accrual accounting system, including a capital account. Needs for addition IT capabilities have been identified in particular to support a central business intelligence (BI) system to be added to the central processes for planning, managing funds and rendering accounts. A detailed concept, including options for the IT architecture, has been developed. The most likely option is to adapt and expand the current central and decentralized processes, in order to safeguard investments already made and minimize the cost associated with the implementation of new technical requirements of the product budget, integrated cost accounting processes and the capital account. The system communication, the systems and the interfaces will therefore be modified. Unlike France the chosen IT architecture is envisaged to integrate existing central and decentralized components, rather than replacing the current central components with a central ERP system and thereby achieving the overall integration of decentralized and central components. To attain system integration, uniform data exchange standards will be introduced to the existing decentralized budgeting and accounting systems and certified architectures for ministry-level systems will be developed centrally for ministries. The Parliamentary budget commission recently suspended funding for the project requiring further clarification from the federal MOF which is now working on a strategic realignment of the project.

55

7.3 Modernize IT Support to ANAF

113. ANAF could consider procuring a fully or largely COTS integrated solution. This was also

recently recommended by the IMF FAD. COTS software solutions are used for two fundamental reasons:

to profit from processes developed by organizations all over the world, that are implemented in

the COTS application

to be able to avoid high maintenance costs while upgrading to newer versions of the COTS

application.

It should be noted that despite these advantages, bespoke solutions are more commonly used for revenue

management.37 ANAF, if it chooses to pursue a COTS (“buy rather than make”) solution, as suggested

by the IMF and supported by this review, should seek to share peer experience with the implementation of

such systems within the IOTA.

Human Resource Management and Internal Communications

Human Resource Management

114. A functional human resource management system will allow the MoPF to recruit, retain and

motivate a staff with the attitudes and skill sets needed to carry out the core functions of the

Ministry. It will allow the senior management of the MoPF to allocate human resources strategically

across the various agencies in accordance with priorities set forth in its Strategic Plan. The system should

permit sound decisions about staffing levels based on a workload analysis, expected results, and the

resources needed to achieve them. It should embody a structure of grades and titles that compensates

employees differentially for the kind of work performed. It should also reward employees differentially

based on valid performance appraisals. The system should provide opportunities for the staff to learn new

skills and modify attitudes through providing training. Attention should also be paid to career

development and succession planning, especially for the Ministry‟s most senior managers.

115. The Ministry is a knowledge-based organization and its workforce is a key strategic

organizational asset. The public finance function at all levels is staffed with highly educated and

dedicated professional staff. More than 90 percent of Ministry staff have tertiary education, a majority in

economics and accounting, followed by law. 84 percent of staff report that they are proud to work for the

Ministry. Most staff have generally positive views of the Ministry. Most generally, there needs to be a

recognition that the MOPF is a labor and knowledge intensive service organization and that, as such, its

assets come to work in the morning and go home in the evening. Like any corporate assets, they have

value and should be managed with care. They lie at the heart of the mission of the MOPF.

37

Tax Reference Model- Application Software Solutions to Support Revenue Administration in Selected Countries,

March 2010, p.4

56

Figure 14 Staff Survey Results 1

Source: MOPF Staff Survey.

116. The compensation system at the MoPF is widely perceived as a fragmented, opaque, and

asymmetric system. This risks undermining staff motivation. Compensation practices that pre-date the

new Unitary Pay Law included bonuses, grants, and various forms of allowances, some of which were

provided at the discretion of MoPF managers while others are categorical, for example, for staff involved

in EU-funded projects. Under this system, which is being overhauled by the Unitary Pay Law, about one

third of the total wage bill (in 2009) was dedicated to paying non-base pay compensation. As part of the

austerity measures many of these allowances were suspended, although some important ones remain. The

system has produced asymmetric pay levels across the organization leading to invidious comparisons

across the various organizational units of the MoPF. This is confirmed by the results of the staff survey.

More than half of the respondents expressed unfavorable views about the ability of the Ministry to reward

performance. With similar work differentially compensated, another result is the creation of a talent

market in which high-performing employees are attracted to work areas that pay bonuses while other

areas suffer a brain drain.

Figure 15 Staff Survey Results 2

Source: MOPF Staff Survey.

117. While compensation levels are reported to be sufficient to recruit qualified employees (before

the current hiring freeze), retention is widely reported to be problematic. Executives and managers

widely report that they can attract qualified personnel but that the best often resign after a couple of years

to seek opportunities elsewhere. Although this is to some extent inevitable, it apparently poses a

significant threat to the ability of key departments to perform adequately. As reported, this retention

problem is especially acute among the Ministry‟s younger staff that uses the cachet and prestige of their

64%

61%

48%

51%

43%

Favorable

25%

20%

29%

23%

31%

8%

9%

14%

16%

18%

3%

5%

5%

6%

6%

1%

5%

3%

5%

2%

Unfavorable

0% 20% 40% 60% 80% 100%

I have a good understanding of what is expected from me in my job.

My manager demonstrates the technical competence to lead the group effectively in meeting its overall goals.

In my work group, individual staff are held accountable for their performance.

I am proud to work at the Ministry of Public Finance.

How does the Ministry of Public Finance compares with other employers?

Legend

Percentage Responses

36%

27%

24%

18%

Favorable

24%

33%

19%

15%

12%

15%

30%

13%

17%

15%

20%

29%

12%

10%

8%

25%

Unfavorable

0% 20% 40% 60% 80% 100%

Staff and manager changes (e.g., promotions, reassignments) in my work group are made on an …

The resources allocated for my tasks are adequate to do a quality job.

I have a good understanding of the direction in which Senior Management is leading the institution.

In the Ministry of Public Finance, staff are rewarded according to their job performance.

Legend

Percentage Respondents

57

experience at the MoPF to market themselves elsewhere for higher pay and greater opportunity for

advancement. A recent step to eliminate the bonus scheme (stimulante) has resulted in significant pay

reductions across the Ministry and may further undermine the ability to retain qualified staff at the current

base salaries.

118. There is, as yet, no strategic human resources plan for the MoPF, one that would align staff

allocations with the substantive priorities of the MoPF. The current HR function is largely reduced to

administering a personnel system rather than managing human resources strategically in support of the

MOPF business strategy. The result is that people are not managed in a way that optimizes performance.

In discussions with the Ministry‟s senior officials, apparent misallocations were widely reported (See also

the analysis of staff allocations across functions in section 3.). The staff survey also found about a quarter

of respondents reporting that their work area is under-resourced. Staffing levels often tend to be artifacts

of organizational history rather than reflections of current needs. In the short run, these patterns are quite

difficult to rearrange in a rigid civil service and collective bargaining environment, as civil servants

cannot be transferred from one department to another without their consent. However, a longer term

strategic HRM plan aligned to the MOPF strategy could increase the likelihood that, over time and with

attrition, staffing resources can be more closely aligned with MOPF priorities. Some realignment of

resources across different functional areas will also be needed with the envisaged shift in the compliance

management approach. There will be increasing need for experienced auditors and taxpayer service

experts.

Reform Options

7.1 Strategic Human Resource Management

119. Human resources alignment means integrating decisions about people with decisions about

the results MOPF is trying to obtain. A strategic HR process should involve senior management, line

supervisors and employees. A thorough staffing analysis and workforce planning model, with external

support as required, of the MoPF could provide the basis for a reallocation of human resources that will

align staff resources with established priorities.

Internal Communications

120. The internal communications channels of the Ministry are weak or lacking. While the

ministry leadership is focused on responding to a multitude of external pressures, the business of leading

and managing the organization is undervalued and is not given the recognition and resources required to

improve efficiency and effectiveness. Employees are not routinely informed about the priorities and major

initiatives undertaken by the MoPF. Less than half of the respondents in the staff survey felt they were

well informed about the overall direction in which the senior management is taking the institution.

