public financial management systems revisedpuf.urbanunit.gov.pk/presentations/marquee 1/day 2/public...

Pakistan Urban Forum ‐ Karachi January 10‐12, 2014

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PUBLIC FINANCIAL MANAGEMENT SYSTEMSSYSTEMS

Dr. Salman ShahLahore


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Role of public sectorRole of public sector

•Government is the largest organized activity in Pakistan•Recent budgets of the provincial and federal governments amounted to•Recent budgets of the provincial and federal governments amounted to around $ 45 billion•Every penny is resourced and disbursed through the civil bureaucracy•The budgetary process involves ministries attached departments approved byThe budgetary process involves ministries, attached departments approved by parliament•Auditor general reports to parliament


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Federal Government

Tiers of Government

Provincial

Ministries

Provincial Government

Service ProvidersProviders

Departments

Local GovernmentService

Providers Service idProviders


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Resource Distribution

Federal Government $ 30 BillionDebt servicing 13 BillionDefense 6 BillionDefense 6 BillionSubsidies/inefficiency 6 BillionOther 5 Billion (PSDP)

Provincial Governments $ 15 Billionof which Local Government ?Government ?


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Effective Accountability•Public sector organizations credibility with the public depends on effective system of:

•Reporting their performanceepo g e pe o a ce•Explain their actions•Provide transparency to their processes•Clear lines of responsibilities•Clear lines of responsibilities•Well understood objectives•Robust systems of measuring performance•System of responsibility and accountability


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Role of audit in accountability

•Financial Audit traces spending in line with budget•Economy audit deals with cost of input vs planned•Economy audit deals with cost of input vs planned•Efficiency audit: lowest cost process followed•Effectiveness audit: results/output as planned•Sustainability audit: programs continuity over time


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Public Policy implementation and Reporting

Policy Direction

ResourcingPolicy Objectives

Accounting Evaluating and

Budgets

Delivering the

reporting

gpublic good


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Comprehensive Approach To Public Financial p ppManagement (PFM) Reforms

The PFM Performance Measurement Frameworkis one of the elements of a strengthened approach to supporting PFM reforms.to supporting PFM reforms.

It is designed to measure PFM performance of countries across a wide range of development over time. g pThe Performance Measurement Framework includes a set of high level indicators,


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Public Expenditures and Financial Accountability (PEFA)The PFM Performance Measurement Framework is an integrated monitoring frameworkthat allows measurement of country PFM performance over time.

It has been developed by the PEFA partners, in collaboration with the World Bank/ OECD/DAC Joint Venture on PFM as a tool that would provide reliable information on the performance of PFMtool that would provide reliable information on the performance of PFM systems, processes and institutions over time.


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The set of high level performance indicators The selected 28 indicators for the country’s PFM system are structured into three categories:

A. PFM system out‐turns: these capture the immediate results of the PFM system in terms of actual expenditures and revenues by comparing h h l d b d ll l l f d hthem to the original approved budget, as well as level of and changes in expenditure arrears.

B Cross cutting features of the PFM system: these capture theB. Cross‐cutting features of the PFM system: these capture the comprehensiveness and transparency of the PFM system across the whole of the budget cycle.

C. Budget cycle: these capture the performance of the key systems, processes and institutions within the budget cycle of the central government. g


MEASURING WHAT PERFORMANCE ?______________________________________________________________________________

Budget Realism:Is the budget realistic, and implemented as

The questions the PFM performance indicators seek to answer Accountability and

Transparency :and implemented as intended in a

predictable manner?

g p

Are effective external financial accountability

and transparency arrangements in place?

Six PFM S tComprehensive, Policy‐

based, budget:Does the budget capture

all relevant fiscal transactions, and is the

i i d

Control :Is effective control and

System Aspects

process, giving regard to government policy?

stewardship exercised in the use of public funds?

Comprehensive Fiscal oversight:Are the aggregate fiscal position and risks are monitored and

managed?

Information:Is adequate fiscal, revenue and expenditure

information produced and disseminated to meet decision‐making and management purposes?


