Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 9558-BO1Vo I) 1 i. 1'4tv ,§ ,',1; ) I

STAFF APPRATSAL REPORT

BOLIVIA

SECOND PUBLIC FINANCIAL MANAGEMENT OPERATION

JUNE 4, 1991

Public Sector Management DivisionTechnical DepartmentLatin America and Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EOUIVALENTS

Currency Unit - Boliviano (Bs)

US$1 $b 3.45(February 1991)

WEIGHTS AND MEASURES

1 hectare (ha = 10,000 square meters (m2) = 2.47 acres (a)

1 kilogram (kg) = 2.205 pounds (lbs)

1 metric ton (m ton) = 1,000 kg

ABBREVIATIONS

BAB - Banco Agricola de Bolivia

BCB - Banco Central de Bolivia

BANEST - Banco del Estado

BAMIN - Banco Minero de BoliviaCGR - Contraloria General de la RepGblica

COMIBOL - Corporaci6n Minera de Bolivia

CONSAFCO - Consejo del Sistema de Administracion Financiera y Control

EMSO - Economic Management Strengthening Operation (1977-BO)

ENDE - Empresa Nacional de Electricidad

ENFE - Empresa Nacional de FerrocarrilesENTEL - Empresa Nacional de Telecomunicaciones

ENTA - Empresa Nacional de Transporte Automotor

FDR - Fondo de Desarrollo Regional

FONEM - Fondo Nacional de Exploracion Mineral

GAO - General Accounting OfficeGOB - Government of Bolivia

IMF - International Monetary Fund

INE - Instituto Nacional de Estadistica

IDB - Inter-American Development Bank

LAB - Lloyd Aereo Boliviano

MACA - Ministerio de Asuntos Campesinos y Agricultura

MF - Ministerio de FinanzasMPC - Ministerio de Planeaci6n y Coordinaci6n

PE - Public EnterprisesPFMO - Public Financial Management Operation (Cr.1809-BO)

RDC - Regional Development Corporation

SAFCO - Sistema de Administracion Financiera y Control

SAFCOLaw - Law on Financial Administration and Control Systems

SAC - Proposed Structural Adjustment Credit

TGN - Tesoreria General de la Naci6n

UNDP - United Nations Development Program

USAID - United States Agency for International Development

YPFB - Yacimientos Petroliferos Fiscales Bolivianos

FOR OFFICIAL USE ONLY

STAFF APPRAISAL REPORTBOLIVIA

PUBLIC FINANCIAL MANAGEMENT OPERATION II

TABLE OF CONTENTS

Page No.

PROJECT SUMMARY ............................................ i-iii

I . THE PUBLIC SECTOR ....................... 1

A. Economic Context . ....................................... 1B. Structure of the Public Sec'tor . . . 3C. Reform Measures . ....................................... 5D. Remaining Constraints . . .8............. E. Donor Assistance and Coordination . . . 11F. Rationale for IDA Involvement . . . 12

cI. THE PROJECT ................................................ 14

A. Project Objectives ...................... 14B. Project Description ......................... , 14C. Project Costs ........................ 26D. Financing Plan ........................ 27E. Procurement ........................ 28F. Project Implementation .................... 29

III. PROJECT JUSTIFICATION ........................ 31

A. Project Benefits ........................ 31B. Project Risks ........................ 32

IV. AGREEMENTS TO BE REACHED . . .................... 33

This report is based on the findings of an appraisal mission consisting of AlainTobelem (LATPS) Task Manager, Eduardo Talero (ITFUS), Luisa Ardila (LA3C1), SaraHoffman (LEGLA), and John Davison (USAID), which visited Bolivia in February1991. Jim Wesberry from USAID is the author of the Government Auditing ComponentAnnex. Peer Reviewers are Donald Winkler (LATPS) and James Hicks (LATIE). Theresponsible managers are: Shahid Chaudhry, Division Chief (LATPS); Marie Garcia-Zamor, Projects Advisor (LA3DR) and Ping-Cheung Loh, Director (LA3DR).

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ANNEXES

1. Project Implementation Schedule, Inputs and Costs

per Component, per Year

2. Project Detailed Inputs and Costs

3. Summary Account by Project Component

4. Summary Disbursement Schedule

5. Consultants Requirements

6. Ministry of Finance Organization Chart

7. Interinstitutional Relationships Chart

8. Performance Indicators

9. Integrated Information System Program

10. Administration and Control Systems Chart

11. Training Component and Costs

12. Government Auditing Component

13. Accounting Component

14. The SAFCO Law

15. The Elimination of Subtreasuries

16. Lessons Learned PFMO I: Objectives, Performance, and Shortcomings

MAP: IBRD No.16591

FISCAL YEARJanuary 1 - December 31

SECOND PUBLIC FINANCIAL MUNMGEINT OPERATION

Credit and Proiect SummarX

80Kr2row rRepublic of Bolivia

BUenL^gfcart Ministry of FinanceComptroller General's Office

Amountt SDR 8.5 million (US$11.3 million equivalent)

Terms: Standard IDA terms

ProiectObiectives andD2aarit.Lon: Building on progress made under the First Public Financial

Management Operation, the broad objectives of a second operationin Public Financial Management are to: (a) institutionalizebudgeting, accounting, cash management, and auditing proceduresat various levels of government; (b) enhance the institutionalcapacity both at the central and regional government levels toimplement the new procedures; (c) provide GOB with ex postcontrol functions vital to the enforcement of accountability forresults in the public sector; and (d) develop skilled manpowerto sustain the new procedures. The project would consist of: (a)financial management and control component to create and/ormodernize budgeting, accounting, cash management and governmentauditing norms and procedures at the central administratioi leveland disseminate them at other public sector levels; (b) thedevelopment of standards and regulations, to review and/or draftregulations called for by the SAFCO Law in operations-programming, personnel management, procurement and administrationof goods and services, and the rationalization of the non-financial public sector; and (c) training of existing and futurefinancial management specialists and their managers.

Benefitat The main benefit of the project is that it will assist theGovernment to institutionalize the public financial managementsystem throughout the public sector to: (a) improve the budgetformulation process; (b) establish coherent uniform publicaccounting and control systems; (c) provide instruments tointegrate the overall financial status of the public sector; (d)enhance the capacity to hold public servants accountable fortheir decisions and actions through ex-post audit controls; and(e) develop a cadre of skilled financial and audit experts tooperate the system. Overall, the proposed pro,ect would beconsistent with IDA' a strategy to increase GOB' s capacity to

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make use of, and account for the large volume of donorcommitments of external resources, thus contributing to thelonger-term instLtutional development effort.

Proiect Riokes Three major project riske ares (a) high turn over of staff; (b)ad hoc changes in the financial management procedures; and (c)lack of consistant applicatlon of information generated by theSAFCO system to the Gover.ment's decision-making process. Thestaff turn over, caused mainly by low salaries and high privatesector demand for skillod manpower (e.g., accountants, auditors),iœ being addressed through the establishment of the Public SectorManagement Scheme, where civil service conditions of pay andemployw.,nt are being adjusted to compete with the prlvate sector.In regard to the ad hor changes in procedures, it was agreed withthe Government during negotiations that all institutional andprocedural changes regarding the SAFCO system would be made afterconsultation with IDA. While the largely political riskregarding the Government's possible disregard of SAFCO-generatedinformation in its decliion-making process cannot be entirelymiLtgated, specific actions would be taken to reduce thispossibility. It was agreed at negotiations that: (a) annualreports would be submitted to Congress on the progress ofimplementing the SAFCO Law, thus ensuring that Government policy-makers would be aware of the available information; and (b)satisfactory review of project implementation and following-yearwork program o. an annual basis would be a condition of continuedproject 'inancing by IDA.

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BOLIVIX

PUBLIC FINANCIAL MANAGEMENT OPERATION II

Estimated Costa and Financinia Plan

Estimated Costs: a/

Local Foreign Total---- US$ million----

Financial Management 3.8 5.4 9.2Standards and Regulations 0.2 0.8 1.0Training 2.0 1.4 3.4Line rositions 3.0 -- 3.0Project Management 0.3 0.7 1.0Management Fee (4% of IDA) -- 0.4 0.4PPF Refinancing 1.5 1.5Base Costs 9.3 10.2 19.5

Physical Contingencies 0.3 0.3 0.6Price Contingencies 1.4 0.8 2.2

Total Project Costs 11.0 11.3 22.3

Financing Plan:Local Foreign Total----US$ million----

Government 11.0 ---- 11.0 b/IDA _ 11.3 11.3Total 11.0 11.3 22.3

a/ The project is exempted from taxes and dutiesb/ Counterpart funds generated from USAID economic support funds.

Note: Due to rounding totals may not always add.

SECOND PUBLIC FINANCIAL MANAGEMENT OPERATION

I. THE PUBLIC SECTOR

A. Economic Context

1.1 Background. Bolivia faces a particularly difficult set of developmentchallenges. Its difficult terrain and landlocked position result in hightransport costs and higher costs for its goods, both internally and externally.Endemic political instability has made Bolivia virtually incapable of sustainingdevelopment policies and strategies for long. Annual population growth rates of3.8% have been too high and economic growth too low for eustained improvementsin living standards. As a result, Bolivia is one of the poorest countries inLatin America; its 6.3 million inhabitants are poorly educated (functionallyilliteracy at 50%); its health indicators are among the worst on the continent(infant mortality at 117 per 1000); a large proportion of its population facespoverty (80% of the population earns less than 70% of the income required tocover a basic needs basket); and it has extremely poor infrastructure and socialservices (e.g., only 30% of the urban population is connected to a seweragesystem and only 15% has latrines). About one-half of the economically activepopulation is employed in agriculture, particularly in the highlands of thealtiplano where subsistence farming predominates. The investment climate, whileimproving, remains highly uncertain particularly due to the continued, dominancece the state in the mineral, hydrocarbon, and energy sectors. The economycontinues to rely heavily on a few export commodities in hydrocarbon and miningsectors for growth, making it vulnerable to external market fluctuations.

1.2 Bolivia, however, has important a.sets and advantages that offer hopefor its future growth and development. It has abundant supplies of hydrocarbons,primarily gas; minerals such as tin, silver, gold, and tungsten; and extensiveforests and fertile land for agriculture and livestock production in the easternlowlands. These resources have not been fully explored or exploited. Bolivianow has direct access to the sea via the Paraguay River, opening the possibilityof reducing transporz costs for its import and export goods. While humanresources are limited in terms of formal education, a small but well educatedcadre of managers, professionals, and technocrats in the public and privatesectors are well able to provide responsible and skilled leadership. Theefficiency cf Bolivia's labor force and peasant farmers is constrained bytechnological and other factors, which could be overcome by investment and goodmanagement.

1.3 Structural Reform Program. Following several years of decliningoutput, culminating in hyperinflation of over 24,000% in annual terms, theGovernment of Bolivia (GOB) in late 1985 launched its New Economic Policy (NEP).This program stopped hyperinflation and introduced a long-term adjustment programto reduce the role of the state and rebuild a free market economy. The exchangerate was freed and set through an auction system, which resulted in an immediatedevaluation of the official rate by 93%; strict budgetary controls wereintroduced to keep expenditures to the levels of revenues; most price controlswere eliminated and specific prices and tariffs increased to bring them close tointernational levels (for gasoline, electricity, and transport). Far-reachingreform of the tax system reduced the basic tax categories from 400 to nine; trade

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restrictions were drastically eased, including elimination of most quantitativetrade restrictions and reduction of tariff rates; and steps were taken toreorganize some pC lic enterprises and abolish or reduce others (COMIBOL - statemining company - was reduced in svze by the termination of 23,000 workers). ThefinanciRl system was liberalized, removing regulatory constraints on financialtransactions and freeing the determination of interest rates. An important startwas made tr, improve public sector administration by est&bliebing the FinancialAdmtnistration and Control System (SAFCO) for monitoring public expsnditures andbetter data systems for planning and monitoring public investment. In early1987, GOB launched an ambitious program to alleviate the impact of the economiccrisis on the poorest groups through the Emergency Social Fund, which supportssmall projects to generate productive employment and social assistance efforts(e.g., maternal health care and school feeding). GOB sustained the adjustmentprogram in the face of the collapse of the international tin price in 198M-1986and difficulties caused by delays in payment by Argentina for Bolivian gasshipments. The new policy stance succeeded quickly in restoring macroeconomicstability. Immediately following introduction of the NEP, inflation felldramatically and has generally remained between 10% and 20%. However, resumptionof economic growth has been slow. GDP grew for zhe first time in six years in1987. albeit at only 2.1% and by an average of 2.6% in :98P-89.

