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PUBLIC FINANCIAL PUBLIC FINANCIAL MANAGEMENT SYSTEMSMANAGEMENT SYSTEMS
Dr Salman ShahDr Salman ShahLahoreLahore
Role of public sectorRole of public sectorGovernment is the largest organized activity Government is the largest organized activity in Pakistanin PakistanRecent budgets of the provincial and federal Recent budgets of the provincial and federal governments amounted to around $ 45 governments amounted to around $ 45 billionbillionEvery penny is resourced and disbursed Every penny is resourced and disbursed through the civil bureaucracythrough the civil bureaucracyThe budgetary process involves ministries, The budgetary process involves ministries, attached departments approved by attached departments approved by parliamentparliamentAuditor general reports to parliamentAuditor general reports to parliament
Tiers of GovernmentTiers of Government
Federal Government
Provincial Government
Local Government
Service Providers
Ministries
Departments
ServiceProviders Service
Providers
Resource DistributionResource Distribution
Federal Government $ 30 BillionDebt servicing 13 BillionDefense 6 Billion
Subsidies/inefficiency 6 BillionOther 5 Billion (PSDP)
Provincial Governments $ 15 Billionof which Local Government ?
Effective AccountabilityEffective Accountability
Public sector organizations credibility with Public sector organizations credibility with the public depends on effective system of:the public depends on effective system of:
Reporting their performanceReporting their performance
Explain their actionsExplain their actions
Provide transparency to their processesProvide transparency to their processes
Clear lines of responsibilitiesClear lines of responsibilities
Well understood objectivesWell understood objectives
Robust systems of measuring performanceRobust systems of measuring performance
System of responsibility and accountabilitySystem of responsibility and accountability
Role of audit in accountabilityRole of audit in accountability
Financial Audit traces spending in line with Financial Audit traces spending in line with budgetbudget
Economy audit deals with cost of input vs Economy audit deals with cost of input vs plannedplanned
Efficiency audit: lowest cost process followedEfficiency audit: lowest cost process followed
Effectiveness audit: results/output as plannedEffectiveness audit: results/output as planned
Sustainability audit: programs continuity over Sustainability audit: programs continuity over time time
Public Policy implementation and Public Policy implementation and ReportingReporting
Policy Direction
ResourcingPolicy ObjectivesBudgets
Delivering the public good
Accounting Evaluating and reporting
Comprehensive Approach To Comprehensive Approach To Public Financial Management Public Financial Management
(PFM) Reforms(PFM) Reforms
The PFM Performance Measurement Framework is one of the elements of a strengthened approach to supporting PFM reforms.
It is designed to measure PFM performance of countries across a wide range of development over time. The Performance Measurement Framework includes a set of high level indicators,
Public Expenditures and Financial Public Expenditures and Financial Accountability (PEFA)Accountability (PEFA)
The PFM Performance Measurement Framework is an integrated monitoring framework that allows measurement of country PFM performance over time.
It has been developed by the PEFA partners, in collaboration with the World Bank/ OECD/DAC Joint Venture on PFM as a tool that would provide reliable information on the performance of PFM systems, processes and institutions over time.
The set of high level performance indicators The selected 28 indicators for the country’s PFM system are structured into three categories:
A. PFM system out-turns: these capture the immediate results of the PFM system in terms of actual expenditures and revenues by comparing them to the original approved budget, as well as level of and changes in expenditure arrears.
B. Cross-cutting features of the PFM system: these capture the comprehensiveness and transparency of the PFM system across the whole of the budget cycle.
C. Budget cycle: these capture the performance of the key systems, processes and institutions within the budget cycle of the central government.
Comprehensive Fiscal oversight:
Are the aggregate fiscal position and risks are
monitored and managed?
Comprehensive Fiscal oversight:
Are the aggregate fiscal position and risks are
monitored and managed?
Information:Is adequate fiscal, revenue and expenditure
information produced and disseminated to meet decision-making and management purposes?
