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PEFA Framework

Guidance for Assessors

For use with the TESTING VERSION (dated January 2015)

PEFA Secretariat February 2015

Table of contents

Contents List of Abbreviations .................................................................................................................................. 7

Introduction ................................................................................................................................................. 8

Purpose of this document ........................................................................................................................... 8

General Guidance on Scoring .................................................................................................................... 9

Scoring indicators with multiple dimensions .......................................................................................... 10

PEFA PFM PERFORMANCE INDICATORS ..................................................................................... 12

PI-1 Aggregate expenditure out-turn compared to original approved budget. ....................................... 13

Dimension (i) The difference between actual expenditure and the originally budgeted expenditure. 14

PI-2: Composition of expenditure out-turn compared to original approved budget. .............................. 15

Dimension (i) Extent of the variance in expenditure composition during the last three years, excluding contingency items, and interest on debt. ............................................................................ 17

Dimension (ii) Extent of the variance in expenditure composition by economic classification during the last three years including interest on debt but excluding contingency items. ............................... 18

Dimension (iii) The average amount of expenditure actually charged to a contingency vote over the last three years. 19

PI-3: Aggregate revenue out-turn compared to original approved budget. ............................................. 20

Dimension (i) Actual revenue compared to that provided for in the originally approved budget. 21

PI-4: Classification of the budget............................................................................................................ 22

Dimension (i) Extent to which the classification system used for formulation, execution and reporting of the central government’s budget is consistent with international standards. .................. 23

PI-5: Comprehensiveness of information included in budget documentation. ....................................... 24

Dimension (i) Share of the above listed information in the executive’s annual budget proposals most recently issued by the central government (in order to count in the assessment, the full specification of the information benchmark must be met). ................................................................. 25

PI-6 Extent of reporting on extra-budgetary operations (EBOs). ........................................................... 26

Dimension (i) The level of extra-budgetary operations (revenue and expenditure) (from Table 6) which is unreported, i.e. not included in ex-ante and ex-post fiscal reports. ...................................... 28

PI-7 Transparency of inter-governmental fiscal relations. ...................................................................... 30

Dimension (i) Transparent and rules based systems in the horizontal allocation among SNGs of unconditional and conditional transfers from central government (both budgeted and actual allocations). 31

Dimension (ii) Timeliness of reliable information for budget planning to SNGs on their allocations from central government for the coming year..................................................................................... 32

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Dimension (iii) Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for general government. .................................................................................. 33

PI-8: Performance information for achieving efficiency in service delivery. ......................................... 34

Dimension (i) Disclosure, within budget documentation, of key performance indicators and targets for service delivery (coverage measured as percent of service delivery functions financed by central government). 36

Dimension (ii) Disclosure, within budget documentation, year-end reports or other public documents, of data on the performance results achieved by service delivery functions (in the most recent, completed fiscal year). ............................................................................................................ 37

Dimension (iii) Monitoring of resources received by service delivery units ...................................... 38

Dimension (iv) Content and coverage of independent performance evaluations (assessing the design, efficiency and effectiveness of service delivery functions or programs). ........................................... 39

PI- 9 Public access to key fiscal information. ......................................................................................... 40

Dimension (i) The documents for which public access is provided (in order to count in the assessment, the full specification of the information benchmark above must be met). ...................... 41

PI-10 Fiscal risk management. ................................................................................................................ 42

Dimension (i) Extent of central government monitoring of AGAs and PEs....................................... 44

Dimension (ii) Extent of central government monitoring of SNGs’ fiscal position. .......................... 45

Dimension (iii) Extent of central government monitoring of explicit contingent liabilities from central government programs and projects ......................................................................................... 46

PI- 11: Public investment management. ................................................................................................. 47

Dimension (i) Objective economic analysis. ...................................................................................... 49

Dimension (ii) Costing over the project life cycle. ............................................................................. 50

Dimension (iii) Project monitoring and reporting. .............................................................................. 51

PI-12: Public asset management. ............................................................................................................ 52

Dimension (i) Quality of central government financial asset monitoring. .......................................... 54

Dimension (ii) Quality of central government non-financial asset monitoring. ................................. 55

Dimension (iii) Transparency in the sale of non-financial assets. ...................................................... 56

PI-13: Management and reporting on debt and expenditure arrears. ...................................................... 57

Dimension (i) Domestic and foreign debt data recording and reporting. ...................................... 59

Dimension (ii) Systems for contracting loans and issuance of guarantees. .................................... 60

Dimension (iii) Preparation of a debt management strategy. ........................................................... 61

Dimension (iv) Stock and monitoring of expenditure arrears.......................................................... 62

PI-14 Credible fiscal strategy. ................................................................................................................. 63

Dimension (i) Formulation of fiscal objectives and strategy. ............................................................. 64

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Dimension (ii) Preparation and use of macroeconomic forecasts as a basis for annual and medium-term budgets. 65

Dimension (iii) Difference between actual and the originally forecasted central government fiscal balance. 66

PI-15 Revenue budgeting. ....................................................................................................................... 67

Dimension (i) Medium-term forecasting of revenues. ........................................................................ 69

Dimension (ii) Assessment of the fiscal impact of proposed policy changes ..................................... 70

Dimension (iii) Variance in revenue composition during the last three years (actual revenue by category compared to the originally approved budget using level three [3 digits] of GFS 2014 classification or a classification that can produce documentation according to those standards). ...... 71

PI-16 Medium-term perspective in expenditure budgeting. ................................................................... 72

Dimension (i) Coverage and content of sector strategies. ................................................................... 74

Dimension (ii) Reconciliation of top-down and bottom-up approaches in the medium-term financial framework. 75

Dimension (iii) Links between the medium-term framework and annual budgets. ........................... 76

PI-17: Orderliness and participation in the annual budget preparation process. ..................................... 77

Dimension (i) Existence of and adherence to a fixed budget calendar. .............................................. 79

Dimension (ii) Clarity/comprehensiveness of and political involvement in the guidance on the preparation of budget submissions (budget circular or equivalent). ................................................... 80

Dimension (iii) Timely submission of the annual budget proposal to the legislature or similarly mandated body (within the last three years). ...................................................................................... 81

PI-18: Legislative scrutiny of the annual budget law.............................................................................. 82

Dimension (i) Scope of the legislature’s scrutiny. .............................................................................. 83

Dimension (ii) Extent to which the legislature’s procedures are well-established and respected. ..... 84

Dimension (iii) Timeliness of budget proposal approval. ................................................................... 85

Dimension (iv) Rules for in-year amendments to the budget without ex-ante approval by the legislature. 86

PI-19 Revenue administration compliance. ............................................................................................ 87

Dimension (i) Information to individuals and enterprises about their obligations and rights concerning payments to the government. ........................................................................................... 89

Dimension (ii) Management of risks to revenue. ................................................................................ 90

Dimension (iii) Audit and fraud investigation practices (including penalties) to achieve planned outputs in terms of coverage and additional revenue .......................................................................... 91

Dimension (iv) Management of revenue arrears ................................................................................. 92

PI-20 Accounting for revenues. .............................................................................................................. 93

Dimension (i) Coverage and timeliness of revenue information collected by the Ministry of Finance. 94

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Dimension (ii) Effectiveness of transfer of revenue collections to the Treasury or other designated agencies. 95

Dimension (iii) Frequency of complete accounts reconciliation between assessments, collections, arrears records and receipts by the Treasury or other designated agencies......................................... 96

PI-21 Predictability in the availability of funds to support service delivery. .......................................... 97

Dimension (i) Extent and frequency of consolidation of the central government’s cash balances. .... 99

Dimension (ii) Extent to which cash flows are forecast and monitored. .......................................... 100

Dimension (iii) Reliability and horizon of periodic in-year information to MDAs on ceilings for expenditure commitment................................................................................................................... 101

Dimension (iv) Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of MDAs......................................................................................... 102

PI-22 Effectiveness of payroll controls. ................................................................................................ 103

Dimension (i) Degree of integration and reconciliation between approved staff lists, personnel records and payroll data. ................................................................................................................... 104

Dimension (ii) Timeliness of changes to personnel records and the payroll. ................................... 105

Dimension (iii) Internal controls of changes to personnel records and the payroll. ......................... 106

Dimension (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers. .. 107

PI-23 Transparency, competition and complaint mechanisms in procurement. ................................... 108

Dimension (i) Monitoring the efficiency and effectiveness of the procurement system. ................. 110

Dimension (ii) Use of competitive procurement methods. ............................................................... 111

Dimension (iii) Public access to complete, reliable and timely procurement information. .............. 112

Dimension (iv) Effectiveness of an independent administrative procurement complaint system. ... 113

PI-24 Effectiveness of internal controls for non-salary expenditure. ................................................... 114

Dimension (i) Segregation of duties. ................................................................................................ 115

Dimension (ii) Effectiveness of expenditure commitment controls. ................................................. 116

Dimension (iii) Compliance with systems of controls making payments. ........................................ 117

PI-25 Effectiveness of internal audit. .................................................................................................... 118

Dimension (i) Coverage of the internal audit function. .................................................................... 119

Dimension (ii) Implementation of audits and distribution of reports (percentages quoted refer to the average rate of completion of audit plans for all audited entities). ................................................... 120

Dimension (iii) Extent of management response to internal audit findings. ..................................... 121

Dimension (iv) Nature of audit performed and adherence to professional standards. ...................... 122

PI-26 Accounts reconciliation and financial data integrity. .................................................................. 123

Dimension (i) Regularity of bank reconciliation. ............................................................................. 124

Dimension (ii) Regularity of reconciliation and clearance of suspense accounts. ........................ 125

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Dimension (iii) Regularity of reconciliation and clearance of advance accounts. ......................... 126

Dimension (iv) Processes supporting financial data integrity. .......................................................... 127

PI-27: Quality and timeliness of in-year budget reports. ...................................................................... 128

Dimension (i) Coverage and comparability of reports. ............................................................... 129

Dimension (ii) Timeliness of the issue of reports. ........................................................................ 130

Dimension (iii) The quality of the information contained in the reports. ...................................... 131

PI-28: Quality and timeliness of annual financial reports. .................................................................... 132

Dimension (i) Completeness of the financial reports. ................................................................. 133

Dimension (ii) Timeliness of submission of the financial reports. ............................................... 134

Dimension (iii) Transparency, completeness and consistency of accounting standards applied. .. 135

PI-29: SAI Independence and external audit of the government’s annual financial reports. ................ 136

Dimension (i) Coverage and auditing standards of audit performed. .......................................... 138

Dimension (ii) Timeliness of submission of audit reports to legislature on the government’s financial reports. 139

Dimension (iii) Evidence of follow up on audit recommendations or observations by the executive or audited entity. 140

Dimension (iv) Independence of the SAI and access to information. ........................................... 141

PI-30: Legislative scrutiny of external audit reports. ............................................................................ 142

None.Dimension (i) Timeliness of examination of audit reports by the legislature (for reports received within the last three years). ................................................................................................. 142

Dimension (ii) Extent of hearings on key findings undertaken by the legislature. ....................... 144

Dimension (iii) Issuance of recommended actions by the legislature and follow up of implementation. 145

Dimension (iv) Transparency of the legislative scrutiny function. ................................................ 146

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List of Abbreviations

AGA Autonomous Government Agencies BCG Budgetary Central Government COFOG Classifications of Functions of Government DAC Development Assistance Committee of OECD EBO Extra-Budgetary Operations EUR Euro FTE Fiscal Transparency Evaluation FY Fiscal Year GDP Gross Domestic Product GFS Government Financial Statistics IAASB International Auditing and Assurance Standards Board IFAC International Federation of Accountants IGF Inspection Générale des Finances INTOSAI International Organization of Supreme Audit Institutions IPSAS International Public Sector Accounting Standards (of IFAC) ISA International Standards on Auditing ISO International Standards Organization ISSAI International Standards of Supreme Audit Institutions MDA Ministries, Departments and Agencies MOF Ministry of Finance OECD Organisation for Economic Co-operation and Development PE Public Enterprise PFM Public Financial Management PFM-PR PFM Performance Report PI Performance Indicator PPP Public-Private Partnership SAI Supreme Audit Institution SN/SNG Sub-National Government TSA Treasury Single Account USD United States Dollars

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Introduction The PEFA Framework was launched in 2005. Since then the general standard of PFM around the world has improved and expectations of ‘generally accepted good practice’ (the foundations of PEFA score calibration) have increased in many areas.

In addition, the experience gained from more than 400 PEFA assessments has highlighted possible refinements to the Framework. The PEFA Framework has therefore been upgrade to incorporate many improvements while maintaining as much as possible the core principles and methodology implemented in 2005. These refinements will continue to contribute to the overall objective of providing a high-level overview of a country’s PFM system and will remain a core tool for discussing, designing, and monitoring PFM reforms in a broad range of countries.

Purpose of this document The purpose of this document is to provide assessors with expanded guidance on application of the upgraded PEFA Framework (“testing version”), released in January 2015. The 2015 PEFA Framework document1 contains information on the scope and coverage of PEFA, scoring methods, an overview of the indicators and dimensions, and the recommended format and content of the PEFA report, including annexes.

This document expands on the Framework document in relation to assessment and scoring of each indicator and dimension, including replication of some parts of the Framework document. It is important that assessors refer to both documents when undertaking the assessment to ensure that all aspects of the PEFA methodology are understood and applied as intended. The key questions provided in this document are used to facilitate scoring or assist in understanding the attributes being assessed in each indicator.

THIS DOCUMENT IS NOT INTENDED TO PROVIDE GUIDANCE ON HOW TO ASSESS PERFORMANCE CHANGES BETWEEN PREVIOUS VERSIONS AND ON THE UPGRADED FRAMEWORK.

1 The PEFA Framework, testing version, upgraded January 2015, can be accessed at: https://www.pefa.org/sites/pefa.org/files/PMF%20Upgrade%20-%20Testing%20Version%2026-01-15.pdf

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https://www.pefa.org/sites/pefa.org/files/PMF%20Upgrade%20-%20Testing%20Version%2026-01-15.pdf

General Guidance on Scoring Each dimension of an indicator is scored separately on a four point ordinal scale: A, B, C or D. In order to justify a particular score for a dimension, all the requirements specified for that score in the scoring table must be fulfilled. If the requirements for a score are only partly met, the criteria are not satisfied and the score should be at the highest point below that score where all of the criteria are met. However, there are cases where a score can be justified by alternative requirements, in which case the alternatives are specified in the scoring requirements and separated by the word ‘OR’.

The ‘D’ score is considered the residual score, to be applied if the requirements for any higher score are not met. This includes the situation in which insufficient information is available to establish the level of performance on the indicator subject.

There may be two types of cases in which no score can be allocated to an indicator or a dimension, namely:

1. The indicator/dimension is not applicable to the government systems being assessed. In that case an ‘NA’ (Not Applicable) is entered instead of a score. If this concerns only one out of several dimensions of an indicator, then the dimension is excluded from any further consideration i.e. the assessor proceeds as if the dimension did not exist. It should also be noted that a ‘D’ rating on some indicator dimensions can lead to ‘NA’ on other dimensions of the same indicator.

2. It may have been decided from the concept stage of the assessment not to use a particular indicator

for other reasons, for example because the PEFA assessment is combined with a detailed assessment of the relevant indicator subject using a different assessment tool. In such cases a ‘NU’ (Not Used) is entered instead of a score.

In each case, a justification for the use of NA and NU must be included in the Performance Report. The requirements for a score can be assessed on the basis of different time horizons. As a general rule, the assessment is based on the current situation at the time of field work, or in the case of periodic events, on the basis of the relevant and completed events during the most recent or ongoing budget cycle. Some indicator dimensions require data for more than one fiscal year or budget cycle. In this case, the relevant period on which a dimension should be assessed, and therefore for which evidence should be sought, is specified in the guidance or calibration for the relevant indicator.

Some indicators require data for three years as a basis for the assessment, in which case the data should cover the most recent, completed fiscal year for which data is available and the two immediately preceding years. The assessment is in some cases based on the performance in two out of those three years i.e. allowance is made for one year to be abnormal (and not contributing to the score) due to unusual circumstances such as external shocks (e.g. natural disasters, price fluctuations in important export or import commodities) or domestic problems (e.g. of a political nature). As such anomalies have generally been catered for in the calibration, no fiscal year should be skipped in the data set.

Further guidance on scoring will be made available on the website www.pefa.org, including answers to frequently asked questions.

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http://www.pefa.org/

Scoring indicators with multiple dimensions

All indicators except PI-1, 3, 4, 5 and 9 have more than one dimension linked to the subject of the indicator. Each dimension must be assessed separately. The overall score for a multi-dimension indicator is determined using one of two methods:

1. Method (M1) (weakest link) is used for multi-dimensional indicators where poor performance on one dimension is likely to undermine the impact of good performance on other dimensions of the same indicator. The steps in determining the overall or aggregate indicator score are:

• Each dimension is initially assessed separately and given a score; and • Choose the score based on the lowest score for any dimension within the indicator. • A plus ‘+’ sign is added, where any of dimensions scored higher than the weakest link.

Note: It is NOT acceptable to choose the score for one of the higher scoring dimensions and add a minus ‘-’ sign for any lower scoring dimensions. Also, it is NOT acceptable to add a plus ‘+’ sign to the score of an indicator with only one dimension.

2. Method 2 (M2) (average) is involves identifying the approximate mean of individual dimension

scores within an indicator. This method is used for multi-dimensional indicators where a low score on one dimension does not necessarily undermine the impact of a high score on another dimension of the same indicator. The steps in determining the overall indicator score are:

• For each dimension, assess the standard reached on the 4-point calibration scale (as for M1); • Refer to the Conversion Table for Scoring Method M2 (page 11 of this document); • Identify the row in the table that matches the number of dimensions and combination of scores for

indicator dimensions (the order of the dimensional scores is immaterial); and • Choose the corresponding overall score for the indicator from the Conversion Table.

The Conversion Table applies to all indicators using M2 scoring methodology only. It cannot be used for indicators where M1 has been designated because that would result in an incorrect score. The Conversion Table should NOT be used to aggregate scores across all or sub-sets of indicators, since the table was designed only for combining scores within a single indicator.

The PEFA Framework is not suitable for combining across indicators because there are significant differences between the matters covered by each indicator. The meaning of a combined score for part or all of the indicator set would have no relevance to the overall strength or weakness of PFM in any application. Moreover, there are important relationships between indicators, and potential systemic weaknesses, that would be masked by an aggregate score.

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Conversion Table for Scoring Method M2

Overall score Overall scoreM2 M2

D D D D D D D DD C D+ D D D C DD B C D D D B D+D A C+ D D D A D+C C C D D C C D+C B C+ D D C B D+C A B D D C A CB B B D D B B CB A B+ D D B A C+A A A D D A A C+

D C C C D+D D D D D C C B CD D C D+ D C C A C+D D B D+ D C B B C+D D A C D C B A C+D C C D+ D C A A BD C B C D B B B C+D C A C+ D B B A BD B B C+ D B A A BD B A B D A A A B+D A A B C C C C CC C C C C C C B C+C C B C+ C C C A C+C C A B C C B B C+C B B B C C B A BC B A B C C A A BC A A B+ C B B B BB B B B C B B A BB B A B+ C B A A B+B A A A C A A A B+A A A A B B B B B

B B B A B+B B A A B+B A A A AA A A A A

3-dimensional indicators

Note: It is of no importance in which order the dimensions in an

indicator are assigned the individual scores


Scores for individual dim.

Scores for individual dim.


The table CANNOT be applied to indicators using scoring method M1.

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PEFA PFM PERFORMANCE INDICATORS

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PI-1 Aggregate expenditure out-turn compared to original approved budget.

Implementing the budget as approved is an important aspect of the government’s ability to deliver public services for the year as expressed in fiscal/budgetary policy documents, output commitments and work plans. This indicator reflects this by measuring the actual budget out-turns in terms of the major aggregate compared to the originally budgeted out-turn (as defined in government budget documentation and fiscal reports). All expenditures including those incurred as a result of exceptional events (e.g. armed conflicts and natural disasters, which may be met from contingency votes); expenditures financed by windfall revenues including privatization should be included and noted in the supporting fiscal tables and narrative. Externally financed expenditure (by loan or grant) - if reported in the budget - contingency vote(s) and interest on debt are all included in the calculations for scoring the indicator. Expenditure assigned to suspense accounts shall be included in the aggregate.

In order to understand the reasons behind any deviation from the budgeted out-turn, the analysis should describe the factors that have caused the deviation to arise, including the impact of deviations from budgeted revenue and financing.

As actual expenditure out-turns can deviate from the originally approved budget for reasons unrelated to the underlying quality of the forecast (for example, as a result of a major macroeconomic shock), the calibration accommodates one unusual or “outlier” year and focuses on deviations from the forecast which occur in two or more of the three years covered by the assessment.

Dimension to be assessed:

(i) The difference between actual expenditure and the originally budgeted expenditure.

Points to note

1. Important to use the same source for both original budget and actual expenditure to ensure consistency.

2. Must use the initially approved budget NOT supplementary budget.

3. For calculation use the spreadsheet model on the PEFA website.

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Dimension (i) The difference between actual expenditure and the originally budgeted expenditure.

Key questions

1. Is data on budgeted and actual expenditures readily available for last 3 FYs? 2. Is data on expenditures broken down by functions and/or administrative agencies for last 3 FYs? 3. If yes, where is it exactly located and in what form (hard copies, electronic)? 4. If not, where is data available & accessible to calculate total primary expenditures & primary expenditures by

function and/or administration?

Coverage Budgetary central government Critical period/time Last 3 completed FYs Quantifiable data required Actual expenditure minus budgeted expenditure as a percentage of

budgeted expenditure, for each of the last three fiscal years Information sources The best source for these indicators is the Budget entity

(Department, Directorate or other entity) within MOF. Generally the Budget entity has budgeted and actual data on recurrent and capital budget. Most countries have an integrated database for their budgets. Often the database although accessible from the Budget entity is located separately (with separate staff). It may be easier to access the necessary information directly from the staff members dealing with the database.

Rating criteria

A. The aggregate expenditure out-turn was between 95% and 105% of the approved aggregate budgeted expenditure in at least two of the last three years. B. The aggregate expenditure out-turn was between 90% and 110% of the approved aggregate budgeted expenditure in at least two of the last three years C. The aggregate expenditure out-turn was between 85% and 115% of the approved aggregate budgeted expenditure in at least two of the last three years. D. The requirements for a 'C' rating or higher are not met.

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PI-2: Composition of expenditure out-turn compared to original approved budget.

Where the sub–aggregate composition of expenditure varies considerably from the original budget, it is unlikely that the budget will be a useful statement of policy intent. This indicator requires an assessment based on the measurement of expenditure outturns against the original budget at a sub-aggregate compositional level. Although a functional or program comparison would provide the most useful basis for assessment of policy intent, budgets are usually adopted and managed on an administrative (ministry/department/agency) and economic classification basis. The same basis should be used for comparison between appropriation and execution.

Dimension (i) captures whether the policy priorities are implemented as approved. Changes in the overall level of expenditure (assessed in PI-1) will translate into changes in spending for administrative/functional/program budget heads. The indicator measures the extent to which reallocations between budget heads during execution have contributed to variance in expenditure composition. Contingency items and interest on debt are not included in this calculation (as opposed to PI-1). All other expenditures including expenditures incurred as a result of exceptional events (i.e., armed conflict, natural disasters); expenditures financed by windfall revenues (including privatization), central government subsidies and transfers, and donor funds reported in the budget should all be included.

At the administrative level, variance should be calculated for the main budgetary heads (votes) of ministries, departments and agencies, which are included in the approved budget. If a functional classification based on GFS/COFOG is used, variance should be based on the ten main functions. Where a functional classification not based on GFS/COFOG is used, the measurement of variance should be based on the main heads approved by the legislature. If a program basis is used, they should be rated at the same level at which they were voted by the legislature.

Dimension (ii) measures the extent to which reallocations between budget items by economic classification during execution have contributed to variance in expenditure composition. The composition of the budget by economic classification is important for showing the balance between different categories of inputs (i.e. capital and recurrent expenditures). This allows an assessment of the extent to which inputs by economic category are in accordance with policy intent. The categories of expenditure are the same as for dimension (i), with the addition of interest on debt, as this is one of the categories of economic classification. The calculation should use the second level of the GFS classification (2 digits) or equivalent.

Dimension (iii) recognizes that while it is prudent to include an amount to allow for unforeseen events in the form of a contingency vote (although this should not be so large as to undermine the credibility of the overall budget), accepted “good practice” requires that these amounts be vired to those votes against which the unforeseen expenditure is recorded (in other words, that expenditure is not charged directly to a contingency vote). It should also be noted that there may be more than one vote of this nature. Assessors should discuss the budgeting and accounting treatment of discernable contingency items in the narrative. The calibration is based on the volume of expenditure recorded against contingency votes (except for transfers to a Disaster Fund or similar devices) as this represents a deviation from policy intent.

Where part of the budget is protected from spending cuts for either policy (e.g. poverty reduction spending) or regulatory reasons (e.g. compulsory welfare payments), this will show up as a composition variance. Assessors are requested to report on the basis for and extent of protected spending in the narrative.

As actual expenditure outturns can deviate from the originally approved budget for reasons unrelated to the underlying quality of the forecast (for example, a major macroeconomic shock), the calibration accommodates one unusual or ‘outlier’ year and focuses on deviations from the forecast which occur in two or more of the three years covered by the assessment.

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Dimensions to be assessed (Scoring Method M1):

(i) Extent of the variance in expenditure composition during the last three years, excluding contingency items, and interest on debt.

(ii) Extent of the variance in expenditure composition by economic classification during the last three years including interest on debt but excluding contingency items.

(iii) The average amount of expenditure actually charged to a contingency vote over the last three years.

Points to note:

1. Contingency items should only include clearly defined items which are unallocated at budget preparation time but used to cover shortfalls in spending in any budget unit during execution. They can include a reserve allocation for wage increases, say, held centrally but distributed to budget users once the level of increase has been settled (or agreed with unions). These are usually established either as a separate vote, or as a sub-vote under the Ministry of Finance, with a clearly marked title such as “contingency reserve” or “unanticipated/miscellaneous expenditure”. Contingencies established within budget user votes, as well as any vote suspected of really being allocated for contingencies, should NOT be included.

2. Use the calculation model on the website to insert the data and obtain the annual calculations of expenditure variance for each year. The steps in calculation for each year are as follows: • For each budget head selected for composite variance analysis (i.e. excluding contingency items), calculate the

“adjusted” budget (this is {the original budget for each head, multiplied by aggregate actual expenditure divided by aggregate budget}).

• For each budget head, calculate the deviation between actual expenditure and adjusted budget. • Add up the absolute value of the deviations for all budget heads (absolute value = the positive difference

between the actual and the budget figures). Do not use percentage deviations. • Calculate this sum as a percentage of the total adjusted budget (i.e. total actual expenditure). • Establish in how many years the percentage points exceeded 5, 10 or 15, and go to the scoring PI-2 table to

determine the final score.

The same steps are to be performed for dim (i) and dim (ii).

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Dimension (i) Extent of the variance in expenditure composition during the last three years, excluding contingency items, and interest on debt.