1.4 The Paz Zamora Government, inaugurated in 1989, has adhered to theprevious Government's commitment to economic stability and a market-orientedstructure of incentives; it has also made progress in crucial structural reformsnecessary for growth. For example, the present Government has removedrestrictions on the interest rate charged to final borrowers for developmentcredits and has retired some of its commercial bank debt as well as a portion ofits debt to Brazil. In addition, Bolivia received a highly concessional debtrescheduling agreement from the Paris Club in October 1990. As a result of theseefforts, the Bolivian economy continues on the path of recovery, with annualinflation of 18% in 1990, and the fiscal deficit falling from 5% of GDP in 1989to slightly over 3% in 1990.

1.5 To summarize, GOB has maintained macroeconomic stability thriugh tightcontrol of expenditures, tax reform, realistic public sector goods and servicesprices and a market determination of the exchange rate. At the same time, theadjustment program has achieved a comprehensive liberalization of markets,including rules governing trade, wages employment, interest rates, and capitalflow. Although these changes have brought about economic stability and providea solid framework from which growth is possible, further effort is required inthe areas ofs (i) creating a more attractive environment for private investment;(ii) continued reduction of GOB involvement in the productive sectors; (iii)continued reorientation of public sector involvement towards basic infrastructureand social services; and (iv) increased effort in alleviating poverty.

1.6 In the medium-term (1990-92), GOB's strategy is targeted to achievea 4% GDP growth rate per year, reduce inflation to levels in industrializedcountries, decrease the overall deficit of the nonfinancial public sector toaround 3% of GDP, increaec public savings to 4% of GDP (from 1.1% in 1989), andmaintain a stable monetary and exchange rate policy to foster irternationalcompetitiveness. To resume an acceptable rate of economic growth, GOB fullyappreciates; the additional reforms that need to be undertaken. First, as a

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prerequisite to growth, macroeconomic stability must be maintained through aflexible exchange rate policy, continued reduction in the fiscal deficit andprudent external debt management. Second, to resume growth, further structuralreforms are required to increase investments in the productive sectors by fine-tuning the incentive system for the private Bector, and reduction of the role ofthe utate in the productive sectors through privatization. Third, to improve theefficiency of GOB and to reorient the role of the state, furtier improvement isrequired in public sector administration at a global level, and in sectoralpolicy administration at the micro level. Fourth, to create the human capitalbase for sustained long-term growth, attention muse be pdid to povertyalleviation. Within this context, strong public sector financial andadministrative management continue to be at the heart of GOB's commitment tosustain its macroeconomic policy objectives.

1.7 This is especially the case given GOB's program of further structuralreforms to increase investments in the productive sectors by fine-tuning theincentive system for the private sector, and reducing the role of the state inthe productive sectors through privatization. Public enterprises currentlycontribute 72% of total bud'-eted current resources (US$1,481 million in 1991, ofwhich 39% is hydrocarbons) and 49% to total public expenditures (US$817 millionout of a total of US$1,663 million current expenditures in 1991). GOB's intentionis to: shift the relative importance of key export sectors away from thedominance of hydrocarbons and mining (hydrocarbons constitutes 31% of foreignexchange earnings and 44% of Government revenues); to improve the performance ofthe remaining public sector enterprises through performance contracts; and toimprove basic infrastructure services to complement the productive investmentsof the private sector. In this respect, improving the efficiency of the state andreorienting its role will require significant strengthening in public sectoradministration at the global level, in sectoral policy administration at themicro level, and in public sector involvement to create the human capital forsustained long-term growth.

B. Structure of the Public Sector

1.8 Organization. The Government is subdivided into centraladministration, regional governments, and local governments. Centraladministration consists of the central government, universities, and the socialsecurity system. It includes the executive, legislative, and judicial branchesof the central government. The executive branch comprises the presidency, thevice-presidency, and the ministries. All policies emanate from the Office of thePresident and the Ministerial Councils. There are 18 key ministries, with thecentral administration comprising 26 institutions, which institutions represent23% of total budget expenditures (US$613 million of US$2,697 million in 1991).Some ministries oversee decentralized agencies (13 total), which are stillconsidered part of the central government. Of these, the only significant agencyis the National Road Service (SNC). The central administration and centralgovernment account for about 80% and 60%, respectively, of the expenditures ofthe General Government.

1.9 Local governments are municipalities in urban areas and similar localgoverna.nt entities in rural areas (referred to as "municipios"). Regional

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governments include regional development corporations (RDCs) and prefectures.A prefecture is the regional arm of the executive branch of government and playsa rather limited, almost purely ceremonial role. Recently, there has been muchdiscussion of the role of regional government entities, since some of the RDCshave come to exert disproportionate influsnce over regional development relativeto their role as origina,ly envisaged in the 1974 Law of Regional DevelopmentCorporations.

1.10 The state enterprises are numerous. By far the most important are thestato petroleum company (YPFB) And the state mining company (COMIBOL). There are13 other state enterprises. In addition, the Armed Forces control 11enterprises, and there are 8 mixed enterprises (joint ventures with the privatesector among which is the national airline (LAB). As part of the Government'seconomic program, many small state enterprises that previously belonged to aNational Development Corporation (CBF) were trarsferred to RDCs. xhus, the RDCsare both Government entities and owners of public enterprises (50 in total: todate, no reliable data exist for these enterprises). Finally, the sixmunicipalities of the regional capitals oversee 24 enterprises, mainly in watersupply and electricity distribution.

1.11 Decentralized Public Institutions. This category includes both whollyowned and mixed enterprises. They fall under the jurisdiction of sectoralministries; however, they have been set up as independent entities with legal andadministrative autonomy. The number of these entities grew rapidly between 1977and 1936, public institutions from 89 to 103 and public enterprises from 48 to70. The total number making budget submissions to the central government is now135: 75 public institutions and 60 public enterprises. There are also 157nonfinancial public enterprises, many of which are quite small or are notoperational (even though legally established).

1.12. The major public institutions include the Central Bank of Bolivia, theBolivian Social Security Institute (IBBS) (under which 25 independent socialsecurity funds operate), the National Institute of Statistics (INE), theEmergency Social Fund (ESF), the Social Investment Fund (SIF), the Bolivianinstitute for Agricultural Research (IU3TA), and the National Roads Service (SNC).Mixed and wholly owned public enterprises are expected to provide productivegoods and services at a profit. The major wholly owned public enterprises arethe railways (ENFE), telecommunications (ENTEL), and mineral exploration (ENAF).The Government controls 80% of the Hydrocarbon sector (YPFB), 70% of airtransport, 70% of electrical energy (ENDE), and 70% of the mining industry(COMIBOL). It also owns three banks that together constitute 13% of total bankassets totalling US$1,479 million and have caused a serious drain on theTreasury. The Treasu 's subrogation of Banco Agricola Boliviano debt in 1989equalled US$51 million and for Banco del Estado US$50 million.

1.13 Currently, all of Bolivia's nine regions (La Paz, Cochabamba, SantaCruz, Chuquisaca, Potosi, Oruro, Tarija, Beni and Pando) operate withregional/departmental, and local administrations. Much of the political andadministrative responsibilities are located in the Regional DevelopmentCorporations (RDCs) in each region. The RDCs operate enterprises in the areasof agribusiness, cement, textile and glass, with mixed results. Total

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expenlitures attributable to the departmental governments accounted for only 6%of the total consolidated budget in 1990. The Government is beginning a majorprivatization effort that would inciude the liquldation or sale of tneoeenterprises along with the above mentioned enterprises.

1.14 Inatitutional Canacity at the Municip Levagel. Although substantialcapacity differences exist among municipalities, they all share commoninstitutional shortcoimings, includings (a) poor admintstrative structures, withconsiderable overlap of functions necessary for iAnplementing routineresponsibilities called for in the Organic Law of Municipalities; (b)inadequate tax administration procedures and poor information systems (or nosystem at all) for revenue control; (c) outdated or no municipal property recordsthat could serve as the basis for determining and verifying payment of propertytaxes, which io potentially the main source of local revenues: (d) inadequate orno planning system, in part due to the short tenure of municipal officials (twoyears); (e) low coverage and administration of servicee for which they areresponsible; (f) general deficiencies in financial and administrative systemo;and (g) deficiencies or no personnel management system.

C. Reform Yeasures

1.15 Backaround. Bolivia's economic crisis of mid-198S, was fueled by thevirtual nonexistence of a public financial management system, which permitted anexplosive growth of the fiscal deficit and spurious financing of expenditures.The multiplicity of antiquated and conflicting legal provisions governing publicfinancial management resulted in an arbitrary budgetary process; a completevacuum of accounting systems in the absence of reliable financial data on theexpenditures and performance of public institutions; cash and debt managementbased solely on the availability of cash; and the audit control function with inexternal pre-controls in which auditors interfered with the entity's managerialprocess. In parallel, with the adjustment process initiated in late 1985, GOBbegan a reform process of public financial management to establish the financialinformation, administration, and control systems critical to efficient managementand controlled use of public resources.

1.16 Despite the consolidation of public functions in La Paz, theGovernment nas declined to exercise control over the division of responsibilitiesamong its myriad constituent entities. With no strict administrative policyframework, many government agencies havre freely undertaken activities atdepartmental and local levels without conforming their efforts to nationalobjectives or coordinating within and aniong related sectors. High operatingcosts and inefficient outputs have been frequent outcomes. Also, some regionalagencies have become quite strong and influential, able to negotiate their owninvestment programs (e.g.. Santa Cruz), while others lack basic administrativecapacity and cannot present viable investment projects (e.g., Pando and Beni).

1.17 The proposed decentralization process considered by the currentadministration includes administrative, financial, and institutional aspects.A proposed law to reorganize the departmental governments has already been sentto Congress, but its scope is limited to administrative structures, with no cleardivision of responsibilities or new revenue-sharing schemes. Although muchremains to be done to implement this reform program, the dissemination of the

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SAFCO Law throughout the public administration at all levels should do much tomove the process forwn.d.

1.18 The SAFCO Law. The SAFCO Law, passed by the Bolivian NationalCongress on July 9, 1990, sets the normative framework for country-wide publicfinancial management. One of the major objectives of the first Public FinancialManagement Operation (PFMO-Cr. 1809-80) was to replace the multiplicity ofantiquated and conflicting legal provisions that governed public financialmanagement with a single comprehensive statute. In the area of budgetina, PFMOI assisted in the design of a budget process based on the modern participatoryapproach. Within the Ministry of Finance, a General Accounting Offica has beenestablished, which will be responsible for promulgation of accounting standardsthroughout the public sector. A short-term Emergency Program (introduced withPFMO asqistance) now provides aggregate statistics for the nonfinancial publicsector. This information has proved crucial for public expenditure planning andcontrol, and helped Bolivia to negotiate an Enhanced Structural AdjustmentFacility with the IMF. An integrated accounting system has been created formedijm- and long-term use (the text of the translated SAFCO Law is in Annex 14).

1.19 In the area of cash management, PFMO facilitated the transformationof the Treasury from a mere check-writer to a full-fledged manager of budgetexecution. Resorting to ad hoc disbursements to influential or persistentcreditors has been replaced by a system of setting clear priorities for paymentwith automation of payment requests. The SAFCO Law abolished the ComptrollerGeneral's ex ante functions, and thereby rids the system of its built-inincentives for corruption. The theoretical framework for a modern system ofexternal control has been established and internal audit guidelines have beenproduced.