Consistent and clear communication of the MOPF mission and its strategic direction is essential to

aligning the energies of the knowledge workers who staff the Ministry. Not engaging the MOPF

workforce more consistently and more broadly in the major issues confronting the Ministry is a lost

opportunity.

Reform Options

7.2 Strengthen Internal Communication

121. Internal communications could be strengthened through several means. Media such as an in-

house newsletter, ramping up the intra-net, “town hall” meetings or “all staff” gatherings can be useful

tools for senior officials to showcase new initiatives, communicate important priorities, and simply

58

disseminate news (good and bad) that affects working conditions. MoPF‟s communications program

should aim to engage its employees in a two-way dialogue on its substantive initiatives, programs, and

projects. There is untapped potential among the Ministry‟s educated workforce. New ideas, innovative

approaches, and suggestions for better ways of doing things can come from anywhere in the Ministry, if

channels are opened up and management convinces employees that their views are sought and valued.

V. MANAGING CHANGE

122. The volume and importance of the changes noted in this report will require varying

commitment levels, timing and resources. Employees and large groups of management will have to

cope with uncertainty and will be asked to accept changes in their jobs, in the work environment and in

many other respects. Like any other complex organizational change program, the likelihood of successful

implementation will increase if certain preconditions are met:

High level reform commitment and leadership: Real change will only happen when

top management assumes ownership of the process. Before initiating the program MOPF must

have political support at the level of the cabinet as a whole or at least of the Prime Minister.

Leadership by the Minister of Public Finance and the state secretaries is critical. The government

might want to consider establishing a steering committee for public finance reforms. This would

help elevate the profile of the reform effort and provide a mechanism for collaborative planning

and decision-making at the organizational level. This body would also serve to monitor

timeliness of deliverables and the appropriate use of resources related to each program. The

secretary general of the MOPF, the directors general, might be nominated as members of the

steering committee, which could be chaired by the minister of finance. The steering committee

would be supported by small professional program management office which would be recruited

from within the MOPF.

Active Change Management: Reform of the nature and scale envisioned here will

inevitably meet some resistance. It is therefore important to prepare staff, managers and

stakeholders (including parliament, audit and the general public), for change by disseminating an

overview of the planned reforms, including their goals, means, and timing. A structured program

of training sessions, conferences, events, web-pages and other communication tools would

complement and contribute to disseminating the agenda.

Sequencing and prioritization: There are numerous competing short and medium term

change priorities that challenge the MoPF and its senior management. To manage the change

agenda it is important to be realistic and selective about what can be accomplished, what

resources are required to successfully implement them, and the timing of specific changes. It is

also important to sequence the change agenda to avoid change-overload which could lead short-

term decline in overall performance and undermine the effort.

Ensure investment needs are covered: Resource requirements are significant, both

financially and in terms of staff and leadership attention needed to move this forward. In

particular, IT modernization on both the expenditure management and revenue administration

side will require predictable resource commitments in the range of US$ 140 Million.

Result oriented implementation arrangements: The top leadership should be assisted

by a small (5 to 10 staff), high level, professional program management office which would be

recruited from the MOPF itself. Successful work in the team would be a strong recommendation

for a future career within MOPF. It will also be important to set clear benchmarks or milestones

against which progress can be monitored. Leadership will not only need to be involved at the

upstream planning exercise but also follow through the implementation of any agreed change

management program.

59

Prioritizing and Sequencing Reforms

123. The proposed reform agenda is ambitious and long term in nature. Realistically, not all can be

done at once. Given limited resources prioritization is key to achieving results. The proposed actions

already reflect a selective reform program and as such are the result of prioritization. However, some

measures (in particular if implemented in isolation) will improve public finance only marginally, while

others are real game changers that will enable performance to move to the next level. The prioritization

of the reform measures should be led by the Ministry itself, but to facilitate that process an initial

prioritization of recommendations in terms of their impact has been undertaken and is presented in the

table below. The expected impact is based on three criteria: 1) The potential impact, or benefit, of

addressing the problem, 2) The potential cost of addressing the problem and 3) The cost of not addressing

the problem. Critical impact reforms tackle key binding constraints and require immediate attention. High

impact reforms are important but reflect areas where progress is already underway. Enabling reforms are

important but will only achieve significant impact if implemented in conjunction with other reforms.

Table 9 Prioritization of Reform Measures

Critical Impact Reforms High Impact Reforms Enabling Reforms

Prudent Revenue Estimation (1.1) Monitor and Control Fiscal

Impact of new Legislation

(1.3)

Reorganization (3.3, 6)

Top Down Budgeting (1.2) Policy Based Expenditure

Prioritization (2)

HR Management and Internal

Communications (8)

Improve Financial Reporting

Capabilities (3.2)

Further Streamline

Transactional Banking

Services(3.1)

IT Governance (7.1)

Accelerate EU Absorption

(4)

Revenue Administration

Reform (5)

124. Further work is needed to develop a Government-owned, long-term and actionable road

map that sequences changes in strategy, processes, organization, and systems. The roadmap should

combine larger strategic efforts, such as the introduction of a computerized Treasury general ledger, with

near-term foundational “quick win” initiatives, such as a commitment recording capability in the treasury

system. The way that individual reforms link and support each other is crucial to their effectiveness.

Therefore, the action plan should reflect these connections taking into account the reality of progress

made in each functional area. Annex 1 provides some initial considerations in this regard.

60

ANNEXES

Annex 1 Action Matrix

Objective Sequenced Actions Impact/Priority Implementation

Period

Responsibility Progress/Output Target/Outcome Estimated Resources

requirements

(critical, high,

enabling)

(< 6 months, < 18

months, > 18 months)

Indicator

€1

Reform Area 1: Improve Budget Credibility and Macro Fiscal Discipline Deviation between

Budgeted and

Actual Revenue Deviation between

Budgeted and

Actual Deficit (Percent of GDP)

<5 Percent

<0.5 Percent

1.1

Institutionalize Prudent Revenue

Estimation

Implement the provision of FRL for the

Minister of Public Finance to attest to the accuracy and completeness of the

information provided in the Budget

Policy Strategy.

Critical <6 Months MOPF 0

Promote external validation and contestability by increased transparency

and independent review of Macro Fiscal

Framework by Fiscal Council (as mandated by FRL). Enhance

independence and status of the MOPF

Macro-Fiscal Unit by subordinating it

directly to the Minister of Finance.

Publish Fiscal Risk Statement, including

sensitivity analysis.


1.2

Institutionalize

Top Down Budgeting

Preserve the MOPF‟s right to

unilaterally adjust spending requests of

Line Ministries if submissions exceed ceilings. Allow Line Ministries to

allocate resources within the ceiling.


Institutionalize a Cabinet level

Ministerial Finance Committee Process as part of the budget process to create

collectively binding commitments to

ceilings aligned with Government priorities. Integrate the Budget Policy

Strategy (FRL requirement) with the

budget process and ensure consistent fiscal targets.

Critical <18 Months MOPF/GSG/Cabi

net

0

1.3 Monitor Enable Fiscal Council to initiate and High <6 Months Fiscal Council 0

62

and Control

Fiscal Impact of New Legislation

publish independent fiscal impact

estimates for legislation with significant fiscal impact (above threshold) and

especially if fiscal neutrality may be

violated.