Information:Is adequate fiscal, revenue and expenditure
information produced and disseminated to meet decision-making and management purposes?
Comprehensive, Policy-based, budget:
Does the budget capture all relevant
fiscal transactions, and is the process, giving regard to government
policy?
Comprehensive, Policy-based, budget:
Does the budget capture all relevant
fiscal transactions, and is the process, giving regard to government
policy?
Budget Realism:Is the budget realistic, and
implemented as intended in a
predictable manner?
Budget Realism:Is the budget realistic, and
implemented as intended in a
predictable manner?
Control :Is effective control and stewardship exercised
in the use of public funds?
Control :Is effective control and stewardship exercised
in the use of public funds?
The questions the PFM performance indicators seek to answer
Accountability and Transparency :
Are effective external financial accountability
and transparency arrangements in place?
Accountability and Transparency :
Are effective external financial accountability
and transparency arrangements in place?
MEASURING WHAT PERFORMANCE ?
Six PFM System Aspects
CredibilityCredibility
Structure of the indicator set
A. PFM Out-turns
Comprehensiveness
Transparency
B. Key cross-cutting featuresExternal
Scrutiny and Audit
Accounting and
Reporting
Budget Execution
Policy-based
budgeting
C. Budget Cycle
STRUCTURE AND CONTENT OF THE INDICATORSSTRUCTURE AND CONTENT OF THE INDICATORS
A. PFM OUT-TURNS
PI-1 Aggregate expenditure out-turn compared to original approved budget
PI-2 Composition of expenditure out-turn compared to original approved budget
PI-3 Aggregate revenue out-turn compared to original approved budget
PI-4 Stock and monitoring of expenditure payment arrears
THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORSTHE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS
PEFA JUNE 2012
PI-1 Aggregate expenditure out-turn compared PI-1 Aggregate expenditure out-turn compared to original approved budgetto original approved budget
Deviation of actual expenditure from original Deviation of actual expenditure from original budget was greater than 10% in only one of the budget was greater than 10% in only one of the last three years. last three years.
Grade BGrade B
Variance in expenditure composition exceeded Variance in expenditure composition exceeded 15 % in one of the last three years. 15 % in one of the last three years.
Grade CGrade C
PI-2 Composition of expenditure out-turn compared to original approved budget
PI-3 Aggregate revenue out-turn compared to PI-3 Aggregate revenue out-turn compared to original approved budget original approved budget
Actual revenue collection is within 94%-112% of Actual revenue collection is within 94%-112% of budgeted revenue during two of the last three years. budgeted revenue during two of the last three years. Grade BGrade B
There is no reliable data on the stock of arrears from the There is no reliable data on the stock of arrears from the last two years. Commitment accounting has been last two years. Commitment accounting has been introduced but is still in nascent stages. introduced but is still in nascent stages. Grade DGrade D
PI-4 Stock and monitoring of expenditure payment arrears
B. KEY CROSS-CUTTING FEATURES : COMPREHENSIVENESS AND TRANSPARENCY
PI-5 Classification of the budget
PI-6 Comprehensiveness of information included in budget documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental fiscal relations
PI-9 Oversight of aggregate fiscal risk from other public sector entities
PI-10 Public access to key fiscal information
THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORSTHE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS
PI-5 Classification of the budgetPI-5 Classification of the budget
The budget formulation and execution is based The budget formulation and execution is based on administrative, economic and sub-functional on administrative, economic and sub-functional classification, using GFS/COFOG standards with classification, using GFS/COFOG standards with some gaps, but consistent documentation in some gaps, but consistent documentation in accordance with GFS standards is produced. accordance with GFS standards is produced.