1.20 The SAFCO Law established the following interrelated systems:

Budget-Programming and Plannina Systems - RequiLed to delineate the inputsand expected results of every public entity. These systems include:operations programming; management of personnel to determine number andquality of human resources needed to carry out these operations, as wellas procedures for hiring, promoting, and firing public servants; managementof goods and services, including their procurement; and budget formulation,whereby every entity provides in financial terms the inputs determined bythe application of the preceding systems.

Cash Management System in Treasury - The Treasury (TGN) becomes the onlyentity responsible for executing the financial plan of the national budget.These systems provide the TGN with budget execution procedures so it canmaintain a balance between disbursements, the availability of funds, andthe governmental policy priorities, and at the same time minimizesubjectivity in actual disbursements.

Integrated Accounting Systems - Financial information will be recordedthrough accounting systems separate from the producers of that informationand from the decision-making agents; thus, accounting information canprovide feedback into the decision-making process without compromising itsindependence.

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1.21 Applying the three systems of financial administration should bringabout an organizational equilibrium between operations programming and budgeting,budget execution and Treasury disbursements, and the recording of financialtransactions and results. Accounting becomes the core of financial informationfor the management information system of the public sector. Its role must beindependent from management decisions. Only this independence, and anappropriate hierarchy within the established organization, can assuretransparency in the exercise of public functions by governmental authorities,auditors, and society as a whole.

1.22 Structural Implications. Two important institutional changes cameabout as a result of the SAFCO Programs the reorganization of both the Ministryof Finance and the Comptroller General's office.

1.23 (a) Ministry of Finance. Suprew.ie Decree 22106, passed iL 1988,reorganized the MF, creating the General Accounting Office (GAO) as asubsecretariat. This change is a major accomplishment of the SAFCO Program,since it established the functional equilibrium required fur efficient managementof public funds. This change brought about the transformation of the TGN froma cashier to the actual manager of public funds. It also allowed forimprovements in the budgeting function by developing detailed methodologies forbudget formulation. In addition, the GAO began to produce, for the first timein Bolivian history, financial statements, useful for managers of publicentities.

1.24 The Ministry of Finance essentially was reorganized into fivesubsecretaries: Treasury, Public Budgeting, Tax Collections, General AccountingOffice, and General Coordination. This reflects the separation of incompatiblefunctions in the management of public funds and was based on the followingnotions: (a) external control should not interfere with the administration andfunctioning of public entities, i.e., ex Post control should obtain, which shouldthen feed back into management as an element for corrective action; (b) externalpost-control (auditing) is irrelevant if the administrative systems required toplan and execute functions are not in place--since the lack of suchadministrative systems endangers the efficiency of governmental policies, sinceit calls into question the executing capacity of those public entitiesresponsible for implementing policies; and (c) the lack of administrative systemsthat have characterized the Bolivian public sector must be corrected, especiallythose relating to the management of public funds.

1.25 The SAFCO Law then legitimized this structure and identifies the MFas responsible for the implementation of financial administration systems, withthe GAO responsible for the establishment of accounting systems government-wide.The SAFCO Law gives the MF clear responsibility for implementation and review ofoperations programming, organization of the public sector, budgeting, personnelmanagement, procurement of goods and services, Treasury and public credit, andintegrated accounting (Annex 13). The law also defines "public indebtedness,"external and internal, and establishes the State (in practice the TGN) asguarantor of all public sector indebtedness. Finally, the law separates fiscaland monetary authorities, making the Central Bank an independq.nt monetaryauthority, no longer dependent on MF.

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1.26 Supreme Decree 22726, paosed on February 6, 1991, reestablished theGAO as a subsecretariat in the MF. (A previous decree had proposed making GAO a

separate entity reporting simultaneously to the MF and the Presidency.) Thus,

the current organization of the MF includes four subsecretariats: Accounting,

Operations Programming/Budgeting, Treasury (which now includes Tax Collections),

and Financial Administration (formerly the Coordination Subsecretariat) (see

Annex 6).

1.27 (b) The CQomtrgller General. CGR is responsible for external control

and auditing functions, and for establishing norms and standards for internal

control systems in public entities. The Comptroller General is appointed by the

President for a 10-year term. The current Comptroller General has taken a lead

in preparing GOB's program to improve financial information, administration and

control in public sector entities. During his administration, CGR staff was

reduced by 50% (from 1,186 to 592). Efforts to reorganize CGR and develop a core

of competent auditors continues. An important breakthrough of CGR was also the

removal of ex-ante control functions.

1.28 The SAFCO law outlines CGR's functions and calls for a change in the

organization and functions of the Comptroller's Office so that it can fulfill its

responsibilities as the standards issuing entity of the governmental control

system and as the senior public auditing institution. Furthermore, all

activities that are incompatible with its auditing function, including fiscal

claims proceedings, have been eliminated.

1.29 Substantial additional effort is now needed to develop this control

system by CGR. The implementation of the auditing component during the SAFiCO

program lagged significantly behind the other components, basically due to the

absence of adequate accounting systems which has delayed the auditing progran,

as there was no information available to audit. Yet, it is expected that with

the legal authority established by the SAFCO law, and a financial administration

system in place, CGR will be able to develop the control functions by producing

reliable audit reports and orienting public entities in their own development of

internal controls.

1.30 These reforms, though constituting only the first phase of

improvements to the system, have had measurable impact on public financial

management, including: (a) reduction of budget deficit from 7.5% of GDP in 1987

to 0.8% in 1988, and has been instrumental in attaining the agreed IMF targets

for 1989 and 19901 (b) production of budgets that reflect Government's priorities

in terms of expenditure ceilings and individual entity's operational goals; (iii)

public investment decisions being made based on financial analysis of requesting

entities; (iv) closer monitoring of wage bill increases by the Cabinet; and (iv)

the aggregate statistics for the non-financial public sector produced under the

Emergency Program have been crucial for public expenditure planning and control

and helped Bolivia to reach an agreement with the IMF.

D. Remaining Constraints

1.31 Imglementing the SAFCO Law. Given the narrow margin in managing its

public finances, the Government of Bolivia must be able to monitor expenditures

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with greater precision. To this end, clear financial reporting on theperformance of governmental entities and enterprises must take place by makingthem accountable for their performance. The SAFCO program has gone a long waytoward giving MF the oversight capacity it needs to monitor expenditures andprogram its resources. It has also developed the framework for CGR to enforcepublic accountability. Yet, additional work is needed to: (a) bring thesefinancial administration tools (budget formulation, integrated accounting, andcash management) to every public entity; (b) strengthen basic financial andoperational audit capabilities of CGR; and (c) introduce similar administrativesystems and standards for non-financial systems--operations programming,procurement of goods and services, personnel management, and organization of thepublic sector.

1.32 The importance of extending the SAFCO reforms to the entity level isbased on the need for appropriate budget execution mechanisms, which involve thesupervision, review of operations, costs and requirements. While it may beeasier to establish methods and devices for control of entity expenditures (ashas been done through the TGN's budget execution system at the central level),than to develop entity's responsibility for effective participation of budgetexecution, without such responsibility, budget execution will become a processof reviewing transactions for compliance and considering requests for deviationsin account transfers, rather than an actual management and control of financesby every entity. The danger with the latter is that all systems introduced runthe risk of becoming merely formalities rather than self-management tools forpublic sector entities.

1.33 Cash management and public credit is probably the most poorly definedfunction in the structure of the Bolivian public administration, since there areso many entities and administrative units. There is a special Public Credit Unitin the MF Treasury Secretariat but it is small and weak. In addition, MPC alsohas a special unit to expedite external credit. The Banco Central de Bolivia(BCB) has an external Credit Management Unit and the Ministry of Foreign Affairsalso has a special unit for international agreements, specifically includingcredit. The SAFCO Law determines how this should be reorganized forsimplification and efficiency. Public Credit should be a fully capableDirectorate under the MF Treasury Secretariat, able to formulate policies,implement them, and manage the debt while not duplicating functions and systemsalready in place.

1.34 Also, interinstitutional relationships governing the management ofpublic credit need to be implemented, as provided for in the SAFCO Law. Forexample, BCB performs functions such as debt management on behalf of MF, and moregenerally acts as a financial agent for MF. It performs these functions,however, without systematically providing accounts reports or other informationto MF. GOB is attempting to establish an information flow between the twoagencies and to ensure that all of BCB's efforts on behalf of MF are transparentin the national budget.

1.35 New arrangements should also be installed between MF and MPC. TheSAFCO law confers public investment responsibility on MPC. Since the Bolivianpublic sector generates no savings, this means that MPC prepares a plan to benegotiated with international donors. This plan, however, is formulated within

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the public credit policy guidelines spelled out by MF. Whenever a project is

proposed, it should first undergo evaluation by the relevant sectoral ministry,

RDCs or other public sector entity, and then be presented to MPC for approval in

conformance with the public investment plan. Only after this review is performed

should the plan be negotiated with international donors, with the support of the

Ministry of ioreign Affairs. Currently, the system does not work like this, and

there is a duplication of functions and responsibilities.

1.36 The TGN, once a simple check-signer, now controls expenditures and

disbursements in accordance with budget quotas, availability of funds and within

macroeconomic ceilings but needs to concentrate on its accounting function. In

this regard, PFMO I helped: (a) prepare manuals describing how to formulate and

execute budgets; (b) design systems for monitoring quotas, actual disbursements,

simplifying payments and ultimately :educing substantially the past TGN

"subjectivity"; (c) design systems to he'p reconciliate Bank statements informing

rapidly on fund availability; (d) allovw for public pensions to be more regularly

paid and greatly simplified; (e) enable Public Credit to take stock of

outstanding debts as well as payment schedules for principal and interest due;

and (f) issue manual for the public credit function within TGN.

1.37 Current information systems are limited in coverage to the central

administration, and lack a module to consolidate and maintain a financial data

base suitable for frequent and high-level consultation. While the existing

integrated system tracks budget execution, cash flow information, and budgetary

assignmenc in real time, much work is needed to integrate existing software and

improve processing time. The provisional budget formulation and evaluation

systems are extremely slow to operate and difficult to modify. And no support

is provided for auditing and Treasury functions. CGR also lacks minimal audit

operations and resources control systems and computer equipment to speed audit

work in the field. Similarly, the Treasury lacks a basic cash management control

system. This is aggravated by a lack of integration between budgeting systems

and other GOB's systems, i.e., accounting and planning. Furthermore, systems

currently operating are not compatible reducing the benefit of the information

flows throughout the public administration.

1.38 Although the SAFCO Law has been successful in defining how the

auditinc function should be linked to other functions of public sector financial

management, the original goals are far from being met. Indeed, the first training

course for auditors was just completed in early 1991. It will take a few years

for auditors to gain practical experience and develop professional judgment, and

even longer to develop into skilled audit managers. There is an urgent need to

perform financial and compliance audits throughout the public sector but CGR

cannot meet this challenge for lack of an appropriate organizational structure,

well established norms and procedures, and an adequate number and quality of

specialized staff. Internal auditing has been studied, but to date there is no

real internal audit function in the public sector, since those called internal

auditors perform other, often incompatible duties.

1.39 Moreover, formal training courses have just begun to scratch the

surface of potential trainees who must learn basic principles of accountability

and control, not to xiention those needing specialized training. Thus far, less

than 5% of potential trainees have been reached. In this respect, PFMO I was

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less successful in reaching its stated objectives. The CGR did develop basicstandards for governmental auditing and organization of internal auditing unitsin public entities; however, the numerous revisions of these standards delayedthe training in governmental auditing. In addition, the delay in performingexternal post-control was due to lack of administrative systems required to planand execute functions in the public entities. Furthermore, CGR's recentactivities were concentrated on lobbying for the passage of the SAFCO Law, sincethe law represents the essential legal basis for the enforcement ofaccountability through CGR's audits.