Enforce requirement for legislative proposals which are submitted to

Cabinet to contain a fiscal impact

assessment prepared by MoPF

High <18 Months MOPF/GSG/Cabinet

0

Reform Area 2 Strengthen Policy Based Expenditure Prioritization Cabinet decides

Medium Term

Sectoral Ceilings for the FBS which

are complied with

during following years

At least 3 sectoral

spending reviews have been prepared

and inform the

budget process

2.1 Synchronize Budget Calendar

Harmonize the budget calendar of Law 500 and FRL. Integrate strategic

planning and budgeting processes.

High <6 Months MOPF 0

2.2 Refocus Budget Dialogue

on Policy and

Efficiency Issues

Institutionalize Strategic Budget Phase (in conjunction with Top Down

Budgeting) to drive expenditure re-

prioritization. Require sector ministries to separate baseline budgeting (funding

required to continue existing policies based on previous year‟s forward

estimates)

High <6 Months MOPF/GSG/Cabinet

0

Redevelop ministry strategic plans on a

program basis and strengthen link between these plans and the budget.

New initiatives should be justified and at

least partially financed from identified efficiency savings in the line ministry‟s

baseline budget (thereby allowing line

ministries to re-allocate across programs them and to retain part of the efficiency

savings).

Conduct selective (sectoral) spending reviews to identify efficiency gains and

low performing programs.

High <18 Months MOPF/LMs 0

2.3 Build Capacity for

Budget Analysis

Review and adjust the job descriptions and associated qualification

requirements of the positions in the


63

in the Budget

Department

Budget Department to encompass the

tasks associated with budget analysis

Conduct a training needs assessment and provide training program to both MOPF

and sector ministries on budget analysis,

including specific sectoral issues.

High <18 Months MOPF

Reform Area 3 Further Modernize Budget Execution and Treasury Functions Percentage of

Payment orders

submitted electronically

Time required for Commitment

Reporting

20 %

Real Time

3.1 Further

Streamline Transactional

Banking Services

Clarify the regulatory framework for

electronic authorization of transactions (eSignature requirements).

High <6 Months MOPF/MOCIS 0

Roll out of e-Account Statement pilot. Elaborate e-archiving specifications.


Automation of credit opening

procedures, and electronic submission of

payment orders. Develop e-Archiving system to support

automated paperless processes.

High >18 Months MOPF €€

3.2 Improve Financial

Reporting

Capability

Prepare Specifications for Computerized General Treasury Ledger.

Critical <18 Months MOPF €

Initiate Integration of accounting and

reporting system with the Treasury

payment system. Build interface to transfer approved

budget to the treasury data base. Record

commitments in the central treasury data base.

Critical <18 Months MOPF €€

Further develop computerized treasury

general ledger TG/L module that

accounts for all financial transactions related to budget, commitments, and

cash.

Automate Reporting Function from

TG/L

Critical >18 Months MOPF Time required and

periodicity for

Commitment Reporting

Real Time €€

3.3 Reorganize

Budget Execution

Functions

Reorganize budget execution department

responsible for credit openings (in coordination with budget department),

transactional banking services,

accounting and reporting.

Enabling <6 Months MOPF 0

64

Once operational processes have been

modernized and automated, evaluate the business needs for extensive territorial

branch network.

Enabling >18 Months MOPF 0

3.4 Further Improve Debt

and Cash

Management

Establish Cash Planning Committee in the MOPF comprising budget, budget

execution, macro-economic, debt

management units and ANAF. Establish bi-weekly jour fixe to short

term project cash needs.


Capture cash plans of spending units centrally in the treasury data base to

make them available for consolidated

cash planning.

High <18 Months MOPF

Upgrade the primary market auction system and make it electronic via a

platform to be decided upon. Clarify

regulatory framework to allow e-auctioning.

High <18 Months MOPF €€

Enable state treasury to directly trade in secondary market (use repos and buy

backs).

High >18 Months MOPF €€

Create a strategy group combining

representatives from different departments (macro forecast, budget,

debt). Develop risk management

framework.


Strengthen capacity of Middle Office to

perform financial market monitoring and analysis.

High <18 Months MOPF €€

Establish active risk management,

including derivatives to hedge against market risks and developing a

contingency risk framework for

contingent liabilities (guarantees)

High <18 Months MOPF €

Consider simplification of business process for debt service payments,

possibly including bulk approvals for

legally binding payments in accordance

with loan agreements and elimination of

preventive internal control requirement.


Pilot end to end electronic payment processing for debt service.

High < 6 Months MOPF €

Reform Area 4 Accelerate EU Fund Absorption EU Struc. Fund

Absorption Rate

>60 Percent

65

(time proportional)

4.1 Enhance

Financing Capacity

Enable strategic re-allocation of co-

financing shares to disbursing programs and projects.

High < 6Months MOPF 0

Strengthen the link between EU

programming framework, namely the operational programs and budget

allocations, as part of the annual budget

process

High < 18 Months MOPF 0

4.2 Enhance Administrative

Capacity

Fully implement the ordinance to prioritize staffing allocations, including

transfers of staff, related to the

implementation of EU programs.


Specific efforts are required with regard

to the Ministry of Transport, the

managing authority for the transport OP, including an immediate staffing needs

analysis. Project approval procedures

need to be streamlined to prioritize large and important projects, with a particular

focus on the Ministry of Transport


Reform Area 5 Modernization of Revenue Administration E-Filing Percentage

of Returns Number of Tax

Payments

>25 Percent

5.1 Strengthen Comprehensive

Compliance

Policy

Further advance tax payer segmentation and review the thresholds for large and

medium sized taxpayers.

High <6 Months ANAF 0

Institution-wide risk management should

be developed deploying resources

according the level of risk involved and amount of revenue at stake. In the large

taxpayer segment compliance should be

encouraged through specialized taxpayer services and more frequent audits. In the

medium taxpayer segment compliance

costs should be reduced and computerized risk management. For

small private and business taxpayers the

main objective will be to reduce the need for direct contact with the tax

administration and to enhance voluntary

compliance. Further development of the High Net Wealth Individuals segment

should also be pursued. A training

program for new staff members and existing staff will need to complement

High <18 Months ANAF €€

66

organizational and procedural reforms.

5.2 Reduce

Administrative Costs

Promote e-filing and reduce face-to-face

interaction with tax payers. mprove computerized risk based audit

selection and case management to better

direct audit resources.


Modernize business processes with

further automation.

Consolidate territorial organization.


5.3 Reduce Compliance

Costs

Restructure the returns filing which would require a smaller number of

returns.

High <18 Months ANAF 0

Promote e-filing and restructure the

payments system to make cash payments

largely redundant. Improve tax payer

services.


Reform Area 6 Organizational Reform Number of First Tier Operational

Units

<15

6.1 Consolidate first tier

management

Consolidate first tier management structure of MOPF around the core

public finance functions.


Strengthen SOE Oversight Function High < 18 Months MOPF 0

Reform Area 7 IT Modernization n.a. n.a.

7.1 Strengthen IT Governance

Establish IT governance board, comprised of the IT department and key

business units as the main decision

making body to guide IT investment and

management.


A comprehensive and detailed IT Audit

is recommended to assess the MoPF's information systems, practices and

operations. Develop IT strategy and

(costed) investment plan aligned with Ministry strategic plan.

Enabling < 18 Months MOPF €

7.2 Integrated

Financial Management

Information

System

Prepare Scope and Technical

Specifications for IFMIS

Enabling < 18 Months MOPF €

Introduce efficient, computerized data

exchange mechanisms between related

sub-systems across the expenditure

management cycle, most importantly between the budget, treasury and

reporting system. Centralize treasury

data base and create general ledger to record all stages of the transaction

Enabling < 18 Months MOPF €€

67

processing from appropriations, opening

of budget credits, commitment, purchase, payment request,

reconciliation of bank statements, and

accounting of expenditure.