Key questions

1. Is data available on budgetary central government expenditure available for each of the three most recent years?

2. If yes, within budgetary central government expenditure, is separate information available for the main functional classifications, or the 20 largest heads of administrative classification for the most recent three years?

3. If no, what information is available on central government expenditure?

Coverage Budgetary central government. Critical period/time Last 3 completed FYs. Quantifiable data required Actual expenditure and budgeted expenditure for each of the main

functional classifications or for each of the 20 largest budget heads in the administrative classification. Should the number of main budgetary heads exceed 20, the composition variance shall be assessed against the largest heads that together make up 75% of the budget – there should be a minimum of 20 heads represented in the case of administrative or program classification – with the residual heads (excluding contingency items) aggregated into one line. This data is needed for each of the last three fiscal years.

Information sources MOF (if possible, same source for original budgets and actual expenditure).

Rating criteria

A. Variance in expenditure composition by program, administrative or functional classification was less than 5% in at least two of the last three years. B. Variance in expenditure composition by program, administrative or functional classification was less than 10% in at least two of the last three years C. Variance in expenditure composition by program, administrative or functional classification was less than 15% in at least two of the last three years. D. The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Extent of the variance in expenditure composition by economic classification during the last three years including interest on debt but excluding contingency items.

Key questions

1. Within budgetary central government expenditure, is separate information available for the economic classifications for the most recent three years?

Coverage Budgetary central government. Critical period/time Last 3 completed FYs. Quantifiable data required Actual expenditure and budgeted expenditure for each category of

the economic classification. This data is needed for each of the last three fiscal years.

Information sources MOF (if possible, same source for original budgets and actual expenditure).

Rating criteria

A. Variance in expenditure composition by economic classification was less than 5% in at least two of the last three years. B. Variance in expenditure composition by economic classification was less than 10% in at least two of the last three years. C. Variance in expenditure composition by economic classification was less than 15% in at least two of the last three years. D. The requirements for a 'C' rating or higher are not met.

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Dimension (iii) The average amount of expenditure actually charged to a contingency vote over the last three years.

Key questions

1. Does the approved budget include a contingency vote? 2. If yes, what proportion of the original approved budget was charged to the contingency vote for each of the

last three years? 3. If no, are there other emergency procedures for budget reallocation or supplementary financing?

Coverage Budgetary central government. Critical period/time Last 3 completed FYs. Quantifiable data required Actual expenditure charged to the contingency heading (either as a

separate vote, or as a sub-vote under the Ministry of Finance, with a clearly marked title such as “contingency reserve”) for each of the last three fiscal years.

Information sources MOF.

Rating criteria

A. Actual expenditure charged to a contingency vote was on average less than 3% of the original budget. B. Actual expenditure charged to a contingency vote was on average more than 3% but less than 6% of the original budget. C. Actual expenditure charged to a contingency vote was on average more than 6% but less than 10% of the original budget. D. The requirements for a 'C' rating or higher are not met.

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PI-3: Aggregate revenue out-turn compared to original approved budget.

Accurate revenue forecasts are a key input to the preparation of a credible budget. Revenues allow the government to finance expenditures and deliver services to its citizens. Optimistic revenue forecasts can lead to unjustifiably large expenditure allocations that will eventually require either an in-year and potentially disruptive reduction in spending or an unplanned increase in borrowing to sustain the spending level. On the other hand, pessimism in the forecast can result in the proceeds of an over-realization of revenue being used for spending that has not been subjected to the scrutiny of the budget process. As the consequences of revenue under-realization may be more severe, especially in the short term, the criteria used to score this indicator allow comparatively more flexibility when assessing an over-realization.

It is recognized that the revenue out-turn can deviate from the originally approved budget for reasons unrelated to the underlying quality of the forecast, such as a major macroeconomic shock. For this reason, the calibration allows for one unusual or “outlier‟ year to be excluded by focusing on significant deviations from the forecast which occur in two or more of the three years covered by the assessment.

The indicator focuses on domestic2 and external revenue, which comprises taxes, social contributions, grants, and other revenues including those from natural resources (which may include transfers from a revenue stabilization fund or a Sovereign Wealth fund), where these are included in the budget.

The narrative to support the rating should: • describe the sources of data (which will normally be drawn from budget execution reports or the annual fiscal report), noting any concerns about their suitability and reliability. If some departmental revenues are not reported, they should be captured as estimates under PI-6 Extent of reporting on extra-budgetary operations (EBOs), dim (i) and the narrative should cross-refer to such unreported revenues; • provide background information on the institutional arrangements for revenue forecasting; • note any special factors that affect revenue forecasts and performance (e.g., dependence on revenue from natural resource; sources of economic and revenue volatility; significant tax reforms; unanticipated macroeconomic developments; “windfalls”).


(i) Actual revenue compared to that provided for in the originally approved budget.

Points to note:

The same source for budgeted and actual revenue amounts should be used.

2 External financing through borrowing is not included in the assessment of this indicator. This means that grants from development partners will be included in the revenue data used for the indicator rating whereas borrowing on concessionary terms from development partners is not considered as external revenue for this indicator.

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Dimension (i) Actual revenue compared to that provided for in the originally approved budget.

Key questions

1. Is data on budgeted and actual domestic revenue (tax revenue and non-tax revenue) for the last 3 FYs available? 2. Is the data disaggregated by major revenue type?

Coverage Budgetary central government Critical period/time Last 3 completed FYs Quantifiable data required Actual domestic revenue collected as a percent of budgeted

domestic revenue for each of the last three fiscal years. Information sources As for PI-1. In addition information on the main sources of revenue

may also be available from the Revenue Authorities, although they may not be responsible for departmental revenues, on which data are also required.

Rating criteria

A. Actual revenue was between 97% and 106% of budgeted revenue in at least two of the last three years. B. Actual revenue was between 94% and 112% of budgeted revenue in at least two of the last three years. C. Actual revenue was between 92% and 116% of budgeted revenue in at least two of the last three years. D. The requirements for a 'C' rating or higher are not met.

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PI-4: Classification of the budget.

A robust classification system allows transactions to be tracked throughout the budget formulation, execution and reporting cycle, according to administrative unit, economic category, function/sub-function or program. The budget should be presented in a format that reflects the most important classifications and this classification should be embedded in the government’s chart of accounts (the accounting classification) to ensure that all transactions can be reported in accordance with any of the classifications used. The budget and accounting classifications should be reliable and consistently applied, providing users with confidence that information recorded against one will be reflected in reports under the other classification.

This indicator assesses the extent to which the government budget and accounts classification is consistent with international standards. The Government Finance Statistics (GFS) classification provides a recognized international framework for the economic and functional classification of transactions: revenues and expenditures are broken down into four and three classification levels respectively. Under the UN-supported Classification of Functions of Government (COFOG), which is the functional classification applied in GFS, there are 10 main functions at the highest level and 69 functions at the second (sub-functional) level. Although no international standard for programmatic classification exists, this type of classification can be an important tool in budget formulation, management and reporting and the way in which is it applied should be explained in the narrative if the highest score is assigned on this basis.

All parts of the central government’s annual budget (current and capital) should be covered by this indicator, whether they are integrated or use separate budget and accounting processes. In the latter case, the requirements for a score should be fulfilled for each process.

For countries rich in natural resources, the government’s revenue classification system should identify and report these revenues (whether taxes, royalties, bonuses, dividends, the government’s share of profits e.g. from Production Sharing Agreements, etc.) and the main sector(s) from which the revenues originate. The narrative of the assessment should identify if such a classification exists and if it is linked to budget classification and the chart of accounts.


(i) Extent to which the classification system used for formulation, execution and reporting of the central government’s budget is consistent with international standards.

Point to note:

Reports often only refer budgetary classification for “formulation”, but execution and reporting are part of the requirement.

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Dimension (i) Extent to which the classification system used for formulation, execution and reporting of the central government’s budget is consistent with international standards.

Key questions

1. Is budget formulation, execution and reporting based on administrative, economic and functional classification? 2. If not, what types of classification are not used? 3. Is any economic classification compatible with GFS (2014)? 4. Is any functional classification compatible with UN-COFOG to main function level, or to sub-function level, or to program level?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Requires review of types of classification actually in use in budget

documents and chart of accounts. Information sources Budget books provided by the Budget entity for the last completed

FY.

Rating criteria

A. Budget formulation, execution and reporting is based on ALL levels of administrative, economic and functional classification using GFS/COFOG standards, or a standard classification that can produce consistent documentation according to those standards and is fully consistent with all classifications used for reporting financial information. Program classification may substitute for sub-functional classification, if it is applied with a level of detail at least corresponding to sub-functional classification. B. Budget formulation, execution and reporting is based on administrative, economic (at least level 3 of the GFS standard – 3 digits) and full functional/sub-functional classification, using GFS/COFOG standards or a standard classification that can produce consistent documentation according to those standards. C. Budget formulation, execution and reporting is based on administrative and economic classification using GFS standards (at least level 2 of the GFS standard – 2 digits) or a standard classification that can produce consistent documentation according to those standards. D. The requirements for a 'C' rating or higher are not met.

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PI-5: Comprehensiveness of information included in budget documentation.

Annual budget documentation (the executive’s budget proposals for the next fiscal year with supporting documents), as submitted to the legislature for scrutiny and approval, should allow a complete picture of central government fiscal forecasts, budget proposals and out-turn of the current and previous years3 .

This indicator assesses the comprehensiveness of the information provided in the annual budget documentation, which should include the following information:

Basic elements: 1. Forecast of the fiscal deficit or surplus (or accrual operating result). 2. Previous year’s budget out-turn, presented in the same format as the budget proposal. 3. Current year’s budget (either the revised budget or the estimated out-turn), presented in the same format as the budget proposal. 4. Aggregated budget data for both revenue and expenditure according to the main heads of the classifications used (ref. PI-4 Classification of the budget), including data for the current and previous year, in addition to the detailed breakdown of revenue and expenditure estimates.

Additional elements: 5. Deficit financing, describing its anticipated composition. 6. Macro-economic assumptions, including at least estimates of GDP growth, inflation, interest rates, and the exchange rate. 7. Debt stock, including details at least for the beginning of the current year (presented in accordance with GFS or other internationally recognized standard). 8. Financial Assets, including details at least for the beginning of the current year (presented in accordance with GFS or other internationally recognized standard). 9. Summary information of fiscal risks (including contingent liabilities, such as guarantees, and contingent obligations embedded in PPP contracts, etc.). 10. Explanation of budget implications of new policy initiatives and major new public investments, with estimates of the budgetary impact of all major revenue policy changes and/or major changes to expenditure programs. 11. Documentation on the medium-term framework. 12. Quantification of tax expenditures.


(i) Share of the above listed information in the executive’s annual budget proposals most recently issued by the central government (in order to count in the assessment, the full specification of the information benchmark must be met).

Point to note:

Requires review of types of information included in actual budget documentation.

3 The following terminology is used: Current year (T) is the fiscal year in which the budget proposals are being prepared and usually presented. Next year (T+1) is the budget year or fiscal year for which the annual budget proposals are made. Previous year (T-1) is the last fiscal year completed. Outer years (T+2, T+3 etc.) are the fiscal years beyond the year for which the annual budget proposals are made. Outer years are relevant for the medium-term budget perspective in PI-14, PI-15 and PI-16.

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Dimension (i) Share of the above listed information in the executive’s annual budget proposals most recently issued by the central government (in order to count in the assessment, the full specification of the information benchmark must be met).

Key questions

1. Which of the basic elements listed are included in annual budget documentation (annual budget and budget supporting documents) submitted to the legislature for scrutiny and approval?

2. Which of the additional elements listed are included in the annual budget documentation (annual budget and budget supporting documents), as submitted to the legislature for scrutiny and approval??

3. Are any documents listed as basic or additional provided to the legislature at other times or in other ways? 4. Are there any documents relevant to the budget not listed that are submitted to

Coverage Budgetary central government. Critical period/time Last budget presented to the legislature. Quantifiable data required Requires review of the types of information included in actual

budget documentation. Information sources Latest budget and supporting documents presented to the

legislature.

Rating criteria

A. Budget documentation fulfills all basic elements (1-4) and at least 6 of the additional elements. B. Budget documentation fulfills all basic elements (1-4) and at least 3 of the additional elements. C. Budget documentation fulfills all basic elements (1-4). D. The requirements for a 'C' rating or higher are not met.

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PI-6 Extent of reporting on extra-budgetary operations (EBOs).

Ex-ante and ex-post fiscal reports4 to the legislature should cover all budgetary and extra-budgetary activities of central government to allow a complete picture of revenue and expenditures across all categories, as well as financing. This will be the case if extra-budgetary operations (central government activities which are not included in the annual budget law, such as those funded through extra-budgetary funds and externally financed projects), are insignificant or if any significant expenditures on extra-budgetary activities are included in ex-ante and ex-post fiscal reports and reported to the legislature. While having a large number of extra-budgetary or off-budget funds should be discouraged, there can be a case for the selective use of these funds, depending on the institutional and governance arrangements in the country. The use of off-budget funds should be accompanied by mechanisms that promote accountability and efficiency, i.e. be included in regular reports to the legislature. Without such controls, extra-budgetary funds can end up serving corrupt interests, weaken good governance and macro-fiscal stability. Dimension (i) of this indicator assesses the magnitude of operations that are both off-budget and off-account (i.e. not reported), and thus are not fully transparent and subject to effective scrutiny. Dimension (ii) assesses the quality of income and expenditure information on extra-budgetary operations for planning and decision making and in particular the extent to which information on extra-budgetary operations is sufficient to contribute, together with central budgetary government expenditure, to achieving a comprehensive picture of central government revenues, expenditures and financing. The latter will be the case if the financial information is detailed at least to the level of main categories of GFS economic classification (two-digit) or equivalent for each of revenue, expenditure and financing, and accompanied by description of the operation and the institutions involved. The table below should be completed, used to rate the dimensions of PI-6, and included in the Performance Report. The narrative should comment on the completeness of the data inserted in the table and likely gaps.

Dimensions to be assessed (Scoring Method M2): (i) The level of extra-budgetary operations (revenue and expenditure) (from Table 6) which is unreported, i.e.

not included in ex-ante and ex-post fiscal reports. (ii) The details of income, expenditure and financing information on reported extra-budgetary operations (not

applicable if EBOs constitute less than 1% of total budgetary expenditure).

Points to note:

1. It is necessary to identify the agencies that are outside the budgetary system (i.e. their budgets and actual income and spending do not appear in the government’s budgetary documents). This should be reasonably easy to do, as they are typically few in number and are well-known (e.g. Social Security agency).

2. The indicator includes all externally financed operations, and thus donor funds should also be included when assessing extent of reporting of the EBOs.

3. The SAI and Ministry of Finance (or other parent ministry) may have information on income and expenditure of the extra-budgetary operations (it is possible that the information is available, but is not reported in fiscal reports).

4. Request meetings with the heads of the agencies through which the main extra-budgetary operations are occurring.

4 Ex-ante and ex-post reports include annual budget estimates, in-year execution reports, and year-end financial reports. Extra-budgetary operations should be included in such reports either by consolidation with other central government revenue and expenditure or shown in a separate section or annex, or in a separate document presented to the legislature.

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6. Some of the extra budgetary operations may be occurring through the retention and spending of non-tax revenue by agencies. The MOF may have information on this, based on knowledge of the rates and the amount of activity, and perhaps on the basis of internal reports sent by these agencies.

7. Other possible sources might be:

- IMF information/statistics (GFS Yearbook, FTE, Article IV, TA reports);

- World Bank PER (Note: some PER look into extra-budgetary issues);

- Tax authorities;

- Line ministers overseeing EBO;

- MDAs (line Ministries) that collect revenues /fees and the bank accounts they maintain for such revenues;

- Central Bank (which has supervisory oversight of the commercial banks).

-SAI’s

8. Assessors should attempt to fill in the table below as an input to scoring the indicator:

Table 6. Breakdown of identified extra-budgetary operations

Nature of EBO Estimated amount/range of EBO (as share of BCG

total spending)

How covered in fiscal reports

• Brief description of entity/ issue, including legal status

• Indicate source of funding (legislative budget, own source revenue, etc.)

• Discussion of significant assets and liabilities

• Estimated amount or range, as a share of spending

• Specify in which reports EBOs are addressed and how they are covered

• Specify whether EBOs are off-budget/off-account or off-budget/on-account or on-budget/off-account

MDAs

Extra-budgetary units

Autonomous special funds

Externally financed projects

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Dimension (i) The level of extra-budgetary operations (revenue and expenditure5) (from Table 6) which is unreported, i.e. not included in ex-ante and ex-post fiscal reports.

Key questions

1. Do annual budget estimates, in-year execution reports and year-end financial statements (other fiscal reports are excluded) cover all activities of central government?

2. What are the extra-budgetary activities, how large are they (as a percentage of central government expenditure) and in which entities do they take place?

3. Are externally financed projects/programs covered in financial reports?

Coverage Central government and all related public enterprises. Critical period/time Last completed FY. Quantifiable data required Amount of extra budgetary expenditure and revenue as a

percentage of total expenditure (including externally funded project/program support). Proportion of actual extra-budgetary expenditure and revenue that is not included in fiscal reports. Required review of reporting requirements of the AGAs and PEs and coverage of the EBOs by audited financial reports.

Information sources MOF, line ministries and agencies, agencies with oversight responsibilities (such as SAI), major AGAs and PEs, each ministry in receipt of significant unreported revenues or undertaking significant unreported expenditures.

Rating criteria

A. The level of unreported extra-budgetary expenditure and revenue is insignificant (below 1% of total expenditure). B. The level of unreported extra-budgetary expenditure and revenue is between 21% and 5% of total expenditure. C. The level of unreported extra-budgetary expenditure and revenue is between 5% and 10% of total expenditure. D. The requirements for a 'C' rating or higher are not met.

5 The magnitude of each EBO may be identified in terms of either the revenue stream or the expenditure. While revenue will eventually lead to corresponding expenditure, there may be considerable time lags between the two events and information may not be identified for both revenue and expenditure at the time of assessment. Each EBO should therefore be counted on the basis of either revenue or expenditure but not both. The denominator is total budgetary expenditure, acting as a proxy for total budgetary turnover.

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Dimension (ii) The details of income, expenditure and financing information on reported extra-budgetary operations (not applicable if EBOs constitute less than 1% of total budgetary expenditure).

Key questions

1. Is data on extra-budgetary expenditures/revenues readily available? 2. In which entities and in what form? 3. What is the level of detail of data on EBOs in reports? 4. Is this data reliable?

Coverage Central government and all related public enterprises. Critical period/time Last completed FY. Quantifiable data required Required review of reporting requirements of the AGAs and PEs

and coverage of the EBOs by audited financial reports. Information sources MOF, line ministries and agencies, agencies with oversight

responsibilities (such as SAI), major AGAs and PEs, each ministry in receipt of significant unreported revenues or undertaking significant unreported expenditures.

Rating criteria

A. Detailed financial information on all reported extra-budgetary operations (revenue and expenditure) is included in ex-ante and ex-post reports.

B. Detailed financial information on the majority of reported extra-budgetary operations (i.e. more than 50% of operations by value of either revenue or expenditure), is included in ex-ante and ex-post reports

C. Detailed financial information on the majority of extra-budgetary operations is included in ex-post reports.

D. The requirements for a 'C' rating or higher are not met.

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PI-7 Transparency of inter-governmental fiscal relations.

While the indicator set is focused on financial management by central government, sub-national government6 (SNG) in many countries has wide-ranging expenditure responsibilities. In federal states, the fiscal relationship between the central (federal or union) government and the individual states is typically established in the Constitution of the Union or Federation. In other cases, specific laws determine the layers of SNG, their expenditure responsibilities and arrangements for revenue sharing. In either case these decentralized governance arrangements give rise to a set of intergovernmental financial relations between levels of government including key issues related to the transfer and distribution of funds from central government to SNG, the timeliness and accuracy of information on funds to be transferred, the requirements for reporting from SNG to central government and the risk exposure of central government to SNG operations.

Dimension (i) assesses the transparency and objectivity in the horizontal allocation among SNG entities. Transfers to support SNG expenditure can be made in the form of unconditional grants, where their final use is determined by the SNG through their budgets, or through conditional (earmarked) grants to SNG to implement selected service delivery and expenditure responsibilities e.g. by function or program, typically in accordance with an agreed regulatory/policy standard. The overall level of grants (i.e. the vertical allocation) will usually be determined by policy decisions at the central government’s discretion or as part of constitutional negotiation processes, and is not assessed by this indicator. However, clear criteria, such as formulas, for the distribution of grants among SNG entities (i.e. the horizontal allocation of funds) are needed to ensure allocative transparency and medium-term predictability of funds available for planning and budgeting of expenditure programs by SNG. All fiscal transfers from central government to the highest level of sub-national government should be taken into consideration. If different formulae/criteria are used for different elements of transfer, the overall assessment may be based on a weighted average.

Dimension (ii) assesses the timeliness of transfer information. It is crucial for SNG to receive firm and reliable information on annual allocations from central government well in advance of the completion (preferably before commencement) of their own budget preparation processes. Information on transfers to SNG budgets should be regulated by the central government’s annual budget calendar, which should provide for reliable indications of allocations early in the cycle.

Dimension (iii) assesses the effectiveness of SNG reporting to central government. Generation of a full overview of expenditure allocations by general government requires that SNG can generate fiscal data with a classification that is comparable to central government and that such information is collected at least annually and consolidated with central government fiscal reports. Depending of legislative arrangements collection and consolidation of fiscal data from SNG may be undertaken directly by central government or by the national statistical agency. For the coverage to be meaningful, the consolidated reporting of fiscal information should be of a reasonable quality, include all tiers of general government, and be presented on both an ex-ante (budgeted) and an ex-post (actual) basis.

Dimensions to be assessed (Scoring Method M2): (i) Transparent and rules based systems in the horizontal allocation among SNGs of unconditional and conditional transfers from central government (both budgeted and actual allocations). (ii) Timeliness of reliable information for budget planning to SNGs on their allocations from central government for the coming year. (iii) Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for

general government.

Points to note:

None.

6 Funding provided to deconcentrated units of central government (which do not have local accountability mechanisms) is not covered by the scope of this indicator.

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Dimension (i) Transparent and rules based systems in the horizontal allocation among SNGs of unconditional and conditional transfers from central government (both budgeted and actual allocations).

Key questions

1. Which entities exist that meet the criteria for being SNG (ref SNG Guidelines)? 2. What are the fiscal relationships of CG with these entities and how are these defined (Constitution, specific law

or decree; expenditure responsibility and revenue sharing arrangements)? 3. What transfers are made to the first tier of SNG and is the horizontal allocation of these transfers determined

entirely or in part by transparent and rules based systems? 4. If in part, what is approximate % of transfers determined by transparent and rules based systems? 5. Can SNGs calculate in advance the amounts they should receive or do receive in accordance with these

systems? 6. Is a specific formula used for these transfers? If yes, what criteria are taken into consideration (population,

development levels, capacity to raise revenue, others)? N.B. rating depends only on transparency and objectivity.

Coverage 1st tier sub-national level of government. Critical period/time Last completed FY. Quantifiable data required Proportion of transfers to SN governments by value for which

allocations among the SN government entities are determined by transparent rules or formulas.

Information sources Budget entity, specific entity in charge of SN matters such as Minister of Local Government or Decentralization, Budget entity or Finance officers of major SN governments.

Rating criteria

A. The horizontal allocation of almost all transfers (at least 90% by value) from central government is determined by transparent and rules based systems. B. The horizontal allocation of most transfers from central government (at least 50% of transfers) is determined by transparent and rules based systems. C. The horizontal allocation of only a small part of transfers from central government (10-50%) is determined by transparent and rules based systems. D. The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Timeliness of reliable information for budget planning to SNGs on their allocations from central government for the coming year.

Key questions

1. When exactly during FY are reliable (not preliminary) estimates of central government transfers issued to SN entities? However the CG may answer this question, the reliability of estimated transfers can only be established ex post, by checking the variance with actual transfers. There may never be “reliable” estimates, say, variance < 5%.

2. When do SN entities have to start preparing their estimates? 3. Are transfers notified too late in that SN budgets have already been finalized? Or are not finalized but

notification is too late to allow changes? Coverage 1st tier sub-national level of government. Critical period/time Last completed FY. Quantifiable data required Period between the date on which SN government administrators

are provided firm information on the transfers from central government and the date on which the SN governments must finalized their budgets.


Rating criteria

A. The process by which SNGs receive information on their annual transfers is managed through the regular budget calendar, which is generally adhered to and provides clear and sufficiently detailed information for SNG to allow at least 6 weeks to complete their budget planning on time. B. The process by which SNGs receive information on their annual transfers is managed through the regular budget calendar, and though some delays may be often experienced, the process provides clear and sufficiently detailed information and adequate time (at least 4 weeks) for SNGs to complete their budget planning on time. C. An annual budget calendar exists but is rudimentary and substantial delays may often be experienced in its implementation, and though information on annual transfers to SNGs is issued before the start of the SNG fiscal year, may be too late for significant changes to budget plans to be made. D. The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for general government.

Key questions

1. Do SN entities forward fiscal information (revenue and expenditure, budget and actual) to central government? 2. What % of SN expenditure is reported to central government? 3. Is SN fiscal data classification consistent with that of central government? 4. Is a consolidation of this information into annual reports carried out and, if so, within how many months of the

end of FY?

Coverage 1st tier sub-national level of government. Critical period/time Last completed FY. Quantifiable data required Total annual expenditure of SN governments for which data by

sectoral or functional categories are centrally collected and consolidated, as a percentage of all SN government expenditure. The period from the end of the fiscal year (covered by the last consolidated report on SN government) to the date of issue of the consolidated report.


Rating criteria

A. Fiscal information (ex-post) that is consistent with central government fiscal reporting is collected for 90% (by value) of SNG expenditure, consolidated into annual reports within 10 months of the end of the fiscal year. B. Fiscal information (ex-post) that is consistent with central government fiscal reporting is collected for at least 75% (by value) of SNG expenditure, consolidated into annual reports within 18 months of the end of the fiscal year. C. Fiscal information (ex-post) that is consistent with central government fiscal reporting is collected for at least 60% (by value) of SNG expenditure and consolidated into annual reports within 24 months of the end of the year. D. The requirements for a 'C' rating or higher are not met.

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PI-8: Performance information for achieving efficiency in service delivery.

The purpose of this indicator is to assess the quality of the annual performance information at different stages of the budget cycle (specifically in the executive’s budget proposal or its supporting documentation, in the year-end report, and in audit reports or performance evaluation reports). It focuses on annual information on public service delivery, and the extent to which the nature and coverage of such information is likely to promote greater operational efficiency in service delivery. It is also important to understand whether resources reach service delivery units as planned to enable the achievement of annual and medium-term performance targets as well as strategic sector objectives (ref. PI-16).

Promoting operational efficiency in public service delivery is a core objective of the PFM system. The inclusion of performance information within budgetary documentation is considered to be international good practice. Increasingly, budget committees within the legislature demand to see both details of past service delivery performance and future targets for expansion or quality improvement in service delivery as part of their consideration of the executive’s budget proposal, though the legislature may not be required to approve the targets. Evaluations of service delivery programs may be commissioned by legislative budget offices, directly by the executive (by the ministry of finance or by the president’s office/prime minister’s office), or as an aspect of the external audit process (e.g. performance audits), which are then considered either by courts of audit or parliamentary public accounts committees.