1.40 Traditional civii service issues make it difficult to retain qualifiedpublic servants and to modernize the public sector. Programs such as economicrecovery and social development are constrained in this regard. This also appliesto financial management and cont..ol functions. However, GOB's dependence oninternational donors requires that adequate salaries for key officials and neededprofessionals be assured and harmonized to avoid unnecessary andcounterproductive competition for the limited human resources available in thecountry. A Public Sector Management Program was originally discussed with GOBand the donor community in mid-1988 to remedy this situation, with a concreteproposal made by GOB to the July 1988 Consultative Group. This has recently madeprogress and a pilot project in MF is at the implementation stage.

E. Donor Assistance and Coordination

1.41 IDA helped the Government initiate major changes in its fiscal andfinancial systems as early as 1984, when it contributed to diagnose weaknessesin public accounting and auditing. IDA intensified its efforts as part of itscommitment to support GOB's New Economic Policy by working alongside CGR indesigning a program to improve financial management and control of public sectorentities. This program resulted in Public Financial Management Operation (PFMOI) (US$ 11.5 Million, SDR 9 Million), which became effective in December 1987,and was fully disbursed in March 1991. PFMO I provided financial information,administration and controls, and build related staff's know-how in the mostimportant central and decentralized public entities and built an efficient taxadministration system to enable implementation of the 1986 tax reform. PFMO I hasbeen highly successful in achieving its objectives, particularly in improving theavailability and quality of financial information required to exert financialcontrol and discipline. Annex 16 provides a tabular presentation of PFMO I' sperformance, shortcomings and resulting further actions required.

1.42 Indeed, the most notable improvements financed by PFMO I have been thesignificant advances in tax administration, with statistical and audit functionsfor the Internal Revenue Department and institutional support for thesubsecretariat of Tax Collection in MF, as well as its predecessor the Ministryof Tax Collections. A comprehensive tax collection system through the banksbecame the centerpiece of the new tax administration effort. Technical assistancein this area was instrumental to an increase in tax revenues of 480% in the firstyear of implementation as a result of reduced tax evasion and corruption.

1.43 USAID has also a long tradition of supporting Bolivia' s financialmanagement. In the late 1969's and in the 1970's it provided technical assistance

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for financial management and it financed the CGR building. A new accountingsystem was set up under responsibility of MF and a professional approach toauditing was introduced in CGR through an intensive nine month training programoffered over several years for the audit staff. New decree-legislation set forthmodern accounting principles and standards, a new structure for CGR and a"National System of Control".

1.44 Additionally, an IDB project, recently approved by its Board, includesa substantial institutional development component (US$5.5 million) to helpstrengthen the municipal capacity of at least 9 Department capitals and El Altoand 22 more regional entities participating in its urban development programthrough technical assistance, training, information systems and equipment. Thiseffort will be channelled through the Regional Development Fund (FRD).Coordination in preparing the new financial management systems under PFMO II, hasbeen ensured and is expected to continue during implementation. The proposedPFMO II, described below, will support efforts in financial managementcapabilities for other municipalities, so that SAFCO law principles, norms, andregulations can be implemented and institutionalized.

F. Rationale for IDA Involvement

1.45 IDA's broad country strategy is based on an effort to assist GOB inimplementing its medium-term economic program for achieving growth andinvestment. Bolivia faces severe constraints on its resources which allow itlittle room for deviation from the current macrostabilization program, makingpublic financial management essential in maintaining control over publicexpenditures. Supporting these financial management reforms through broad-basedinstitutional efforts is at the core of the country strategy. An IDA proposed SACwould address these issues supporting the following: (a) maintenance of acoherent macroeconomic policy aimed at continued stability; (b) financial sectorreform to strengthen banking supervision, privatize or close and liquidate loss-making public banks, improve the allocation of donor-financed credit, establisha mechanism for handling bank crises and improve the laws and regulationsgoverning pensions, insurance, and securities markets; (c) signature ofperformance contracts and improvements in operation of the major stateenterprises; (d) a comprehensive privatization program with the medium-term goalof divesting all state enterprises in productive sectors (with the exception ofmining and hydrocarbons due to Constitutional restrictions); (e) streamlining oftrade and registration procedures, including customs reform, a duty drawbacksystem, simplification of export approvals and simplification of firmregistration and control mechanisms; (f) cooperation with the Bank in improvingpublic sector investment project selection; and (g) increase in the share ofcurrent expenditures devoted to primary health care and primary education. Itis important to complement such a reform program with modern financial managementprocedures and standards to achieve a higher level of efficiency in the publicsector, in harmony with this trend in the PEs. This goal is a feature of thepublic sector financial management reforms throughout the centralized anddecentralized public sector agencies as called for by the SAFCO law.

1.46 IDA has actively supported GOB's efforts to consolidate itsstabilization reforms. In addition to an operation in public financial

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management, IDA has taken a lead role in assisting GOB in investment planning,statistics, and regional planning through an IDA-financed Economic ManagementStrengthening Operation (EMSO). EMSO is also supporting GOB's critical problemof low salaries and little continuity of middle level public servants(complicated further by its ad hoc payment and recruitment arrangements) throughthe rationalization of the salary structure in the short term (through the PublicSector Management Scheme) and the establishment of a sound management andpersonnel system in the long run. In the financial sector, IDA has contributedto the establishment of a sound framework for financial intermediation throughthe previous Financial Sector Adjustment Credit. These basic reforms areprerequisites to building coherent financial and economic decision-making. GOBhas now requested that the Association support expansion of public financialmanagement reforms introduced throughout the central government with theassistance of the Public Financial Management Operation (PFMO I) Cr.1809-BO.

1.47 The proposed Public Finar.ial Management Operation II (PFMO II) aims atenhancing GOB's financial management capabilities, critical for policy execution,implementing uniform and compatible guidelines and procedures for publicfinancial management government-wide so as to ensure a more efficient use of itsscarce resources. This would be achieved through: (a) expanding comprehensiveaccounting reforms to representative decentralized institutions; (b) broadeningthe scope of existing financie.l administration and control systems to localgovernments and decentralized institutions; (c) including other nonfinancialsystems needed for efficient allocation of resources; and (d) training. The mainobjective of this effort is to create financial management and controlcapabilities at the entity level, not only at the integrated central ministries,to extend financial discipline throughout the public sector. Furthermore, theproposed project would strengthen the capacity of the Comptroller General of theRepublic to enforce accountability for results in the exercise of its publicresponsibilities.

1.48 If successful, this second IDA-assisted operation would greatlystrengthen GOB's capacity to manage efficiently its scarce resources and at thesame time increase accountability for cost-efficient results in the publicsector. Additionally, it would contribute to a leaner, more efficient stateapparatus better able to facilitate and stimulate private sector development.However, public financial management is not a function that can be improvedpermanently by any given technical assistance. The dynamic of the sector willrequire continued attention and enforcement on the part of future Boliviangovernments before the current administrative culture can progressively absorbaccountability principles and procedures on a sustained basis. It is expectedthat other international donors (USAID and IDB and other bilateral assistance)would also help GOB progress further in this regard. IDA continues to have alonger-term commitment to the improvement of public financial management ofBolivia as embodied in the proposed project.

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II. THE PROJECT

A. Proiect Obiectives

2.1 The Government of Bolivia continues to confront a broad array ofconstraints in its attempt to redress the dire economic environment andadministrative chaos of the Bolivia public sector in the early 1980s. Efforts todevelop the legal framework for financial control and auditing of public entitiesbegan with the formulation of the SAFCO Law, approved by special session ofCongress in July 1990. Under PFMO I, success was achieved in developing anintegrated financial administration and control system at the central level ofgovernment. The Government of Bolivia has now requested a follow-up operation tostrengthen financial administration and control norms and procedures introducedunder PMFO I. The objective is to create financial management capability in thedecentralized institutions to facilitate implementation of the SAFCO Law andenforce public sector accountability.

2.2 The proposed PFMO II would complemelt EMSO's efforts to diagnose thefinancial and organizational capacity of t: .-centralized levels of governmentand administration. Whereas PFMO I developed initial financial management,control, and oversight capacity of MF and CGR, PFMO II would concentrate on theothar public sector entities at tne national and local levels, completing theeffort to provide the Government with management information systems critical toexecute policy and take appropriate corrective measures. Also, PFMO II wouldalso focus on helping the CGR implement accountability measures so vital to the

transparent management of public funds. Ultimately, the project would contributeto the long-term institutional building process and in particular, to theenhancement of the absorptive capacity through enabling GOB to take moreefficient advantage from the community of donors' assistance in general.

B. Proiect DescriPtion

2.3 The proposed project comprises four main components: I. FinancialManagement and Control; II. Regulatory and Legal fi.mework; III. Training; andIV. Institutional Support. The specific objectives under each component aredescribed below.

I. Financial Manaaement and Control:

(i) budgeting capacity at the public entity level, transferringthe responsibility for budget formulation from MF to everyentity based on planned activities and investments, andimproving the Budget Subsecretariat's ability to evaluatebudgets;

(ii) cash management, strengthening the Treasury's functions, fine-tuning the disbursement and quota mechanisms for budgetexecution, rationalizing TGN payments by eliminatingsubtreasuries, replacing them by payment through the banking

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system, as well as rationalizing commissions charged forpublic services;

(iii) developing comprehensive accounting systems consistent withguidelines already developed under p%evious operations butspecific to 14 representative entities, for replication inother decentralized entities and local governments, thusensuring uniformity of procedures and classifications notlimited to the reporting of cash flows; and

(iv) government auditing, to enable CGR to assume theresponsibilities outlined in the SAFCO Law, specifically toenforce public accountability in a coherent and harmonizedmanner.

2.4 Budgeting. This element is intended to generate program-basedbudgets for the major public entities at all administrative levels, as well asproviding these entities with evaluation information to progressively improvetheir own budgeting practice. Under this component: (i) use of the newlydeveloped manuals and standards will be disseminated to line ministries, in thefirst instance, and subsequently disseminated to major decentralized entitiesunder these ministries; (ii) evaluation methodologies will be developed toassist the ministries and decentralized entities to improve their budgetingtechniques; and (iii) further fine-tuning of the budgeting manuals andstandards will be made by the MP Budget Subsecretariat to incorporate moredetailed techniques on operational programming (physical targets), procurementprocedures and personnel management standards developed under a separatecomponent (para. 2.11). In this regard, it was agreed at Negotiations, that theprogram-based budgets would be fully operational at central government ministriesand at major public enterprises by the end of 1992, and Regional DevelopmentCorporations and major municipalities by the end of 1993. In addition, thecomponent will assist the MF budget Subsecretariat to improve its capacity toevaluate the implementation of approved budget submissions and to generatemacroeconomic indicators and national accounting statistics on public investmentsbeing undertaken. In this regard, existing computer software will be improvedto make it compatible with the newly established accounting and budgetingprocedures.

2.5 Budaetina Comiponent Inputs and Activities (US$O.6m)

i. complete the budget formulation methodology developed byintroducing procedures and standards for operationsprogramming, personnel management and administration of goodsand services, as well as adjusting the budget formats andclassification to reflect new organizational patternsintroduced (US$64,000);

ii. transfer budget formulation responsibilities from MF's BudgetSubsecretariat to the public entities (US$74,000);

iii. provide periodic reviews of budget formulation and evaluationprocedures (US$103,000);

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iv. strengthen the Budget Subsecretariat's ability to adjustindividual and consolidated budget submissions tomacroeconomic targets (USS 94,000);

v. develop budget execution evaluation procedures at central andentity levels (US$94,000);

vi. make compatible budget formulation and evaluation softwarewith that developed for accounting and treasury disbursements(US$112,000); and

vii. expand the computer equipment of the Budget Subsecretariat fora greater coverage of institutions and information (US$50,000)

2.6 Financing of 43m/m of foreign and 152m/m of local specialists wouldbe required to guide the process of reviewing norms and procedures, prepare thecorresponding guidelines and manuals. Local specialists would carry outdissemination efforts and support local and decentralized entities to implementthe new systems. Periodic reviews of the budgeting system would take place thefirst four years of project implementation. Annex 5 provides a description ofconsultants' proposed terms of reference.