Build Operational Data Store and then Data Warehouse as central repository for

all financial data records.

Enabling > 18 Months MOPF €€

Reform Area 8 Strategic HR Management n.a. n.a.

7.1 Enhance strategic, forward

looking HR

Management

Develop a HR strategy aligned to the MOPF strategic plan supporting the

business objectives of the MOPF.

Enabling < 18 Months MOPF 0

7.2 Strengthen

corporate

communication

Dedicate modest resources to allow for

more continuous internal

communication, either in the external communication division or the public

policy unit. Use MOPF intranet to

communicate key corporate priorities. Increase frequency of direct

communication between leadership and

staff through regular town hall meetings, etc.

Enabling > 6 Months MOPF €

68

Annex 2 Comparative Review of Organizational Structures of Ministry of Finance

Sweden Finland Austria Germany Hungary Slovenia Estonia Lithuania Denmark

Senior

Management

3 ministers

(Finance,

Financial Institutions,

Local

Government), assistant state

secretary

Minister,

Coordinate

Minister, State Secretary,

Permanent

State Secretary, 2 Permanent

Undersecretaries

(Economic

Affairs,

Administrative

Affairs),

Minister, State

Secretary

(plus Change Group,

and Capital

Market

Advisor)

Minister, 2

parliamentary

state

secretaries,

Minister,

Political State

Secretary, Administrative

State Secretary

Minister, State

Secretary,

Secretary-

General

Minister,

Secretary

General

Minister,

Vice

Minister, State

Secretary

Minister,

Permanent

Secretary

Number

second-level

Officials

5 state secretaries 6 Directors

General, 1

Controller-

General

5 Directors

General

3 state secretaries 4 deputy state

secretaries

6 Directors

General

4 deputy

Secretaries

general

4

Undersecretaries

5 deputy

Secretaries

Portfolios of

secondlevel

officials

State Secretary 1

-

Budget + Corporate

State Secretary 2

– Economic Affairs

State Secretary 3-

Fiscal Affairs (tax) +

Public

Management State Secretary 4

–

International + Financial Markets

State Secretary 5

–

Local

Government

DG 1: Corporate

Services

DG 2: Budget and

Public Finances

DG 3: Economic Policy and

Financial

Markets DG 4: Taxes and

Customs

DG 5: Information

Technology

State Sec. 1: DG

II,

III, VI, VIII State Sec 2: Z, I,

IV, V

State Sec 3: VII,

E

1. Budget

and

Financial Policy

2. Economic

Policy and Internatio

nal Affairs

3. Revenue and

Accountin

g 4. Food

Industry,

Treasury Asset

Managem

ent,

Financial

Services,

Infrastruct ure and

Business

Regulatio n,

1. Financial

System

2. Budget 3. Revenue

4. Treasury

5. Public Property

6. Public

Accounta

ncy

1. Financi

al

Policy 2. Govern

ment

Control 3. Internati

onal

Relation s

4. Internal

Services

US 1: tax +

accounting

methodolog y +

subordinate

body supervision

US 2: EU

Program + Financial

Market

Developmen t + Fiscal

Policy +EU

Affairs US 3:

Budget +

Financial

Control

US 4: State

Treasury + National

Fund

State Secretary:

DS 1:

expenditure

policy + traffic, defense, foreign

affairs, justice +

business affairs, DS 2 econ

policy: taxation

+ macroecon + law

model/income

DS 3 Administration

policy:

privatization, SOE, property +

Admin policy +

better regulation

DS 4 knowledge

economy and

local government:

Local

government, social, health

69

Privatizati

on and Asset

Managem

ent

Corporate

Functions

policy +

education, science, culture

+ labor market,

income transfer DS 5

international

policy: EU budget +

international

cooperation Administration

Secretary for

corporate

management

Number of

Major

Operational

Departments

7 7 5 9 4 6 4 10 14 divisions

Grouping of

Major

Departments

1. Budget

2. Economic Affairs

3. Fiscal Affairs

4. Public Management

5. Internatioal

6. Financial

Markets and

Institutions 7. Local

Government,

County Boards, and Housing

1. Economics

2. Budget 3. Financial

Markets

4. Tax 5.Personnel

6. Public

Management

7. Government

Financial

Controller‟s

Function

1.Budget and

Public Finances 2.Economic

Policy

and Financial Markets

3. Taxes and

4. Customs

Information

Technology

1.DG 1: Fiscal

Policy and Economic

Affairs

2.DG 2: Federal Budget

3. DG 3:

Customs,

excise taxes,

spirits monopoly

4. DG 4: Taxes

on Income,

property,

transactions, plus ecological taxes

5. DG 5:

Subnational financial

relations,

WWII claims

6. DG 6: Federal

Real

Estate & movable

property,

personnel

1.Budget

and Financial

Policy

2.Economic Policy and

International

Affairs

3. Revenue

and Accounting 4. Food

Industry,

Treasury Asset

Management,

Financial Services,

Infrastructure

and Business

Regulation,

Privatization and

Asset

Management

Academy of Finance, IT,

payroll,

accounting,

1.Financial

System 2.Budget

3.Revenue

4.Treasury 5.Public

Property

6.Public

Accountancy

Management

1,Financial

Policy 2. Government

Control

3. International Relations

4. Internal

Services

1.Tax

2. Accounting Methodology

3. EU Program

Management 4. Financial

Market

5. Fiscal Policy

6. EU Affairs

7. Budget 8. Financial

Control

Methodology 9. State

Treasury

10. National

Fund

1.Expenditure

Policy 2. Taxation

3. Traffic,

Defense, justice,

foreign

affairs

4.Business

Affairs, Transport

5.

Macroeconomic Analysis

6. Law model

and income distribution

7. Privatization,

SOEs, property

8.Administration

9. Better

regulation

10.Local

government, social,

health,

70

of state property

admin. 7.DG 7: National

and

International Financial Markets

and Monetary

Policy 8.DG 8:

Privatization

and Industrial Holdings Policy

9. DG E:

European Policy

Public

Investment & Real Estate

Internal Audit

Controlling

security) 11. Education,

Science, Culture

12. Labor

market, income

transfer

13. EU budget 14. International

Cooperation

Annex 3 Options for organizational structures

The organizational structures presented here express illustrations of the underlying principle to create

a more streamlined line management structure with fewer to level operational units. Not all aspects of

the proposed options may be feasible, especially in the short run. Any reorganization should be driven

by specific objectives, such as improving coordination in functionally related areas.

Minister

General Inspection

Internal Audit

Public Policy Unit

Legal Affairs

Minister’s Office

Director General Fiscal Policy

State Secretary

State Secretary

State Secretary

General Secretary Corporate Functions

Director General Budget Programming

Director General Budget Ex. & Public Accounting

Director General Revenue Policy

Director General Debt Management

Director General European Affairs

Director Human Resources

Director Information Technology

Director Internal Procurement

Director Internal Budget

External Affairs and Stakeholder Liaison

Authority for Certification and Payment

CHU Internal Audit

PPP Unit

Authority for Coordination of Structural Funds

Directorate for State Aide and Price Regulation

CHU Internal Control

Director General Corporate Accounting

Directorate General for Special Regulated Areas

Procurement Oversight and Coordination

Minister

State Secretary Expenditure Management

State Secretary Revenue Policy & PFM Regulation

State Secretary Debt Management & EU Affairs


Director General Budget Formulation



Director General PFM Policies and Regulations


Director General EU Affairs





General Inspection

Internal Audit

Public Policy Unit

Legal Affairs

Minister’s Office


72

Annex 4 Linking Performance with Budget Allocations –Issues and International Comparisons

General Issues

A key issue in performance based budgeting (PBB) or results based management (RBM) is the

linkage between performance and budget allocations. This annex discusses some general issues and

then gives some OECD country examples.