“Public service delivery” is defined as those areas of government activity through which public services are provided either to the general public or to specifically targeted groups of citizens on a fully or partially subsidized basis. This would often include education and training services, health care, payment of social security entitlements, policing, and road construction and maintenance and, in some cases, might also include agricultural support services, water and sanitation and other services. It would exclude those services provided on a commercial basis through public enterprises. It would also exclude policy functions, national security, internal administration, and purely regulatory functions undertaken by government. The narrative of the assessment should explain which public services are being assessed (e.g. listing the service delivery functions and the expenditures amounts).

“Annual performance information” for the purpose of a PEFA evaluation is defined as information which is collected and reported at least annually, and which presents information on the performance of service delivery programs or institutions in terms of outputs. It excludes information on inputs or processes, which may be useful for managerial purposes but does not provide an indicator of performance. It also excludes indicators of impact (such as indicators of infant mortality, or of life expectancy), which may be useful data for the design of policy but are influenced by too many social and environmental variables to be considered a useful measure of performance in service delivery.

The coverage of this indicator is central government. Services managed and financed by lower levels of government should not be included unless the central government significantly finances such services through reimbursements/earmarked grants, or uses lower levels of government as implementing agents.

Dimension (i) assesses to what extent key performance indicators and targets for the service delivery functions to be financed through the annual or medium term budget are included in the executive’s budget proposal or the related documentation, at either the level of programs or ministries/departments/agencies.

Dimension (ii) examines the extent to which performance results are presented either in the executive’s budget proposal or in the year-end report or other public document, in a format and at a level (program or agency), which is comparable to the targets previously adopted within the annual or medium term budget.

Dimension (iii) measures the extent to which a system exists to monitor if the service delivery units have received the funds allocated to the sector/service as planned. The ability to capture service delivery level data supports comparison of service performance with actual resources allocation.

Dimension (iv) considers the extent to which the design of service delivery programs and the efficiency and effectiveness of those programs is assessed in a systematic way through independent performance evaluations. Such evaluations may also be undertaken by the government’s external auditor and be termed ‘performance audits’. Performance audits are covered here, and are not included in the scope of PI-29. This dimension assesses both the coverage of these evaluations and the extent to which they include specific observations and recommendations to enhance service delivery, and define mechanisms to follow up on these recommendations. The evaluations may include inputs from the public e.g. through surveys and reports undertaken by civil society.

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Dimensions to be assessed: (Scoring Method M2)

(i) Disclosure, within budget documentation, of key performance indicators and targets for service delivery (coverage measured as percent of service delivery functions financed by central government).

(ii) Disclosure, within budget documentation, year-end reports or other public documents, of data on the performance results achieved by service delivery functions (in the most recent, completed fiscal year).

(iii) Monitoring of resources received by service delivery units

(iv) Content and coverage of independent performance evaluations (assessing the design, efficiency and effectiveness of service delivery functions or programs).

Points to note.

1. Performance measure should cover all service delivery financed by central government, even in cases where subnational governments are in charge of delivering service on behalf of central government with funding mainly or entirely provided by the latter.

2. The delivery functions to be used to score this indicator are those which are directly managed or substantially financed by the government covered by the assessment.

3. Reference to percentage of service delivery functions means gross expenditure for each function as a share of total government primary expenditure.

4. The indicator is applicable even if the country does not use performance information or does not produce performance reports.

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Dimension (i) Disclosure, within budget documentation, of key performance indicators and targets for service delivery (coverage measured as percent of service delivery functions financed by central government).

Key questions

1. What are the main services delivered (directly managed or substantially financed) by the government being assessed, including the relative importance of each in terms of gross expenditure?

2. Is there a specific chapter or a specific document in the budget proposal dedicated to performance? Or is performance intermingled with related budget estimates?

3. Is information on performance targets broken down by ministries? By main functions? By programs? Others?

4. Is there a methodological guidance in the executive budget on performance indicators, their meaning, their measurement? Are methods of calculation and sources of data clearly explained?

5. Is previous year’s performance recorded in the executive budget? And in the same way as the performance targets?

6. Are there targets for the medium term period?

7. Is there a clear link in the executive budget between performance target and forecasted expenditure?

8. Which entity is in charge of collecting and analyzing performance data?

Coverage Central government. Critical period/time Last completed FY (could also cover current or next FY, but this will exclude

comparison to actual output for rating of dim(ii)). Quantifiable data required List of service delivery functions covered by the assessment with share of

total government gross expenditure for each function. Information sources Line ministries and agencies.

MOF; Planning ministry or commission. Specialized agencies on public sector management and results monitoring Legislature (specialized committees).

Rating criteria

A. Performance targets are presented in a format which is clear about what is being measured (outputs) and how it is to be measured (method of calculation and data sources) for more than 50% of service delivery functions.

B. Performance targets are presented in a format which is clear about what is being measured (outputs) and how it is to be measured (method of calculation and data sources) for 25-50% of service delivery functions.

C. Performance targets are presented for 10-25% of service delivery functions OR coverage is more than 25% but with deficiencies in the format or definition of the targets (outputs) or in the methods of measurement.


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Dimension (ii) Disclosure, within budget documentation, year-end reports or other public documents, of data on the performance results achieved by service delivery functions (in the most recent, completed fiscal year).

Key questions

1. Are performance results directly linked to performance objectives in budget reports (executive budget, year reports, others)?

2. Is it easy to compare targets and objectives? Is explanation given for any gap or discrepancy?

3. Is it possible to link performance results of the year with the performance objectives established in the medium term performance planning?

4. Is clear information available on the evolution of performance results on a medium term basis (at least 3 years)?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Number/share of targets under each service delivery function for which

actuals are provided in a format comparable to the targets. Information sources Line ministries and agencies.

MOF, Planning ministry or commission. Specialized agencies on public sector management and results monitoring Legislature (specialized committees). Performance reports annexed to financial statement or reports or to budget execution reports. SAI.

Rating criteria

A. Performance results are presented for more than 50% of service delivery functions and are comparable to targets.

B. Performance results are presented for 25-50% of service delivery functions and are comparable to targets.

C. Performance results are presented for 10- 25% of service delivery functions and are comparable to targets.


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Dimension (iii) Monitoring of resources received by service delivery units

Key questions

1. How many resource monitoring systems exist? For which ministries/agencies or functions? Are they integrated into the budget management and/or accounting systems, or stand-alone systems?

2. Is there a consolidated/integrated resource monitoring system? If yes, which entity is responsible for maintaining the system?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Amount of expenditure for each delivery function. Information sources Line ministries.

MOF. Specialized agencies. Legislature (specialized committees). Performance reports annexed to financial statement or reports or to budget execution reports. SAI’s reports. Internal audit services.

Rating criteria A. A system exists, in more than 50% of service delivery functions, that monitors if resources have reached service

delivery units as planned. B. A system exists, for 25-50% of service delivery functions, that monitors if resources have reached service

delivery units as planned. C. A system exists, for less than 25% of service delivery functions, that monitors if resources have reached service

delivery units as planned. D. The requirements for a 'C' rating or higher are not met.

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Dimension (iv) Content and coverage of independent performance evaluations (assessing the design, efficiency and effectiveness of service delivery functions or programs).

Key questions

1. Is there a body within the government structure or outside, which is in charge of performance evaluation? Is the internal audit service able to practice performance evaluation?

2. Does the SAI practice performance audit or performance evaluation?

3. What are the main findings of performance evaluation reports in the recent years?

4. To what extent do the evaluation reports include recommendations?

5. For the purpose of scoring this dimension, there is no distinction between performance audit and performance evaluation. Performance may be taken into account even if there is no explicit reference to ‘evaluation’.

Coverage Central government. Critical period/time Last three completed FYs. Quantifiable data required Amount of expenditure for each delivery function, which has had an

independent performance evaluation (with/without recommendations). Information sources Line ministries.

MOF. Specialized agencies for monitoring and evaluation. Legislature (specialized committees). Performance reports annexed to financial statement or reports or to budget execution reports. SAI and SAI’s reports. Internal audit services and their reports.

Rating criteria

A. Independent performance evaluations for more than 50% of service delivery functions have been undertaken in the last three financial years, and include recommendations for enhancing delivery.

B. Independent performance evaluations for 25-50% of service delivery functions have been undertaken in the last three financial years, and include recommendations for enhancing delivery.

C. Independent performance evaluations for less than 25% of service delivery function have been undertaken in the last three financial years, and include recommendations for enhancing delivery.


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PI- 9 Public access to key fiscal information.

Transparency will depend on whether information on fiscal plans, positions and performance of the government is easily accessible to the general public.

Unless otherwise specifically justified in relation to country circumstances, the access of fiscal information to the public is defined as posting on official websites (i.e. information is accessible without restriction, without requirement to register, and is free of charge). Elements of information to which public access is critical are listed below.

Basic elements

1. Annual Executive Budget Proposal documentation: A complete set of executive budget proposal documents (as assessed in PI-5 Comprehensiveness of information included in budget documentation) is available to the public within one week of the executive submitting them to the legislature.

2. Enacted Budget: The annual budget law approved by the legislature is publicized within two weeks of passage of the law.

3. In-year budget execution reports: The reports are routinely made available to the public within one month of period end. Where a more comprehensive and analytical mid-year report is produced, publication should take place within 3 months of period end.

4. Audited annual financial report, incorporating or accompanied by the external auditor’s report: The report(s) are made available to the public within twelve months of the year end.

Additional elements

5. Pre-Budget Statement: The broad parameters for the executive budget proposal regarding expenditure, planned revenue and debt is made available to the public at least four months before the start of the fiscal year and two months before the executive budget proposal is submitted to the legislature.

6. Other external audit reports: All non-confidential reports on central government consolidated operations are made available to the public within six months of submission.

7. Summary of the Budget Proposal: A clear, simple summary of the Executive’s Budget Proposal and/or the Enacted Budget accessible to the non-budget experts (often referred to as a ‘citizens’ budget’), and where appropriate translated into the most commonly spoken local language, is publicly available within two weeks of the Executive Budget Proposal being submitted to the legislature and within one month of the budget’s approval respectively.

8. Medium Term Budget Outlook: (as assessed in PI-16 Medium-term perspective in expenditure budgeting) is available within one week of its endorsement.

The narrative of the assessment should comment on the quality of information made available (e.g. understandable language and structure, appropriate layout, summarized for large documents) and the means used to facilitate public access (such as websites, the press, notice boards for locally relevant information).


(i) The documents for which public access is provided (in order to count in the assessment, the full specification of the information benchmark above must be met).

Points to note

1. Regarding item 1, Complete means that the documents made publicly available contain all the information listed under PI-5, to the extent this information exists.

2. Assessors shall pay particular attention to the timeliness of information disclosure. The time frames used for scoring are based on the internationally accepted good practices, but it would be useful if assessors also comment on the timeframes set out in the national legislation.

3. FOR TESTING ONLY: Note that the mid-year report (item 3), the pre-budget statement (item 5) and the medium-term outlook (item 8) may be closely related processes. The deadlines are here defined on different basis for each of the three elements. Does this create inconsistencies for the rating?

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Dimension (i) The documents for which public access is provided (in order to count in the assessment, the full specification of the information benchmark above must be met).

Key questions

1. Is there a legislation, regulation or guidance on the access of the general public to fiscal information? 2. Who is responsible in the government structure for maintaining or improving access to fiscal information? Is

there a specialized entity in this matter? 3. For each of the information items made public:

a. What does legislation say about document publication and publication deadlines? b. What was the delay from its production until it was actually accessible by the public? c. By which means was it being publicized?

Coverage Budgetary central government. Critical period/time Most recent, completed and relevant stage of the budget cycle for each document. Quantifiable data required Dates by which each document is finalized, is approved, should be publicized, and is actually

publicized (e.g. data for items 1 and 4 would typically refer to different FYs). Information sources MOF, SAI, corroborated by government bookshops, websites and notice boards, and public

interest groups such as governance NGOs (including the Open Budget Survey), donor country offices and the Legislature (budget and/or finance commission), etc.

Rating criteria

A. The government makes available to the public in accordance with the specified time frames all basic elements (1-4) and at least three of the additional elements.

B. The government makes available to the public in accordance with the specified time frames all basic elements (1-4) and at least two of the additional elements.

C. The government makes available to the public all basic elements (1-4). D. The requirements for a 'C' rating or higher are not met.

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PI-10 Fiscal risk management.

Central government will usually have a formal oversight role in relation to other public sector entities and should be aware of, monitor, and manage fiscal risks at a consolidated level. In addition, central government may also be obliged (for political reasons) to assume responsibility for a financial default of other entities (such as the banking sector) even when no formal oversight role exists, hence adequate procedures to monitor those risks at the level of the whole of public sector should be in place. Fiscal risk management consists of a set of procedures designed to quantify and report risks. Those risks can arise from many sources: adverse macroeconomic situations (covered in PI-14 Credible Fiscal Strategy); financial position of sub-national (SN) levels of government, autonomous government agencies (AGA) and public enterprises (PE); contingent liabilities; etc. Fiscal risks created by AGAs and PEs can take the form of debt service defaults (with sovereign guarantees they would be covered under the contingent liability, but there are risks from AGAs and PEs defaulting on the debt without guarantees issued by central government as well), operational losses caused by unfunded quasi-fiscal operations, expenditure payment arrears and unfunded pension obligations. Dimension (i) assesses the extent to which risks from PEs and AGAs are monitored, which requires central government to receive quarterly financial statements and audited year-end statements from AGAs and PEs, and monitor performance against financial targets. AGAs and PEs often report to parent line ministries, but consolidation of information is important for overview and reporting of the total fiscal risk for central government. Dimension (ii) assesses central government exposure to fiscal risks arising from SNG operations. Fiscal risks created by SNG can take the form of debt service defaults (with or without guarantees issued by central government), operational losses caused by unfunded quasi-fiscal operations, expenditure payment arrears and unfunded pension obligations. Where SNG can generate fiscal liabilities for central government, their fiscal position should be monitored, at least on an annual basis, with consolidation of essential fiscal information. Dimension (iii) assesses the monitoring and reporting of the central government’s explicit contingent liabilities, including umbrella state guarantees for various types of loans (mortgage loans, student loans, agriculture loans, small business loans, etc.); state insurance schemes (deposit insurance, private pension fund insurance, crop insurance, etc.), financial implications of ongoing litigation and court cases; state guarantees for non-sovereign borrowing by private sector enterprises; and guarantees on private investments of different types. A particular form of guarantees on private investment is related to Public-Private Partnerships (PPPs). In many countries, governments have entered into PPPs in order to finance services (often infrastructure) to communities. PPP arrangements almost always generate a contingent liability for the government should the commercial terms in the contract not be satisfied (for example, the forecast level of tolls generated from a road constructed and operated by the private sector is not realized). While implicit contingent liabilities (bailouts, failure of non-guaranteed pension funds, risks from natural disasters, armed conflicts, etc.) pose a significant risk as well, they are not legally binding, difficult to quantify and thus are not assessed as part of the indicator. Dimension (ii) does not assess explicit contingent liabilities arising from sub-national governments, PEs and AGAs, as they are assessed under dimensions (i) and (iii).

Fiscal risks should be disclosed in one or several statements presented as part of budget documentation. Those statements should discuss the main risks faced by central government and quantify their potential impact on its fiscal position.

Dimensions to be assessed: (Scoring Method M2)

(i) Extent of central government monitoring of AGAs and PEs. (ii) Extent of central government monitoring of SNGs’ fiscal position. (iii) Extent of central government monitoring of explicit contingent liabilities from central government programs and projects.

Points to note

1. A table with breakdown of risks by entities / type and nature, amount, risk analysis and how they are reported shall be included in the PFM Performance Report in order to provide clear evidence of the score. An example is provided below.

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2. Concerns about consolidation of diverse fiscal risks may exist in government but a proper identification and quantification process is fundamental to ensure effective control of fiscal risks from other entities and contingent liabilities.

3. Assessors should analyze this indicator in relation to the PI-8, which covers the fiscal risks arising from SNG's. Moreover, dim(ii) of this indicator should be checked against information collected for PI-17 on debt and expenditure arrears.

4. Assessors should examine what institutional arrangements are in place to ensure that relevant or significant fiscal risks are covered.

5. Assessors should attempt to fill in the table below as an input to scoring the indicator: Table 10 Breakdown of identified explicit contingent liabilities Entity/program/project Risk description and

analysis Estimated amount How reported

• Brief description of the

type of contingent liabilities

• Indicate source of funding (legislative budget, own source revenue, etc.)

• Discussion of significant assets and liabilities

• Estimated amount • Specify in which reports contingent liabilities are addressed and how they are covered

X

Y

Z

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Dimension (i) Extent of central government monitoring of AGAs and PEs.

Key questions

1. What are major AGAs and PEs? Can the government provide an exhaustive list of those entities?

2. Do current legislation and regulations oblige AGAs and PEs to forward year-end financial statements to the central government? And do they do so?

3. Do current legislation and regulations require central government to monitor fiscal risk of AGAs and PEs? And does the central government do so?

4. How is the monitoring of risks from PEs and AGAs organized? Is the monitoring centralized? If line ministries are involved, are responsibilities clearly defined between MOF and line ministries?

5. Are there clear guidelines on monitoring including quantitative risk red flags?

6. Is there an entity in charge of consolidating reports or information sent by PE’s and AGA?

7. Is there a report capturing risks from PE’s and AGAs?

Coverage Central government and all related public enterprises. Critical period/time Last completed FY. Quantifiable data required List of AGAs and PEs with amount of income/expenditure and

frequency of submission of fiscal reports to government. Information sources MOF, line ministries and agencies, agencies with oversight.

responsibilities (such as SAI), major AGAs and PEs, investment agency, state enterprise agency, central bank etc.).

Rating criteria

A. Central government receives annual audited financial reports from all AGAs and PEs and consolidates all fiscal risk issues into an annual (or more frequent) report, including a discussion of AGAs and PEs quasi-fiscal activities.

B. Central government receives annual audited financial reports from major AGAs and PEs and consolidates major fiscal risk issues into an annual report.

C. Central government monitors and reports major fiscal risk issues of majority of AGAs and PEs annually. D. The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Extent of central government monitoring of SNGs’ fiscal position.

Key questions

1. Are SN entities legally entitled to borrow with or without CG approval? Does this cover short-term overdrafts and supplier credit?

2. Does central government monitor SN entities’ fiscal position at least annually?

3. Does government elaborate a consolidated overview (in form of an annual report) on the fiscal position of SN entities?

Coverage 1st tier SN level of government. Critical period/time Last completed FY. Quantifiable data required Information sources MOF, agencies with oversight responsibilities (such as SAI),

major AGAs and PEs, Finance Officers of major SN governments

Rating criteria A. SNG cannot generate fiscal liabilities for central government OR the net fiscal position is monitored at least

annually for all levels of SNG and central government consolidates overall fiscal risk into annual (or more frequent) reports.

B. The net fiscal position is monitored at least annually for the most important level of SNG, and central government consolidates overall fiscal risk into a report.

C. The net fiscal position is monitored at least annually for the most important level of SNG, but a consolidated overview may be missing or significantly incomplete. D.: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Extent of central government monitoring of explicit contingent liabilities from central government programs and projects

Key questions

1. Does current legal framework cover the monitoring of contingent liabilities from government programs? How is monitoring organized? Are responsibilities clearly defined? Are there clear guidelines on the monitoring of government’s liabilities including quantitative thresholds?

2. Is there an entity in charge of consolidation and reporting?

3. Is a comprehensive and clear report capturing risks from government programs?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Quantification of each explicit contingent liability. Information sources MOF, line ministries and agencies with responsibility for Public

Private Partnerships (PPPs), specialized debt management agencies/units, agencies with oversight responsibilities (SAI), central bank.

Rating criteria

A. Explicit contingent liabilities (including PPPs) arising from central government programs/projects are quantified, consolidated and reported as part of the annual financial report.

B. Explicit contingent liabilities (including PPPs) arising from central government programs/projects are quantified and consolidated into an annual report.

C. Explicit contingent liabilities (including PPPs) arising from central government programs/projects are quantified and information is collected by a central agency.


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PI- 11: Public investment management.

Public investments are viewed as a key prerequisite to achieve and sustain economic growth, achieve strategic policy objectives and address national service delivery needs. During periods of economic contraction, countries need to strive to protect and find fiscal space for addressing investment needs, while during periods of expansion countries are typically challenged to prioritize among many worthwhile investments. There are many different national approaches to public investment management (PIM). Similarly, there are many different methods, standards, and approaches in use across the world. However, these systems all have commonalities in terms of the functions carried out. This indicator attempts to distill the three most critical dimensions.

The indicator spans all types of PFM systems, including those with separate recurrent and capital budget management processes and institutions. Moreover, the term ‘project’ includes investments implemented through public-private partnerships (PPPs).

Important issues for public investment management, that are not treated explicitly by this indicator, are covered by other indicators7, including (a) the issue of consistency of investment projects with national or sector policy objectives is addressed by PI-16 Medium-term perspective in budgeting; (b), the quality of the procurement process (e.g., the extent to which a reliable, comprehensive procurement plan is prepared ex ante), an important determinant of the efficiency and effectiveness of public investment spending, is covered by PI-23 Transparency, competition and complaints mechanisms in procurement; (c) the question of asset management, also critical for sound public investment management, including a well maintained asset register with accurate values recorded, which is ultimately reliant on good record keeping practices, is examined in PI-12 Public Asset Management.

Dimension (i) assesses the extent to which robust appraisal methods, based on economic analysis, are used to conduct feasibility (and/or pre-feasibility) studies for medium and large projects. It is recognized that some form of generally accepted economic analysis, including analysis of economic externalities (sometimes referred to as social or economic costs and benefits, and including health and environmental impacts), is needed to assess large public investments. Economic analysis frequently utilizes the following techniques: cost-benefit analysis, cost-effectiveness analysis, multi-criteria analysis. For the analysis to have objectivity, it would have to be conducted independently (or at arms’ length) of the project’s sponsoring agency, i.e. validated by an entity other than the concerned MDA. The policy analysis combined with the economic analysis may result in a ranking of projects, whose implementation would then be subject to the budget constraint. The economic analysis used to make decisions should also be current enough to still be meaningful (i.e., very outdated analyses, such as those for which market conditions have shifted considerably are no longer likely to be useful bases for decisions).

For the purpose of this dimension, ‘major projects’ are defined as projects meeting at least two of the following criteria:

• The project’s cost (gross nominal cost) amounts to 1% or more of total annual budget expenditure;

• The project is among the largest 10 projects (by gross nominal cost) for each of the 10 largest MDAs (measured by MDA project expenditure);

• The project’s implementation period is more than 3 years.

Dimension (ii) evaluates whether the budgeting process takes account of the affordability, cash flow management, and maintenance needs over the medium term. Sound budget management requires the preparation of comprehensive and forward-looking project budget plans for capital and recurrent costs over the full life-cycle of the investment. Projections of recurrent cost implications from projects are needed to plan and incorporate these costs into budgets going forward. Solid budget and cash flow management is dependent on comprehensive financial analysis, which is also needed for cost-benefit analysis, of investment projects.

Dimension (iii) assesses the extent to which prudent project monitoring and reporting systems are in place for ensuring value for money and fiduciary integrity. The monitoring system should maintain records on both physical and financial progress, including estimates of work in progress, and produce periodic project monitoring reports which are available to management. Monitoring should cover projects from the point of approval for implementation

7 In fact there are many elements of the broader public sector context that will affect project implementation. These include: project implementation capacity, total project cost management (which relies on an accounting system that can capture and report all project costs), facilities operations arrangements, ex post evaluation rules and procedures, etc.

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(i.e. financing is centrally approved/secured). The system would allow supplier payments to be linked to evidence of physical progress. Such a system would also identify deviations from plans and allow for identification of appropriate actions in response. Appropriate IT/management information systems would likely be associated with more robust project monitoring and reporting, but not necessarily so.

Dimensions to be assessed (Scoring Method M2): (i) Objective economic analysis. (ii) Costing over the project life cycle. (iii) Project monitoring and reporting. Points to note 1. In order to assess the dimensions of this indicator, assessors should investigate whether the Public Investment

Management function is centralized or decentralized in a country. In cases of decentralized setting, the assessors shall get the information from the government agencies carrying out most of the investments (e.g., 10 largest projects or agencies). In cases of centralized setting most of the data could be obtained from the central body such as an Investment Agency, a Ministry of Economy, Planning or Finance and then verified with spending agencies.

2. According to the size of the country and to the number and size of major projects covered by the dimension, assessors may use a sampling approach. In this case, criteria for sampling/selection shall be discussed with Government and clearly explained in the performance report. Assessors shall remain free to set up their own sample.

3. Assessors shall try to get the audit reports (both external and internal) on public investments. These reports may provide useful insights and evidence on the functioning of the public investment management system.

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Dimension (i) Objective economic analysis.

Key questions

1. Is there a legal definition of investment project/program? 2. Is there a requirement for the projects to be subjected to economic appraisal? 3. Are national guidelines on economic analysis for feasibility studies available? 4. Are feasibility (and/or pre-feasibility) studies for major projects easily accessible? 5. Are feasibility studies undertaken at the level of each line ministry/agency or by a centralized body? 6. Are they conducted independently (in relation to the entity in charge of the project)? 7. Is there an arm length process of quality assurance of the appraisal for the major projects? 8. Do feasibility studies assess social and economic impact of the projects, including health and environmental

impacts? 9. Are feasibility studies based on recognized techniques such as: cost-benefit analysis, cost-effectiveness analysis,

multi-criteria analysis? Others? 10. At what institutional level and through what process are investment decisions taken? 11. How are the investment decisions linked to the annual budget preparation process? 12. Are the feasibility studies used to prioritize projects and are they the basis for decision taking on investment

projects?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required List of approved/ongoing projects with relevant data to identify them as

‘major’. Information sources Ministry of Finance/Planning.

Line ministries and agencies. Agency in charge of public investments, if any. National guidelines on preparation of and approval of investment projects. Feasibility studies on major investment projects approved and ongoing during the critical period.

For the purpose of this dimension, ‘major projects’ are defined as projects meeting at least two of the following criteria: - The project’s cost (gross nominal cost) amounts to 1% or more of total annual budget expenditure; - The project is among the largest 10 projects (by gross nominal cost) for each of the 10 largest MDAs (measured by MDA project expenditure); - The project’s implementation period is more than 3 years.

Rating criteria

A. Major capital investment projects, are appraised according to economic analysis, as established by national guidelines, and validated by an entity other than the sponsoring MDA.

B. At least 50% of major projects in the five major investment MDAs are appraised according to economic analysis as established by national guidelines, and validated by an entity other than the sponsoring MDA.

C. At least one major capital investment project in each of the five major investment MDAs are appraised by government, and the appraisal is reviewed by an entity other than the sponsoring MDA.

D. The requirements for a ‘C’ rating or higher are not met.

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Dimension (ii) Costing over the project life cycle.