Grade AGrade A
United Nations Classification of Functions of United Nations Classification of Functions of Government (COFOG) Government (COFOG)
PI-6 Comprehensiveness of information PI-6 Comprehensiveness of information included in budget documentationincluded in budget documentation
The budget information includes 8 of 9 required The budget information includes 8 of 9 required elements. elements. Grade A Grade A
Fiscal reports as generated by AGPR on income Fiscal reports as generated by AGPR on income and expenditure lack inclusion of all information, and expenditure lack inclusion of all information, even for loan financed projects. even for loan financed projects. Grade D+Grade D+
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental PI-8 Transparency of inter-governmental fiscal relations fiscal relations
Transfers from federal government to Transfers from federal government to provincial government are transparent and provincial government are transparent and governed by rules settled under the governed by rules settled under the Constitution. Constitution.
Grade AGrade A
PI-9 Oversight of aggregate fiscal risk from PI-9 Oversight of aggregate fiscal risk from other public sector entitiesother public sector entities
A systematic procedure for monitoring A systematic procedure for monitoring consolidated overview of the fiscal risk consolidated overview of the fiscal risk caused by PSE/AGA is lacking. caused by PSE/AGA is lacking.
There is no practice of consolidating fiscal There is no practice of consolidating fiscal risk arising out of all AGAs and PEs. risk arising out of all AGAs and PEs.
Grade CGrade C
PI-10 Public access to key fiscal PI-10 Public access to key fiscal information information
Public access criteria are presently met in Public access criteria are presently met in 3 of the 6 essential areas 3 of the 6 essential areas No. Reports on budget execution are No. Reports on budget execution are prepared by the AGPR prepared by the AGPR PPRA requires award of all contracts PPRA requires award of all contracts above Pak Rs. 50 million to be published above Pak Rs. 50 million to be published on its website. There is no evidence of full on its website. There is no evidence of full compliance by MDAs compliance by MDAs Grade BGrade B
C. BUDGET CYCLE
i. Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget process
PI-12 Multi-year perspective in fiscal planning, expenditure policy and
budgeting
THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORSTHE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS
PI-11 Orderliness and participation PI-11 Orderliness and participation in the annual budget process in the annual budget process
A clear annual budget calendar exists, is A clear annual budget calendar exists, is adhered to and allows MDAs enough time adhered to and allows MDAs enough time to complete their detailed estimates on to complete their detailed estimates on time. time.
Grade AGrade A
MDAs: Ministries, departments and agencies
PI-12 Multi-year perspective in fiscal planning, PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgetingexpenditure policy and budgeting
Links between multi-year estimates as per Links between multi-year estimates as per MTBF and subsequent annual budgetary MTBF and subsequent annual budgetary ceilings are not strong ceilings are not strong
Grade B+Grade B+
C. BUDGET CYCLE
ii. Predictability and Control in Budget Execution
PI-13 Transparency of taxpayer obligations and liabilities PI-14 Effectiveness of measures for taxpayer registration and tax assessmentPI-15 Effectiveness in collection of tax payments PI-16 Predictability in the availability of funds for commitment of expendituresPI-17 Recording and management of cash balances, debt and guaranteesPI-18 Effectiveness of payroll controlsPI-19 Competition, value for money and controls in procurementPI-20 Effectiveness of internal controls for non-salary expenditure and assets managementPI-21 Effectiveness of internal audit
THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORSTHE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS
PI-13 PI-13 Transparency of Taxpayer Obligations Transparency of Taxpayer Obligations and Liabilitiesand Liabilities
No substantial curtailment of discretionary No substantial curtailment of discretionary powers during last three years was made. powers during last three years was made.