In all countries discussed below there has been a significant increase in the volume of performance

information and improvements in information quality, but this has not been matched by a

corresponding increase in the use of this information in the budget process.

A key point which emerges from international experience is that there is no necessary direct

connection between performance information and budget allocations. The World Bank 38

and OECD

have noted that there is no mechanistic link between performance and budget appropriations. Indeed

the OECD report on Performance Budgeting in OECD countries (2007) comments that designing

government wide systems that automatically link performance results to resource allocation should be

avoided, because such systems may distort incentives (resulting in “gaming”) and do not allow for the

underlying causes of poor performance. The report identifies three main approaches in OECD

countries

- Performance information is presented in the budget or other government documents but has no

apparent link with decision making (resource allocation or performance improvement), although it

may be used for accountability purposes.

- Performance information informs the budget process, along with other information and is therefore

linked indirectly with budget decisions

38

See World Bank, Performance Based Budgeting; Beyond Rhetoric, PREM Note 78, February 2003.

Performance Budgeting in OECD Countries, OECD 2007, Chapter 1.

Minister

State Secretary Fiscal Management

State Secretary Budget Exec. & PFM Regulation

State Secretary Debt Management & EU Affairs



Director General Budget Formulation



Director General PFM Policies and Regulations


Director General EU Affairs





General Inspection

Internal Audit

Public Policy Unit

Legal Affairs

Minister’s Office

73

- There is a direct formulaic linkage between (output based) performance indicators and budget

allocations. However this only applies to selected areas of government activity where organizations

may be funded on the basis of outputs produced – for example funding schools based on the number

of students taught, hospitals based on the number of patients weighted through some case

management system etc. Expenditure “norms” typically used by centrally planned economies in

funding government activities are another example of such output based funding. (In this sense, where

the objective is to increase outputs this can be regarded as performance based funding but otherwise

unit costs of outputs are the performance (efficiency) measure.

Overall the dominant approach is “performance informed budgeting” – performance informs budget

decisions with this performance information being only one of several factors considered in budget

decisions. The OECD notes that performance information may be more closely linked to the budget

when new programs are proposed, requiring ex ante evaluation, as opposed to ex post evaluation of

existing programs.

In this respect there appears in some countries to be an “expectation gap” or misunderstanding about

what PBB can do and is intended to do. For example it does not mean that well performing programs

necessarily receive greater funding – nor that lesser performing programs receive less funding. Rather

the objective of PBB is to assist governments to do “more with less” – both in terms of better

allocation of resources to achieve government objectives (effectiveness) thus improving the quality of

public expenditures and improving operational efficiency of government organizations. Yet many

countries attempt to develop a contradictory approach - to “reward” well performing organizations

with greater budget allocations. (This issue is separate from that of performance based pay for civil

servants.) However the OECD report notes that few countries have endeavored to develop systems

which reward organizations with increased budgets for meeting performance targets and notes the

difficulties in designing and implementing such systems. It also notes that granting increased budget

autonomy or flexibility to well performing organizations has been one aspect of rewarding individual

organizations.

It should be stressed that a key objective of PPB is to improve resource allocation – to fund well

performing programs, to improve the performance of existing programs and to cease funding low

performing programs whose performance cannot be improved. Performance in this case is measured

by indicators of effectiveness or outcomes, rather than of efficiency or outputs, while recognizing the

limitations of all performance indicators – they are only indicators, not the final truth. Because these

performance indicators do not tell us the reason for the observed level of performance in depth

program evaluation is needed to determine the implications for budget allocations. For example to

what extent might additional funding of a well performing program further improve its performance –

compared with allocating these scarce funds to some other program? If a program is performing

poorly to what extent is it due to deficiencies is design as opposed to implementation – or both?

Additional funding might improve its performance.

In other words it does not necessarily follow that well performing programs should receive increased

funding and poor performing programs should receive less. We must analyze the reasons for the level

of performance as suggested by the performance indicators.

It seems clear from many country examples that the development of good performance indicators is

an ongoing process, with performance indicators being continuously redefined and improved. As

“what is measured is what counts” it is important to measure the right thing, and the development of

performance indicators must be undertaken with care. In particular performance indicators cannot be

validated or legitimized until clear objectives have been set for programs through a comprehensive

strategic planning process. Some countries have rushed into performance measurement before this

strategic planning has been carried out.

74

In few countries is there yet full satisfaction with the quality of performance indicators. National audit

institutions have often played a constructive role in reviewing performance indicators and assisting in

the development of good practices. Swedish developments in particular point to a common theme –

the need for better but also fewer indicators. Achieving the right balance between comprehensive and

simplicity/understandability in performance indicators appears to be an ongoing problem. There is a

perceived need to avoid having too many performance indicators. A final important issue is what

performance information systems are available to produce reliable and timely performance data.

Australia

Program budgeting, and a centrally (MOF) managed system of program evaluation and substantial

budgetary devolution, were all introduced from the mid 1980s under the then Financial Management

Improvement Program (FMIP). The system underwent further change from 1996 with the introduction

of accrual output budgeting, reflecting the New Zealand model discussed below of a

“purchaser/provider” split or government as the purchaser of outputs through the budgetary process. .

Recent moves have seen greater emphasis placed on formalizing outcome measures as part of the

budgetary process. In the first 10 years of the budget reforms considerable emphasis was placed on

the development of program evaluation capacity within portfolios or ministries, with each ministry

preparing an annual evaluation plan, with oversight by the then Department of Finance.

Performance information covering outcomes and outputs is presented in two main accountability

documents – the portfolio budget statement (PBS) prepared by each department and the annual reports

of each department and agency. While there is no formal requirement for this information to be

audited for both documents the Australian National Audit Office (ANAO) has issued better practice

guidance to assist in improving performance measurement, in the former case jointly with the then

Department of Finance.

Australian officials have often stressed that there is no direct linkage between performance indicators

and the level of funding. Rather ongoing (ad hoc) expenditure and program reviews which may result

in expenditure reallocations particularly in respect of proposed new programs, are a central feature of

the budgetary process.

France

France moved to a performance budgeting system in 2001, rather later than other OECD countries.

Overall some 1,500 performance indicators have been produced based on guidance produced by the

Ministry of Finance, the Parliament and the national audit institution (the Court of Accounts) for those

who will produce, use and verify the performance information. The indicators are required to be

documented in such a way that they can be verified. At year end actual results are reported in an

annual performance report (RAP) attached to the budget review law.

This greatly increased amount of performance information is seen as enhancing parliamentary and

public debate on the budget.

The link between appropriations and performance is not automatic. Factors influencing the

performance of programs and the possibility of providing additional resources to improve program

performance are all considered.

An inter-departmental program audit committee (CIAP) comprising inspectors-general of finance

from ministries reviews the quality of the information and the analysis contained in the annual

performance plans and annual performance reports.

75

France has a long history of formalized, central evaluation of government programs. The National

Council of Evaluation has for many years been charged with carrying out independent evaluations of

expenditure programs. However there has been no direct link between this evaluation and the

budgetary process.

Japan

In 2002 Japan passed the Policy Evaluation Act which requires government agencies to undertake

both ex ante and ex post evaluation of programs. In addition the ministries of Public Administration,

Home Affairs and Posts and Telecommunications are required to undertake evaluation of cross cutting

policy issues. The Act requires the results of evaluations to be “appropriately utilized” in the budget

process. Ministries are required to provide performance indicators and evaluations with their budget

requests.