2.7 Cash Manacement and Public Credit. The proposed project would assistGOB in: (i) operationalizing the legal framework for consolidating a cashmanagement system under Treasury by drafting procedures and regulations andi.ndertaking the necessary organizational changes in the Central Bank, theMinistry of Planning, and the Treasury; (ii) improving the efficiency of paymentsystem of Treasury by eliminating the use of subtressuries and replacing them bythe commercial banking network; (iii) improving cash management of publicentities through provision of new procedural guidelines and standards; (iv)rationalization of commissions charged for public services under "valoresfiscales"; and (v) improving the Treasury' s income and payment projectioncapacity through provision of a computer-based system to track tax revenueinformation, cash disbursement, and public debt payment schedules. In thisregard, it was agreed at negotiations that (a) organizational changes for cashmanagement in Treasury would be achieved by the end of 1992; (b) the privatecommercial banking network for cash transfers would be used starting no laterthan June 1992; and (c) a timetable, acceptable to IDA, for elimination ofsubtreasuries would be submitted by the end of 1991 and actual implementation ofthe agreed timetable achieved by the end of 1992. Annex 15 provides details onthe elimination of the subtreasuries.

2.8 Cash Management Component Inputs and Activities (US$0.6m)

i. design and implement systems for public cLedit, defininginstitutional responsibilities (between the Central Bank, thePlanning Ministry, and the TGN) as outlined in the SAFCO law,translating it into clear regulations and procedures to beenforced (US$273,000);

ii. substitution of payments made through subtreasuries bypayments directly through the banking network, thereby

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eliminating oubtreasuries1. MF has had a favorable experienceof using the banking network for tax collections (for ananalysis of advantages/disadvantages of eliminatingsubtreasuries see annex 15) (US$77,000);

iii. disseminate new treasury/cash management regulationo to thedecentralized levels of governments and review of theapplication of these standards once the entities haveformulated and begun to apply them (US$172,000);

iv. rationalize the issuance of public service commissions,including an inventory of exiating fiscal paper as well as theestablishment of clear rules for the provision of publicservices (US$64,000); and

v. provide computer equipment to support above-defined upgradedfunctions, track cash payments and record public credittransactions (US$25,000).

2.9 Provision of 44m/m of foreign financial management specialists wouldbe needed to help review current systems, fintlize the definition of new normsand procedures at the center, namely in the MF the TGN Public Credit Directorate.They would also help launch a dissemination program to be carried out by 186m/mof local financial management specialists, financed by the proposed project, toensure adequate enforcement of the system throughout the public administrationat all levels. Annex 5 provides a description of the consultants ' proposedterms of reference.

2.10 Accounting System. The objective is to develop comprehensiveaccounting systems throughout the public sector, consistent with the accountingguidelines already developed by PPMO I, to ensure uniformity of accountingprocedures and classification. It would help entities recognize accountingrequirements and their basic relationship to budgeting. This would be done by:(a) the development of accounting systems in 14 representative decentralizedinstitutions, with dissemination of these models to 116 decentralizedinstitutions; (b) the adaptation of the existing generalized "Manual forDecentralized Institutions" to 58 decentralized institutions not part of the

representative sample; and (c) adoption of existing "Guidelines for PublicEnterprises" to 50 enterprises that cannot finance the development of their ownaccounting systems; and (d) the development and implementation of simplified

versions of accounting, budgeting, and cash management systems to 90representative smaller local institutions (provinces, hospitals, educationalcenters, airports). In this regard, it was agreed at negotiations that GOB would

complete the development of accounting system and implement it for each group ofentities as follows: (i) by the end of June 1993 for the 14 representativedecentralized institutions and by June 1994 for the dissemination of the

corresponding models to 116 decentralized institutions; (ii) by the end of 1994

It is important to note that 56% of the TGN's current staff is located in

the sub-treasuries.

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for the adaptation of the existing generalized Manual for DecentralizedInstitutions to 58 decentralized institutions not part of the representativesample; (iii) by the end of June 1994 for the adoption of existing Guidelinesfor Public Enterprises by 50 enterprises of a smaller size; and (iv) by theend of 1994 for the development and implementation of simplified versions ofaccounting, budgeting, and cash management systems to 90 representative smallerlocal institutions (provinces, hospitals, educational centers and airportw.Annax 13 provides a description of the strategy to be adopted for reaching suchoutputs.

2.11 The GAO will take on the responsibilitl for consolidating fiisancialstatements of the public sector, including cash flow information, which LS

currently handled by the "Emergency Program" of the SAFCO program. Assistancewould be given to GAO to: (a) develop the capacity to incorporate balances fromthe public entities into its integrated governmental accounting balance; and (b)review existing accounting systems and the proposed modified systems, especiallyin those not directly financed by the project such as public enterprises. In thisregard, it would be at negotiations that the Emergency Program staff would beabsorbed by the end of June 1992.

2.12 Accounting Component Inputs and Activities (USS 3.8m)

i. develop auxiliary detailed accounts and supplementary accountsof the central administration, completing the financialinformation the ministries currently provide GAO by broadeningthe detail of accounts, and disaggregating the accountingclassification they currently use for their own financialmanagement. This also includes the development ofinstitution-specific modules to feed data into thecomputerized financial information system. (US$234,000);

ii. install integrated accounting systems to the 14 decentralizedentities, including: one Prefectura, two Regional DevelopmentCorporations, two Pension Funds, the National Road Service,two Hospitals, one university, two municipalities, and threeother decentralized institutions that carry out variouscommunal services (see Annex 13 for selection criteria,implementation schedule, etc. ). This activity includes thedevelopment and implementation of a transportable version ofthe computerized information system, as well as theintegration of budgeting and treasury functions into thesystem (US$1.5 million);

iii. adopt accounting procedures and classification by adjustingand applying: a. the accounting "Manual for DecentralizedInstitutions" to 58 institutions not covered in point ii, andb. the "Accounting Guide for Public Enterprises" to those 50enterprises that cannot finance their own accounting systems(see Annex 13 for the list of these instituJtions)(US$483,000);

iv. implement simplified procedures and standards for budgeting,

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treasury/public credit, and accounting to 90 representative

smaller entities in the decentralized government by nelectingin each Department. two non-capital municipalities, two

hospital, two educational units, two agencies repreoentingMACA, and two sports centers (US$309,000);

v. implement the Public Sector Financial Data Base2 . As the use

of the new accounting, budgeting, treasury/public creditprocedures iB extended to the entire public sector, it ls

possible to consolidate all financial, budgetary, and cashtransaction information country-wide. X national data base

will be created for this purpose, as well as a sophisticatedquery and reporting capability for government-wide financial

management. This data base would gradually replace the

existing "Emergency Program" operation (US$223,000);

vi. acquire computer hardware/software for the GAO's InformationSystems Unit to expand coverage of the information system

described in point iii above. Larger configuration of the

minicomputer and operation of open version of system(US$300,000). Annex 9 provides a description of the proposedoffice technology for GAO; and

vii. maintain the "Emergency Program" functioning and providing

statistical data on cash flows from the major public entitiesuntil the accounting systems and information are in place

(US$600,000).

2.13 Financing would be provided for short-term, local (88 man/month) and

foreign (16 m/m) accounting specialists to develop auxiliary accounts at the

Central Administration (activity i); short-term local (96 man/months) and foreign

(46 m/m) to adapt the integrated accounting procedures and system to 108

decentralized entities (activity iii); short-term local (12 m/m) and foreign (6

m/m) systems specialist to transform the computer system into an transportable

open version (part of activity ii); short-term local (78 m/m) and foreign (24

m/m) accounting specialist to implement the simplified systems to the smaller

entities (activity iv); local (42 m/m) and foreign (20 m/m) system specialists

for creating the necessary data base and information flows already described

(activity v); and local (600 m/m) to maintain the "Emergency Program" for three

years (activity vii). In addition, the development and implementation of the 14

representative financial systems would be subject to international competitive

bidding. An approximate cost of US$44,000 for 12 of these entities was

calculated, taking into consideration economies of scale and bidding out groups

of entities. The remaining two entities (the pension funds) are more complex and

would require an estimated cost of US$140,000 each (see Annex 13). Since the

reporting function, i.e., accounting, is the core of the financial administration

information system, this component includes information systems recuirements and

2 Note that information systems is included in the "accounting" sub-

component because the General Accounting Office is responsible for "Information

Systems"

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integration of accounting data with budoeting and treasury/public creditfunctions. Annex 5 provides a description of the sonsultants ' proposed termsof reference.

2.14 Audit'na. Assistance would be provided to gradually expand CGR'sintervention in public financial control through enhancing the audit scopetowards generating recommendations for the improvement of government efficiency.In addition, an annual audit plan would be defined and implemented reducingaudits upon request from 70% to about 30% of those performed and reducing CGR'sOffices from eight to three with a consequent upgrading of staff.

2.15 Foreign and local specialist assistance would be provided to reviewand/or prepare specific regulations called for by Article 5 of the SAFCO lawrelating to reports and audits of those entrusted with, or receiving publicfunds. This would expand the audit universe beyond the entities which composethe public sector to ensure accountability over public resources handled byothers including the private sector. A new Technical and Programming Officewould be established to become responsible for the issuance of all standards andguidance and follow up of compliance. This unit would carry out trainingactivities (see below) as well, since it would produce many of the materials onwhich training would be based. It would also prepare and monitor the annual auditimplementation plan and provide guidance for the internal audit function.

2.16 The most important task facing CGR is the establishment of a cadreof professional auditors and the performance of audits, which contributesignificantly to establishing GOB's credibility and making it able to enforceaccountability. As a result of this assistance, professional audits would beperformed in a timely fashion in accordance with the annual audit plan so as toprovide cyclical coverage of major resource flows. Also internal control supportunits would be creattd in CGR. Due to limited supply of trained managers andmanagement consultants available to GOB, these units would assist public entitiesin establishing the .nternal control systems prescribed by the new law andmonitor progress the:effter routinely. The CGR would be assisted to set up theoffice of the Depvi'; Comptroller for Legal Affairs, replacing its formeradministrative court .':nction. CGR's judicial functions have been transferredto the Judicial Erancl, of GOB by the new law. Once accomplished, the legalfunction still at CGR would provide counsel to the Comptroller General and hisstaff regarding aspect-s of legal compliance auditing and assuring that legalprocesses are efficier. y carried out. A new administrative judgment processwould thus be developer. n the judicial branch and CGR would provide the legalservices necessary for -he audit process on a timely basis as audits areperformed. A draft law X_auld be prepared with PFMO II's support, to set up thenew Administrative Law C( ut t. In this regard, it was agreed at negotiations that(a) the Contraloria Genexal de la Republica would have established the TechnicalProgramming Office, the Legal Affairs Office and the office of the DeputyComptroller and carried out other organizational adjustments by the end of 1994;(b) an annual audit plan to carry out external audits of a representative sampleof public sector entities would be made available to IDA and USAID in the POAsand in the opportunity of reviewing draft contracts with audit firms selectedthrough bidding processes; by the end of 1993, CGR would undertake or requirethat external audits be completed for at least 100 entities and would expand thiscoverage over the following two years so as to have achieved external audits on

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90% of public expenditures; emphasis would be on developing government auditingquality as staff skills would be enhanced; (c) the Contraloria General de laRepublica will inform IDA of the key results of the "special examinations" alongwith the response that the Government intends to give to the correspondingfindings; and (d) the Deputy Comptroller would have extensive training andinternational experience in the application of general accounting principles,auditing standards and management and the General State Accountant would have astrong background in management systems especially accounting and governmentfinancial management. Annex 12 provides more details on past achievements anda description of the proposed program and implementation strategy.