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Structure of the indicator set C B d C l

STRUCTURE AND CONTENT OF THE INDICATORS

A. PFM Out‐turns

Policy-based

budgeting

C. Budget Cycle

B. Key cross‐cutting features

d

budgeting

CredibilityComprehensiveness

Transparency

featuresExternal Scrutiny

and AuditBudget

Execution

Accounting and Reporting


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THE CURRENT STANDARD SET OF HIGH‐LEVEL INDICATORS

A. PFM OUT‐TURNS

INDICATORS

PI‐1 Aggregate expenditure out‐turn compared to original approvedbudget

PI‐2 Composition of expenditure out‐turn compared to original approvedp p p g ppbudget

PI‐3 Aggregate revenue out‐turn compared to original approved budget

PI 4 Stock and monitoring of expenditure payment arrearsPI‐4 Stock and monitoring of expenditure payment arrears

PEFA JUNE 2012


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PI‐1 Aggregate expenditure out‐turn compared t i i l d b d tto original approved budget

•Deviation of actual expenditure from original budget was greater than 10% inDeviation of actual expenditure from original budget was greater than 10% in only one of the last three years. •Grade B

PI 2 Composition of expenditure out turn

•Variance in expenditure composition exceeded 15 % in one of the last three

PI‐2 Composition of expenditure out‐turn compared to original approved budget

years. •Grade C


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PI‐3 Aggregate revenue out‐turn compared to original approved budgetoriginal approved budget

•Actual revenue collection is within 94%‐112% of budgeted revenue during two of the last three years. •Grade B

PI‐4 Stock and monitoring of expenditure payment arrears

•There is no reliable data on the stock of arrears from the last two years.

p p y

Commitment accounting has been introduced but is still in nascent stages. •Grade D


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B. KEY CROSS‐CUTTING FEATURES : COMPREHENSIVENESS AND TRANSPARENCY

INDICATORS

PI‐5 Classification of the budget

PI‐6 Comprehensiveness of information included in budget documentation

PI‐7 Extent of unreported government operations

PI‐8 Transparency of inter‐governmental fiscal relations

PI 9 O i ht f t fi l i k f th bli t titiPI‐9 Oversight of aggregate fiscal risk from other public sector entities

PI‐10 Public access to key fiscal information


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PI‐5 Classification of the budgetg

•The budget formulation and execution is based on administrative economic•The budget formulation and execution is based on administrative, economic and sub‐functional classification, using GFS/COFOG standards with some gaps, but consistent documentation in accordance with GFS standards is produced.produced. •Grade A•United Nations Classification of Functions of Government (COFOG)


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PI‐6 Comprehensiveness of information included in budget documentationbudget docu e tat o

•The budget information includes 8 of 9 required elements. •Grade A•Grade A

PI‐7 Extent of unreported government operations

•Fiscal reports as generated by AGPR on income and expenditure lack inclusion of all information, even for loan financed projects. •Grade D+

government operations

•Grade D+


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PI‐8 Transparency of inter‐governmental fiscal p y grelations

•Transfers from federal government to provincial government are transparent and governed by rules settled under the Constitutionand governed by rules settled under the Constitution. •Grade A


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PI‐9 Oversight of aggregate fiscal risk from other public sector entitiessector entities

•A systematic procedure for monitoring consolidated overview of the fiscal risk caused by PSE/AGA is lacking. •There is no practice of consolidating fiscal risk arising out of all AGAs andThere is no practice of consolidating fiscal risk arising out of all AGAs and PEs. •Grade C


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PI‐10 Public access to key fiscal informationPI 10 Public access to key fiscal information

•Public access criteria are presently met in 3 of the 6 essential areas •No. Reports on budget execution are prepared by the AGPR •PPRA requires award of all contracts above Pak Rs. 50 million to be published

it b it Th i id f f ll li b MDAon its website. There is no evidence of full compliance by MDAs •Grade B


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THE CURRENT STANDARD SET OF HIGH‐LEVEL INDICATORSC. BUDGET CYCLE

INDICATORS

i. Policy‐Based Budgeting

PI‐11 Orderliness and participation in the annual budget process

PI‐12 Multi‐year perspective in fiscal planning, expenditure policy and budgeting