Key questions

1. What are the institutional arrangements for managing investment projects? 2. Are there clear requirements (at legislation or executive level) regarding multi-year project budgeting? 3. Is there evidence that they are implemented? 4. Are supporting budget documents for each major investment project easily accessible? 5. Does project budgeting include both investment and recurrent/maintenance costs? 6. Is there evidence that the feasibility study cost estimates are used for subsequent budget planning?

Coverage Central Government. Critical period/time Last completed FY. Quantifiable data required Data of project budgets (before achievement of investment), supported by cash

flow forecast, financing plan, amount of recurrent costs, maintenance costs. Medium term budget data on project utilization (recurrent costs, maintenance costs).

Information sources Ministry of Finance/Planning. Line ministries and agencies. Agency in charge of public investments, if any. Legislation on public investment. Annual budget documentation. Medium term expenditure framework, if available.

Rating criteria

A. Regulations or guidelines, that require comprehensive plans for the full life-cycle costs (including recurrent costs) of the investment to be submitted in MDA project proposals, exist and are implemented.

B. Regulations or guidelines, that require comprehensive plans for the full life-cycle costs (including recurrent costs) of the investment to be submitted, exist and are partially implemented and included in MDA project proposals.

C. For at least 50 percent (by gross cost) of major projects, at least two MDAs with the most infrastructure projects prepare plans with full life-cycle of the investment (including recurrent costs), which are discussed during the budget preparation process and included in MDA project proposals.


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Dimension (iii) Project monitoring and reporting.

Key questions

1. How is project monitoring organized? (guidelines, centralized vs decentralized, implementing agencies vs internal audit or inspection units, use of standardized databases)

2. Are there clear arrangements at executive level regarding project monitoring reports? (e.g. frequency, content and diffusion of monitoring reports)

3. Are records of project monitoring easily accessible, even after the end of the investment phase of the project? 4. Are deviations from plan properly identified and explained? 5. Are there clear rules (formal or informal) for managerial actions to be taken based on the monitoring results?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Data of actual execution at different stages of major projects compared to

projected data (time, amount spent, physical execution, etc.). Information sources Ministry of Finance/Planning.

Line ministries and agencies. Agency in charge of public investments, if any. Guidelines for monitoring. Databases. Project monitoring reports.

Rating criteria A. Government maintains complete and accurate databases on approved projects, on physical and financial progress

of project implementation and estimates of completion rates. Project monitoring reports are made available to management at least quarterly.

B. Major MDAs maintain databases (automated or manual), which may not be complete or entirely accurate, on approved projects, on physical and financial progress of project implementation. Project monitoring reports are made available to management at least annually.

C. The two MDAs with the largest share of infrastructure projects have some processes in place to monitor physical and financial progress of project implementation. Project monitoring reports to management are prepared on an ad hoc basis.


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PI-12: Public asset management.

Assets are resources controlled by a government entity as a result of past events from which future economic benefits are expected to flow. Assets are classified under GFS 2014 as either financial or non-financial. Recognizing non-financial asset values and economic potential is important for a variety of Public Financial Management processes including assessing the financial position of government, determining the requirement for future capital investment, maximizing the return on investments and ensuring efficient utilization of resources.

Financial assets can be very diverse, including: cash, securities, loans and receivables owned by the government; foreign reserves and long term funds, such as sovereign wealth funds and equity in state owned and private sector institutions. It is important that a country has systems for managing, monitoring and for reporting on financial assets, including where necessary robust risk management frameworks, and appropriate governance and transparency arrangements.

All economic assets other than financial assets are classified as non-financial assets. Non-financial assets may come to existence as outputs from a production process, be naturally occurring, or be constructs of society. Most non-financial assets provide benefits either through their use in the production of goods and services or in the form of property income. For many countries, one of their most valuable nonfinancial assets is a subsoil mineral resource such as oil, gas, diamonds, or precious or industrial metals. The list of the non-financial assets to guide the assessment of dimension (ii) is provided in table 12 below. The assessment should be clear on which categories are included for the purposes of this indicator and the reasons for exclusions if any, and also comment on the mechanisms to capture information. It should indicate which entities own or administer the assets. The narrative should comment on the completeness of the data inserted in the table and likely gaps.

Dimension (i) assesses the quality of financial asset monitoring, which is critical to identify and effectively manage the key financial exposures and risks to overall fiscal management. The rating criteria use the term ‘performance’ to refer to the return on invested capital in the form of dividends, interest and capital appreciation/loss, and not to any specific target.

Dimension (ii) assesses the quality of non-financial assets monitoring. Keeping the up to date registers of non-financial assets allows government to better utilize assets such as infrastructure, as well as plan investment programs and maintenance. The reporting on non-financial assets should cover both assets and related operations. The ‘related operations’ refer to operations that increase the useful life of an asset, its value, or lead to change in the use of an asset (such as renting out, reconstruction, etc.). Maintaining a register or registers of the fixed assets is a basic requirement necessary for the system to function. While according to the best practice the assets should be valued at their market value, this process is frequently complex, so valuation is not required or assessed in the dimension (ii). Registers of intangible assets are not required for complete coverage

Dimension (iii) assesses the procedures for sale, transfer and disposal of assets and usage rights should envisage open competitive procedures, the publication of sale notice and of the results of the sale.


(i) Quality of central government financial asset monitoring.

(ii) Quality of central government non-financial asset monitoring.

(iii) Transparency in the sale of non-financial assets.

Points to note

1. Information on financial assets under this indicator shall be checked for consistency with information on financial assets included in government financial reports as assessed in PI-28 (Quality and timeliness of annual financial reports) and with reporting by public enterprises and autonomous government agencies in PI-10 (Fiscal risk management).

2. Assessors are advised to use the table below to aid the scoring of the dimensions concerning non-financial assets. The ‘captured’ column is supposed to explain if the asset class is captured in registers and to what extent i.e. how complete the information is. The ‘comments’ column is meant to provide information on (1) who

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owns/administers the assets (2) how information is captured and how frequently it is updated (3) whether the assets have a valuation or are registered only as physical quantities.

Table 12: Categories of Non-financial Assets8

Categories Sub-categories Captured in register(s) Comments

Fixed assets Buildings and structures

Machinery and Equipment

Other fixed assets

Weapons systems

Inventories -

Valuables -

Non-produced assets

Land

Mineral and energy resources

Other naturally occurring assets

Intangible non-produced assets

8 The categories in the table are based on the GFS 2014, but categories applied by the government may be used. 53

Dimension (i) Quality of central government financial asset monitoring.

Key questions

1. Are responsibilities for monitoring of financial assets clearly established? Which entity is in charge of managing financial assets? Are different asset classes managed by different entities?

2. Are specific criteria defined for managing financial assets? Do the financial asset management reports include the asset performance information according to these criteria?

3. Are registers of financial assets easily accessible and readable? Are they publicly disclosed? 4. Are there clear rules for monitoring and accounting of financial assets (valuation)?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Value of financial assets in balance sheet under each asset class Information sources Asset management agency, if any.

Line ministries and agencies holding substantial financial assets (including extra-budgetary funds, state enterprise commission). Ministry of Finance. Treasury. SAI. Annual reports from special funds and public enterprises.

Rating criteria

A. Up to date and substantially complete financial asset registers exist that provide for the identification of key assets, verification of their ownership. The performance of financial assets is monitored and reported annually according to specific criteria formally defined by the Government and disclosed.

B. Up to date and substantially complete financial asset registers exist. The performance of financial assets is monitored and reported annually and disclosed.

C. Up to date and substantially complete financial asset registers exist. The performance of financial assets is monitored annually. The performance of financial assets is monitored and reported annually.


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Dimension (ii) Quality of central government non-financial asset monitoring.

Key questions

1. Are responsibilities for monitoring of non-financial assets clearly established? 2. Are registers of non-financial assets easily accessible and readable? Are the publicly disclosed? 3. Are there clear rules for monitoring and accounting of non-financial assets? 4. What is the coverage of the management and statistical reports on non-financial assets?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Value of non-financial assets in balance sheet by asset class. Information sources Asset management agency.

Line ministries and agencies. Ministry of Finance. Treasury. SAI.

Rating criteria

A. Up to date and substantially complete non-financial asset registers exist that provide for the identification of key assets, verification of their ownership. Comprehensive management and statistical reports (covering assets and related operations) are produced at least annually and disclosed.

B. Up to date and substantially complete fixed asset registers exist. Comprehensive management and statistical reports (covering assets and related operations) are produced at least annually and disclosed.

C. Fixed asset registers exist. Reports on assets are produced occasionally. D. The requirements for a ‘C’ rating or higher are not met.

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Dimension (iii) Transparency in the sale of non-financial assets.

Key questions

1. Are rules and procedures for sale, transfer and disposal of assets and asset usage rights clearly established and accessible? Do these rules clearly promote competition and transparency?

2. Are responsibilities on sale of non-financial assets clearly established? Which entity is in charge? Is the decision making process clear and transparent?

3. Is there evidence that the rules are being complied or not complied with? Are there concerns or criticisms about sale of assets (e.g. from internal or external audit reports)?

4. Is information on sale, rental or transfer of non-financial assets publicly accessible, timely and clear?

Coverage Budgetary central government. Critical period/time As at time of assessment. Quantifiable data required Value of assets sold.

Value of contracts on utilization of assets by third parties. Information sources Asset management agency.

Line ministries and agencies. MOF. Treasury. Internal audit units. SAI.

Rating criteria

A. The procedures for the competitive and transparent sale, transfer or disposal of non-financial assets and asset usage rights are established in the legislation and are always respected.

B. The procedures for the competitive and transparent sale, transfer or disposal of non-financial assets and asset usage rights are established in the legislation and are respected in the majority of cases.

C. The procedures for the sale, transfer or disposal of non-financial assets and asset usage rights are established in the legislation.

D. The requirements for a ‘C’ rating or higher are not met,

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PI-13: Management and reporting on debt and expenditure arrears.

Governments that fail to monitor the financial liabilities that arise from domestic and foreign borrowing or from payment arrears – including salaries – may create unnecessarily high debt service costs and are unlikely to be able to deliver planned services. For the purpose of this indicator debt refers to all central government debt – both domestic and external. Monitoring of debt contracted by sub-national government and public enterprises are considered under PI-10 Fiscal risk management.

Dimension (i) assesses the integrity and comprehensiveness of debt recording and reporting. A system to monitor and report regularly on the main features of the debt portfolio is critical for ensuring data integrity and effective management, such as accurate debt service budgeting, making timely service payments, and ensuring well planned debt roll-overs. Regular reporting enables the government to monitor the implementation of its debt strategy and address any deviations arising.

Dimension (ii) assesses the extent of coordination and control of government’s contracting of loans and issue of guarantees, which is crucial to proper debt management performance. This includes the approval of all loans and guarantees by a single government entity (e.g. the ministry of finance or a debt management commission) against adequate and transparent criteria. The criteria against which the approvals may be undertaken forms part of a debt management strategy, as considered in dimension (iv), but may also be established by law. Monitoring of liabilities arising from guarantees issued is covered under fiscal risk oversight in PI-10.

Dimension (iii) assesses if the government has prepared a debt management strategy with the long-term objective of contracting debt at the minimum risk and lowest cost. Such a debt management strategy should cover at least the medium term (3-5 years) and include description of the existing debt portfolio’s composition and evolution over time, the market risks being managed (particularly the interest rate, exchange rate, and refinancing/rollover risks) and the future environment for debt management in terms of fiscal and debt projections (e.g. based on a fiscal strategy as assessed in PI-14), assumptions made and constraints related to portfolio choice. Crucially, it should indicate strategic objectives in terms of the intended direction of or quantitative targets for the major indicators of risk.

Dimension (iv) assesses the extent to which any expenditure arrears are identified and managed. Arrears are overdue debts, liabilities or obligations, and constitute a form of non-transparent financing. Arrears can cause increased costs to government as creditors adjust prices to compensate for late payment, or delayed supply of inputs affecting service delivery. A large volume of arrears may indicate a number of different problems, such as inadequate commitment controls, cash rationing, inadequate budgeting for contracts, under-budgeting of specific items and lack of information. Government payment deadlines are usually established in contractual obligations (such as procurement or grant contractual agreements or debt service) or legal obligations (such as payroll, pension, welfare payments, non-contractual grants). An unpaid claim or obligation becomes an arrear when it has not been paid at the date stipulated in the contract or in the corresponding law or financial regulation. Even inadmissible or incomplete payment claims can become arrears if the beneficiaries are not notified before the payment deadline is met. Assessors should confirm that the government's data recording and reporting analyses payments, legal and contractual payment deadlines, and invoices (including suspensions and rejections) so that arrears can be and are in fact calculated. Delays in payments/transfers between government entities are not covered by this indicator.


(i) Domestic and foreign debt data recording and reporting.

(ii) Systems for contracting loans and issuance of guarantees

(iii) Preparation of a debt management strategy

(iv) Stock and monitoring of expenditure arrears.

Points to note:

If a payment claim is inadmissible because it does not meet the terms of the contract or law, it should be rejected informing the beneficiary of the reason. The payment period starts again when a new payment claim is received. If the payment request is admissible but incomplete, or some corrections or clarifications are required, the payment request must be registered and the payment deadline must be suspended from the date the beneficiary is informed

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until those corrections or clarifications are received. The Performance Report should highlight any systematic attempts by MDAs to create such payment delays, where evidence suggests that this is happening.

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Dimension (i) Domestic and foreign debt data recording and reporting.

Key questions

1. Where is debt data recorded? 2. Is more than one entity undertaking debt recording and monitoring; if so what are the mandate and practices of

each entity in relation to the questions below? 3. Does debt data cover both external and domestic debt? 4. Does debt data base use specialized debt software? 5. Is the software equally used for external and internal debts or does each type of debt use different software? 6. Are data on external debt & data on internal debt complete? 7. What is quality of both external & domestic debt data? 8. Are data on external & internal debt updated & reconciled on a regular basis (monthly, quarterly, yearly, other)? 9. Are there any regular reports on external & domestic debt? 10. What is frequency of issue of such reports (monthly, quarterly, yearly, others)? 11. Do reports cover debt service, stock and operations? 12. Is debt data available on the MOF website or any other website?

Coverage Debt and guarantees issued by central government, excluding temporary overdrafts and supplier credit.

Critical period/time As at time of assessment. Quantifiable data required Frequency of updating and reconciliation of data for all government

debt.Frequency of debt report issue. Information sources MOF, Debt Management Office and Central Bank.

Rating criteria

A. Domestic and foreign debt records are complete, accurate, updated and reconciled on a monthly basis with data considered to be of high integrity. Comprehensive management and statistical reports (covering debt service, stock and operations) are produced at least quarterly. B. Domestic and foreign debt records are complete, accurate, updated and reconciled quarterly. Data considered of fairly high standard, but minor reconciliation problems may occur. Comprehensive management and statistical reports (cover debt service, stock and operations) are produced at least annually. C. Domestic and foreign debt records are complete, updated and reconciled at least annually. Data quality is considered fair, with gaps and reconciliation problems recognized. D: The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Systems for contracting loans and issuance of guarantees.

Key questions

1. What is current legal framework which governs contracting of loans & issue of guarantees (including to AGAs and PEs)?

2. Who can authorize loans and issue of guarantees, (e.g. MOF, other ministries, AGAs, legislature)? 3. Are decisions concerning contracting of loans and issue of guarantees taken on basis of clear guidelines,

transparent criteria, ceilings established in legislation or fiscal targets?

Coverage Loans and guarantees issued by central government. Critical period/time Last completed FY. Quantifiable data required Fiscal targets or ceilings limiting debt and guarantee issue. Information sources MOF (Debt Management office) and Central Bank.

Rating criteria

A. Central government’s contracting of loans and issuance of guarantees are made against transparent criteria and fiscal targets, and always approved by a single responsible government entity. B. Central government’s contracting of loans and issuance of guarantees are made within limits for total debt and total guarantees, and always approved by a single responsible government entity. C. Central government’s contracting of loans and issuance of guarantees are always approved by a single responsible government entity, but are not decided on the basis of clear guidelines, criteria or overall ceilings. D. The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Preparation of a debt management strategy.

Key questions

1. Has the government formulated a debt management strategy? 2. What debt does it cover? Budgetary central government debt only (foreign and/or domestic debt)? AGAs’ debt?

Sub-national government debt? Public enterprise debt guaranteed by the government? Public enterprise debt not guaranteed by the government? All national debt including private sector foreign debt?

3. Are projections of debt included in the strategy? If so, what parts of the debt is covered by the projections and what is the horizon of the projections?

4. Has the government undertaken a longer term debt sustainability analysis as an input to formulation of the strategy? If so what was the coverage of the sustainability analysis?

5. Are quantitative indicators for interest rates, exchange rate and re-financing (or roll-over) risks identified in the strategy? If so, are quantitative targets or intended direction for these indicators pronounced in the strategy?

6. Do the risk indicators include the intended or targeted grant element of external borrowing (in countries receiving significant external aid)?

7. When was the current strategy prepared, and what is its horizon (in number of years)? 8. How often is it updated, and what aspects are updated? 9. How is the strategy and the updates approved? (e.g. by the minister of finance, the cabinet, the legislature, an

independent debt commission etc?) 10. Is the strategy presented in a separate document or incorporated into a more comprehensive strategy (e.g. fiscal

strategy)? 11. Is the debt management strategy published? When did it happen and by what means? Are the updates also

published? If not, to whom is the strategy distributed?

Coverage Central government debt including AGA debt. Critical period/time At the time of the assessment, with data on updates covering the last three

years. Quantifiable data required Dates of debt strategy formulation, updating and publication.

Estimates of debt covered and not covered by the strategy. Risk indicator targets.

Information sources Ministry of Finance, Debt Management Office, Central Bank.

Rating criteria

A. A medium-term debt management strategy - covering all existing and projected government debt and with a horizon of at least 3 years - is updated annually and published. It sets target levels for indicators of interest-rate, refinancing and exchange rate risk based on thorough sustainability analysis.

B. A medium-term debt management strategy - covering at least 90% of all existing and projected government debt and with a horizon of at least 3 years - is updated at least every three years and published. It sets target levels for indicators of interest-rate, refinancing and exchange rate risk.

C. A medium-term debt management strategy - covering at least 90% of all existing and projected government debt and with a horizon of at least 3 years - is updated at least every three years and approved by Cabinet or a designated responsible authority. It indicates the intended direction for indicators of interest-rate, refinancing and exchange rate risk.


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Dimension (iv) Stock and monitoring of expenditure arrears.

Key questions

1. What are the existing legislation and regulations referring to arrears? 2. Is it clearly defined in legislation or contracts, when a claim on government becomes an expenditure arrear? If

not, what is current commercial practice in the jurisdiction? 3. How are invoices/claims recorded and monitored by government MDAs from they are received by the MDA

until payment is made? 4. To which extent are the rules and regulations respected in practice? 5. What is the private sector’s experience with government’s timeliness of honoring claims?

Coverage Central government including extra-budgetary funds. Critical period/time End of last 3 last FY before assessment, % at the end of last year before

assessment. Quantifiable data required Level of expenditure arrears (preferably at end of last fiscal year) as a

percentage of total expenditures (for the last fiscal year). Information sources Treasury, Budget entity, Government accounting office, Debt Management

Office, Chamber of Commerce/Industry and other private sector representatives.

Rating criteria

A. Complete data on the stock of arrears is generated at least at the end of each of the 3 fiscal years and includes an age profile - and demonstrates that the stock of arrears is no more than 2% of total expenditure at the end of the last year before assessment.

B. Data on the stock of arrears is generated annually, but may not be complete for a few identified expenditure categories or specified budget institutions. This data demonstrates that the stock of arrears is no more than 10% of total expenditure at the end of the last year before assessment.

C. Data on the stock of arrears has been generated by at least one comprehensive ad hoc exercise within the last two years.


In order to understand the magnitude and importance of expenditure arrears, the assessors should include quantitative data on arrears in the evidence for this indicator, including a description of the source of data and the method of estimation. Table 13 Stock of Expenditure Arrears at the end of each of the last three financial years FY T-3 FY T-2 FY T-1

(last completed year) Total Expenditure arrears Break-down by type of expenditure or specify types/sectors captured by the data

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PI-14 Credible fiscal strategy.

A credible fiscal strategy should support the achievement of the government’s fiscal policy objectives including achievement of planned central government fiscal balances. This indicator provides an analysis of overall fiscal management. Dimension (i) assesses the capacity of the government’s macro-fiscal forecasting function to develop a credible fiscal strategy (which should also encompass all types of revenue and expenditure). A well formulated strategy would include numerical objectives, targets or rules, defined in terms of policy parameters/targets such as the level of fiscal deficit, central government expenditures or revenues, or changes in the stock of financial assets and liabilities. Dimension (ii) assesses the extent to which comprehensive medium-term macro projections (including major economic parameters, e.g. GDP, inflation, exchange rate, important commodity prices, and unemployment) are used to inform the fiscal planning process. The projections should also analyze the extent to which macroeconomic risks to the fiscal variables (including revenue, expenditure and debt), are based on a least optimistic and pessimistic macroeconomic scenarios. Dimension (iii) assesses the extent to which the planned central government fiscal balance was achieved. This is a core indicator often used by many countries to evaluate their overall fiscal performance. Together with indicator PI-10 on fiscal risk management, this indicator enables measurement of the performance of these overarching elements of fiscal management. It completes a high-level view of the strength of the overall central government framework within which budgetary operations are carried out. The coverage of this indicator is central government as per GFS 2014, incorporating sub-sectors of central government (e.g. social insurance funds, resource revenue funds and other autonomous agencies), which may not always be covered by the annual budget law. However, the macro-economic projections in dimension (ii) typically refer to the entire national economy. Dimensions to be assessed (Scoring Method M2): (i) Formulation of fiscal objectives and strategy. (ii) Preparation and use of macroeconomic forecasts as a basis for annual and medium-term budgets. (iii) Difference between actual and the originally forecasted central government fiscal balance.

Points to note:

1. Assessors should focus on the government agency and/or unit in charge of macroeconomic forecasting and fiscal planning.

2. The institutional set up for the macroeconomic forecasting functions should be explained in the narrative.

3. Assessment of this indicator may require in depth collaboration with external partners. Information could be cross checked with partners such as IMF when countries are under IMF-supported programs. Such meetings could evidence the need for capacity building to set up a credible fiscal strategy that may be highlighted in the report.

4. The dimensions (i) and (iii) require the fiscal planning for the overall central government as defined by GFSM 2001. If the fiscal planning covers only a share of the central government (i.e. budgetary central government) the score would be NR. For dimension (ii) macro forecasting is by definition covering the national economy.

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Dimension (i) Formulation of fiscal objectives and strategy.

Key questions

1. To which extent is the budget submitted to the Legislature a comprehensive and consolidated document which covers central government as defined by GFSM 2001?

2. Is the fiscal strategy presented as a separate document?

3. Does the fiscal strategy include extra-budgetary funds and autonomous government agencies?

4. Are fiscal objectives (level of deficit, expenditure, revenue, debt, etc.) clearly defined with quantitative targets?

5. Are different scenarios explained and utilized in the fiscal strategy? Are there different targets explicitly based on different macroeconomic scenarios” (see dim ii).

6. Is the country’s fiscal strategy elaborated by or with a significant participation of development partners (e.g. the IMF)

7. Is a reasonably up to date Debt Sustainability Analysis available and used as a key input to setting fiscal strategy and targets.

Coverage Central government. Critical period/time Last completed 3 FYs. Quantifiable data required Level of forecasted fiscal balance/deficit/surplus, expenditure, revenue.

Level of other fiscal targets. Information sources Budget code. Budgets submitted to Parliament. Annual budget law.

Any document related to fiscal strategy published by MOF or other Government entity IMF Article IV reports and related issues papers, Debt Sustainability Analyses MOF and/or the Agency in charge of macroeconomic forecast or analysis. The Legislature (budget and/or finance committee). Economic research bodies. Fiscal council, if any.

Rating criteria

A. The government has set at least three year medium-term fiscal objectives (with quantitative targets) in a fiscal strategy document or defined as a fiscal rule for each of the last three years, at the start of the annual or medium-term budget process.

B. In one of the last three years, the government has set three year medium-term fiscal objectives (with quantitative targets) at the start of budget preparation.

C. In one of the last three years, the government has set at least three year medium-term fiscal objectives at the start of budget preparation. These objectives may not have values attached.


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Dimension (ii) Preparation and use of macroeconomic forecasts as a basis for annual and medium-term budgets.

Key questions:

1. Are medium term macro projections carried out on a regular basis and used in the fiscal planning and budgeting processes?

2. Are main economic parameters and hypothesis used in the projection clearly stated and defined? Are they presented in an accessible to non-specialists way (ref. also PI-5 Comprehensiveness of information included in budget documentation)?

3. Are different scenarios explained to support different macro-forecasts? (e.g. pessimistic, intermediate, optimistic)?

Coverage National economy for economic forecasts, total government sector for fiscal aggregates, budgetary central government for use of the data.

Critical period/time Last budget preparation cycle. Quantifiable data required Macroeconomic aggregates in the Country: GDP, inflation, exchange rate,

important commodity prices, unemployment, interest rates. Macroeconomic aggregate at relevant regional level and international level at the date of the strategy document.

Information sources Budget code. Last budget submitted to Legislature. Annual budget law. Any strategic document published by MOF or other Government entity. IMF Article IV reports and related issues papers, Debt Sustainability Analyses. Ministry of Finance and/or Agency/department specialized in macroeconomic forecast or analysis. The Legislature (budget and/or finance committee). Economic research bodies. Fiscal council, if any.

Rating criteria

A. Medium-term macro projections for at least three years are prepared and used in the preparation of the medium-term budget, inclusive of relevant economic aggregates, macroeconomic environmental risks to the fiscal variables (including revenue, expenditure and debt), and optimistic and pessimistic macroeconomic scenarios.

B. The government prepares and uses macroeconomic projections in the preparation of the annual budget, which include risks to fiscal variables (including revenue, expenditure and debt).

C. The government includes macroeconomic projections in the preparation of the annual budget, which include at least risks to debt.


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Dimension (iii) Difference between actual and the originally forecasted central government fiscal balance.

Key questions

1. Is the information required to compare actual vs planned fiscal balance of the central government readily available?

2. Is the fiscal outcome subject to a considerable external impact (fluctuating commodity prices, natural disasters, regional armed conflicts etc.)?

3. What are the major reasons behind deviations from forecast?

4. What automatic stabilizers are being monitored by the government, and what is the impact of those stabilizers (for information only, not to be used for rating)?

Coverage Central government. Critical period/time Last 3 completed FYs. Quantifiable data required Planned fiscal balance and actual fiscal balance for the period. Information sources Annual budget law.

Budget code. Any strategic document published by MOF or other Government entity IMF review. SAI’s reports. Ministry of Finance and/or Agency/department specialized in macroeconomic forecast or analysis. The Legislature (budget and/or finance committee). Economic research bodies. Fiscal council, if any.

Rating criteria

A. The difference between the actual central government fiscal balance and the forecast was less than 1% of GDP in at least two of the last three years.

B. The difference between the actual central government fiscal balance and the forecast was less than 1.5% of GDP in at least two of the last three years.