It appears that MOF sees evaluation as a means of reducing expenditures whereas agencies attempt to

use it to obtain increased funding and the overall impact of evaluations is difficult to determine. The

situation is further complicated by the difficulty in using the large volume of performance information

which is produced - many ministries have more than 100 goals and targets.

The new government elected in 2008 is seeking greater efficiencies in the public services and the new

Minister of Finance has stressed the importance of evaluation and performance measurement.

However it is not yet clear what impact this will have on the use of performance information in the

budget process.

Korea

Ministries are required to submit strategic plans, annual performance plans and performance reports to

the Office for Government Policy Coordination. The Ministry of Planning and Budget (MPB) also has

a specialized performance issues unit. A self assessment program has been developed based on the US

PART system (see later discussion under USA). The MPB uses annual performance reports and self

assessments in negotiations with spending ministries and thus this information informs the budgetary

process.

In 2006 the government decided that the performance ratings produced by the self assessment system

would be directly linked with budget allocations through an automatic cut of 10 percent in the funding

of ineffective programs. While this provides a clear signal that ineffective programs are not acceptable

MPB has experienced difficulties in implementing this approach due to poor quality information and

“gaming” by spending ministries.

Netherlands

From 2001 a system of outcomes based budgeting (Policy Budgets and Policy Accountability

Reform) has been introduced and performance information covering both efficiency and effectiveness

is required by the Government Accounts Act to be included in the budget documents. In addition the

annual report of each ministry and a consolidated annual report of the government focus on the

achievement of goals as set out in the budget and their costs. There is thus a focus on increasing the

informational value of the two major accountability documents – the budget documents and the

annual reports. The Government Accounts Act allows performance indicators to be developed from in

depth expenditure evaluations, as set out in a separate regulation on performance data and evaluation.

Ministers are required to present a statement on management control, which includes the adequacy of

internal systems to convert the budget inputs to appropriate outputs and outcomes, and this is included

in each ministry‟s annual report.

76

The Netherlands makes considerable use of program evaluation. Each year “policy reviews” focus on

a limited number of priority areas. These are carried out by small working parties which include

representatives from the spending ministry and from MOF. These reviews are submitted to Parliament

and are published, and are used by spending ministries and MOF during the budget process.

New Zealand

New Zealand‟s major public sector reforms, as reflected in the State Sector Act of 1988 and the

Public Finance Act of 1989, included a major focus on performance based budgeting. Outputs are at

the centre of the formal budget system. They are short formal statements of services that Government

wishes to buy from public and other organizations. Since 1992, all budget funding has been provided

for output targets through output plans (previously purchase agreements). Output targets are expressed

in terms of quality, quantity and timing, and delivery of these outputs is monitored through corporate

plans, annual reports, and formal audit by the Office of the Auditor General, who reports to

Parliament on both the financial information and output performance measures.

In the earlier stage of the NZ reforms there was no formal focus on outcomes in the budget process,

Outcomes and „effectiveness‟ issues have been more strongly addressed since 2000, as a result of

concern that a narrow focus on accountability for outputs. While output indicators s remain the core of

the formal budget system agencies are expected to describe through „statements of intent‟ 39

how

they will strive to deliver longer term outcomes – a system now described as “budgeting for outputs

and managing for outcomes”.40

While this has resulted in some increase in program evaluation this tends to be carried out on an ad

hoc rather than a systematic basis. However the new government elected at end of 2008 has

commenced a system of in-depth spending reviews of government programs and organizations to be

carried out on a cyclical basis over a 3-4 year period.

While New Zealand‟s approach to performance budgeting has been formally based on outputs the link

between (output) performance and the budget is a very indirect one – there is no mechanistic link

between outputs delivered and the amount of the appropriation. Budget funding is allocated during the

year regardless of the actual level of outputs produced and ex post review of variance between

budgeted and actual outputs have not been systematic.

However the new government is proposing to provide additional funding for organizations in the

health and tertiary education sector which achieve their performance targets. Details are still being

worked out.

Sweden

RBM in Sweden reflects its governmental system whereby most public services are provided by

autonomous agencies, subject to some general policy supervision by supervising ministries. In return

for their significant autonomy, which includes a one line budgetary appropriation and considerable

freedom in personnel decisions, agencies are required to achieve results.

The Ministry of Finance, together with the National Financial Management Authority (ESV) has

overall responsibility for the development of performance measurement systems. Parliament

determines the objectives within the 47 expenditure policy areas and below that for the 500 separate

programs and sub-programs objectives are determined by the government. Ministries specify what is

to be measured and agencies determine the relevant performance measures.

39

SSC (2005) 2005/06 Statements of Intent: Guidance and Requirements

,http://www.ssc.govt.nz/display/document.asp?NavID=208&DocID=4323 40

See Managing for Outcomes Guidance, The Treasury 2003

http://www.ssc.govt.nz/display/document.asp?NavID=208&DocID=4323

77

In the earlier stages of RBM extensive numbers of performance indicators were developed and in

depth evaluations of all expenditure areas were to be undertaken every three years. However both

these proved difficult to manage, leading to rationalization in the number of performance indicators

and a more selective approach to evaluation.

Performance measurement tends to focus on its use in improved resource allocation and operational

efficiency, as well an accountability mechanism. Agencies prepare an annual report which includes

financial, performance and other information – including how it has met the objectives set by

government for its operations, which form the basis of a performance dialogue between ministries and

agencies. The government also prepares a consolidated annual report for the central government

sector setting out objectives aimed at and results achieved, and agencies thereafter present their

budget request which sets out their objectives and results achieved, which together with the annual

reports form the basis of detailed budget reviews by the relevant parliamentary committee.

Performance information is further integrated into the budgetary process through special performance

reports to parliament on various expenditure areas during the year.

United Kingdom

The UK RBM framework is based on Comprehensive Spending Reviews (CSRs) and Public Service

Agreements (PSAs). Comprehensive Spending Reviews were introduced in 1999 are carried out very

2-3 years. They focus on high level government priorities and lead to three year expenditure plans for

each ministry‟s contribution to these priorities. Each ministry‟s PSA contains measurable targets for a

range of government objectives, focusing on outcomes. Performance information forms part of the

spending review negotiations and ministries but there is no automatic link between performance and

resource allocation.

USA

At the federal level of government, the USA has been grappling with performance budgeting and

RBM in various forms for the past 60 years. It has made impressive progress overall in developing

transparent performance information (both performance indicators and program evaluation) but there

has been little systematic use of performance information by Congress despite the requirements of the

Government Performance and Results Act, 1993 (GPRA). Under GPRA agencies are required to

develop 5-year strategic plans, set annual program goals and develop output measures through annual

performance plans and reports and link them with budget submissions, with five years allowed for its

full implementation. These processes are observed but appear little used by Congress.

However in the Office of Management and Budget (OMB), which is part of the Executive branch of

government, performance information plays a much greater role in informing budget development,

mainly through the Program Assessment and Review Tool (PART) initiated in 2002, which aims to

cover about 20 percent of programs each year and to better link performance with the budget. a formal

program assessment tool developed within OMB (Executive Branch). It aims to reinforce well

performing programs and to reform or terminate poor performers by identifying strengths and

weaknesses to inform funding and management decisions. Performance measures cover effectiveness,

efficiency and service quality. PART seeks to reinforce GPRA requirements in that performance

measures are required to be consistent with GPRA.

However the US approach is a good illustration of “performance informed” budgeting, under which

the extensive performance information produced by the government is used in the formulation and

execution of the budget by the Executive Branch of government.