2.17 Government Auditina Component Innuts and Activities (US$S.5m)

i. develop manuals and guidelines for: contracting of independentauditors by CGR and internal auditing units of publicentities, regulations concerning the internal organization ofthe CGR; regulations outlining reporting requirements of allentrusted with public fund or receiving public funds;personnel evaluation systems, tracking systems for audits,results, training and legal proceedings (US$802,000);

ii. reorganize the CGR (see description Annex 12) s0 that it cancarry out the SAFCO articles, namely: a. improveadministrative information and internal control systems in thepublic sector entities; b. audit information systems,especially accounting statements; c. assess the efficiency andeffectiveness of public services, holding those responsiblefor results accountable (including the performance of tenspecial examinations on major projects and enterprises -US$2.25m); d. facilitate the identification of corruptpractices and bringing forward those responsible. Thisincludes the development of the Office of the DeputyComptroller for audits to enable it supervise the execution often special examinations and develop the capacity to performoperational audits through the process(for more detail on theactivities to be financed see annex 12)(US$3.2 m);

iii. create and develop CGR's capacity to manage legal affairsrelated to its responsibilities and work program as outlinedand required in the SAFCO law. This includes drafting of theSupreme Decree regulating the exercise of public function andcorresponding responsibilities, as well as disseminating thisDecree by holding a seminar. In addition, it includes thedrafting of the law creating judicial fiscal tribunals and adata base of administrative law cases (US$821,000); and

iv. upgrade the CGP's computer processing capacity by providingadditional equipment, including minicomputers andmicrocomputers, and printers (US$427,000). Annex 9 providesa description of the proposed office technology for CGR.

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2.18 The project would finance: (a) 64 m/m of international publicaccountants with information systems skills assisted by 132 m/m of localconsultants; (b) 162 m/m international public accountants of which 102 m/m areinternational evaluation specialist (experts in particular disciplines) assistedby 261 m/m of local consultants; and (c) 43 m/m of international governmentalcontrol lawyers assisted by 261 m/m of local consultants. The project would alsoprovide financing to perform the ten special examinations referred to above(para. 67) and to acquire computing eqvipment related to the overall activities.Annex 5 provides a description of consultants' proposed terms of reference.

II. Regulatory and Legal Framework:

2.19 After reviewing existing legislation and in light of the SAFCO Lawregulations need to be defined in the following areas:

(i) operations programming to ensure common understanding ofprocedures to program individual agency's physical inputs,to be reflected financially in their budgets;

(ii) public personnel management, including standards for theselection criteria and compensation packages of publicservants paid by the TGN, in close connection with the EMSOoperation under implementation;

(iii) procurement norms and procedures as well as standards fortheadministration of goods and services essential to enforceaccountability as defined in the new law;

(iv) organization, to help redefine interinstitutional sharing offunctions and relationships in the public sector, eliminateredundancies, and establish oreanizational patterns withinpublic entities; and

(v) Treasury.. cash management, and public credit standards andprocedures for decentralized institutions.

2.20 Many regulations in the areas of financial management and controlwere passed as Supreme Decrees (i.e. the removal of ex-ante internal control byCGR) and rnow require harmonization with the SAFCO law. This was not done forlack of a comprehensive administrative systems, namely operations programming,procurement and management of goods and services, management of personnel, andorganizational structures for public entities. In addition, the need forrationalizing public sector agencies according to functional responsibilitiesleads to a duplication of functions among different entities. This limits thecentral administration's ability to exert financial discipline throughout thepublic sector. This component would: (a) formulate procedures for the physicalprogramming of inputs; (b) regulate the management of inputs (personnel and goodsand services) by drafting standards for each; (c) develop standards for internalorganizational patterns, separating incompatible functions; (d) develop standardsfor cash management and public credit (leverage); and (e) at the central level,imp'.ement a rationalized organization of the public sector, redefining number ofentities and at the decentralized level, implement the internal organizational

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patterns at the entity level, incorporating operations programming standardsdeveloped.

2.21 The new public financial management procedures as they result fromthe implementation of the SAFCO law, would make it necessary to redefine GOBinterinstitutional sharing of responsibilities and relationships. The projectwould help restructure central and decentralized administrations and redefinetheir respective roles and jurisdiction, which is essential to reduce the budgetdeficit. MF would (a) reestablish the Undersecretariat for tax collection; (b)eliminate the Undersecretariat of financial administration since this is a newfunction of the Treasury; and (c) issue regulations to ensure independence of theGeneral Accountant Office. It was also agreed at negotiations, that neither CGRor GAO would cease to be independent throughout the duration of the project andthat any modification to the agreed structures of MF and CGR would be made inconsultation with IDA. Among other important efforts, the removal of redundantfunctions and entities offers an enormous savings potential. Annexes 6, 7 and10 provide organization charts of MF and of the new interinstitutionalrelationships network as it would result from the enforcement of the SAFCO Law.CGR's proposed organization is in Attachment 1 of Annex 12.

2.22 GOB's recent efforts to reduce the size of the public sector byreducing the number of subsecretariats in each ministry to three demonstrates theurgency of rationalizing the public sector. As a :esult of this measure, animportant change within MF is the incorporation of the Tax Collectionsubsecretariat into the TGN. This change bring to the Treasury both themanagement of revenue collections and the disbursement of expenditures. Theproposed project would support the on-going efforts for reorganization.

2.23 Reaulatory and Lecal Framework Component Inputs and Activities(US$l.0m)

i. revise and adjust existing standards and regulations to thatspelled out in the SAFCO law in the following areas:organization of MF, budgeting, and integrated accounting.This activity would also include the revision of the standardsand rGgulations to be drafted (US$256,000);

ii. draft standards and regulations for: a. operations programming(US$125,000); b. personnel management (US$94,000); c.procurement and adminLstration of goods and services,including their inventory and control (US$42,000); d.organizational structures (US$42,000); and e) treasury andpublic credit (US$93,000). It is worth noting that thestandards to be developed for personnel management will takestock of existing Laws ("Carrera Administrativa"), review theexisting selection and compensation rules used in themanagement of public servants paid by the TGN (not donorfinanced), and develop basic rules and requirements forattaining stability of public labor (US$394,000);

iii. disseminate standards for operations programming, personnelmanagement, and procurement and administration of goods and

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services, and review of these once the entities haveimplemented their systems (US$178,000); and

iv. implement organizational structuress at the central level byrestructuring the central administration and decentralizedinstitutions, redefining number of entities, responsibilitiesand scope of each; and at the decentralized level bydisseminating organizational standards according to the typeof entity (US$200,000)

2.24 Financing of 32 m/m of foreign specialists is required to reviewexisting and new standards; 37 m/m of foreign specialists to draft newregulations outlined in ii above, with 82 m/m of local consultants to analyzeexisting rules and prepare technical documents; 15 m/m of foreign specialist and48 m/m of local consultants (the ones that drafted standards) to disseminate newstandards and procedures; and 14 m/m of foreign consultants and 72 m/m of localconsultants to implement organizational structures and procedures as well asrestructure the public sec.sor. Annex 5 provides a description of theconsultants' proposed terms of reference.

III. Training in Financial Management and Control Systems:

2.25 Training in basic administration and control systems to helpfacilitate a flow of competent public sector professionals at the mid- andhigher-level required to operate and continue the systems created as defined inthe SAFCO law.

2.26 Training activities designed to explain and disseminate SAFOOprinciples need to be reviewed and curricula redesigned to reflect recentdevelopments as a result of the actual implementation of the law. The projectwould help finance Bolivian instructors who would be trained in teachingtechniques so that all foreign instructors would be completely eliminated onproject conclusion. Building a core of competent public servants is criticalgiven the traditional weakness of the educational system in producing capableprofessionals to work as accountants rather than bookkeepers, and auditors. Theobjective of the university-level curricula is to help establish a permanentvehicle for future training at the post-graduate level in public sector financialmanagement.

2.27 Trainina Comoonent Inouts and Activities (USS3.48 m)

i. SAFCO Law Principles and Procedures and Training ProgramManagement (US$0.97 m). A basic course cycle would be madeavailable using programmed instruction to prepare Bolivianfinancial managers for service in government. Eight basiccourses would be offered to financial and non-financialprofessionals (e.g., lawyers, administrators, managers). Atotal of about 1,000 fully trained public servants plus anadditional 700 non-public servants in various stages of thebasic training process would become available by the end ofproject implementation. A substantial portion of them would be

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attracted by public service positions if the personnel policyupgrade defined above is successful. The program will requirecareful monitoring and development. Thus, direction of thetraining effort will also be financed by the project.

ii. Financial Management Training (US$1.44 m). Two-hundred topperformers from basic courses would also be trained to acquirehighly specialized skills and would be offered key positionsin the various Ministry of Finance and the CGR offices definedabove in the two components.

iii. University-Level Curricula (US$0.7 m). The project wouldassist in designing a master's degree program in Public SectorFinancial Management to meet the medium- and long-termrequirements of financial management professionals. Foreignuniversity instructors would help design the correspondingcurricula and train Bolivian professors and other specialists,who would sustain the program by project end. It is expectedthat 140 students would be enrolled in 1993/94.

iv. Training Center Infrastructure and Equipment Upgrading(US$0.4 m). This component would provide four additionalclassrooms in La Paz and establish a specialized libraryfurnished with at least 3,000 technical books to maximizetraining efficiency and effectiveness. Furthermore, fourclassrooms would be improved and equipped in two importantregions (south and center south) where courses would also bedelivered. Lastly, a day-care center would be established.Annex 11 provides a description of the strategy forimplementing the training component.

IV. Institutionsl Support:

2.28 Institutional support would be provided through USAID-financed linepositions that would be progressively phased out as the project-supportedtraining program achieves its objective of create the flow of competent publicsector professionals required to operate the systems created as a result of theSAFCO Law enforcement.

2.29 Institutional Sup w2rt Component Inputs and Activities (US$4.6 m)

i. Financing of Line Positions in MF and CGR (US$3.0 m). Linepositions would be financed by USAID and this program would beprogressively phased out during the life of the project andkey corresponding staff absorbed by MF and CGR as trainingactivities progress.

ii. Project Management (US$1.6 m). See Project Description,section F, below.

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C. Project Co0ts

2.30 Total project costs are estimated at US$22.3 million with a foreign

exchange component of US$11.3 million or 51% of total costs. Details by project

component are provided below. More detailed costs, including implementation

timetable and schedule of disbursements are in Annexes 1-4.

ESTIMATED COSTS

Components Local Foreign Total %For.Exc.

…------ (USs '000) …

A. Financial Management 3820 5930 9750 61

A.1 Budgeting 250 250 500 50

A.2 Treasury/Public Credit 260 300 560 54

A.3 Accounting 1410 1720 3130 55

A.4 Government Auditing 1900 3130 5030 62

B. Standards and Regulations 250 760 1010 76

3.1 Revision of Standards - 230 230 100

B.2 Drafting of New Standards 100 ?v0 400 75

B.3 Dissemination/Implem. Std. 60 120 180 67

B.4 Reorgan./Implem. org. Struc. 90 110 200 57

C. Training 1980 1400 3380 41

C.1 Principles, Course Imp, Manag. 420 450 870 52

C.2 Financial Management Trng. 1440 - 1440 -C.3 Curriculum Develop. (Master) 120 590 710 83C.4 Training Center Upgrading - 360 360 100

D. Line Positions 2990 - 2990 -

D.1 Ministry of Finance 2070 - 2070 -

D.2 Comptroller General's Office 920 - 920 -

E. Project ManagementE.1 Project Unit 290 720 1010 71

E.2 Management Fee (4% of IDA) 440 440 100

F. Refinancing of PPF 1500 1500 100

Total Base Costs 9320 10170 19490 52

Physical Contingencies (3%) 280 300 580 52

Price Contingencies (12%) 1400 810 2210 37

Total Project Costs 11000 11280 22280 51

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2.31 To ensure the sustainability of the reforms introduced, GOB wouldprovide financing for 85 line positions in the MF and other related ministries.Their financing would be progressively reduced and absorbed by the TGN as skilledstaff are made available as a result of implermentation of the trainingcomponent. The total cost of these positions is US$2.1 million. The missionagreed with GOB that these positions are an integral part of the proposedproject. Assurance of their financing would be a legal covenant of the proposedproject document. In addition, 23 high level professionals would be required forthe management of CGR, at a total cost of US$0.92 million. Financing for theseline positions would be provided by USAID generated funds from economic supportfunds.