C. The difference between the actual central government fiscal balance and the forecast was less than 2% of GDP in at least two of the last three years.


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PI-15 Revenue budgeting.

Revenue budgeting is an essential part of the PFM system, as this will define the resource envelope and form the basis for effective medium-term planning. The ability of a country to estimate future revenue flows and also assess the fiscal implications of policy changes ensures greater predictability of budget execution. The revenue budgeting process is not free of political interferences and thus having transparent and formalized processes in place is essential to ensure accountability for the revenue collection function.

Dimension (i) assesses whether the revenue forecasting function is developed and integrated into the budgeting process. Revenue forecasts define the budget envelope and serve as the principal resource constraint and, if integrated in a top-down budget preparation process, facilitate the allocation of expenditures across different uses (ref. PI-16 Medium-term perspective in expenditure budgeting). Low quality forecasts may lead to under-execution of revenues and result in a financing gap in the budget (ref. PI-3 Aggregate revenue out-turn compared to original approved budget and PI-14 Credible Fiscal Strategy). Forecasts should be comprehensive and include all sources of revenue, such as taxes, customs duties, service user charges, royalties from natural resource extraction, and dividends from public enterprises. In a cash-based budget system, proceeds from sales of tangible and intangible assets would also count as revenue. The estimates should be documented in a report, explaining the estimation methodology as well as the assumptions made (including general macroeconomic assumptions and forecasts, ref. PI-14 Credible Fiscal Strategy dim (ii), specific assumptions related to each type of revenue and changes in effectiveness of revenue administration). Where preparation of estimates is decentralized, a central process should ensure that assumptions are consistent. The same criteria apply for fiscal impact of new policy proposals to be well evidenced. The revenue forecast report should also explain the assumptions regarding the transfer of revenue to the budget in cases where certain revenue is earmarked for and transferred to extra-budgetary funds, and where the resource envelope of the budget is partly dependent on drawing on resources from such funds.

Dimension (ii) assesses whether there are procedures in place to ensure that the fiscal implications of policy changes are assessed: this is critical to ensure that policies are affordable and sustainable. A failure to estimate the fiscal implication of policies may result in an unexpected reduction in revenues, leading to unintended deficits, and undermining the ability of the government to deliver services to its citizens. The fiscal impact of policy measures should be documented and either prepared by the finance ministry, or consolidated by the finance ministry in cases where individual MDAs prepare the estimates for their respective policy areas. The dimension is focused on revenue policies and other policies with significant and direct impact on revenues, such as e.g. international trade policies and policies on natural resource extraction.

In dimension (iii), the revenue compositional variance attempts to capture the quality of forecasts of the stability of revenue structure and ability of the government collect each category of revenues as intended. Under-execution of certain categories of revenues results in increase in formal or shadow financing such as rapid privatization, VAT refund arrears, expenditure arrears, additional bond issuance. .

The narrative to support the rating should: • describe the sources of data (which will normally be drawn from budget execution reports or annual fiscal

report), noting any concerns about their suitability and reliability; • provide background information on the institutional arrangements for revenue and financing forecasting; • note any special factors that affect revenue composition. • Dimensions to be assessed (Scoring Method M2):

(i) Medium-term forecasting of revenues. (ii) Assessment of the fiscal impact of proposed policy changes. (iii) Variance in revenue composition during the last three years (actual revenue by category compared to the originally approved budget using level three [3 digits] of GFS 2014 classification or a classification that can produce consistent documentation according to those standards).

Points to note:

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1. Assessors must ensure consistency between this indicator and PI-3 (Aggregate revenue out-turn compared to original approved budget) on scope of revenue covered and PI-14 (Credible Fiscal Strategy) on assumptions and scenarios used for macro-fiscal forecasts.

2. Assessors must understand and explain how revenue management is organized in the country, including responsibilities for revenue budgeting, revenue collection and revenue accounting respectively.

3. Assessors must identify all agencies or entities that play an important role in providing revenue to government.

4. Legal background and institutional arrangements for each major type of revenue (internal or external) must be identified and explained.

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Dimension (i) Medium-term forecasting of revenues.

Key questions

1. Are comprehensive revenue forecasts available including all sources of revenue, taxes, customs duties, service user charges, royalties from natural resources, and dividends from public enterprises, as well as sales of tangible and intangible assets?

2. How many years does each of the forecasts cover? 3. Is there sufficient specific information on each type of revenue forecast? 4. How are forecasts documented? Is a comprehensive report or other document available which explains the

estimation methodology as well as the assumptions made for calculating revenues (including general macroeconomic assumptions and forecasts – cf. PI-14 Credible Fiscal Strategy– and, specific assumptions related to each type of revenue and changes in effectiveness of revenue administration)?

5. In cases where certain revenue is earmarked for and transferred to extra-budgetary funds, and where the resource envelope of the budget is partly dependent on drawing on resources from such funds, does the revenue forecast report explain the assumptions regarding the transfer of revenue to the budget?

Coverage Central government. Critical period/time Most recent annual budget preparation. Quantifiable data required Level of revenue forecasted by type of revenue. Information sources Budget code. Budget submitted to the Legislature. Revenue

forecasting reports. Medium term fiscal framework document. Ministry of Finance and/or agency in charge of revenue forecasting Revenue agencies, Economic research bodies. Fiscal council, if any.

Rating criteria

A. In addition to full coverage of estimates for the coming fiscal year, medium-term forecasts (for at least three years) of major sources of government revenues (at least 75% of estimated revenue for the second and third years) are produced as part of the annual budget process, with documentation explaining assumptions and methodology used for each type of revenue as well as estimates or explanation of upside and downside risks.

B. In addition to full coverage of estimates for the coming fiscal year, medium-term forecasts (for at least the two following years) of the major sources of government revenue (at least 75% of estimated revenue) are produced (for at least three years) as part of the annual budget process, with documentation explaining assumptions and methodology used for each type of revenue.

C. Forecasts of all sources of revenue are produced for the coming fiscal year as part of the annual budget process with documentation explaining assumptions and methodology used for each type of revenue.


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Dimension (ii) Assessment of the fiscal impact of proposed policy changes

Key questions

1. Which government agency is in charge of preparing the policy impact assessment? 2. How are estimates of fiscal impact from policy changes documented? 3. Which types of policy changes are covered by this documentation? 4. How detailed is the documentation in terms of methodology, assumptions and forecast scenarios? 5. Are the assumptions and scenarios consistent with those used for general macro-fiscal forecasting?

Coverage Central government. Critical period/time Last budget submission. Quantifiable data required Financial forecasts included in the revenue forecast report or similar

document. Information sources MOF, the Legislature

Revenue agencies. Economic research bodies. Fiscal council, if any.

Rating criteria

A. Proposed policy changes to all government revenues are supported by well-evidenced forecasts of the fiscal impact for each measure including assumptions and methodology.

B. Proposed policy changes to the major sources of government revenue (revenue items constituting 75% or more of total revenue) are supported by well-evidenced forecasts of the fiscal impact of each measure.

C. The proposed policy changes that are most significant to government revenue are supported by well-evidenced forecasts of the fiscal impact.


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Dimension (iii) Variance in revenue composition during the last three years (actual revenue by category compared to the originally approved budget using level three [3 digits] of GFS 2014 classification or a classification that can produce documentation according to those standards).

Key questions

1. Is detailed data on execution of budgeted revenue forecasts available? 2. Is it broken down by main type of revenue according to GFS (or comparable classification)?

Coverage Central government. Critical period/time Last three completed FYs. Quantifiable data required Amount of budgeted and actual revenue by GFS economic

classification. Information sources Ministry of Finance.

SAI. Budget execution reports. Financial statements or reports. SAI reports.

Rating criteria

A: Variance in revenue composition was less than 5% in two of the last three years. B: Variance in revenue composition was less than 10% in two of the last three years. C: Variance in revenue composition was less than 15% in two of the last three years. D: The requirements for a 'C' rating or higher are not met.

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PI-16 Medium-term perspective in expenditure budgeting.

Expenditure policy decisions have multi-year implications, and should be aligned with the availability of resources in the medium-term perspective. The resulting medium-term expenditure estimates at sector level need to be reconciled with the fiscal aggregates determined through a fiscal strategy (ref. PI-14 Credible Fiscal Strategy) and with the preparation of annual budget proposals (ref. PI-17 Orderliness and participation in the annual budget process). They should be updated annually through a process that is transparent and predictable.

The scope of the indicator covers all primary expenditure in the budget, including any externally funded programs and projects, and thus excludes debt service charges.

Dimension (i) measures the extent to which expenditure policy proposals are described in sector strategy documents, which – in addition to stating medium to long-term sector objectives (outcomes) and related outputs (service delivery targets) ref. PI-8 Performance information for achieving efficiency in public service delivery – should be fully costed in terms of estimates of forward expenditure to demonstrate the cost implications of current and new policies. Costing would therefore include expenditures both of a recurring nature as well as those involving investment commitments and their recurrent cost implications, and include all government expenditure irrespective of source of funding.

Given the need to match implementation of sector strategies with the available resource envelope in the medium term through a prioritization process, dimension (ii) assesses if a medium-term budget framework is established and updated as part of the annual budget process. The medium-term framework itself can vary in its form and its level of sophistication, but it should at least provide the annual budget process with an overall fiscal envelope for aggregate expenditure, consistent with macroeconomic and macro-fiscal policies for a three-year period (as assessed in PI-14 Credible Fiscal Strategy) with reconciliation between the top-down aggregate resource envelope and the bottom-up costing by MDAs of current and new policy implementation based on the sector strategies. The medium-term budget framework may not be complete in that outer year estimates may not be available for all sectors, or it may not be completely reconciled in that significant deviations may exist for the outer years in some sectors.

Dimension (iii) assesses if budget proposals in subsequent years are compared to the medium-term framework’s outer year estimates with any deviations fully explained. Such explanations may include changes in macro-economic conditions/parameters and changes to government policy and expenditure priorities.

Further issues regarding the disclosure and approval of the medium-term framework are covered by other indicators such as incorporation in the budget documentation (PI-5), review and approval by the legislature (PI-18) and availability to the public (PI-9).


(i) Coverage and content of sector strategies

(ii) Reconciliation of top-down and bottom-up approaches in the medium-term budget framework

(iii) Links between medium-term framework and annual budgets

Points to note:

1. This indicator must be assessed in relation with the assessment work of PI-14 (Credible Fiscal Strategy) dim (i) on fiscal objectives/targets and PI-17 (Orderliness and participation in the annual budget process) dim (ii) on budget ceilings. Information sources must be consistent and a comprehensive approach is encouraged.

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2. Consistency should be ensured between PI-16 (Medium-term perspective in expenditure budgeting) dim (i) and PI-8 (Performance information for achieving efficiency in public service delivery) dim (i) sector output objectives/targets.

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Dimension (i) Coverage and content of sector strategies.

Key questions

1. Is there a general guidance on the preparation of sector strategies? Do line ministries follow this guidance? 2. For which sectors have strategies been prepared? 3. Are those sector strategies still valid as the basis for the current fiscal year? 4. Have these been fully costed (for investments and recurrent expenditure)? 5. If yes, what percentage of total primary expenditure do the costed sectors represent?

Coverage Public sector as regards strategy; Central government as regards expenditure costing Critical period/time Last budget submission. Quantifiable data required Primary expenditure for each sector that has prepared a fully costed sector strategy. Total

primary expenditure. Information sources Planning and budget departments of ministries representing sectors with high percentage of

government expenditure, MOF Planning and Budget Departments (Annual. Budget Circular, Public Investment Program), Sector Strategy documents, Approved budget estimates.

Rating criteria

A. Sector strategies exist for sectors representing at least 75% of primary expenditure with full costing of recurrent and investment expenditure as a basis for annual and medium-term budget proposals.

B. Sector strategies exist for sectors representing at least 50% of primary expenditure with full costing of recurrent and investment expenditure as a basis for annual and medium-term budget proposals.

C. Sector strategies exist for sectors representing at least 25% of primary expenditure with full costing of recurrent and investment expenditure as a basis for annual and medium-term budget proposals.


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Dimension (ii) Reconciliation of top-down and bottom-up approaches in the medium-term financial framework.

Key questions

1. Is a clear overall fiscal envelope for total expenditure provided? How many years are included? 2. Is a medium-term financial framework established and updated? Is it consistent with macroeconomic and

macro-fiscal policies for a three-year period, as assessed in PI-14 (Credible Fiscal Strategy)? 3. Are there clear guidelines at government level on the prioritization of sectorial objectives, in relation to resource

constraints? 4. Is it easy to reconcile sector strategy estimates with available resource envelope in the medium term budget? 5. Are there clear guidelines at government level on the prioritization of sectorial objectives, in relation to resource

constraints? 6. What is the deviation between MDA submissions for each major MDA and at aggregate level?

Coverage Budgetary Central government. Critical period/time Last budget submission. Quantifiable data required Medium term expenditure estimates for all (important) budget entities as

submitted to MOF; budget ceilings issued by MOF. Information sources Budget submitted to Parliament. Annual budget law.

Ministry of Finance. Legislature (budget commission). Line ministries’ budget submissions.

Rating criteria

A. A medium-term budget framework of three years (or more) is prepared as part of the annual budget process. It reconciles the top-down budget ceilings with the MDAs’ costed budgets in all MDAs for both the annual budget and outer year estimates.

B. A medium-term budget framework of three years (or more) is prepared as part of the annual budget process. It reconciles the top-down budget ceilings with the MDAs’ costed budgets in MDAs representing 75% of primary expenditure, for both the annual budget and outer year estimates.

C. A medium-term budget framework of three years (or more) is prepared as part of the annual budget process. It reconciles the top-down budget ceilings with the MDAs’ costed budgets in MDAs representing 50% of primary expenditure, for both the annual budget and outer year estimates.


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Dimension (iii) Links between the medium-term framework and annual budgets.

Key questions

1. What is the difference between expenditure estimates (expressed in budget ceilings) for the most recent budget preparation process and the estimates for year 2 in the medium term estimates in the budget proposal for the previous year (at aggregate expenditure level and breakdown by main economic and functional classification)?

2. Are the differences explained and how are the explanations communicated? 3. Are there any rules for justifying deviation from the previous year’s medium term framework?

Coverage Budgetary Central government. Critical period/time Most recent annual budget preparation. Quantifiable data required Medium term budget estimates for previous year; annual budget submission for

current year. Information sources Budget ceilings for most recent budget preparation process as well as previous

year’s preparation process. Most recent budget submission to the legislature, as well as for the previous year. MOF Budget/Planning departments. Legislature (budget commission). Line ministries.

Rating criteria

A. Links between the medium-term framework’s second year estimates and setting of the annual budget for following fiscal years is clear, for MDAs representing 100% of primary expenditure and any differences are explained.

B. Links between the medium-term framework’s second year estimates and setting of the annual budget for the following fiscal years is clear, for MDAs representing 75% of primary expenditure and any major differences are explained.

C. Links between the medium term-framework’s second year estimates and setting of the annual budgets for the following fiscal years is clear, for MDAs representing 50% of primary expenditure and any major differences are explained.


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PI-17: Orderliness and participation in the annual budget preparation process.

While the Ministry of Finance (MOF) is usually responsible for the annual budget formulation process, effective participation in the budget formulation process by other ministries, departments and agencies (MDAs) as well as the political leadership (the leadership of the executive, such as the cabinet or an equivalent body), impacts the extent to which the budget will reflect macro-economic, fiscal and sector policies. Full participation requires an integrated top-down and bottom-up budgeting process, involving engagement from all parties in an orderly and timely manner, in accordance with a pre-determined budget formulation calendar. The wider scope of participation of the legislature and citizens in the budgeting process is not covered here, but the legislature’s participation in the budgeting process – as representatives of the citizens - is assessed in PI-18 Legislative scrutiny of the annual budget law. Dimension (i) assesses whether an explicit budget calendar exists that allows for passing of the budget law before the start of the fiscal year. Whilst MDAs may start the preparation of budget estimates much earlier (e.g. based on outer year estimates from the previous budget cycle) it is important that they are given sufficient time to meaningfully prepare their detailed budget proposals as per the guidance, including budget ceilings, if issued. Delays in passing the budget may create uncertainty about the level of approved expenditures and delays in some government activities, including major contracts. Dimension (ii) assesses whether clear guidance on the budget process is provided in a budget circular, including budgetary ceilings (allocations) for administrative units or functional areas. The budget for the entire upcoming fiscal year should be covered and is the content of an ‘annual’ budget. In order to avoid last minute changes to budget proposals, it is important that the political leadership is actively involved in the setting of aggregate allocations (particularly for sectors or functions) from an early stage of the budget preparation process. This should be initiated through review and approval of the ceilings (allocations) in the budget circular, either by approving the budget circular or by approving a preceding proposal for aggregate ceilings (e.g. in a budget outlook paper). Dimension (iii) assesses whether the annual budget proposal is presented to the legislature in a timely manner so that the legislature has adequate time for its budget review and that the budget proposal can be approved before the start of the fiscal year. All parts of the central government’s annual budget are covered by this indicator, whether they are integrated or use separate processes. Ideally this is ensured through a single or unified budget process and related circular covering all government revenue, recurrent expenditure, capital expenditure, transfers, specific financing etc. In cases where the process is split into different parts, as may be the case for recurrent and capital budgets, the requirements for a score should be fulfilled for each of the separate processes. The MDAs concerned for the purpose of this indicator are those which are directly charged with responsibility for implementing the budget in line with sector policies and which directly receive funds or authorization to spend from the MOF. Departments and agencies that report and receive budgetary funds through a parent ministry should not be considered in the assessment. Dimensions to be assessed (Scoring Method M2):

(i) Existence of and adherence to a fixed budget calendar. (ii) Clarity/comprehensiveness of and political involvement in the guidance on the preparation of budget submissions (budget circular or equivalent). (iii) Timely submission of the annual budget proposal to the legislature or similarly mandated body (within the last three years).

Points to note:

1. The MDAs concerned for the purpose of this indicator are those which are directly charged with responsibility for implementing the budget in line with sector policies and which directly receive funds or authorization to spend from the MOF. MDAs that report and receive budgetary funds through a parent ministry should not be considered in the assessment.

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2. Is there a (recent) budget law (or budget regulations), which sets the basic principles of the budget process (including the calendar)?

3. This indicator covers the process for both the recurrent/operating budget and the capital/development budget, whether they are integrated or using separate processes. In the latter case, this means that the requirements for a score should be fulfilled for each of the separate processes.

4. ‘Ceilings’ refers to the indicative budget allocations issued to budget entities early in the budget preparation process as the basis for preparing detailed budget proposals. The final budget allocations to individual budget entities may subsequently be adjusted on the basis of the quality and justification of their detailed proposals.

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Dimension (i) Existence of and adherence to a fixed budget calendar.

Key questions

1. Is a budget calendar prepared and adhered to? 2. Is the budget calendar clear? 3. How many weeks does the calendar allow to ministries, department and agencies (MDAs) to complete their

detailed estimates?

Coverage Budgetary central government. Critical period/time Last budget approved by the legislature. Quantifiable data required Number of weeks from when MDAs receive budget circular till they have to submit detailed

budget proposals to MOF. Information sources MOF (budget dept), corroborated by Finance Officers of large spending MDAs.

Rating criteria

A: A clear annual budget calendar exists, is generally adhered to and allows MDAs enough time (and at least six weeks from receipt of the budget circular) to meaningfully complete their detailed estimates on time.

B: A clear annual budget calendar exists, and is largely adhered to, even if delays of minor importance are experienced in its implementation. The calendar allows MDAs reasonable time (at least four weeks from receipt of the budget circular) so that most of them are able to meaningfully complete their detailed estimates on time.

C: An annual budget calendar exists and attempts are made to comply with it, even if substantial delays are experienced in its implementation, and/or many MDAs fail to meet the deadlines for completing estimates.

D: The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Clarity/comprehensiveness of and political involvement in the guidance on the preparation of budget submissions (budget circular or equivalent).

Key questions

1. Is a budget circular issued to MDAs? 2. Is the budget circular clear? 3. Does the budget circular include ceilings pre-approved by Cabinet? 4. If not, are Cabinet-approved ceilings notified in time for MDAs to amend their budget estimates? 5. Can the Cabinet still make adjustments to budget estimates before they are submitted to Parliament?

Coverage Budgetary central government. Critical period/time Last budget approved by the legislature. Quantifiable data required Date of Cabinet approval of budget circular compared to date of MOF issue of budget circular

to MDAs. Information sources MOF (budget dept), corroborated by Cabinet (Memoranda) and large MDAs.

Rating criteria

A: A single, comprehensive, and clear budget circular, covering all budget expenditure for the full fiscal year, is issued to MDAs, which reflects ceilings approved by Cabinet (or equivalent) prior to the circular’s distribution to MDAs.

B: A single, comprehensive, and clear budget circular, covering all budget expenditure for the full fiscal year, is issued to MDAs, which reflects ceilings approved by Cabinet (or equivalent). This approval takes place after the circular distribution to MDAs, but before MDAs have completed their submission.

C: One or several budget circular(s) is/are issued to MDAs, including ceilings for individual administrative units or functional areas. All budget expenditure is covered for the full fiscal year. The budget estimates are reviewed and approved by Cabinet after they have been completed in all details by MDAs, thus seriously constraining Cabinet’s ability to make adjustments.


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Dimension (iii) Timely submission of the annual budget proposal to the legislature or similarly mandated body (within the last three years).

Key questions

1. In the three last FY when have the annual budget proposals been submitted to the legislature (specific dates)?

Coverage Budgetary central government. Critical period/time Last 3 FYs budgets. Quantifiable data required Number of months before start of fiscal year that annual budget proposals are submitted to

the legislature. Information sources MOF (budget dept), corroborated by Legislature (Budget/finance commission)

Rating criteria

A: The executive submitted the annual budget proposal at least 2 months before the start of the fiscal year in each of the last three years.

B: The executive has submitted the annual budget proposal at least 2 months before the start of the fiscal year in two of the last three years and submitted it before the start of the FY in the third year.

C: The executive has submitted the annual budget proposal at least 1 month before the start of the fiscal year in two of the last three years.


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PI-18: Legislative scrutiny of the annual budget law.

The power to give the government authority to spend rests with the legislature, and is exercised through the passing of the annual budget law. If the legislature does not rigorously examine and debate the law, that power is not being effectively exercised and will undermine the accountability of the government to the electorate. Assessing the legislative scrutiny and debate of the annual budget law will be informed by consideration of several factors, including the scope of the scrutiny, the internal procedures for scrutiny and debate as well as the time allowed for that process. Dimension (i) assesses the scope of the legislative scrutiny. The scope should cover review of fiscal policies, the medium term fiscal framework and medium term priorities as well as the specific details of expenditure and revenue estimates. The review may be undertaken in two or more stages, typically involving a gap between review of medium term aspects and review of the details of estimates for the next fiscal year. Dimension (ii) assesses the extent to which review procedures are well established and well respected. This will include the internal organizational/committee arrangements, technical support, negotiation procedures and public consultation arrangements. Adequacy of the budget documentation that is made available to the legislature is covered by PI-5 Comprehensiveness of information included in budget documentation. Dimension (iii) assesses the timeliness of the scrutiny process in terms of the ability to approve the budget before the commencement of the new fiscal year. This deadline is important to meet so that MDAs will know at the start of the fiscal year what resources they will have at their disposal for service delivery. The time available for scrutiny is largely determined by the timing of submission of the executive’s budget proposals to the legislature, as assessed in PI-17 Orderliness and participation in the annual budget process. The narrative of the assessment should specify the actual time that legislature has spent in reviewing the budget proposal. Dimension (iv) assesses the arrangements made to approve in-year budget amendments. Such amendments constitute a common feature of annual budget processes. In order not to undermine the significance of the original budget, the authorization of amendments that can be done by the executive must be clearly defined and follow rules, which should indicate: (i) the scope and procedures for adjustments within MDA budget limits without requiring prior MOF approval; (ii) the scope and procedures for adjustments within MDA budget ceilings that require prior MOF approval, but not prior legislature approval; (iii) the scope and procedures for in-year adjustments of MDA budget ceilings that require MOF (and perhaps Cabinet) prior approval but not prior legislature approval; and (iv) the scope and procedures for in-year adjustments of MDA budget ceilings that require prior legislature approval including time limits for the executive’s presentation of amendments for retro-active approval by the legislature (also ref. PI-21 Predictability in the availability of funds to support service delivery). These rules must also be adhered to. Cases where the executive implements its proposed budget and fails to reflect the legislature’s recommendations should be considered as in-year amendments to the approved budget, and would warrant a ‘D’ rating both for dimensions (ii) and (iv). . Dimensions to be assessed (Scoring Method M1):

(i) Scope of the legislature’s scrutiny. (ii) Extent to which the legislature’s procedures are well-established and respected. (iii) Timeliness of budget proposal approval. (iv) Rules for in-year amendments to the budget without ex-ante approval by the legislature.

Points to note

None.

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Dimension (i) Scope of the legislature’s scrutiny.

Key questions

1. Is there a functioning legislature? 2. What budget documents are presented to legislature? 3. Are budget documents reviewed by legislature? 4. If yes, is legislative review limited or detailed? 5. If detailed, does legislature review cover expenditures & revenues, fiscal policies, medium-term fiscal

framework & medium term priorities?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Number of weeks from when MDAs receive budget circular till they have to submit detailed

budget proposals to MOF. Information sources Budget Director, Secretary or Chair of budget committee(s) of Legislature, corroborated by

civic interest groups.

Rating criteria

A: The legislature’s review covers fiscal policies, medium term fiscal framework and medium term priorities as well as details of expenditure and revenue.

B: The legislature’s review covers fiscal policies and aggregates for the coming year as well as detailed estimates of expenditure and revenue.

C: The legislature’s review covers details of expenditure and revenue, but only at a stage where detailed proposals have been finalized.

D: The requirements for a 'C' rating or higher are not met (including that there may be no functioning legislature).

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Dimension (ii) Extent to which the legislature’s procedures are well-established and respected.

Key questions

1. Are procedures for legislative review established and are they mandated by legislation? 2. If yes, are they comprehensive? 3. Do they include internal organizational arrangements such as specialized review committees, and negotiation

procedures? 4. Are the current procedures for legislative review respected by both the committee members and the

government?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Information sources Legislature Committees, corroborated by civic interest groups.

Rating criteria

A: The legislature’s procedures for budget review are firmly established, comprehensive (including internal organizational arrangements, such as specialized review committees, technical support, negotiation procedures, and arrangements for public consultation) and are respected.

B: The legislature’s procedures to review budget proposals are firmly established and respected. C: Some procedures exist for the legislature’s budget review, but they may not be comprehensive or may be only

partially respected. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Timeliness of budget proposal approval.

Key questions

1. During the last three fiscal years, was the budget approved before the start of the fiscal year? When (specific dates should be provided)?

2. If not, when was the budget approved each year (how many months into the year)?

Coverage Budgetary central government. Critical period/time Last 3 FYs budgets. Quantifiable data required Delay in budget approval by the legislature after start of fiscal year, for the last three fiscal

years. Information sources MOF (budget dept), corroborated by Legislature (budget/finance commissions).