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PI 11 Orderliness and participation in the annualPI‐11 Orderliness and participation in the annual budget process

•A clear annual budget calendar exists, is adhered to and allows MDAs enough time to complete their detailed estimates on timeenough time to complete their detailed estimates on time. •Grade A

MDAs: Ministries, departments and agencies


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PI‐12 Multi‐year perspective in fiscal planning, expenditure policy and budgeting

Links between multi‐year estimates as per MTBF and subsequent annual budgetary ceilings are not strong Grade B+Grade B+


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C. BUDGET CYCLE

ii P di bili d C l i B d E i


ii. Predictability and Control in Budget Execution

PI‐13 Transparency of taxpayer obligations and liabilities PI‐14 Effectiveness of measures for taxpayer registration and tax

assessmentPI‐15 Effectiveness in collection of tax payments PI‐16 Predictability in the availability of funds for commitment of

expendituresd d f h b l d b dPI‐17 Recording and management of cash balances, debt and

guaranteesPI‐18 Effectiveness of payroll controlsPI‐19 Competition, value for

money and controls in procurementPI‐20 Effectiveness of

internal controls for non‐salary expenditure and assetsmanagement

PI‐21 Effectiveness of internal audit


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PI‐13 Transparency of Taxpayer Obligations and b lLiabilities

•No substantial curtailment of discretionary powers during last three years was made. •tax appeals system needs improvement to work fairly transparently and•tax appeals system needs improvement to work fairly, transparently and effectively •Grade B


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PI‐14 Effectiveness of measures for taxpayer i t ti d t tregistration and tax assessment

•A data base of taxpayers is maintained for individual taxes. Linkages with other registration authorities are weak and currently there are no provisions for conducting surveys of potential taxpayers •Grade C+


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PI‐15 Effectiveness in collection of tax payments

•total amount of tax arrears is significant•The current practices have different gaps in recording, reporting and reconciliation of tax paid and tax self‐assessed under USAS •Reconciling differences between AGPR, FBR and SBP remain unresolved. g ,•Grade D+


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PI‐16 Predictability in availability of funds for commitment of expenditures

•In‐year adjustments, usually budget cuts, are made as per rules and regulations but may not be predictable as these are mostly driven by resource constraints. •Grade C+


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PI‐17 Recording and management of cash b l d bt d tbalances, debt and guarantees

•debt are properly recorded, reconciled and reported by SBP, MoF and EAD respectively, however reconciliation differences exist between AGPR and EAD for third party payments •Government cash balances is consolidated and reported on daily basis by SBP. However, balances for exempt entities and revolving fund accounts are not included •Grade B+


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PI‐18 Effectiveness of payroll controlsp y

•Payroll is backed by personnel files• containing all information Ci il ll i t bj t t ifi ll dit•Civil payroll is not subject to specific payroll audit

•monthly list of employees to PAOs are sufficient to identify ghost employees •Grade B+


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PI‐19 Transparency, competition and complaints mechanisms in procurementmechanisms in procurement

A dit b ti hi hli ht f th th titi th d f•Audit observations highlight use of other than competitive method of bidding without proper justification. •Complete and reliable data is not available for 3 out of 4 key information setssets. •PPRA complaint cell does not include members from civil society and private sector. •framework meets four of the six listed requirementsframework meets four of the six listed requirements •Grade D


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PI‐20 Effectiveness of internal controls for non‐PI‐20 Effectiveness of internal controls for non‐salary expenditure

•Procedures to address risk of error and fraud tend to create duplication of approvals causing inefficient use of personnelapprovals causing inefficient use of personnel •Audit Reports for past 3 years contain several observations on internal control weaknesses. •Grade C+•Grade C+


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PI‐21 Effectiveness of internal auditPI‐21 Effectiveness of internal audit

•Internal Audit is not yet developed effectively in most ministries.•There is no evidence suggesting that Internal Audit reports are issued regularly for most GoP entities. •As an operational internal audit function with regular reporting is not•As an operational internal audit function with regular reporting is not implemented, follow up management actions becomes non‐existent As an operational internal audit function with regular reporting is not implemented, follow up management actions becomes non‐existent •Grade DGrade D


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