2.32 Base cost estimates are in early-1991 prices. Costs of local andforeign consultants and those of training were estimated in accordance withprevailing costs of services and materials. Estimated man-month costs areUS$8,000 for foreign consultants, US$1,200 for local professionals and US$1,500for local computer progra.nmers/analysts. Pihysical contingencies amounting to 3%zc, base costs are included. Price contingencies have been estimated at 12% ofbase costs. Detailed information and a breakdown of training costs are in Annex11. Annual rates of inflation used are those projected in the August 30, 1990Bolivia Updating Economic Memorandum. Local inflation would be about 8% in 1992,and 5 to 6% thereafter. A 3.3% foreign inflation rate has been used from 1992onwards.

D. Financing Plan

2.33 The proposed IDA credit of US$11.3 million equivalent would financeapproximately 51% of total project costs net of duties and taxes; this wouldcover 100% of foreign costs. A PPF in the amount of US$1.5 million (approved inMarch 1991 and May 1991) has supported (i) design of basic formats for accountingsystems of decentralized institutions and public enterprises, (ii) computerequipment for GAO, and (iii) regulations on the responsibility of public functionby CGR.

2.34 IDA will finance foreign costs up to US$11.3 million. GOB willfinance the remaining US$11.0 million with locally generated funds from USAID'seconomic support funds. GOB should show evidence of budgetary allocation forevery operational operative plan (POA). Formal agreements between GOB and USAIDwere reached and fully described at negotiations. The financing plan is set outbelow:

Proposed Proiect FinancingIDA (%IDA) GOB Total

--------USS million)----------

Foreign Consultants 5.9 100 - 5.9Local Consultants - 0 3.6 3.6Training 1.4 41 2.0 3.4Equipment .3 43 .4 0.7Incremental Salaries - 0 3.0 3.0Project Administration 7 72 .3 130

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PPF Refinancing 1.5 100 - 1.5Proiect Total (Base Costs) 10.2 52 9.3 19.5

E. Procurement

2.35 As there are no civil works envisioned under the Credit, procurementwould be limited to the purchase of goods and employment of consultants. A planfor hiring consultants would be submitted to IDA for review and approval as partof the annual operational program (POA) before the consultants can be hired. Theproject contemplates major contracts: a contract for project management coveringconsultants assigned to the executive Secretariat, contracts for the developmentand implementation of the accounting systems and contrac:s for "specializedexaminations". Consultants would be selected and employed irn accordance with theWorld Bank: "Guidelines: Use of Consultants by World Bank Borrowers and by theWorld bank as Executing Agency". However, for consultancy contracts valued belowUS$20,000 equivalent, IDA would review the first three such contracts every yearat all stages of the process. If satisfactory, then further contracts would bereviewed during field supervision on an ex-post basis. Consultancy contractsvalued above US$20,000 would be subject to normal IDA review procedures, that isprior IDA review of short lists, evaluation reports, terms of reference, andcontracts. The same UNDP/OPS contract format for consultants used duringimplementation of PFMO I would apply under PFMO II. Personnel computers andsoftware would be grouped in contracts above US$100,000 and procured through ICB.Procurement of miscellaneous items valued below US$100,000 but above USS 20,000and not exceeding 500,000 in aggregate, would be procured through LCB inaccordance with procedures acceptable to IDA.

2.36 The procedures set forth in paragraphs 2 and 4 of Appendix 1 to theabove-referred World Bank "Guidelines" will apply to each contract awarded.Where payments for such contracts are to be made cut of the special account, suchprocedures will be modified to ensure that the two conformed copies of th-contract required to be furnished to IDA pursuant to said paragraph 2 (d) wil.be furnished to IDA prior to the making of the first payment out of the specialaccount in respect of such contract. With respect to each contract not governedby the above, procedures set forth in paragraphs 3 and 4 of Appendix 1 to theGuidelines will apply. Where payments for such contracts are to be made out ofthe special account, said procedures will be modified to ensure that the twoconformed copies together with the other information required to be furnished toIDA pursuant to said paragraph 3 will be furnished to IDA as part of the evidenceto be firnished pursuant to paragraph 4 of Schedule 5 of the Credit Agreement.This provision will not apply to contracts on account of which IDA has authorizedwithdrawals on the basis of statements of expenditures. Local manufacturers aregranted a 15% margin of preference for coods contracts awarded under ICBprocedures. Finally, any contract for the purchase of computer equipment shouldinclude related maintenance services for at least five years.

2.37 Using PPF funds, GOB is acquiring directly a computer WANG VS-8000for upgrading GAO computing capacity for a total cost of about US$250,000. Afterobtaining full technical justification from GOB and quoted prices for similarequipment, IDA authorized such direct acquisition recognizing that there wouldbe no economic advantage in procuring this equipment through ICB given that WANG

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had offered to take back the existing VS-5000 computer and credit US$40,000towards the cost of the new unit. Moreover, it wao clear that it would not havebeen possible to convert the presently PACE-based data management system into anopen software system in less than a year, which would constitute an unacceptabledelay in the implementation of the proposed project.

Amounts and Methods of Procurement

Project Element Procurement Methods Total CostsICB LCB Others…(USS million)-------------

Consultants Services 9.3 9.3(less than US$20,000) (7.1)a/ (7.1)

Consultants Services 2.6 2.6(more than US$20,000)

Training 3.0 3.0(1.5) (1.5)

Equipment 0.4 0.5 0.3 1.2(0.4) (0.5) (0.3) (1.2)

Line Positions 3.0 3.0Procurement Agent 0.4 0.4

(0.4) (0.4)

Total 0.4 0.5 18.6 19.5(0.4) (0.5) (9.3) (10.2)

a/ IDA financing is in parentheses

Disbursements

2.38 The disbursement schedule reflects a phasing of activities, based onthe need to build institutional capacity related to the financial managementfunctions. The proceeds of the Credit would be disbursed against: 100% offoreign consultants; 100% for imported equipment and materials; 100% of fixed-term personnel costs of the Executive Secretariat; and repayment of the PPFadvance. GOB is committed in the longer term to absorb project benefits throughits financing of activities such as normal line positions responsible to carryon the implementation of the SAFCO law; the continuation of the projectmanagement in the form of a public financial management function integrated inGAO; about one additional "special examination" per year after 1993; and trainingactivities. GOB expects that most of the IDA Credit would be disbursed at the endof the third year of implementation. Disbursement would be made againststatements of expenditures (SOEs) except for contracts for goods and servicesvalued at about US$20,000 or more and the first three contracts for servicesevery project year. The project management unit would retain documentation forexpenditures and make it available for the independent auditors and for reviewby IDA during supervision missions.

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Accounts andg iudit

2.39 The Project Executive Secretariat would maintain separate accounts

including a special account for all expendituren funded under the Credit.

Project accounts would be audited annually by independent auditors satisfactory

to IDA, including audit of the MSA contract. The audit reports, of such scope

and in such detail as IDA shall reasonably request, would be submitted no later

than six months following the end of GOB's fiscal year.

F. Proiect Imolementation

Proiect Management

2.40 The proposed PFMO II would be organized in three separate subprojects

with complementary objectives but independent implementing arrangements and

budgets: MF wo%'ld be responsible for budgeting (paras. 2.4-2.6), cash management

(paras. 2.7-2.9), accounting (paras. 2.10-2.13) and standards and regulations

(paras. 2.19-2.24); and CGR would be responsible for government auditing and

control (paras. 2.14-2.18) and training (paras. 2.25-2.27). The interministerial

council, CONSAFCO, established for ensuring the policy-making and other overall

supervisory functions, would be continued with the same membership which consists

of: the Ministers of planning and coordination, finance, the Comptroller

General, the Central Bank Prenident, the State Accountant General, the

Undersecretary for public investment and international cooperation and the

Assistant Comptroller for training. GOB has agreed that it will maintain the

current composition of CONSAFCO and the Project Management Unit, including the

project director and his staff, and their successors would be satisfactory to

IDA.

2.41 Management of the project would be the responsibility of a Project

Management Unit (PMU) which would report directly to a CONSA&PCO designated

member. This unit would include, in addition to the project manager (42 months)

the head of the emergency program (national, for 12 months ) as this staff andtheir functions would be completly integrated into the GAO by the end of 1992.

(The organizational structructure and relationship with implementing agencies

appear in Annex 7). In this regard,it was agreed during negotiations that

appointment by GOB of CONSAFCO members others than the officers described above

and of PMU's staff (Project Manager, administrative staff and supervising

consultants) would not be modified without prior consultation with IDA. Also, it

was agreed at negotiations that the SAFCO law would not be waived, abrogated or

suspended by any of the parties for the duration of the project.

2.42 Unlike PFMO I, which was implemented through a UNDP/OPS management

services agreement, PFMO II' s funds would be administered directly by the

existirtg Project Management Unit, which would also) serve as a procurement agent,

contracting and paying consultants on behalf of (wOB. IDA and USAID would retain

all routine technical supervision functions. It is expected that this would

contribute further to the institutional development process, which is at the core

of this project.

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Annmal Work Prorgam and Reporting

2.43 The project would be implemented on the basis of an annual workprogram called "Programa Operativo Anual" (POA). The format has been agreed atappraisal. A first POA for the remaining months of 1991 has been agreed duringnegotiations, based on what had been achieved to date in each of the proposedprogram items. Subsequently, the POA would be submitted to IDA by November 15of every year for an exchange of views on what is programmed as compared to whatwas achieved. POAs would include the following;

Part 1: Evaluation of the previous POA to September 30. The first POAhas been submitted at negotiations: it describes what would beachieved by the end of 1991 using PPF funds; and

Part 2: Annual objectives for each implementing entity oradministrative unit. The Accounting Office, for instance,should have its own POA, as well as the Undersecretariat ofBudgeting, etc. Resources available to achieve t!is annualobjectives would be identified for every component includingfinancing sources. Taske would describe who will do whatwithin the particular entity to acquire (procurement tasks),use (operational, practical tasks), and sustain (maintenance,counterpart work tasks) the benefits of goods or servicescorresponding to the use of available resources. Componentobjectives and tasks would include monitorable, tangible,expected outputs and related timetables (relevant categoriesof targets, and specific key output targets were agreed atnegotiations).

2.44 POAs would then be implemented separately by the different entitiesin charge but under the supervision of the Project Management Unit Director, whowould have to approve and consolidate POAs before sending them to IDA for commentand approval. The consolidated POA also would include a project-wide budget andprocurement plan. (A proposed implementation schedule is included in Annex 1).The information included in the biannual reports would be reported to Congressonce a year in an integrated fashion, before it reviews the yearly budget, alongwith a progress report on implementation of the SAFCO Law. Tripartite reviews byGOB, IDA and USAID and including among others, a certified public accountant withexperience in management systems agreable to all three parties, would be carriedout once a year in November as a basis for reaching agreement, on the followingyear POA. The first such review would be carried out in November 1991. Thesecond review (November 1992) will be more in-depth, in the form of a mid-termreview to analyze achievements against the measurable performance indicatorsincluded in Annex 8, and modify design if deemed necessary to improveimplementation and outputs. If implementation thus far is satisfactory to allparties, IDA and GOB would start preparation of a possible third public financialmanagement operation to address in priority topics of importance such as thedelivery of the master degree in accounting and management, additional keyspecial examinations, and further dissemination of the integrated accountingsyqtems, all topics which have been dropped from the original project designuntil the steps included in the proposed project are achieved successfully.

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2.45 The Project Director would be responsible for preparing semiannualprogress reports for submission to IDA as well ao for preparing the projectcompletion report, to be submitted to IDA no later than six months after theCredit closing date. The sams format would be used as for the POAs, but addingcomments on achievements or shortcomings and formulating correctiverecommendations to GOB and IDA. Every implementing agency would be responsiblefor providing the necessary documentation to enable the Director to prepare theprogress and completion report. CONSAFCO, and the Project Management Unit'sDirector and staff were already in place at the time of negotiations.