tax appeals system needs improvement to tax appeals system needs improvement to work fairly, transparently and effectively work fairly, transparently and effectively
Grade BGrade B
PI-14 PI-14 Effectiveness of measures for taxpayer Effectiveness of measures for taxpayer registration and tax assessmentregistration and tax assessment
A data base of taxpayers is maintained for A data base of taxpayers is maintained for individual taxes. Linkages with other individual taxes. Linkages with other registration authorities are weak and registration authorities are weak and currently there are no provisions for currently there are no provisions for conducting surveys of potential taxpayers conducting surveys of potential taxpayers
Grade C+Grade C+
PI-15 PI-15 Effectiveness in collection of tax Effectiveness in collection of tax paymentspayments
total amount of tax arrears is significanttotal amount of tax arrears is significant
The current practices have different gaps The current practices have different gaps in recording, reporting and reconciliation of in recording, reporting and reconciliation of tax paid and tax self-assessed under tax paid and tax self-assessed under USAS USAS
Reconciling differences between AGPR, Reconciling differences between AGPR, FBR and SBP remain unresolved. FBR and SBP remain unresolved.
Grade D+ Grade D+
PI-16 Predictability in availability of funds for PI-16 Predictability in availability of funds for commitment of expenditurescommitment of expenditures
In-year adjustments, usually budget cuts, In-year adjustments, usually budget cuts, are made as per rules and regulations but are made as per rules and regulations but may not be predictable as these are may not be predictable as these are mostly driven by resource constraints. mostly driven by resource constraints.
Grade C+Grade C+
PI-17 Recording and management of cash balances, PI-17 Recording and management of cash balances, debt and guaranteesdebt and guarantees
debt are properly recorded, reconciled and debt are properly recorded, reconciled and reported by SBP, MoF and EAD respectively, reported by SBP, MoF and EAD respectively, however reconciliation differences exist between however reconciliation differences exist between AGPR and EAD for third party payments AGPR and EAD for third party payments
Government cash balances is consolidated and Government cash balances is consolidated and reported on daily basis by SBP. However, reported on daily basis by SBP. However, balances for exempt entities and revolving fund balances for exempt entities and revolving fund accounts are not included accounts are not included
Grade B+Grade B+
PI-18 Effectiveness of payroll controlsPI-18 Effectiveness of payroll controls
Payroll is backed by personnel filesPayroll is backed by personnel files
containing all information containing all information
Civil payroll is not subject to specific Civil payroll is not subject to specific payroll audit payroll audit
monthly list of employees to PAOs are monthly list of employees to PAOs are sufficient to identify ghost employees sufficient to identify ghost employees
Grade B+Grade B+
PI-19 PI-19 Transparency, competition and complaints Transparency, competition and complaints mechanisms in procurementmechanisms in procurement
Audit observations highlight use of other than Audit observations highlight use of other than competitive method of bidding without proper competitive method of bidding without proper justification. justification. Complete and reliable data is not available for 3 Complete and reliable data is not available for 3 out of 4 key information sets. out of 4 key information sets. PPRA complaint cell does not include members PPRA complaint cell does not include members from civil society and private sector. from civil society and private sector. framework meets four of the six listed framework meets four of the six listed requirements requirements Grade DGrade D
PI-20 Effectiveness of internal controls for non-PI-20 Effectiveness of internal controls for non-salary expendituresalary expenditure
Procedures to address risk of error and Procedures to address risk of error and fraud tend to create duplication of fraud tend to create duplication of approvals causing inefficient use of approvals causing inefficient use of personnel personnel
Audit Reports for past 3 years contain Audit Reports for past 3 years contain several observations on internal control several observations on internal control weaknesses. weaknesses.