Rating criteria

A: The legislature has approved the annual budget before the start of the fiscal year in each of the last three years. B: The legislature has approved the annual budget before the start of the fiscal year in two of the last three years,

with a delay of up to one month in the third year. C: The legislature has approved the annual budget within one month of the start of the fiscal year in two or more of

the last three years. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iv) Rules for in-year amendments to the budget without ex-ante approval by the legislature.

Key questions

1. Are there any legal and procedural rules that govern in-year budget amendments by the executive? 2. If yes, how clear are these rules? 3. Do they allow extensive administrative reallocation as well as expansion of total expenditure or do they set

strict limits on the extent and nature of amendments? 4. Are they always respected?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Information sources Legislature Committees, corroborated by civic interest groups.

Rating criteria

A: Clear rules exist for in-year budget amendments by the executive, set strict limits on extent and nature of amendments and are consistently respected.

B: Clear rules exist for in-year budget amendments by the executive, and are usually respected, but they may allow extensive administrative reallocations.

C: Clear rules exist, but they may not always be respected OR they may allow extensive administrative reallocation as well as expansion of total expenditure.


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PI-19 Revenue administration compliance.

This indicator relates to the entities that administer central government revenues, which may include tax administration, customs administration, social security contribution administration, as well as agencies administering revenues from other significant sources such as natural resources extraction which may include public enterprises that operate as regulators and holding companies for government interests, in which case the assessment will require information to be collected from entities outside the government sector. A government’s ability to collect revenues, which are due, is an essential component of any PFM system, and is also an area where there is direct interaction between individuals and enterprises on the one hand and the state on the other. Both parties have responsibilities: the government must provide those responsible for providing revenues with a clear understanding of their obligations and the procedures to be followed, while ensuring that mechanisms are in place to enforce compliance from those required to contribute the revenues due.

Dimension (i) assesses the extent to which individuals and enterprises have access to both information about their obligations, and also to administrative procedures which allow redress, such as a fair and independent body outside of the general legal system (ideally a ‘Tax Court’) that is able to consider appeals against amounts assessed.

Dimension (ii) assesses extent of the use of risk management methods within the revenue entities. Modern revenue administrations rely increasingly on self-assessment and use risk-based processes to ensure compliance. Resource constraints are likely to dictate that revenue administration processes are focused on identifying payers and transactions with the largest potential risk of non-compliance. An efficient risk management system contributes to minimizing evasion and irregularities in revenue administration as well as lowering the cost of collection for revenue collecting agencies and cost of compliance for payers. The assessors should consider use of risk management methods in registration, filing, payment and refunds of tax, customs, social security payments; and comment on their efficiency. The assessment should also look into the mitigation measures in place such as audits, investigations, transfer pricing controls, and outreach activities/communication.

Dimension (iii) assesses whether sufficient controls are in place to deter evasion and ensure that instances of non-compliance are revealed. Sound audit and fraud investigation systems have to be in place to ensure that once risks have been identified, there is follow-up to minimize revenue leakage. More serious issues of non-compliance involve deliberate attempts of payments evasion and fraud, which may involve collusion with representatives within a revenue administration. The ability of the revenue administration to identify, investigate, successfully prosecute and impose penalties in major evasion and fraud cases on a regular basis is essential for ensuring that payers comply with their obligations. This dimension assesses use of audits and fraud investigations, while the dimension (ii) assesses extent to which audits are based on risk profiling.

Dimension (iv) assesses the extent of proper management of arrears within the revenue entities by focusing on the level and age of revenue arrears. Revenue administrations need to have a critical focus on the management of arrears to ensure that debts owing to the government are managed actively and appropriate processes are adopted that focus on expediting the payment of collectable debt. This will ensure that revenue administrations maximize the collection of arrears before they become uncollectable. In order for the arrears management process to be considered comprehensive, it should allow for capturing the information on revenue arrears and facilitate that arrears are collected in the year it occurs

Dimensions to be assessed (Scoring Method M2): (i) Information to individuals and enterprises about their obligations and rights concerning payments to the

government; (ii) Management of risks to revenue; (iii) Audit and fraud investigation practices (including penalties) to achieve planned outputs in terms of coverage

and additional revenue; (iv) Management of revenue arrears.

Points to note:

1. Identify all entities in charge of collecting revenue, taxes, custom levies, social security, natural resources, other significant sources of revenue.

2. It is important to establish that information is accessible in practice to the majority of individuals or entities. The question of language must be examined (is information available in mainly spoken languages?)

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Dimension (i) Information to individuals and enterprises about their obligations and rights concerning payments to the government.

Key questions

1. Is information on taxpayer’s duties and rights publicly available? In legislation, regulations, guidance notes for taxpayers?

2. Is information on duties and right of all categories that provide non-tax revenue to government available? In what format?

3. Is there a national and comprehensive legislation or regulation on information to tax payers and other revenue providers?

4. What is the policy of each revenue agency regarding dissemination of information? 5. Is there an established and accessible redress mechanism in place for tax payers to appeal (beyond the general

court system)?

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Data on revenue collected and transferred to government by each revenue

collecting entity. Information sources Tax code.

Legislation on revenue and information. Revenue administration/agencies. Investment promotion agency. Private business associations. Tax payers associations.

Rating criteria

A: Entities collecting more than 75% of government revenue provide easy access to comprehensive, user friendly and up-to-date information and administrative procedures, including a right of redress.

B: Entities collecting more than 50% of government revenue provide easy access to comprehensive, user friendly and up-to-date information and administrative procedures, including a right of redress.

C: Entities collecting more than 50% of government revenue provide access to information and administrative procedures, but may be limited, lacking comprehensiveness or not up-to-date.


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Dimension (ii) Management of risks to revenue.

Key questions

1. Which taxes and non-tax revenues apply self-assessment and which do not? 2. Is there a clear understanding amongst government officials of what is risk management? (To be assessed on the

basis of interview with staff in charge of revenue administration). 3. Are there differences between main revenue agencies as regards understanding and practice of risk.

management? (To be assessed on the basis of interview with staff of main agencies). 4. Are the main risk areas of each category of revenue well identified? Even if there is no standardized definition,

risk management of revenue administration could be defined as the process to target the use of resources, the information system and the internal control system to areas where risks have already been identified, in particular in terms of: - Value (areas where amount of revenue involved is high) - Compliance (areas where problems of compliance have been detected and are likely to occur) - Effectiveness (areas where revenue collection was and could be below expectation).

5. Are risk management methods used in registration, filing, payment and refunds of taxes, customs, and social security contributions?

6. How is the efficiency of risk management methods assessed? Is there an existing assessment of their efficiency? Are internal audit services able to provide an assessment of risk management for revenue?

7. What measures to mitigate risks are in place such as audits, investigations, transfer pricing controls, and outreach activities/communication?

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Same as for dimension (i) Information sources Revenue administration agencies; Internal audit services

Rating criteria

A: Entities collecting more than 75% of government revenue utilize a comprehensive risk management process.

B: Entities collecting more than 50% of government revenue utilize a comprehensive risk management process.

C: Entities collecting more than 50% of government revenue utilize risk management processes that may be limited in scope.


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Dimension (iii) Audit and fraud investigation practices (including penalties) to achieve planned outputs in terms of coverage and additional revenue

Key questions

1. Is a comprehensive document available describing controls that should be in place to deter evasion and non-compliance? Does it cover all types of revenue?

2. Is there an established audit and fraud investigation system in place in all revenue agencies? 3. Is information on audit planning and execution easily accessible? How many audits were planned and executed? 4. Is audit undertaken on the basis of a documented plan with clear risk assessment criteria for selection of

auditees. (NB: there should be a consistency between risk management and risk based audit) 5. Are the outcomes of investigations, prosecution and decisions on penalties available?

Coverage Central government. Critical period/time Last three completed FYs. Quantifiable data required Data on number of audits planned and achieved. Information sources Budget and tax codes.

Legislation on revenue collection. Revenue administration/agencies. Internal audit services.

Rating criteria

A: Entities collecting more than 75% of government revenue undertake audits and fraud investigations and achieve planned outputs.

B: Entities collecting more than 50% of government revenue undertake audits and fraud investigations and achieve planned outputs.

C: Entities collecting more than 50% of government revenue undertake audits and fraud investigations.


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Dimension (iv) Management of revenue arrears

Key questions

1. Is there a clear definition of revenue arrears?

2. Is information on level and age of revenue arrears available? Is it reliable? Is it disaggregated by category of revenue?

3. Is it correctly and timely updated?

4. Is a comprehensive document available that establishes rules and procedures for the management of revenue arrears?

5. Is there a report on the outcomes of the management of revenue arrears?

Coverage Central government. Critical period/time Last completed FY. Quantifiable data required Total revenue and revenue arrears. Age of revenue arrears. Information sources Revenue administration/agencies.

Ministry of finance. TADAT assessments.

Rating criteria

A: The share of revenue arrears at the end of the last completed fiscal year is below 10%.

B: The share of revenue arrears at the end of the last completed fiscal year is below 20% AND the revenue arrears older than 12 months are less than 50% of total revenue arrears.

C: The share of revenue arrears at the end of the last completed fiscal year is below 20% AND revenue arrears older than 12 months are less than 75% of total revenue arrears.

D: The requirements for a 'C' rating or higher are not met

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PI-20 Accounting for revenues.

In many countries, there is more than one agency responsible for revenue administration. Typically, there will be a tax administration body, customs, and social insurance administrator, although the Central Bank or the government Treasury may also perform this function. In addition, there may be MDAs or other entities administering revenues from other significant sources, such as natural resources extraction. While the particular institutional arrangements may vary, there is always a need for information on revenue collection to be consolidated and analyzed, to ensure that revenue collection is on track and that cash management of the government is effective (ref. PI-21 Predictability in the availability of funds to support service delivery).

Dimension (i) assesses the extent to which the Ministry of Finance or a body with similar responsibilities coordinates revenue administration activities and collects, accounts and reports timely information on collected revenue.

Dimension (ii) assesses the promptness of transfers of revenue collected to the Treasury9 or other designated agencies. It is essential to ensure that funds are available as soon as possible to support cash management and ultimately spending. This may involve either a system that obliges payments to be made directly into accounts controlled by the Treasury (possibly managed by a bank) or, where the responsible agency maintains its own collection accounts, by frequent and full transfers from those accounts to Treasury controlled accounts (time periods mentioned do not include delays in the banking system). Transfers of revenue collections to the Treasury should be effective and ensure that any revenue float is minimized. Ideally, all revenues should be transferred to the Treasury, but other agencies could be legally designated to receive earmarked revenues directly from the collecting entity (e.g. autonomous extra-budgetary funds). Transfers to such designated agencies will be assessed in the same way as transfers to the Treasury.

Dimension (iii) assesses the extent to which aggregate amounts related to assessments/ charges, collections, arrears and transfers to (and receipts by) the Treasury or designated other agencies take place regularly and are reconciled. This will ensure that the collection and transfer system functions as intended, that the level of arrears and the revenue float are monitored and minimized. It is important that the difference between amounts assessed/levied and received by the Treasury or other designated agencies can be explained (N.B. this does not assume or imply an accrual based accounting system: the data and reports used for assessing this indicator are based on cash accounting). The responsible entity would normally keep records on aggregate amounts levied, and transfers to the Treasury in its accounting system. The responsible entity should also keep records for each payer about amounts levied and paid, but this may be done in other data systems. The responsible entity should be able to aggregate such information, so that it can report how much of amounts levied is (a) not yet due, (b) in arrears (the difference between what is due and what has been paid in) and (c) collected by the responsible agency but not yet transferred to the Treasury. For revenues from extractive industries, the Extractive Industries Transparency Initiative has developed standards for the disclosure and reconciliation of what companies pay and what governments receive.


(i) Coverage and timeliness of revenue information collected by the Ministry of Finance. (ii) Effectiveness of transfer of revenue collections to the Treasury or other designated agencies. (iii) Frequency of complete accounts reconciliation between assessments, collections, arrears records and

receipts by the Treasury or other designated agencies.

Points to note:

1. For dimensions (ii) and (iii), in cases where it is not possible to obtain all the data, the assessment should focus on the revenue of the central government that constitute at least 75% of the overall revenue.

9 Under the current indicator, Treasury will then designate the Treasury itself or any other legally designated recipient. 93

Dimension (i) Coverage and timeliness of revenue information collected by the Ministry of Finance.

Key questions

1. How often does the Ministry of Finance collect revenue data? 2. Who supplies the information? 3. Are all revenue sources covered and is the data complete? 4. Is data broken down by revenue type and period collection? 5. Is data collected consolidated into a report? To whom is the report sent?

Coverage Central government. Critical period/time As at time of assessment and the preceding quarter of FY. Quantifiable data required Quantitative: revenue data broken down by revenue type and period. Information sources Revenue administration/agencies. Treasury or other designated revenue

recipients, Central bank.

Rating criteria

A. At least monthly, the Ministry of Finance collects revenue data broken down by revenue type and period from entities collecting all government revenue, and consolidates the data into a report.

B At least monthly, the Ministry of Finance collects revenue data broken down by revenue type and period from entities collecting more than 75% of government revenue, and consolidates the data into a report.

C At least monthly, the Ministry of Finance collects revenue data broken down by revenue type and period from entities collecting more than 50% of government revenue, and consolidates the data into a report.

D The requirements for a ‘C’ rating or higher are not met.

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Dimension (ii) Effectiveness of transfer of revenue collections to the Treasury or other designated agencies.

Key questions

1. Where do taxpayers, importers or any other debtors pay their taxes, duties or debts (directly to RA, commercial banks, central bank, post office, etc.)?

2. How do taxes, duties or any other revenues reach Treasury or other designated agencies?

3. How long after collection are revenues transferred to Treasury or other designated agencies? What is average delay?

Coverage Central government. Critical period/time As at time of assessment (and the preceding quarter). Quantifiable data required Frequency of transfer of revenue from RAs to the Treasury or other designated

agencies. Information sources Revenue administration/agencies, Treasury or other designated revenue

recipients, Central Bank.

Rating criteria

A. All revenue is paid directly into accounts controlled by the Treasury or transfers to the Treasury and other designated agencies are made daily.

B Revenue collections are transferred to the Treasury and other designated agencies at least weekly.

C Revenue collections are transferred to the Treasury and other designated agencies at least every two weeks.


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Dimension (iii) Frequency of complete accounts reconciliation between assessments, collections, arrears records and receipts by the Treasury or other designated agencies.

Key questions

1. Is a reconciliation exercise of revenue assessments, collections, arrears and transfers to Treasury or other designated agencies carried out?

2. If yes, how often? 3. When exactly is the reconciliation exercise completed after the period under consideration?

Coverage Major revenues arising from all central government activities. Critical period/time As at time of assessment (and preceding 12 months). Quantifiable data required Frequency and delay in reconciliation of records of revenue assessment,

collection, arrears and payment to the Treasury or other designated agencies. Information sources Revenue administration/agencies. Treasury or other any designated revenue

recipients, Central Bank.

Rating criteria

A. Complete reconciliation of assessments, collections, arrears and transfers to Treasury and other designated agencies takes place at least monthly within one month of end of month.

B Complete reconciliation of assessments, collections, arrears and transfers to Treasury and other designated agencies takes place at least quarterly within six weeks of end of quarter.

C Complete reconciliation of assessments, collections, arrears and transfers to Treasury and other designated agencies takes place at least annually within 3 months of end of the year.


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PI-21 Predictability in the availability of funds to support service delivery.

Effective service delivery and execution of the budget in accordance with the work plans, requires that spending ministries, departments and agencies (MDAs) receive reliable information on the availability of funds within which they can control commitments and make payments for non-financial assets, goods and services. This indicator assesses the extent to which the central ministry of finance is able to forecast commitment and cash requirements and provide reliable information on the availability of funds to MDAs for service delivery.

Dimension (i) assesses for the extent to which the MOF can identify and consolidate cash balances (including those for extra-budgetary funds and government controlled project accounts) as a basis for informing the release of funds. Consolidation of bank accounts is facilitated where a Treasury Single Account (TSA) exists or where all accounts are centralized at a single bank (usually the Central Bank). A TSA is a bank account or a set of linked accounts through which the government transacts all its receipts and payments. The control and reporting on individual transactions should be achieved through the accounting system, allowing the Treasury to delink management of cash from control of individual transactions. In order to achieve regular consolidation of multiple bank accounts not held centrally, timely electronic clearing and payment arrangements with the government’s bankers will generally be required. The narrative of the indicator should include a discussion of the arrangements used in the assessed jurisdiction.

Dimension (ii) assesses the extent to which MDA commitments and cash flows are forecast and monitored by the MOF. Predictability for MDAs in the availability of funds is facilitated by effective cash flow planning, monitoring and management by the Treasury. This will require that reliable forecasts of cash inflows and outflows – both routine and non-routine (the latter comprising expenditures that do not take place on a regular monthly or annual basis such as the cost of holding elections or discrete capital investments) – are linked to the budget implementation and commitment plans of individual MDAs.

Dimension (iii) assesses the reliability of in-year information to MDAs on ceilings for expenditure commitment for specific periods. Predictability for MDAs in the availability of funds for commitment is necessary to facilitate planning of activities and procurement of inputs to facilitate effective service delivery. In some systems, funds (commitment ceilings, authority to spend or transfers of cash) are released by the MOF to MDAs in stages throughout the budget year (e.g. monthly or quarterly). In others, the passing of the annual budget law grants the full authority to commit and spend from the beginning of the year. However, the MOF/Treasury (or other central agency) may in practice impose constraints on MDAs in incurring new commitments (and making related payments), when cash flow problems arise. To be considered reliable and thus avoid disrupting MDAs implementation plans, the amount of funds for commitment/spending made available to an entity for a specific period should not be subsequently reduced during that period. The adherence of MDAs to the ceilings for expenditure commitment and payments is not assessed here, but is covered by indicator PI-24 on internal controls.

Dimension (iv) assesses the frequency and transparency of adjustments to budget allocations. Governments may need to make in-year adjustments to allocations in the light of unanticipated events that impact revenues and/or expenditures. The impact on predictability and on the integrity of original budget allocations is minimized by specifying, in advance, a mechanism that relates adjustments to budget priorities in a systematic and transparent manner (e.g. the protection of particular votes or budget lines that are declared to be high priority, or say ‘poverty related’). In contrast, adjustments can take place without clear rules/guidelines or can be undertaken informally (e.g. through imposing delays on new commitments). While many budget adjustments can take place administratively with little implication for the expenditure composition out-turn at higher levels of aggregation in the administrative, functional and economic budget classifications, other more significant changes may alter the actual composition at such aggregated classification levels. The significance of these adjustments is assessed in relation to the percentages specified in the PI-2 rating criteria. Rules for when the legislature should be involved in such in-year budget amendments are assessed in PI-18 Legislative scrutiny on the annual budget law and not covered here.

Dimension to be assessed (Scoring Method M2):

(i) Extent and frequency of consolidation of the central government’s cash balances. (ii) Extent to which cash flows are forecast and monitored. (iii) Reliability and horizon of periodic in-year information to MDAs on ceilings for expenditure commitment. (iv) Frequency and transparency of adjustments to budget allocations, which are decided above the level of

management of MDAs.

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Points to note:

None.

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Dimension (i) Extent and frequency of consolidation of the central government’s cash balances.

Key questions

1. Is there a TSA where all government accounts are centralized? 2. Where are government bank accounts maintained? 3. Are all government bank accounts known (including those for extra-budgetary funds and government controlled

project accounts)? 4. Are balances of some or all government accounts calculated and consolidated? 5. How often are bank balances consolidated or total of all balances calculated and known to government (daily,

weekly, monthly, other)?

Coverage All bank balances managed by Treasury and MDAs. Critical period/time As at time of assessment and the preceding quarter of FY. Quantifiable data required Number of bank accounts for which balances are calculated and consolidated by

the Treasury. Frequency of such calculation/consolidation. Information sources Treasury, Finance Officers of major spending agencies.

Rating criteria

A. All central government bank and cash balances are consolidated on a daily basis.

B All central government bank and cash balances are consolidated on a weekly basis, but some extra-budgetary funds may remain outside this arrangement.

C Consolidation of most central government cash balances takes place at least monthly.


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Dimension (ii) Extent to which cash flows are forecast and monitored.

Key questions

1. Is a cash flow forecast established at the start of the new FY, for year ahead? If so, is it revised & updated during year?

2. How frequently (monthly, quarterly half yearly)? 3. Do in-year updates of cash flow forecasts include re-estimates of future cash requirements?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Frequency of cash flow forecasting /updates by the Treasury for the last year. Information sources Treasury, Finance Officers of major spending agencies.

Rating criteria

A. A cash flow forecast is prepared for the fiscal year, and is updated monthly on the basis of actual cash inflows and outflows.

B A cash flow forecast is prepared for the fiscal year and updated at least quarterly, on the basis of actual cash inflows and outflows.

C A cash flow forecast is prepared for the fiscal year, but may not (or only partially and infrequently) be updated.


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Dimension (iii) Reliability and horizon of periodic in-year information to MDAs on ceilings for expenditure commitment.

Key questions

1. Are MDAs provided with reliable indication of actual resources available for commitments? 2. How much in advance is this indication provided (1, 2, 3 or 6 months)? 3. As a result, are MDAs able to plan and commit expenditures in accordance with budget appropriations? 4. In practice, does Treasury use non-transparent cash control mechanisms during periods of cash flow problems

(e.g. delaying printing of checks to suppliers for centrally-administered purchases or delaying transfer of funds to budget entity accounts for which checks have already been written by budget entities)?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Frequency of issue of commitment ceilings to MDAs and the period covered, for

the last year. Information sources Treasury, Finance Officers of major spending agencies.

Rating criteria

A. MDAs are able to plan and commit expenditure for at least six month in advance in accordance with the budgeted appropriations and cash/commitment releases.

B MDAs are provided reliable information on commitment ceilings at least quarterly in advance.

C MDAs are provided reliable commitment ceiling information for one or two months in advance.


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Dimension (iv) Frequency and transparency of adjustments to budget allocations, which are decided above the level of management of MDAs.

Key questions

1. What are legislative and procedural rules for making adjustments to original budget appropriations (e.g. virements, supplementary budgets)?

2. Are these rules respected? 3. What adjustments were made to budget allocations during last completed FY (with respect to virements,

supplementary budgets and any other cause)? 4. Were these adjustments carried out transparently?

Coverage Budgetary central government. Critical period/time Last completed FY. Quantifiable data required Frequency of in-year budget adjustments by MOF and /or the legislature; and

the value of expenditure involved for each adjustment event. Information sources Treasury, Finance Officers of major spending agencies.

Rating criteria

A. Significant in-year adjustments to budget allocations take place only once or twice in a year and are done in a transparent and predictable way.

B Significant in-year adjustments to budget allocations take place only once or twice in a year and are done in a fairly transparent way.

C Significant in-year budget adjustments are frequent, but undertaken with some transparency.


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PI-22 Effectiveness of payroll controls.

The wage bill is usually one of the biggest items of government expenditure and may be susceptible to weak controls and hence corruption. This indicator is concerned with the payroll for public servants only. Wages for casual labor and discretionary allowances that do not form part of the payroll system are included in the assessment of general internal controls (PI-24 Effectiveness of internal controls for non-salary expenditure). However, different segments of the public service may be recorded in different payrolls. All of the more important payrolls should be mentioned in the narrative and assessed in the scoring of this indicator.

Dimension (i) assesses the degree of integration between personnel, payroll and budget data. The payroll should be underpinned by a personnel database (in some cases called the “nominal roll”, and not necessarily computerized), which provides a list of all staff who should be paid every month, and which should be verified against the approved establishment list (or other approved staff list on which budget allocations are based) and the individual personnel records (or staff files). Controls should also ensure that staff employment and promotion is undertaken within approved personnel budget allocations.

Dimension (ii) assesses the timeliness of changes to personnel and payroll data. Any amendments required to the personnel database should be processed in a timely manner through a change report, and should result in an audit trail.

Dimension (iii) assesses the controls that are applied to effect changes to personnel and payroll data. Effective internal controls should: restrict the authority to change records and payroll; require separate verification; require production of an audit trail that is adequate to maintain a permanent history of all transactions and together with details of the authorizing officers.

Dimension (iv) assesses the integrity extent of the payroll. Payroll audits should be undertaken regularly to identify ghost workers, fill data gaps and identify control weaknesses.


(i) Degree of integration and reconciliation between approved staff lists, personnel records and payroll data. (ii) Timeliness of changes to personnel records and the payroll. (iii) Internal controls of changes to personnel records and the payroll. (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers and frequency of

consolidation of the central government’s cash balances.

Points to note:

The scope of this indicator includes AGAs.

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Dimension (i) Degree of integration and reconciliation between approved staff lists, personnel records and payroll data.

Key questions

1. Who is in charge of central government payroll(s)? 2. Is payroll data centralized &/or computerized (with or without specialized software)? 3. Who is responsible for personnel records & personnel database? 4. Does information in above 3 exist in electronic form? 5. What can be said about quality & completeness of payroll data, personnel records & database? 6. Are payroll data, personnel records & personnel database electronically linked or are they regularly reconciled

(is there any cross-check between personnel database & payroll)? 7. If yes, what is the frequency of reconciliation (monthly, quarterly, every six months, other)? 8. Is the payroll centrally operated (does treasury make payments directly to individuals for all institutions

throughout government)? 9. Are all payments made directly to bank account for each individual (if not, how are payments made)?

Coverage All payrolls of the central government, including all MDAs and AGAs. Critical period/time As at time of assessment. Quantifiable data required Information sources Public Service Commission, Personnel Management Dept, Accountant General,

Finance Officers of MDAs and AGAs, corroborated by SAI.

Rating criteria

A. Approved staff list, personnel database and payroll are directly linked to ensure budget control, data consistency and monthly reconciliation.

B The payroll is supported by full documentation for all changes made to personnel records each month and checked against the previous month’s payroll data. Staff hiring and promotion is controlled by a list of approved staff positions.

C Reconciliation of the payroll with personnel records takes place at least every six months. Staff hiring and promotion is checked against the approved budget prior to authorization.


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Dimension (ii) Timeliness of changes to personnel records and the payroll.

Key questions

1. What is the average or typical delay between a personnel change (eg. recruitment, promotion, transfer, separation) & corresponding payroll change?

2. Are retroactive adjustments widespread, frequent, occasional or rare?

Coverage All payrolls of the central government, including all MDAs and AGAs. Critical period/time As at time of assessment. Quantifiable data required Frequency of updating of personnel records and payroll data. Average delay in

the number of days from change in personnel status to personnel records and payroll data are updated.

Information sources Public Service Commission, Personnel Management Dept, Accountant General, Finance Officers of MDAs and AGAs, corroborated by SAISAI and staff union.

Rating criteria

A. Required changes to the personnel records and payroll are updated monthly, generally in time for the following month’s payments. Retroactive adjustments are rare (if reliable data exists, it shows corrections in a maximum of 3% of salary payments).

B. Up to three months’ delay occurs in updating of changes to the personnel records and payroll, but affects only a minority of changes. Retroactive adjustments are made occasionally.

C. Up to three months delay occurs in processing changes to personnel records and payroll for a large part of changes, which leads to frequent retroactive adjustments.


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Dimension (iii) Internal controls of changes to personnel records and the payroll.