78

Annex 5 Job Descriptions for Budget Analysts

(Based on US Office of Management and Budget)

Senior Budget Analyst

Job Description:

The Budget Analyst typically serves as a focal point in MOPF Budget Department with

responsibilities for the formulation and execution of the budget in an assigned area. The Analyst

performs policy, program management, and regulatory analyses; reviews issues identified as needing

special attention; reviews and clears legislative proposals and testimony; reviews executive orders and

other documents developed in the Budget Department. The Analyst is also frequently asked to provide

leadership and assistance outside his/her own area of expertise and performs a variety of

data/information management and administrative tasks associated with budget analysis.

Tasks:

Advises State Secretary and Minister on planning and programming for assigned accounts;

anticipates and points out the policy implications and problems that require attention;

suggests the outline, scope, and schedule of studies and other special projects; presents the

needs of new legislation and changes in legislation; recommends and helps to arrange joint

endeavors with other divisions of Budget Department and with the department(s) or agencies

assigned.

Coordinates the formulations and administration of the budget for accounts assigned. Advises

on the formulation of budget and fiscal policy, and ensures implementation of the policy.

Reviews budget submissions; acts as chair of budget hearings; and presents recommendations

thereon to the Director General, the State Secretary and the Minister. Participates in review of

and is primary advisor on Budget Department recommendations relative to budget execution

and implementation.

Monitors and evaluates progress made by departments and agencies in implementing and

executing the Government policy. Provides updates, as needed, to policy officials as to the

progress and efficiency of existing policies and programs in meeting policy objectives.

Performs legislative, economic, management, regulatory, and organization analyses for

assigned program areas. Assists the policy staff on reorganization proposals, clarifies

relationships during the integration of programs, and other management improvement items.

Develops, reviews, and advises on the preparation of formal documents relative to assigned

departments or agencies, such as Budget messages; reviews and, when required, prepares

letters for the Director General, the State Secretary and the Minister signature to agency

heads.

As assigned, works with Parliamentary Committees or Committee staffs on budgetary or

program matters.

Qualification Requirements:

Top grade advanced degree in Economics, Public Administration, Public Policy, Law or

specialized technical field (health, education, engineering)

8-10 years public sector experience, including in financial management areas

Strong analytical skills, including quantitative

Strong communication both verbal and written and professional confidence and leadership

skills needed to interact with senior officials across Government

79

Budget Analyst

Job Description:

The budget analyst participates in a variety of functions related to the preparation, execution,

and analysis of the budget. . The Analyst‟s major objective is to see that as far as possible

expenditure programs reflect government policies and priorities, are the most cost effective way of

achieving their objectives and are deliveredefficiently Generally, the work encompasses problem

identification and resolution; compilation and analysis of program and budgetary information

gathered from a variety of sources; technical and substantive review of budgetary data, and

other information; preparation of associated tables, reports, letters, memoranda, and the like;

liaison functions within and outside of the MoPF; representation of MoPF work at varying

levels of government.

Tasks:

Contributing to preparation of the budget. Working with other staff of the Division, the

analyst coordinates the development of the data base that supports the annual budget and

contributes to the preparation of the technical materials portion of the budget document.

Reviews agency budget submissions for technical and conceptual accuracy and consistency;

works with Senior analysts to resolve problems encountered; ensures that milestones in the

budget preparation process are met, and that both the budget document and the data base

supporting it are of high technical quality.

Preparation of recurring and ad hoc analytical reports. Frequently using personal computer

applications, the specialist compiles data and other information and analyzes its implications

in order to produce statistical or analytical reports for the use of MOPF policy leadership. The

subject matter of the analysis may concern a wide variety of budgetary topics such as (1)

planned versus actual spending in the current fiscal year; (2) the effect of budgetary proposals

on the discretionary spending limits established by the FBS.

Analysis of budgetary issues. Working independently or, more typically, as part of a work

group, the specialist exercises reasoning skills in considering various conceptual, technical,

and procedural issues related to the budget process. The result of these efforts may include

(1) development of MOPF positions on various conceptual issues to facilitate the exchange of

information with the Parliament; and, (2) development of guidance for the MOPF program

divisions and other GOR agencies.

Qualification Requirements:

Top grade advanced degree in Economics, Public Administration, Public Policy, Law or

specialized technical field (health, education, engineering)

Strong analytical skills, including quantitative

Strong communication both verbal and written

80

Annex 6 Proposed Indicative Integrated Planning & Budget Calendar

The table below outlines a proposal for an integrated planning and budget calendar for Romania. The

calendar reflects the key dates in the budget Law 500, as well as the new Fiscal Responsibility Law.

It also incorporates two key strategic planning components:

A Policy Priorities Note that sets out the key strategic priorities of the Government that

should guide the development of the Fiscal Strategy.

A streamlined ministry strategic planning process designed to provide the policy analysis that

would support funding allocations and differential expenditure ceilings in the Fiscal Strategy.

In addition, the Calendar also incorporates a proposed decision-making sequence that strengthens

political engagement in the planning and budget process, and also proposes a clear roll for the Fiscal

Council. Essentially, it is proposed that a three step decision process be followed for the three key

decision points where substantive engagement at the political level is needed:

1. At the very start of the process, there should be agreement on the government‟s overall

priorities, and a general agreement on the fiscal policies to be reflected in ministry strategic

plans. This allows ministries to develop the detailed proposals.

2. Agreement on the concrete policy actions and fiscal limits that make up the substance of the

Fiscal Strategy approved at the end of May.

3. Approval of the final budget in October.

At each of these decision points, it is recommended that the following decision process be followed:

First, recommendations could be reviewed by a ministerial committee. This committee could

be the existing Coordinating Committee chaired by the Minister of Finance (but with some

redesigned elements, the Strategic Planning Committee chaired by the Prime Minister, or

some other configuration that would allow for in-depth political discussion).

Second, the recommendations as endorsed by the ministerial committee, could be sent to the

Fiscal Council for comment.

Third, final recommendations could be sent to the Government meeting for final approval.

The Government meeting would consider a revised set of recommendations reflecting the

advice from the Fiscal Council.

This proposed sequencing for decision-making reflects two objectives: the ministerial committee

strengthens the internal processes of decision-making by providing a forum for in-depth discussion of

key policy issues, and the Fiscal Council strengthens accountability by placing external pressure on

government to function better and make better decisions.

Due Date Action Resp.

Jan. 10 Prepare Policy Priorities Note

This note would be an analytical document that proposes

options regarding which policy priorities the government

could pursue in developing its Fiscal Strategy.

GSG

Prepare preliminary macro/fiscal framework including fiscal

parameters to be followed in developing ministry strategic plans

MoPF

81

This step is the formal start of the Fiscal Strategy

process; essentially, it is a concept paper that includes

the key fiscal policies and parameters, including

indicative ceilings for primary budget holders based on

the previous year forward estimates that should guide

preparation of the Fiscal Strategy as well as ministry

strategic plans.

Jan. 15 ‘Ministerial Committee’* (‘MC’) reviews Policy Priorities Note

and fiscal parameters for preparing ministry strategic plans

* „Ministerial Committee‟ refers to whichever form of

committee is agreed (as discussed above)

‘MC’

Jan. 21 Fiscal Council comments on Policy Priorities Note and fiscal

parameters for preparing ministry strategic plans

FC

Jan. 29 Government approves Policy Priorities Note and fiscal

parameters for preparing ministry strategic plans

Government

meeting

Feb. 2 Issue Fiscal Strategy & Strategic Planning instructions to

ministries

Ideally, these instructions should be issued jointly;

however, if issued separately, the content and timing

should be closely coordinated.

These instructions would include indicative ceilings to

inform the strategic planning exercise.