Grade C+Grade C+
PI-21 Effectiveness of internal auditPI-21 Effectiveness of internal audit
Internal Audit is not yet developed effectively in Internal Audit is not yet developed effectively in most ministries.most ministries.There is no evidence suggesting that Internal There is no evidence suggesting that Internal Audit reports are issued regularly for most GoP Audit reports are issued regularly for most GoP entities. entities. As an operational internal audit function with As an operational internal audit function with regular reporting is not implemented, follow up regular reporting is not implemented, follow up management actions becomes non-existent As management actions becomes non-existent As an operational internal audit function with regular an operational internal audit function with regular reporting is not implemented, follow up reporting is not implemented, follow up management actions becomes non-existent management actions becomes non-existent Grade D Grade D
C. BUDGET CYCLE
iii. Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation
PI-23 Availability of information on resources received by service delivery units
PI-24 Quality and timeliness of in-year budget reports
PI-25 Quality and timeliness of annual financial statements
THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORSTHE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS
C. BUDGET CYCLE
Iv. External accountability, audit and scrutiny
PI-26 Scope, nature and follow-up of external audit
PI-27 Legislative scrutiny of the annual budget law
PI-28 Legislative scrutiny of external audit reports
PI-22 Timeliness and regularity of accounts PI-22 Timeliness and regularity of accounts reconciliationreconciliation
Bank reconciliations are conducted Bank reconciliations are conducted monthly but unresolved reconciliation monthly but unresolved reconciliation differences remain differences remain Receipt side reconciliation practices of Receipt side reconciliation practices of treasury managed bank accounts are treasury managed bank accounts are deficient deficient Data of FBR, AGPR and SBP continue to Data of FBR, AGPR and SBP continue to differ for many reasons, differ for many reasons, Grade D+Grade D+
PI- 23: PI- 23: Availability of information on resources Availability of information on resources received by service delivery unitsreceived by service delivery units
Generally provincial nowGenerally provincial now
Availability lowAvailability low
PI-24 Quality and timeliness of in-year budget reports PI-24 Quality and timeliness of in-year budget reports
Non-recording of expenditure at Non-recording of expenditure at commitment level by MDA remained major commitment level by MDA remained major deficiency to improve score. deficiency to improve score.
Government Fiscal Reports are generated Government Fiscal Reports are generated from GFMIS every month from GFMIS every month
Grade C+Grade C+
PI-25 Quality and timeliness of annual financial PI-25 Quality and timeliness of annual financial statementsstatements
Financial statements lack consolidation of Financial statements lack consolidation of independent departments independent departments
Financial Statements are being prepared Financial Statements are being prepared under cash basis of accounting and are under cash basis of accounting and are aligned with the format given by the cash aligned with the format given by the cash basis IPSAS basis IPSAS
Grade C+Grade C+
PI-26 Scope, nature and follow-up PI-26 Scope, nature and follow-up of external audit of external audit
INTOSAI auditing standards are adopted INTOSAI auditing standards are adopted but some aspects are only partially but some aspects are only partially implementedimplemented
submitted audit reports to the President, submitted audit reports to the President, within 8 months from the end of the fiscal within 8 months from the end of the fiscal yearyear
Grade BGrade B
PI-27 Legislative scrutiny of the PI-27 Legislative scrutiny of the annual budget law annual budget law
Time for the legislature for approving the budget, Time for the legislature for approving the budget, is too short to revise the detailed proposal and is too short to revise the detailed proposal and let the Executive re-submit the proposal. let the Executive re-submit the proposal.
The time for National Assembly review of the The time for National Assembly review of the budget law is less than a month budget law is less than a month
The legislature’s review is limited to bringing in The legislature’s review is limited to bringing in cut motion for voted expenditures only cut motion for voted expenditures only
Grade D+Grade D+
PI-28 Legislative scrutiny of PI-28 Legislative scrutiny of external audit reports external audit reports
back-log of more than 10 years back-log of more than 10 years
The PAC includes concrete The PAC includes concrete recommendations in its reports recommendations in its reports
Substantial amount of recoveries have Substantial amount of recoveries have been made on recommendation of PAC been made on recommendation of PAC
conclusionsconclusions
Our PFM has enormous shortcomingsOur PFM has enormous shortcomings
The performance indicators also indicate The performance indicators also indicate that accountability and performance that accountability and performance measures for delivery are the main measures for delivery are the main weaknessesweaknesses
Efficiency, economy, effectiveness and Efficiency, economy, effectiveness and sustainability measures are non existentsustainability measures are non existent
Service Providers are outside the systemService Providers are outside the system