Key questions

1. What are controls on changes to personnel records? 2. Are they good enough to avoid payment errors and to ensure full integrity of data? 3. Are authority and basis for changes to personnel records and payroll clear and restricted to named officers? 4. Do changes of records and payroll result in an audit trail?

Coverage All payrolls of the central government, including all MDAs and AGAs. Critical period/time As at time of assessment. Quantifiable data required Information sources Public Service Commission, Personnel Management Dept, Accountant General,

Finance Officers of MDAs and AGAs, corroborated bySAI.

Rating criteria

A. Authority to change records and payroll is restricted, results in an audit trail and is adequate to ensure full integrity of data.

B. Authority and basis for changes to personnel records and the payroll are clear and adequate to ensure high integrity of data.

C. Sufficient controls exist to ensure integrity of the most important payroll data.


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Dimension (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers.

Key questions

1. Have partial or full payroll audits or staff surveys been undertaken within last 3 years? 2. If yes, were all Central government entities covered? 3. Were audits/surveys done independently of the payees? This question is intended to draw attention to possibility

of collusion within the audited agencies and the validity of the audit findings? 4. Is there a strong system of annual payroll audits to identify control weaknesses and/or ghost workers?

Coverage All payrolls of the central government, including all MDAs and AGAs. Critical period/time Last 3 years before assessment. Quantifiable data required Dates of payroll audit events during the last 3 years. Information sources Public Service Commission, Personnel Management Dept, Accountant General,

Finance Officers of MDAs and AGAs, corroborated bySAI.

Rating criteria

A. A strong system of annual payroll audits exists to identify control weaknesses and ghost workers.

B. A payroll audit covering all central government entities has been conducted at least once in the last three years (whether in stages or as one single exercise).

C. Partial payroll audits or staff surveys have been undertaken within the last three years.


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PI-23 Transparency, competition and complaint mechanisms in procurement.

Significant public spending takes place through the public procurement system. A well-functioning procurement system ensures that money is used effectively in acquiring inputs for, and achieving value for money in, the delivery of programs and services by a government. The principles of a well-functioning system need to be stated in a well-defined and transparent legal framework that clearly establishes appropriate policy, procedures, accountability and controls, ref. the description of the legal framework for PFM in section 2.3. Key procurement principles include the use of transparency and competition as means to obtain fair and reasonable prices and overall value for money.

Good procurement is not about finding the path of least cost from inputs to outputs. The strategic management of public procurement adds value – it has outcomes in its own right such that it discovers the optimum solutions to the issues in terms that best match the national objectives, and the optimum means of achieving these solutions. In doing so, good procurement (a) rewards innovation in processes and solutions; (b) identifies best fit-for-purpose outcomes; (c) delivers optimum value-for-money; (d) promotes industry competitiveness and development; and (e) strengthens public confidence in government.

The scope of the indicator covers the entire central government, i.e. also extra-budgetary funds and AGAs, with the exception of the defense sector for which information by law is typically classified and confidential. It covers all procurement of goods, services and civil works whether classified as recurrent or capital investment expenditure (e.g. including civil works and major equipment investments).

While the procurement system operates within its own framework, it benefits from the overall control framework that exists in the PFM system, including public access to information, internal controls operated by implementing agencies, and external audit. The procurement system also contributes to many aspects of the PFM system: providing information that enables realistic budget formulation, providing access to information to stakeholders that contribute to public awareness and transparency, and supporting efficiency and accountability in delivery of government programs. The following indicators in particular impact on or are influenced by the effectiveness of procurement: PI-2 Composition of expenditure out-turn compared to original approved budget, PI-8 Performance information for achieving efficiency in service delivery, PI-9 Public access to key fiscal information, PI-11 Public Investment Management, PI-12 Public Asset Management, PI-16 Medium-term perspective in expenditure budgeting, PI-21 Predictability in the availability of funds to support delivery, PI-24 Effectiveness of internal controls for non-salary expenditure, PI-25 Effectiveness of internal audit, PI-27 Quality and timeliness of in-year budget reports, PI-29 SAI Independence and external audit of the government’s annual financial reports, and PI-30 Legislative scrutiny of external audit reports.

Given the critical role of procurement in the efficiency of countries’ public expenditures, dimension (i) analyzes how the efficiency and effectiveness of the procurement system in being monitored. It assesses the extent to which prudent monitoring and reporting systems are in place for ensuring value for money and fiduciary integrity. This dimension looks at the availability and analysis of data for goods, services and works contracts regarding (1) successful completion of planned procurement processes (or conversely, procurement processes cancelled) in terms of both number of processes and value of contract awards, since a large number of unsuccessful procurement processes is both expensive and stifling to future competition, as businesses will become frustrated and are unlikely to spend their resources on bidding costs that do not result in actual contracts, and (2) variations in contract value between what was originally awarded and the actual completion costs.

Dimension (ii) analyzes the percentage of the total value the contracts awarded with and without competition. A good procurement system ensures that procurement – except low-value procurement under an established and appropriate threshold – uses competitive methods, either because situations in which other methods can be used are effectively restricted by regulations or because the provisions to apply other methods are used sparingly.

Dimension (iii) reviews the level of public access to complete, reliable and timely procurement information. Public dissemination of information on procurement processes and their outcomes are also key elements of transparency. In order to generate timely and reliable data, a good information system will capture data on procurement transactions and be secure. Unless otherwise specifically justified in relation to country circumstances, public access to procurement information is defined as posting on official websites (i.e. information is accessible without restriction, without requirement to register, and is free of charge).

Dimension (iv) assesses the existence and effectiveness of an independent, administrative complaint resolution mechanism. A good procurement system offers stakeholders access to such a mechanism as part of the control

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system, usually in addition to the more costly and time consuming process of challenging procurement decisions in the general court system. To be effective, submission and resolution of complaints must be processed in a fair, transparent, independent and timely manner. The timely resolution of complaints is necessary to allow contract awards to be reversed as required, and limits remedies tied to profit/loss and costs associated with bid or proposal preparation after contract signatures. A good process also includes the ability to refer the resolution of the complaints to an external higher authority for appeal. In addition to the evidence required for rating the dimension, the narrative may incorporate a discussion of qualitative aspects of the performance of the system such as the independence of the complaints mechanism and the protection of complainants.


(i) Monitoring the efficiency and effectiveness of the procurement system. (ii) Use of competitive procurement methods. (iii) Public access to complete, reliable and timely procurement information. (iv) Effectiveness of an independent administrative procurement complaint system.

Points to note:

1. PEFA coverage is limited to Government funds, excluding SOEs (the OECD DAC “Methodology for Assessing Procurement Systems‟ covers all public funds).

2. It is of no consequence if part or all of the public procurement system is run fully or partly under an externally financed technical assistance project though the text accompanying the rating might comment from a sustainability point of view.

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Dimension (i) Monitoring the efficiency and effectiveness of the procurement system.

Key questions

Does the procurement monitoring system collect data and analyze performance on: (1) successfully completed procurement processes (contracts awarded) compared to procurement processes planned in terms of numbers and values (for the most recent, completed fiscal year); (2) original contract value at award versus actual completion cost of contracts (for contracts completed during the most recent, completed fiscal year), with access to data for each contract?

Coverage All procurement for central government using national procedures including all MDAs and AGAs.

Critical period/time Last completed fiscal year. Quantifiable data required Information sources Public Agency responsible for procurement management.

Ministry of Finance. Selected MDAs with large procurement volume. Body in charge on complaints about procurements. Business associations (Chamber of commerce).

Rating criteria

A. Databases (or records) are maintained for contracts representing at least 90% of value of procurement of goods, services and works, including both data elements above. Analysis of this data is made available to management at least annually.

B Databases (or records) are maintained for contracts representing at least 75% of value of procurement of goods, services and works, including both data elements above. Analysis of this data is made available to management at least annually.

C Databases (or records) are maintained for contracts representing at least 50% of expenditure on goods, services and works, including both data elements above. Analysis of this data is made available to management ad hoc.


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Dimension (ii) Use of competitive procurement methods.

Key questions

1. Is open competition defined as preferred method for procurement by existing legislation and regulations? If not, is preference given to non-competitive methods?

2. Is there is a threshold above which open competition is the default method? If so, what is the threshold? 3. Is there a database in which the value and procurement method are recorded for each awarded contract? 4. Are there concerns on the reliability of data on awarded contracts (e.g. statements on data completeness and

accuracy by internal or external audit)? Does the data also cover contracts below the threshold? 5. Is the method used to award the contract clearly recorded in the supporting file of each contract? Is there a clear

reference to the relevant legislation?


Critical period/time Last completed FY. Quantifiable data required Information sources Agency responsible for procurement management.

Ministry of Finance. Selected MDAs with large procurement volume. Body in charge on complaints about procurements. Business associations (Chamber of commerce).

Rating criteria

The total value of contracts awarded through competitive methods in the most recent fiscal year, represents:

A: 80% or more of total value of contracts

B: 70% to 80% of total value of contracts

C: 60% to 70% of total value of contracts

D: The requirements for a 'C' rating or higher are not met OR reliable data is not available.

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Dimension (iii) Public access to complete, reliable and timely procurement information.

Key questions

1. Are there concerns about exhaustiveness and reliability of information made available on procurement as

covered by this dimension (e.g. at the level of internal or external audit)? 2. Are the means used to make information available effective? (Effectively functioning website, accessibility of

paper documentation, etc…) 3. Is all information accessible at the same source (one website, one consolidated document) or deconcentrated? 4. Is access to information free of charge?


Critical period/time As at time of assessment. Quantifiable data required Key procurement information (government procurement plans, bidding

opportunities, contract awards, and data on resolution of procurement complaints) is made available to the public through appropriate means.

Information sources Agency responsible for procurement management. Ministry of Finance. Selected MDAs with large procurement volume. Body in charge on complaints about procurements. Civil society Business associations.

Rating criteria

Key procurement information comprising

(1) legal and regulatory framework for procurement; (2) government procurement plans; (3) bidding opportunities, (4) contract awards (purpose, contractor and value); (5) data on resolution of procurement complaints is made available to the public through appropriate means.

A. All five of the key procurement information elements are complete and reliable for government units representing 90% of procurement operations (by value) and made available to the public in a timely manner through appropriate means.

B. At least four of the key procurement information elements are complete and reliable for government units representing 75% of procurement operations (by value) and made available to the public in a timely manner through appropriate means.

C. At least three of the key procurement information elements are complete and reliable for government units representing 50% of procurement operations (by value) and made available to the public through appropriate means.


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Dimension (iv) Effectiveness of an independent administrative procurement complaint system.

Key questions

Are complaints reviewed by a body which: (1) is not involved in any capacity in procurement transactions or in the process leading to contract award decisions; (2) does not charge fees that prohibit access by concerned parties; (3) follows processes for submission and resolution of complaints that are clearly defined and publicly available; (4) exercises the authority to suspend the procurement process; (5) issues decisions within the timeframe specified in the rules/regulations; and (6) issues decisions that are binding on all parties (without precluding subsequent access to an external higher authority)?

Coverage All procurement for central government using national procedures incl. all MDAs and AGAs.

Critical period/time As at time of assessment. Quantifiable data required Number of complaints received and resolved (settled in favor of complainants

and procuring entities respectively) – as reference for other data required. Fees charged if any (ref. criterion 2).

Information sources Complaints body, MOF, Central Procurement Authority, Procurement Officers in heavy spending MDAs, corroborated by SAI and NGOs (e.g. Chamber of Commerce).

Rating criteria

A. The procurement complaint system meets all six criteria.

B. The procurement complaint system meets criteria (1), and three of the other criteria.

C. The procurement complaint system meets criteria (1), and one of the other criteria.


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PI-24 Effectiveness of internal controls for non-salary expenditure.

This indicator focuses on non-salary expenditure and covers a wide range of processes and types of payment across central government including segregation of duties, commitment controls and payment controls.

This broad range of non-salary processes, the many types of expenditure, and the number of different people often involved in them increases the risk of incorrect and/or inconsistent application of the laid down procedures and controls. This makes it particularly important for assessors to establish whether or not effective controls exist. Evidence of the effectiveness of the internal control system could come from discussions with government financial controllers and other senior managers, the reports prepared by the external and internal audit and the minutes of audit committee meetings (where such a committee exists). Minutes of management meetings and regular financial reports prepared for management may also be useful in establishing the extent to which non-salary expenditure is controlled. Where specific reviews or surveys relating to procurement and accounting systems have been prepared at the request of management, these can also provide a useful source of information. The existence of procedure manuals, instructions etc. should also be verified wherever possible. Routine and one-off accounting reports – e.g. reports of invoices paid and outstanding, reports of error and rejection rates for financial procedures such as invoice payments, inventory checks etc. – may also assist in rating this dimension, as may meetings held with managers and staff to demonstrate the level of awareness and understanding of internal control. Organizations in which employees understand what controls are and why they are needed are more likely to have better, more effective systems of internal control in place.

Dimension (i) assesses the existence of the segregation of duties which is a fundamental element of internal control to prevent an employee or group of employees to be in a position both to perpetrate and to conceal errors or fraud in the normal course of their duties. The main incompatible responsibilities to be segregated are: (a) authorization; (b) recording; (c) custody of assets; and (d) reconciliation or audit. Particular attention should be paid to management override of controls. Repeated policy exceptions or overrides may indicate potential fraudulent activity or a need to reassess current policies/procedures. Any unusual situations identified should be investigated by the appropriate party and include corrective action if necessary.

Dimension (ii) assesses the effectiveness of expenditure commitment controls. This process is singled out as a separate dimension of this indicator due the importance of such controls for ensuring that the government’s payment obligations remain within the limits of budget allocations (as revised) and within projected cash availability, thereby avoiding creation of expenditure arrears (ref. indicator PI-13 Management and reporting on debt and expenditure arrears). Governments with comprehensive fiscal rules and access to well-developed debt markets may face no constraints in financing cash flow fluctuations and so may limit commitments only in relation to annual budget appropriations, whereas government operating in different environments may need to issue commitment limits to spending agencies for much shorter periods, based on actual cash available and robust short term forecasts.

Dimension (iii) assesses the effectiveness of the payment controls systems. It covers both low-value and public procurement as well as casual labor wages and discretionary staff allowances. The percentages in the calibration refer to number of transactions.


(i) Segregation of duties.

(ii) Effectiveness of expenditure commitment controls.

(iii) Compliance with systems of control for making payments.

Points to note:

1. Under dim (iii), percentage of payment processes executed in accordance with regular rules and procedures is defined as the number of payments executed in accordance with regular rules and procedures compared to total number of payments, as a percentage.

2. Such percentage should normally be made available to assessors using data bases of internal control.

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Dimension (i) Segregation of duties.

Key questions

1. Are incompatible duties split among officials: (i) authorization; (ii) recording; (iii) custody of assets; (iv) reconciliation or audit?

2. Do procedures describe processes and flows? 3. Are responsibilities clearly laid down? 4. Are delegations of authority defined in procedures?

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Qualitative only. Information sources Budget Directorate; Accounting Directorate; Treasury; Oversight body; Internal

Audit. Regulations and guidance on accounting and payment processing.

Rating criteria

A. Appropriate segregation of duties exists throughout the process. Responsibilities are clearly laid down.

B Segregation of duties exists throughout the process. Responsibilities are clearly laid down for most key steps while further details may be needed in a limited number of areas.

C Segregation of duties exists. Important responsibilities are allocated, but may need further definition.


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Dimension (ii) Effectiveness of expenditure commitment controls.

Key questions

1. Are there expenditure commitment control systems in place? 2. How do they operate in practice? 3. Are they respected, or are they overridden at top level? 4. Do they cover all expenditures? 5. Do they effectively limit commitments to actual cash availability & approved budget allocations for most types

of expenditures or for all expenditures?

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Error rates or rejection rates in routine financial transactions as reported by

government financial controllers and /or internal or external audit bodies. Information sources MOF (Internal Audit); Treasury;SAI Accountant General; Heads and Finance

Officers of major MDAs, SAI.

Rating criteria

A. Comprehensive expenditure commitment controls are in place and effectively limit commitments to projected cash availability and approved budget allocations.

B Expenditure commitment controls are in place and effectively limit commitments to projected cash availability and approved budget allocations for most types of expenditure, with minor areas of exception.

C Expenditure commitment control procedures exist and are partially effective, but they may not comprehensively cover all expenditures or they may occasionally be violated.


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Dimension (iii) Compliance with systems of controls making payments.

Key questions

1. Are systems of controls over payments in place? 2. Are exceptions to regular procedures authorized in advance? Do existing procedures mention those exceptions

or is a special request issued by a specific authority before the payment request? (Note: The assessment team could ask for files and check randomly a sample.)

3. Are exceptions duly justified? Are supporting documents produced along with the payment request? (Note: The assessment team could ask for files and check randomly a sample.)

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Mainly qualitative, except for percentage of payment processes executed in

accordance with regular rules and procedures (which is number of payments executed in accordance with regular rules and procedures compared to total number of payments, as a percentage).

Information sources Treasury. Oversight body, SAI. Internal Audit Directorate. Normative documents defining procedures (types of exceptions). End-of-year execution reports. Financial audit reports. Audit reports.

Rating criteria

A. More than 90% of payments are executed in accordance with regular rules and procedures. Exceptions to regular procedures are authorized in advance and duly justified.

B 75 to 90% of payments are executed in accordance with regular rules and procedures. Exceptions to regular procedures are authorized and duly justified.

C 50 to 75% of payments are executed in accordance with regular rules and procedures. Exceptions to regular procedures are authorized in most cases but are not justified


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PI-25 Effectiveness of internal audit.

Regular and adequate feedback to management is required on the performance of the internal control systems, through an internal audit function (or equivalent systems monitoring function). Such a function should bring a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. In the public sector, the function is primarily focused on the provision of assurance over the adequacy and effectiveness of internal controls: the reliability and integrity of financial and operational information; the effectiveness and efficiency of operations and programs; the safeguarding of assets; and compliance with laws, regulations, and contracts.

Dimension (i) assesses the extent to which all government entities are subject to internal audit. It is measured as the proportion of total planned expenditure/revenue collection of the entities covered by annual audit activities, whether or not substantive audit work is carried out, and does not refer to the sample of transactions selected for examination.

Dimension (ii) assesses specific evidence of an effective internal audit (or systems monitoring) function would also include a focus on high risk areas, preparing and monitoring of audit plans, use by the SAI of the internal audit reports, and

Dimension (iii) assesses the extent to which action is taken by management on internal audit findings. This is of critical importance since lack of action on findings undermines the rationale for the internal audit function.

Dimension (iv) looks into the nature of audit performed and adherence to professional standards. Effectiveness of risk management, control and governance processes should be evaluated by following professional standards such as the International Standards for the Professional Practice of Internal Auditing, issued by the Institute of Internal Auditors, including (a) appropriate structure particularly with regard to professional independence, (b) sufficient breadth of mandate, access to information and power to report, (c) use of professional audit methods, including risk assessment techniques. Internal audit functions in some countries are concerned only with pre-audit of transactions, which is here considered part of the internal control system and should therefore be assessed in PI-24 Effectiveness of internal controls for non-salary expenditure.

The internal audit function may be undertaken by an organization with a mandate across entities of the central government (such as government inspection general or IGF) or by separate internal audit functions for individual government entities. The combined effectiveness of all such audit organizations is the basis for rating this indicator.


(i) Coverage of the internal audit function.

(ii) Implementation of audits and distribution of reports (percentages quoted refer to the average rate of completion of audit plans for all audited entities).

(iii) Extent of management response to internal audit findings.

(iv) Nature of audit performed and adherence to professional standards.

Points to note:

It is important to differentiate between audit and control: this indicator is concerned with internal audit and not as it often occurs (particularly in francophone African countries) with control activities.

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Dimension (i) Coverage of the internal audit function.

Key questions

1. Who is in charge of internal audit? 2. Is internal audit separate and independent of payment and accounting processes? 3. How operational is audit function and which entities of Central government does it cover? What % of total

expenditure is covered? What % of total government revenue is covered?

Coverage Central government. Critical period/time Latest available financial and operational information. Quantifiable data required Information sources MOF (Internal Audit), Accountant General, Heads and Finance Officers of

major MDAs, corroborated by SAI.

Rating criteria

A. Internal audit is operational for all central government entities.

B. Internal audit is operational for central government entities representing at least 75% of total budgeted expenditures and for entities collecting at least 75% of government revenue.

C. Internal audit is operational for central government entities representing at least 50% of total budgeted expenditures and for entities collecting at least 50% of government revenue.


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Dimension (ii) Implementation of audits and distribution of reports (percentages quoted refer to the average rate of completion of audit plans for all audited entities).

Key questions

1. Are audit plan engagements defined? What % of them is completed? 2. Are internal audit reports issued? 3. With what frequency? 4. Are reports issued regularly for most government entities? 5. Are reports distributed to the audited entity, the MOF and SAI?



Rating criteria

A. At least 90% of audit plan engagements are completed, as evidenced by distribution of the reports to the appropriate parties.

B At least 75% of audit plan engagements are completed, as evidenced by distribution of the reports to the appropriate parties.

C At least 50% of audit plan engagements are completed, as evidenced by distribution of the reports to the appropriate parties.


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Dimension (iii) Extent of management response to internal audit findings.

Key questions

1. Are internal audit recommendations addressed by government managers? 2. Is a fair degree of action or comprehensive action taken by managers on major issues? 3. Is action taken by many managers or across central government entities? 4. Is action taken immediately or with delay?

Coverage Central government. Critical period/time Latest available financial and operational information. Quantifiable data required Number of material weaknesses found per year and the remediation rates – i.e.

the percentage of material weaknesses corrected within 12 months of notification.

Information sources MOF (Internal Audit), Accountant General, Heads and Finance Officers of major MDAs, corroborated by SAI.

Rating criteria

A. There is clear evidence of effective and timely follow up of internal audit findings by management of 90% of the entities audited in the last financial year.

B There is clear evidence of effective and timely follow up of internal audit findings by management of 75% of the entities audited in the last financial year.

C There is clear evidence of effective and timely follow up of internal audit findings by management of 50% of the entities audited in the last financial year.


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Dimension (iv) Nature of audit performed and adherence to professional standards.

Key questions

1. Is an annual audit plan in place? 2. Is this audit plan risk based? If not, what are the activities focused on? 3. Does internal audit meet recognized professional standards?



Rating criteria

A. A quality assurance process is in place within the internal audit function. There is evidence that internal audit activities meet professional standards, including following a risk-based audit plan.

B Internal audit activities follow an annual audit plan and are focused on evaluations of the adequacy and effectiveness of internal controls.

C Internal audit activities consist primarily of ex-post reviews focused on financial compliance.


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PI-26 Accounts reconciliation and financial data integrity.

Reliable reporting of financial information requires constant checking and verification of the recording practices of accountants – this is an important part of internal control and a foundation for good quality information for management and for external reports. The indicator covers three critical types of reconciliation.

Dimension (i) assesses the regularity of bank reconciliation. Timely comparison between all government bank account (central or commercial) transaction data and government cash books should be undertaken on a regular basis, the results reported and actions taken to reconcile any differences. Such reconciliation is fundamental to the integrity of the accounting records and the financial statements.

Dimension (ii) assesses the extent to which suspense accounts, including sundry deposits/ liabilities, are reconciled on a regular basis and cleared in a timely way. Failure to clear suspense accounts can distort financial reports and provide an opportunity for fraudulent or corrupt behaviors.

Dimension (iii) focuses on reconciliation and clearance of advance accounts. Advances would cover amounts paid to vendors under public procurement contracts as well as travel advances and operational imprests. In the case of public procurement contracts, clearing timeline will be compliant with the contractual arrangements. Other clearing processes will follow the national regulations. The present indicator does not cover intergovernmental transfers even though some of them may be called “advances”.

Quality information is essential to support internal controls system. Information is produced by information systems, which encompass people, processes, data and IT. Those elements are dealt with under PI-22 for payroll and PI-24 for commitments and payments.

Dimension (iv) covers how processes support the delivery of quality financial information and focuses on data integrity defined as accuracy and completeness of data (ISO/IEC, International Standard, 2014). While acknowledging that other processes are essential to ensure data integrity, dimension (iv) assesses two key aspects: access to information (including read-only) and changes made to records (creation as well as modification); and existence of an oversight body, unit or team in charge of verifying data integrity. Audit trails constitute an important aspect of data integrity as they enable individual accountability, intrusion detection and problem analysis.


(i) Regularity of bank reconciliation. (ii) Regularity of reconciliation and clearance of suspense accounts. (iii) Regularity of reconciliation and clearance of advance accounts. (iv) Processes supporting financial data integrity

Points to note:

1. Reconciliation includes the identification of all mismatches and their amount (and their nature) between the government’s records of the accounting data held on its books and the government’s bank account data held by banks. The subsequent clearance could be a long process, which falls outside the scope of the time benchmarks indicated under this dimension in the Framework Document.

2. While a Treasury Single Account facilitates the reconciliation process, it is not required in order to score A on this indicator.

3. For dim (iv), relevant information will be available within IT teams dealing with financial data, within the Budget Directorate, the Accounting Directorate, and the Treasury if the financial information systems are not integrated. If the function is operational, audit teams and/or their reports could also be consulted to triangulate the information.

4. For dim (iv), audit trails enable to check individual accountability, intrusion detection and problem analysis. Good audit trails are meant to provide information on who accessed the data, who initiated the transaction, the time of day and date of entry, the type of entry, what fields of information it contained, and what files it updated.

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Dimension (i) Regularity of bank reconciliation.

Key questions

1. Who undertakes reconciliation of central government bank account statements with the corresponding cash books?

2. How frequently are bank reconciliations made? (i) for all Treasury managed bank accounts, and (ii) for all other bank accounts (weekly, monthly, quarterly, other)?

3. When does reconciliation take place after the period under consideration (i) for all Treasury managed bank accounts, and (ii) for all other bank accounts (1 week, 4 weeks, 8 weeks, other)?

4. Does bank reconciliation take place at aggregate and detailed levels? 5. Are there any significant unresolved differences between treasury records and bank account information?

Coverage Central government. Critical period/time As at time of assessment, covering the preceding 12 months. Quantifiable data required Frequency of reconciliation of Treasury managed bank accounts.

Number of days from end of reconciled period to date of reconciliation is completed for Treasury managed bank accounts. Frequency of reconciliation of government bank accounts not managed by Treasury. Number of days from end of reconciled period to date of reconciliation is completed for government bank accounts not managed by the Treasury.

Information sources Treasury; Accountant General; SAI.

Rating criteria

A. Bank reconciliation for all active central government bank accounts takes place at least weekly at aggregate and detailed levels, usually within one week of end of period.

B Bank reconciliation for all active central government bank accounts takes place at least monthly, usually within 4 weeks from end of month.

C Bank reconciliation for all active central government bank accounts takes place quarterly, usually within 8 weeks of end of quarter.


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Dimension (ii) Regularity of reconciliation and clearance of suspense accounts.

Key questions

1. How many suspense accounts are there? 2. What rules govern suspense accounts? 3. How frequently does reconciliation of suspense accounts take place (monthly, quarterly, annually, other)? 4. How long after period under consideration does reconciliation of suspense accounts take place (within a month,

within two months, more than two months)? 5. Are suspense accounts cleared in a timely way? Are justifications provided when the timeframe is not

respected? 6. Is the number of accounts with un-cleared balances brought forward significant? Or just some of the accounts?