MoPF & GSG

Mar. 31 Submit draft strategic plans, including requirements for the fiscal

strategy, to GSG and MoPF

Ministries

Update macro/fiscal forecast (as per Law 500) MoPF

Apr. 15 Sector Groups review draft strategic plans and provide comments Sector Groups

Apr. 21 MoPF finalizes draft Fiscal Strategy MoPF

April 28 MC* reviews draft Fiscal Strategy including sector-roll ups,

determines specific priority initiatives (could be savings

measures or new initiatives)

MC*

May 5 Fiscal Council reviews Fiscal Strategy FC

May 10 Government approves Fiscal Strategy Government

meeting

May 15 Submit Fiscal Strategy to the government for approval (as per

FRL)

MoPF

May 25 Government approves Fiscal Strategy Government

May 30 Submit Fiscal Strategy to Parliament (as per FRL)

MoPF

Jun 15 Parliamentary hearing and approval of fiscal strategy

Note: There is no firm date by which the Parliament must

Parliament

82

approve the Fiscal Strategy. If the decision by Parliament

requires some changes that affect the budget of spending

agencies and ministry strategic plans, a supplementary circular

should be issued.

Jun.16 Issue Budget Circular, including expenditure ceilings for each

spending agency.

This should involve specific expenditure limits or other

restrictions on development of new proposals, instructions to

prepare savings proposals, or other specific initiatives.

MoPF

Issue instructions for updating ministry strategic plans.

These instructions are ideally issued as part of the budget

circular, or at least at the same time.

GSG

Aug. 1 Submit Budget proposals and revised strategy statements to

MoPF and GSG

Spending

Agencies

Review budget proposals and draft budget memorandums with

recommendations to MC

MOPF/GSG

Sept 1 ‘MC’ budget reviews ‘MC’

Sept. 7 Finalize draft Budget GSG MoPF

Oct. 10 Government approves draft Budget Government

meeting

Oct. 15 Submit Budget to Parliament MoPF

Oct. 22 Issue instructions on annual work plan (including legislative

plan)

GSG

Nov. 19 Ministries submit annual work plan proposals Spending

Agencies

Dec. 9 Draft annual work plan prepared GSG

Dec. 21 Approve annual work plan; and integrated planning and budget

calendar for the next year

‘MC’,

Government

Dec. 28 Approve Budget Parliament

January 15 Ministries make final adjustments to strategic plans if necessary

to reflect approved Budget

Ministries

83

Annex 7 Questionnaire Staff Survey Ministry of Public Finance

Respondent Position

Senior Management (State Secretary, Director General)

Mid Level Management (Director, Head of Section)

Staff

Years with the Ministry

1. How would you rate the Ministry of Public Finance as a place to work compared with other employers

you know about?

Favorable Neutral Unfavorable

1 2 3 4 5

2. The Ministry of Public Finance’s overall goals are clearly defined.


1 2 3 4 5

3. I have a good understanding of the direction in which the Ministry of Public Finance Senior

Management is leading the institution.


1 2 3 4 5

4. I am proud to work at the Ministry of Public Finance.


1 2 3 4 5

5. How would you rate the quality of service that the Ministry of Public Finance provides to its internal

and external clients (Line Ministries, Tax Payers)?


1 2 3 4 5

6. Current internal processes and procedures allow me to deliver high quality services to my clients

(Line Ministries, Tax Payers), Other Internal Units).


1 2 3 4 5

7. I have a good understanding of what is expected from me in my job.


1 2 3 4 5

8. The resources allocated for my tasks are adequate to do a quality job.


1 2 3 4 5

9. I feel encouraged to find new and better ways of doing things.


84

1 2 3 4 5

10. I feel free to take informed risks in doing my work.


1 2 3 4 5

11. My job makes good use of my skills and abilities.


1 2 3 4 5

12. My manager demonstrates the technical competence to lead the group effectively in meeting its overall

goals.


1 2 3 4 5

13. Staff and manager changes (e.g., promotions, reassignments) in my work group are made on an

objective job-related basis.


1 2 3 4 5

14. In my work group, individual staff are held accountable for their performance.


1 2 3 4 5

15. In the Ministry of Public Finance, staff are rewarded according to their job performance.


1 2 3 4 5

85

Annex 8 Partial Lists of Persons Met

Adrian Popescu Director General, General Directorate for Information Technology

Alina Toma Head of Service, General Directorate for Budget Programming

Ana-Maria

Enache

Head of Service, General Directorate for Budget Programming

Anca Iordache Adjunct Director General, General Directorate for Information Technology

Angela Carabaş Director General, General Directorate for Treausry and Public Debt Management

Bogdan Drăgoi State Secretary, MOPF

Carmen

Bălăşoiu

Director General, General Directorate for Strategic Planning and Monitoring, NAFA

Constantin

Năstase

Director, General Directorate for Budget Programming

Cosmina

Geabunea

Director General, General Directorate ECOFIN Relations

Dan Matei Head of Service, General Directorate for General Directorate for Macroeconomic

Analysis and Financial Policy

Daniel Gruia Director General adjunct, Directorate General for Information Technology, NAFA

Daniela

Şchiopu


Dobre Alin

Stelian

Director adjunct, Directorate for budgetary relationships with the EU

Doina Ilie Director General, General Directorate for public accounting methodology

Dorin Măntescu Director General , General Directorate for Macroeconomic Analysis and Financial

Policy

Gabriela

Martienscu

Director adjunct, School of Public Finance and Customs

Georgeta Petre Director, Directorate General for Accounting Regulations

Georgia Babici Advisor to the Minister, MOPF

Gheorghe

Gherghina

State Secretary, MOPF

Graţiela

Iordache

State Secretary, MOPF

Ioan Nicolescu Secretary General, MOPF

Ioana Burlă Director General, General Directorate for Budget Synthesis and Policy

Ioana Hanganu Head of Service, General Directorate for Budget Programming

Ion Capdefier Director General , General Directorate Tax Code

Julien Zamfir Director, General Directorate for Budget Programming

86

Lăcrămioara

Alexandru

Director, Budget Accounting, MOPF

Letiţia Taloi Financial Controller, Head of Central Harmonization Unit for Internal Control

Lucica Diaconu Head of Service, Directorate General for State Asset Management

Mălina Marica, Director, School of Public Finance and Customs

Maria Popescu Head of Service, General Directorate for Budget Programming

Mihaela

Nedelcu

Public Manager, Public Policy Unit, MOPF

Mioara Masariu Head of Service, General Directorate for Budget Programming

Mirela

Călugăreanu

Executive Director, Regional Treasury and Tax Administration Bucharest

Mirela Şiţoiu Director General , General Directorate, Human Resource Management

Nicu Popescu Lead Advisor, General Directorate for Budget Programming

Niţă Georgian Head of Service Inspectorate General

Octavian

Deaconu

Director, Directorate for International Cooperation, National Agency for Fiscal

Administration (NAFA)

Radu Traian

Marginean

NAFA Vice President for Customs Administration

Raluca

Zamfirescu

Director, Directorate for budgetary relationships with the EU

Robert Hofnar Director General, General Directorate for Tax Administration Procedures, NAFA

Roxana

Petrescu


Sorin Blejnar NAFA President

Ştefan Ciobanu Director General, Coordinating Authority for Structural Funds

Ştefan Daia Director General , Directorate General for Information Technology, NAFA

Tanţi Anghel Director, Directorate for Tax Administration Code

Tiberiu Tudoran Director General, Central Harmonization Unit for Internal Audit

Valentin

Mavrodin

Director General, General Directorate for Treasury and Public Accounting

Project title: Functional Review of the Central Public Administration in Romania - I Project co-financed by European Social Fund Date of publication: October 15, 2010 This report does not necessarily represent the position of the European Union and the Romanian Government.

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