Coverage Central government. Critical period/time As at time of assessment, covering the preceding 12 months. Quantifiable data required Frequency of reconciliation/ clearance of suspense accounts. Information sources Treasury; Accountant General; SAI.

Rating criteria

A. Reconciliation of suspense accounts takes place at least monthly, within a month from end of period. Suspense accounts are cleared in a timely way, no later than the end of the fiscal year unless duly justified.

B Reconciliation of suspense accounts takes place at least quarterly within two months of end of period. Suspense accounts are cleared in a timely way, no later than the end of the fiscal year unless duly justified.

C Reconciliation of suspense accounts takes place annually, within two months of end of year. Suspense accounts are cleared in a timely way, no later than the end of the fiscal year unless duly justified.


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Dimension (iii) Regularity of reconciliation and clearance of advance accounts.

Key questions

1. How many advance accounts are there and what funds are allocated to them (for travel allowances, construction advances, other)?

2. What rules govern advance payments (the rules may be different by type of advance, in which case an assessment would be based on the weighted average)?

3. How frequently does reconciliation of advance accounts take place (monthly, quarterly, annually, other)? 4. How long after period under consideration does reconciliation of advance accounts take place (within a month,

within two months, more than two months)? 5. Are advance accounts cleared in a timely way? 6. Is the number of accounts with un-cleared balances brought forward significant? Or just some of the accounts?

Coverage Central government. Critical period/time As at time of assessment, covering the preceding 12 months. Quantifiable data required Frequency of reconciliation/clearance of advance accounts. Information sources Treasury; Accountant General; SAI.

Rating criteria

A. Reconciliation of advance accounts takes place at least monthly, within a month from end of period. Advance accounts are always cleared in a timely way.

B Reconciliation of advance accounts takes place at least quarterly within two months of end of period. Advance accounts are usually cleared in a timely way.

C Reconciliation of advance accounts takes place annually, within two months of end of year. Advance accounts may frequently be cleared with delay.


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Dimension (iv) Processes supporting financial data integrity.

Key questions

1. Do clear written procedures exist about access rights and privileges? (Clear written procedures mention who, what, how and when).

2. Is unauthorized access automatically detected and recorded? 3. Is authority to change records restricted? Does it result in an audit trail (user, application and/ or system-levels

audit trails)? 4. Is there a specific team (within Internal Audit Directorate or directly reporting to the Ministry of Finance) in

charge of verifying data accuracy? 5. Is the team fully operational? Are reports readily available?

Coverage Central government. Critical period/time As at time of assessment. Quantifiable data required Qualitative only. Useful supplementary data: Error rates or rejection rates in

routine financial transactions as reported by government financial controllers and /or internal or external audit bodies.

Information sources Budget Directorate; Accounting Directorate; Treasury; Oversight body; Internal Audit.

Rating criteria

A. Access and changes to records is restricted and recorded, and results in an audit trail. An oversight body, unit or team in charge of verifying financial data integrity is operational.

B. Access and changes to records is restricted and recorded, and results in an audit trail.

C. Access and changes to records is restricted and recorded.


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PI-27: Quality and timeliness of in-year budget reports.

Information on budget execution that includes revenue and expenditure data is required to facilitate performance monitoring and, where necessary, help identify actions to maintain or adjust planned budget out-turns.

Dimension (i) assesses the extent to which information is presented in timely and accurate in-year reports and in a form that is easily comparable to the original budget (i.e. have the same coverage, basis of accounting, presentation). The division of responsibility between the ministry of finance and line ministries in the preparation of the reports will depend on the type of accounting and payment system in operation (centralized, de-concentrated or devolved). In each case the role of the ministry of finance will vary between: • Centralized capture and processing of MDA transactions along with production and distribution of various types

of MDA specific and aggregated/consolidated reports; • Production and dissemination of MDA specific and aggregated/consolidated reports based on MDA capture and

processing of transactions; • Consolidation/aggregation of reports provided by MDAs (and where applicable, from deconcentrated units)

from their accounting records.

Dimension (ii) assesses whether this information is submitted in a timely, regular, complete and reconciled manner and accompanied by an analysis and commentary on budget execution.

Dimension (iii) assesses the quality of the information submitted, including whether expenditure for both the commitment and the payment stage is provided. This is important for monitoring of budget implementation and utilization of funds released. Accounting for expenditure made from transfers to deconcentrated units within central government should be also included.

Countries may produce different reports on budget execution within a fiscal year. For the purposes of scoring of this indicator the same type of the reports should be used in all dimensions, i.e. timeliness, coverage, comparability and quality is assessed for the same reports.


(i) Coverage and comparability of reports. (ii) Timeliness of the issue of reports. (iii) The quality of the information contained in the reports.

Points to note:

It would be useful to refer to the SAI and the IMF FTE view of the quality of data used in budget execution reports.

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Dimension (i) Coverage and comparability of reports.

Key questions

1. Are in-year budget reports produced which show actual expenditures /revenues compared with approved budgets?

2. Who is in charge of preparing and issuing these reports (for expenditures and for revenues)? 3. What level of aggregation /disaggregation is used in in-year budget reports? 4. What classification is used in reports?

Coverage Budgetary central government (including EBO). Critical period/time Last completed FY Quantifiable data required Information sources Accountant General corroborated by SAI.

Rating criteria

A. Coverage and classification of data allows direct comparison to the original budget. Information includes all items of budget estimates. Expenditures made from transfers to de-concentrated units within central government are included in the reports. B. Coverage and classification of data allows direct comparison to the original budget but only with some aggregation. Expenditures made from transfers to de-concentrated units within central government are included in the reports. C. Coverage and classification of data allows direct comparison to the original budget but possible only for main administrative headings. D: The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Timeliness of the issue of reports.

Key questions

1. How often are in-year budget reports produced (monthly, quarterly, others)? 2. How long after end of period covered are reports distributed (e.g. within 2, 4, 8, more than 8 weeks)?

Coverage Budgetary central government (including EBO). Critical period/time Last completed FY Quantifiable data required Frequency of in-year budget execution reports. Number of days following end

of period that budget report is disseminated within the government, during the last year.

Information sources Accountant General corroborated by SAI.

Rating criteria

A. Budget execution reports are prepared monthly, and issued within 2 weeks of end of period. B. Budget execution reports are prepared quarterly, and issued within 4 weeks of end of quarter. C. Budget execution reports are prepared quarterly (possibly excluding first quarter), and issued within 8 weeks of end of quarter. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) The quality of the information contained in the reports.

Key questions

1. What is quality of data of in-year budget reports? 2. Is basic usefulness of the reports undermined by inaccuracies or omissions?

Coverage Budgetary central government (including EBO). Critical period/time Last completed FY Quantifiable data required Information sources Accountant General corroborated by SAI.

Rating criteria

A. There are no material concerns regarding data quality. An analysis of the budget execution is provided by whatever budget classifications are in use. Information on expenditure is covered at both commitment and payment stages. B. While there may be some concerns about accuracy of information, data issues are highlighted in the report and do not compromise overall consistency/usefulness. An analysis of the budget execution is provided on at least half-yearly basis. Expenditure is captured at least at payment stage. C. While there may be some concerns about the accuracy of information, which may not be highlighted in the reports, they do not fundamentally undermine the data usefulness. Expenditure is captured at least at payment stage. D: The requirements for a 'C' rating or higher are not met.

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PI-28: Quality and timeliness of annual financial reports.

Annual central government financial reports (for French heritage countries: the “Loi de règlement” supported its appendixes including the presentation of effective revenues and expenditures and the “Compte Général de l’Etat”) are critical for accountability and transparency in the PFM system. While some countries have their own public sector financial reporting standards, set by government or another authorized body, in many cases, national accounting standards for the private sector, regional standards, or international standards such as IPSAS are applied. In any event, the outcome should be a set of financial reports that are both complete and consistent with generally accepted accounting principles and standards. For the purpose of this indicator, the annual financial statements, budget execution reports or financial reports produced by central government are used for scoring.

Dimension (i) assesses the completeness of financial reports. Annual financial reports should include an analysis providing for a comparison of the out-turn with the initial government budget. Financial reports should include full information on revenue, expenditure, assets, liabilities, guarantees and long-term obligations. This information can be either incorporated into financial reports (in a modified cash or accrual-based system), or presented by way of notes or ad hoc reports (as is often done in a cash-based system). Quality of the reports requires that they be compiled after the clearance of any suspense accounts and after advance and bank account reconciliation (as assessed in PI-26 Accounts reconciliation and financial data integrity).

Dimension (ii) assesses the timeliness of submission of reconciled year-end financial reports as a key indicator of the effectiveness of the accounting and financial reporting system. In some systems, individual ministries, departments and deconcentrated units and other public entities within the central government issue reports that are subsequently consolidated by the MOF. In more centralized systems, all or part of information for the report is held by the MOF. The actual date of submission is the date on which the external auditor considers the report complete and available for audit.

Dimension (iii) assesses the extent to which annual financial reports are understandable to the intended users and contribute to accountability and transparency. This requires that the basis of recording of the government’s operations, and the accounting principles and national standards applied, be transparent and consistent with recognized international standards such as IPSAS..


(i) Completeness of the financial reports. (ii) Timeliness of submission of the financial reports. (iii) Transparency, completeness and consistency of accounting standards applied.

Points to note:

None.

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Dimension (i) Completeness of the financial reports.

Key questions

1. Is a government statement covering whole of budgetary central government prepared annually? 2. Is it comprehensive: complete information on revenue, expenditure, financial assets & liabilities? 3. If not, are omissions significant?

Coverage Central government. Critical period/time Last annual financial statement prepared. Quantifiable data required Information sources Accountant General corroborated by SAI.

Rating criteria

A. Financial reports for budgetary central government are prepared annually, and include a comparison with the approved budget and full information on revenue, expenditure, financial and tangible assets, liabilities, guarantees and long-term obligations, and are supported by a reconciled cash flow statement. B. Financial reports for budgetary central government are prepared annually, and are comparable with the approved budget and include information on at least revenue, expenditure, financial assets, financial liabilities, guarantees and long-term obligations. C. Financial reports for budgetary central government are prepared annually, comparable with the initial budget and include information on revenue, expenditure and cash balances. D: The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Timeliness of submission of the financial reports.

Key questions

When are financial statements submitted for external audit after end of FY (more than 9 months, within 9, 6 or 3 months of end of FY)?

Coverage Central government. Critical period/time Last annual financial statement submitted for audit. Quantifiable data required Number of months after end of year that consolidated financial statements (or

all individual financial statements by central government budget entities) are submitted to the SAI.

Information sources Accountant General corroborated by SAI.

Rating criteria

A. Financial reports for budgetary central government are submitted for external audit within 3 months of the end of the fiscal year. B. Financial reports for budgetary central government are submitted for external audit within 6 months of the end of the fiscal year. C. Financial reports for budgetary central government are submitted for external audit within 9 months of the end of the fiscal year. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Transparency, completeness and consistency of accounting standards applied.

Key questions

1. Are financial statements presented in a consistent format over time? 2. Are accounting standards disclosed, partially disclosed or not disclosed at all? 3. Are International Public Sector Accounting Standards (IPSAS) or corresponding national standards partially or

fully applied for statements?

Coverage Central government. Critical period/time Last 3 years’ financial statements. Quantifiable data required Information sources Accountant General corroborated by SAI.

Rating criteria

A. Accounting standards applied to all financial reports are both complete and consistent with international standards. Variations are minor and disclosed; any gaps are explained. B. Accounting standards applied to all reports are consistent with international standards. C. Accounting standards applied to all reports are based on the country’s legal framework, and ensure consistency of reporting over time. D: The requirements for a 'C' rating or higher are not met.

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PI-29: SAI Independence and external audit of the government’s annual financial reports.

A high quality external audit is an essential requirement for ensuring accountability and creating transparency in the use of public funds. Whilst one dimension of the indicator is focused on the independence of the external audit function, the first three dimensions focus on audit of the government’s annual financial reports. Inclusion of some aspects of performance audit would also be expected of a high quality audit function, but this is covered in PI-8 Performance information for achieving efficiency in service delivery, dimension (iv).

Dimension (i) assesses key elements of the quality of external audit in terms of the scope and coverage of audit, as well as adherence to auditing standards. The scope of audit indicates the entities and sources of funds that are audited10 in any given year and should include extra-budgetary funds and autonomous agencies. The latter may not always be audited by the Supreme Audit Institutions (SAI), as the use of other audit institutions may be foreseen. Where SAI capacity is limited, the audit program may be planned by the SAI in line with legal audit obligations on a multi-year basis in order to ensure that most important or risk-prone entities and functions are covered regularly, whereas other entities and functions may be covered less frequently. Audit work should cover all revenue, expenditure, assets and liabilities, regardless of whether all these are reflected in financial reports (see PI-28 Quality and timeliness of annual financial reports).

Adherence to auditing standards (ref. the International Standards of Supreme Audit Institutions (ISSAI) and the IFAC/IAASB International Standards on Auditing (ISA)11 should ensure a focus on significant and systemic PFM issues in reports, as well as conducting financial and compliance audit activities, such as providing an opinion on the financial statements, the regularity and propriety of transactions and the functioning of internal control and procurement systems. The SAI should implement a quality assurance system to assess whether their audits adhere to the adopted audit standards. These reviews are generally internal to the SAI (though independent of those carrying out the audits), but some external bodies may also play a role in the quality process, for example, through peer reviews or via a professional regulatory body. Independent quality assurance review reports should be the main source for assessing whether audit standards are generally adhered to.

Dimension (ii) assesses the timeliness of submission of the audit report(s) on budget execution to the legislature (or those charged with governance of the audited entity) as a key element in ensuring timely accountability of the executive to the legislature and the public. The Framework requires delays in submission of audit reports to be measured from the end of the period covered (when there is no financial audit involved) or date of the external auditor’s receipt of the respective financial reports (when a financial audit is involved). Where audit reports are made separately on different agencies/funds of central government, the overall delay may be assessed as a weighted average of the delays on the respective agencies/funds, weighted by the higher of their income or expenditure.

Dimension (iii) assesses the extent to which effective and timely follow-up of external audit recommendations or observations is undertaken by the executive or audited entity. Evidence of effective follow up of the audit findings includes the issuance by the executive or audited entity of a formal written response to the audit findings indicating how these will be or already have been addressed. Reports on follow-up may provide evidence of implementation by summing up the extent to which the audited entities have cleared audit queries and implemented audit recommendations or observations. Note that follow-up to recommendations issued by the legislature is assessed separately under PI-30 Legislative scrutiny of external audit reports.

10 i.e. fall within the implementation of the overall risk based audit plan of the external auditor for the given year, regardless of whether or not the plan requires substantive audit work to be carried out on that entity/fund. 11 The ISSAIs on financial audit are based on the corresponding ISAs, which guide the conduct of the audit of financial statements, including related compliance audit requirements such as consideration of laws and regulations in an audit of financial statements.

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Dimension (iv) assesses the independence of the SAI from the executive. Independence is essential for an effective and credible system of financial accountability, and should be laid down in the constitution or comparable legal framework. In practice, independence is demonstrated by the arrangements for the appointment (and removal) of the Head of the SAI and members of Collegial Institutions, non-interference in the planning and implementation of the SAI’s audit work, and in the approval and disbursement procedures for the SAI’s budget. The SAI’s mandate should cover all central government activities and enable the SAI to carry out a full range of audit activities, specifically financial, compliance and performance audit. The SAI should have unrestricted access to documents, records and information. It should be noted that performance audits are covered by PI-8 Performance information for achieving efficiency in service delivery, whereas PI-29 SAI Independence and external audit of the government’s annual financial reports is focused on audit of the government’s annual financial reports.


(i) Coverage and auditing standards of audit performed. (ii) Timeliness of submission of audit reports to legislature on the government’s financial reports. (iii) Evidence of follow up on audit recommendations or observations by the executive or audited entity. (iv) Independence of the SAI and access to information.

Points to note:

The percentage in dimension (i) refers to the amount expenditure of the entities covered by annual audit activities, not the sample of transactions selected by the auditors for examination within those entities.

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Dimension (i) Coverage and auditing standards of audit performed.

Key questions

1. What legislation regulates external audit (including organization of SAI)? 2. What % of total expenditure of central government was achieved in audit coverage for last FY audited

(50% or less, over 50%, over 75% or 100%)? 3. Do audit activities cover PEs & AGAs? 4. What is nature of external audit performed (audits of transactions or audits of systems)? 5. Are performance audits performed in addition to financial audits? 6. To what extent do audit activities adhere to auditing standards?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last completed FY Quantifiable data required Percentage of all central government entities including AGAs (by value of

expenditure) that were audited during the last year. Information sources SAI, corroborated by Parliamentary Public Accounts Committee and civic

interest groups.

Rating criteria

A: Over the last three financial years, financial reports (including revenue, expenditure and assets/liabilities) of all central government entities have been audited using ISSAIs or consistent national auditing standards highlighting material issues and systemic/control risks. B: Over the last three financial years, financial reports of central government entities representing at least 75% of total expenditures12 and those of entities representing at least 75% of total revenues have been audited, using ISSAIs or national auditing standards highlighting material issues and systemic/control risks. C: Over the last three financial years, financial reports of central government entities representing at least 50% of total expenditures and those of entities representing at least 50% of total revenues have been audited, using ISSAIs or national auditing standards, highlighting significant issues. D: The requirements for a 'C' rating or higher are not met.

12 This percentage refers to the amount of expenditure of the entities covered by annual audit activities (regardless of whether or not substantive audit work is carried out). It does not refer to the sample of transactions selected by the auditors for examination within those entities.

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Dimension (ii) Timeliness of submission of audit reports to legislature on the government’s financial reports.

Key questions

1. What is the law on the timeliness of submission of audit reports to legislature? 2. Is the legislation followed in practice? 3. When are audit reports submitted to legislature after end of period covered (more than 12, within 12, 9 or 6

months)? 4. When are audits of financial statements submitted to legislature from their receipt by the auditors (more

than 12, within 12, 9 or 6 months)?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last annual audit report submitted to the legislature. Quantifiable data required Number of months after receipt of financial statements by SAI that audit

reports, together with audited financial statements, are presented to the legislature. Number of months after end of period audited, that other audit reports (audits without financial statements), are presented to the legislature.

Information sources SAI, corroborated by Parliamentary Public Accounts Committee and civic interest groups.

Rating criteria

A: Over the last three financial years, audit reports were submitted to the legislature (or those charged with governance) within 6 months from receipt of the financial reports by the audit office. B: Over the last three financial years, audit reports were submitted to the legislature (or those charged with governance) within 9 months from receipt of the financial reports by the audit office. C: Over the last three financial years, audit reports were submitted to the legislature (or those charged with governance) within 12 months from receipt of the financial reports by the audit office. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Evidence of follow up on audit recommendations or observations by the executive or audited entity.

Key questions

1. Are audit recommendations from SAI to entities audited addressed by management? 2. Is there any clear evidence of timely and systematic follow up on these recommendations?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last 3 completed FYs. Quantifiable data required Information sources SAI and internal auditors of major MDAs and AGAs, corroborated by

Parliamentary Public Accounts Committee and civic interest groups.

Rating criteria

A: Over the last three financial years there was clear evidence of effective and timely follow up by the executive or audited entity on audits for which follow-up was due. B: Over the last three financial years, a formal and comprehensive response was made by the executive or audited entity in a timely manner. C: Over the last three financial years, a formal response was made by the executive or audited entity, though delayed or incomplete. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iv) Independence of the SAI and access to information.

Key questions

1. What legislation regulates organization of SAI? 2. Does the legislation state and organize the independency of the SAI from the executive? 3. How is the Head of the SAI appointed/ removed? 4. How are the audit engagements planned? 5. How is the SAI’s budget approved and executed?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last completed FY Quantifiable data required Information sources SAI, corroborated by Parliamentary Public Accounts Committee and civic

interest groups.

Rating criteria

A: The SAI operates independently from the executive, ensured through legislation, procedures for appointment/removal of the Head of the SAI, the planning of audit engagements, arrangements for publicizing reports as well as the approval and execution of the SAI’s budget. The SAI has unrestricted and timely access to records, documentation and information. B: The SAI operates independently from the executive, ensured through the procedures for appointment/removal of the Head of the SAI, the planning of audit engagements as well as the approval and execution of the SAI’s budget. The SAI has unrestricted and timely access to records, documentation and information for almost all audited entities. C: The SAI operates independently from the executive, ensured through the procedures for appointment/removal of the Head of the SAI as well as the execution of the SAI’s budget. The SAI has unrestricted and timely access to most of the requested records, documentation and information. D: The requirements for a 'C' rating or higher are not met.

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PI-30: Legislative scrutiny of external audit reports.

The legislature has a key role in exercising scrutiny over the execution of the budget that it approved. A common way in which this is done is through a legislative committee(s) or commission(s) that examines the external audit reports and questions responsible parties about the findings of the reports. A report on the results of review of the external audit report(s) by any mandated committee should be tabled (and ideally debated) in the full chamber of the legislature in order to constitute a completed scrutiny. This is usually necessary before the executive can formally respond, though corrective action may be taken at any time. The operation of the committee(s) will depend on adequate financial and technical resources, and on adequate time being allocated to keep up-to-date on reviewing audit reports.

The focus in this indicator is on scrutiny of the audited financial reports by central government entities, including autonomous agencies to the extent that either (a) they are required by law to submit audit reports to the legislature or (b) their parent or controlling ministry/department must answer questions and take action on the agencies’ behalf.

Dimension (i) assesses the timeliness of the legislature’s scrutiny, which is a key factor in the effectiveness of the accountability function. Timeliness can be affected by a surge in audit report submissions, where external auditors are catching up on a backlog. In such situations, the committee(s) may decide to give first priority to audit reports covering the most recent reporting periods and audited entities that have a history of poor compliance. The assessment should favorably consider such elements of good practice and not be based on the resulting delay in scrutinizing reports covering more distant periods.

Dimension (ii) assesses the extent to which hearings on key findings of the SAI take place. Hearings on key findings of external audit reports can only be considered ‘in-depth’ if they include representatives both from the SAI to explain the observations and findings as well as from the audited agency to clarify and provide an action plan to remedy the situation.

Dimension (iii) assesses the extent to which the legislature issues recommendations and follows up on their implementation. The responsible committee may recommend actions and sanctions to be implemented by the executive, in addition to adopting the recommendations made by the external auditors (ref. PI-29 SAI Independence and external audit of the government’s annual financial reports), and would be expected to have a follow-up system to ensure that such recommendations are appropriately considered by the executive.

Dimension (iv) assesses the transparency of the scrutiny function in terms of public access. Opening committee hearings to the public is a good opportunity for a parliamentary committee to inform people about its work and facilitates public scrutiny of the proceedings. Hearings can be “open” in a variety of ways, which range from allowing exceptional public access to the committee room to inviting members of the public to speak on a subject. Public scrutiny of proceedings can be achieved either by re-transmission by the mass media (radio/TV) which allows citizens to follow what is currently happening in committees, or by allowing citizens to observe the meetings in the committee room. Dimension (iv) is focused on general public access and does not assess if members of the public are invited to speak at the hearings.

If the legislature does not organize an external audit of the annual financial reports that government submits (see PI-28 Quality and timeliness of annual financial reports), the legislature is not fulfilling its role of ensuring the accountability of the executive leading to score ‘D’ on all dimensions.


(i) Timeliness of examination of audit reports by the legislature (for reports received within the last three years).

(ii) Extent of hearings on key findings undertaken by the legislature. (iii) Issuance of recommended actions by the legislature and follow up of implementation. (iv) Transparency of the legislative scrutiny function.

Points to note:

None.

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Dimension (i) Timeliness of examination of audit reports by the legislature (for reports received within the last three years).

Key questions

1. Do current legislation and/or existing procedures establish any deadlines for review of audit reports by legislature?

2. When examination of audit reports takes place by legislature, how long does it take in practice to complete this examination (more than 12, within 12, 6 or 3 months from receipt of reports)?

3. Was duration of examination of audit reports by legislature same on all audit reports received during last 3 FYs?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Audit reports submitted to legislature within the last 3 years. Quantifiable data required Average number of months following submission of external audit reports to

the legislature before specialized committee completes examination of the reports, for the last year.

Information sources Respective Legislative Committees, SAI and MOF, corroborated by civic interest groups. Secretary or Chair of budget committee of Parliament

Rating criteria

A: Scrutiny of audit reports on annual financial reports has been completed by the legislature within 3 months from receipt of the reports. B: Scrutiny of audit reports on annual financial reports has been completed by the legislature within 6 months from receipt of the reports. C: Scrutiny of audit reports on annual financial reports has been completed by the legislature within 12 months from receipt of the reports. D: The requirements for a 'C' rating or higher are not met.

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Dimension (ii) Extent of hearings on key findings undertaken by the legislature.

Key questions

1. What action does legislature take with respect to key findings in audit reports (eg. hearings which require members of executive to answer questions or to bring evidence)?

2. Do in-depth hearings on key findings take place occasionally, on a routine basis, or consistently? 3. Do in-depth hearings take place with responsible officers from all audited entities on which audit report

raises queries?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last 12 months. Quantifiable data required Information sources Legislature Committees, SAI and MOF, corroborated by civic interest groups.

Secretary or Chair of budget committee of Parliament

Rating criteria

A: In-depth hearings on key findings of audit reports take place regularly with responsible officers from all or most audited entities. B: In-depth hearings on key findings of audit reports take place with responsible officers from the audited entities as a routine, and cover at least audited entities which received a qualified or adverse audit opinion. C: In-depth hearings on key findings of audit reports take place occasionally, covering a few audited entities or may include with ministry of finance officials only. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iii) Issuance of recommended actions by the legislature and follow up of implementation.

Key questions

1. Does law require actions to be taken with respect to recommendations of legislative review? 2. In practice, are recommendations being issued by legislature? 3. Is there any evidence that recommendations are acted on by the executive?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last 12 months. Quantifiable data required Information sources Legislature Committees, SAI and MOF, corroborated by civic interest groups.


Rating criteria

A: The legislature issues recommendations on actions to be implemented by the executive, and systematically follows up on their implementation. B: The legislature issues recommendations on actions to be implemented by the executive, and follows up on their implementation. C: The legislature issues recommendations on actions to be implemented by the executive. D: The requirements for a 'C' rating or higher are not met.

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Dimension (iv) Transparency of the legislative scrutiny function.

Key questions

1. Do current legislation and/or existing procedures organize the legislative scrutiny function?

Coverage Central government incl. all MDAs and AGAs. Critical period/time Last 3 completed FYs. Quantifiable data required Information sources Legislature Committees, SAI and MOF, corroborated by civic interest groups.


Rating criteria

A: All hearings are conducted in public (except for strictly limited circumstances such as discussions related to national security). Committee reports are debated in the full chamber of the legislature and published on an official website. B: Hearings are regularly conducted in public. Committee reports are tabled in the full chamber of the legislature and published on an official website. C: Committee reports are published on an official website. D: The requirements for a 'C' rating or higher are not met.

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