III. PROJECT JUSTIFICATION

A. Proiect Benefits.

3.1 The project is a fundamental part of GOB's strategy to successfullyimplement and sustain the momentum for economic change achieved thus far underthe new economic policy in general, and the first PFMO I project in particular.This project would be central in helping GOU achieve more efficient use of scarcepublic resources. More specifically, the proposed operation is expected to yieldthe following benefits:

(1) sound decision-making process through the broadening of financialinformation systems throughout the government;

(2) tighter control of carrent expenditures through the improvement ofbudget formulation administration-wide, coherent, uniform publicaccounting and control systems in the State-owned enterprises andthrough improvements in the integrated accounting system designedthus far with the strengthening of the Accountant General's Officein MF;

(3) qualified officers and public servants with basic financialmarasgement skills and tools, norms and standards;

(4) improved allocation of public credit and investment to publicentities and projects as a result of reliable financial statementsand accountability for use of public funds and for results and thereduction and possibly elimination, of inefficient public sectorinvestments;

(5) substantial savings and reductions in fiscal deficit that would letGOB provide the public services necessary for long-term development,rather than invest in inefficient public enterprises andinstitutions; and

(6) overall, it is expected that the proposed project make a substantialcontribution to the enhancement of the GOB' s absorptive capacitythus increasing efficiency of the community of international donors'assistance.

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B. Proleot Risks

3.2 In addition to the possible difficulty for the Bolivianadministrative structure and culture at all levels to absorb the discipline inpublic financial management which is at the core of the proposed project, tikereare three related risks: (i) high turn-over of staff; (ii) ad hoc changes in thefinancial management proc3dures; and (iii) lack of consistent application ofinformation generated by the SAFCO system to GOB' a decision-making process. Thestaff turn-over, caused mainly by low salaries and high private sector demand forskilled manpower (e.g., accountants, auditors), is being addressed through theestablishment of the Public Sector Management Scheme where civil serviceconditions of pay and employment are being adjuated to compete with the privatesector. In regard to the Ad hog changes in procedures, it will be agreed withGOB during the negotiations, that all institutional and procedural changesregarding the SAFCO system would be made after consultation with IDA. While thelargely political risk regarding GOB' s possible disregard of SAFCO-generatedinformation in its decision-making process cannot be entirely mitigated, specificactions would be taken to reduce this possibility. It would be agreed atnegotiations that (a) annual reports would be submitted to Congress on theprogress of implementing the SAFCO Law, thus ensuring that GOB policy-makerswould be aware of the available information; and (b) satisfactory review ofproject implementation and following year work program on an annual basis wouldbe a condition of continued financing of the project by IDA.

IV. ACREEMEN S REACHED AND RECOMMENDATIONS

4.1 During the al.praisal mission, the SAFCO law was reviewed and confirmationobtained from Bolivian counsel that the same is valid and in force. Aconfirmatory statement to this effect has been obtained in the legal opinionprovided to the Bank, in accordance with Saction 12.02 of the General Conditionsof the Association.

4.2 During Negotiations. the followina agreements were reached:

(a) the SAFCO Law will not be waived, abrogated or suspended for theduration of the project (para 2.41);

(b) any modificatiorn to the agreed structures of the Ministry of Financeand the Contraloria General de la Republica that might have anegative effect on the objectives of the project would be an eventof default (para 2.21);

(c) the Gover ment would, for the duration of the project, maintain thecurrent t imposition of CONSAFCO and the Project Management Unit,including the Project Director and his staff, and their successorswould be satisfactory to IDA (para 2.40);

(d) counterpart funds would be made available by GOB through localcurrency generated by USAID's Economic Support Fund and would beincluded in annual budgets (para 2.34);

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(e) for the staffing of the 85 line positions in MF and 23 within CGRincluded in the project, applicants would be selected in accordancewith norms and procedures acceptable to IDA (para 2.31);

(f) biannual reports will be provided in February and August of everyyear, including previous semester information on: (i) the number ofentities incorporated into the government integrated accountingsystem, producing financial statements and reporting these to theGAO, (ii) the number of entities producing their own budgetsubmissions, and (iii) their corresponding participation in thebudget (para 2.45);

(g) the information included in the biannual reports would be reportedand presented to Congress once a year in an integrated fashion,before it reviews the yearly budget, along with a progress report onimplementation of the SAFCO Law (para 2.44);

(h) a first annual work program (POA) for the remaining months of 1991has been agreed based on what has been achieved to date in every oneof the proposed program items and using funds made available by aPPF; subsequently, the POA would be submitted to IDA by November 15of every year for an exchange of views and approval (para 2.43);

(i) program-based budgets submission by central government' s entitiesand major public enterprises by the end of 1992 and by RegionalDevelopment Corporations and major decentralized entities by the endof 1993 (para 2.4);

(j) changes in proceduree and structure of the Treasury would beachieved by the end of 1992 (para 2.7);

(k) the private commercial banking network for cash transfers would beused starting no later than June 1992 including acceptance ofadequate computer controls, audits, sanctions for not collectingtaxes, trasnfers of these funds and debiting of payments (para 2.7);

(1) a timetable, acceptable to TDA, for elimination of subtreasurieswould be submitted by the end of 1991 and actual implementation ofthe agreed timetable achieved by the end of 1992 (para 2.7);

(m) GOB would complete the development of unified accounting system andimplement it for each group of entities as follows: (i) by the endof June 1993 for the 14 representative decentralized institutionsand by June 1994 for the dissemination of the corresponding modeisto 116 decentralized institutions; (ii) by the end of 1994 for theadaptation of the existing generalized Standards for DecentralizedInstitutions to 58 decentralized institutions not part of therepresentative sample; (iii) by the end of June 1994 for theadoption of existing Guidelines for Public Enterprises by 50enterprises that cannot finance the development of their ownaccounting systems; and (iv) by the end of 1994 for thedevelopment and implementation of simplified versions of accounting,

-35-

budgeting, and cash management systems to 90 representative smaller

local institutions (provinces, hospitals, educational centers and

airports) (paras 2.10);

(n) by the end of 1994, the Contraloria General de la Republica would

have carried out its organizational changes (paras 2.15 and 2.16);

(o) the Contraloria General de la Republica would furnish to IDA, not

later than November 15 of each year during the execution of the

project, an annual audit plan, satisfactory to the Association, for

a systematic external auditing of selected public entities (para

2.16);

(p) the Contraloria General de la Republica will inform IDA of the key

results of the "special examinations" along with the response the

Government intends to give to the corresponding findings (para

2.16);

(q) the Deputy Comptroller General would have extensive training and

international experience in the application of general accounting

principles, auditing standards and management; and the General State

Accountant should have a strong background in management Pystems

especially accounting and government financial management (para

2.16);

(r) the E.ergency Program Staff would be absorbed by June 1992 (para.

2.11)

(s) exchange of views between GOB, IDA, and USAID in annual tripartite

evaluations of achievements should be carried out as a basis for

reaching an agreement on the following year's POA; the second such

review (1992) will be a comprehensive mid-term review to analyze

achievements against the measurable performance indicators included

in Annex 8, and formulate corrective measures, if necessary, to

improve implementation and outputs (para. 2.44);

(t) the project and special accounts would be audited on an annual basis

by an independent auditing agency, acceptable to IDA, and would be

submitted to IDA within four months of the close of each fiscal

year ending June 30 (para. 2.39); and

(u) neither CGR or GAO would cease to be independent entities throughout

the duration of the project (para 2.21).

4.3. Prior to Board presentation the Government has presented to IDA:

(v) formally approved Guidelines for Public Enterprises;

(w) formally approved Standards for Decentralized Institutions; and

(x) a letter from USAID to GOB, confirming USAID's supervision role as

previously agreed with the Borrower and the Association.

-36-

4.4 With the above assurances, the proposed project in suitable for anIDA Credit of US$11.3 million on standard torms for Bolivia.

June 4, 1991

Bolivia Amex IPubtlic Sector Finnrcial Management Operation It

Cost Table

Activities/Irputs l9plep entation Schedule Project Irputs Project Costst991 1992 1993 1994 1995 1996 Consultants Consulting Others (USSO O0)----------- Semesters-- ---------- (man/months) Contracts For.Exch. Local Total2nd 1st 2nd 1st 2nd Ist 2nd 1st 2nd 1st Local Intern. Items Descrip.--- --- --- --- --- --- --- -- --- -- . -..--.- ....... .......... ........ ......... ..... ... ..---.A. Consolidating/Expending Fin.Ikigt.

and ControtlNorms a Procedures

1. Budgeting 152 43 224 247 471a)lnclude stwdards in existing ... - ... --- ---progr.-based budgets xxx 20 5 20 24 44b)Transfer budgeting functionto entities from the Budg.Off. xxx xxx xxx xx 22 6 28 26 54c)Enhance budgeting quality xx xx xx 26 9 52 31 83d)Prepare budg.evaluationprocedures for Budg.Office xxx xxx xxx xxx xxx xxx 18 9 52 22 74e)Develop budget exec.eval.at central & entities levels xxx xxx xxx xxx xx xxx xxx 18 9 52 22 74f)Develop budget formulationand conputer system x xxx xxx 48 5 20 72 92g)Equipment for Budget Office xxx xxx Coapaters 50 50 -J

2. Treasury 9 Pubtic Credit 186 44 307 259 566a)Deslgnilsplment s*t- ... ... ...for pubLic credit I treasuryin accordance with SAFWL Law xxxx xxx xxx 72 22 146 97 243b)Us - -ng network for pqre.& eliminate sub-trewuries xxx x 24 6 48 29 77c)DIsseminate Treas.Standerdsto decentralized lewels xxx 10 2 16 12 28d)Specific stendards reviewedby lrdersocret. of Treasury xxx xxx 60 9 57 72 129e)Ratilonatiation issiceof fiscal pspers xxx x 20 5 40 24 64f)E qipment for Treasury toinclude tax revewe andpeyments throuh btk netuerk xxx xx xax xnx xxx Computers 25 25

3. Accovatfng 920 116 1603 1411 3104a)evie"/lepwnt maxillr .... ... ... .detailed accounts 44q2plemntarY accosnts xxx xxx xxx x xxx 89 16 108 106 214b)tevieW/dNwelop speciflefin.engt spt. to selecteddecentralized levwls (14) xax XAX xsa xxx 16 10 14 system 67 410 1057c)eDwlop integrated ae. systfor dec.levels norms,oced. xxx xxx xxx xxx xxx xxx 96 46 348 15 463d)lmpllmnt sIiWif lied weayst. In daped local gov. AA xxx xxx xxx xxx xxX xxx 78 24 172 117 289

e)Data base in GAO toproduce fiscal statistics xxx xxx xxx xxx xxx xxx 42 20 150 63 213

f)lncrease CAD Coup. capacity xxx xxx xxx xxx Computers 268 268g)Nainitain Emerg.program xxx xxx xxx xxx xxx 600 600 600

4. Goverrcent Auditing 654 269 3135 1899 5034a)Develop manualsBguidelines for: ---- ---- ---- ----contr.indep/audit.,internalorg.of CGR, reporting requir. xxx xxx xxx xxx x xxx 132 64 454 288 742

personnel eval., tracking sys.b)Reorg. CGR, Including settingup Deputy Controtlerfor complementary examinat.develop audit units as trgprogresses 8 create DeputyContr.for auditsgimplement.

10 cotpl. examinations xxx xxx xxx xxx xxx xxx xxx 261 162 10 sp.exam. 1920 1134 3054c)Set Off.Deputy Contr. for

Legal Affairs,install newprocedures publ.accountabiilty xxx xxx xxx xxx xxx xxx xxx xxx 261 43 344 477 821

d)Information system for CCRand equipment for CGR Office xxx xxx x. xxx Computers 417 417

H. Generating Standards & RegulationsCalled for by the SAFCO Law inthe Non-Financial Public Sector 202 98 764 242 1006

1.Revise/Adapt Norms xxx xxx xxx xxx xxx 32 256 0 2562.Draft New Regulations xxx x 82 37 276 98 3743.implem.0peration-progr, person. xxx xxx xxx xxx xxx 48 15 120 58 178

procurement systems govern.-wide4.Reorganization 6 org.systems xxx xxx xxx xxx xxx xxx xxx 72 14 112 86 198

C. Training for Financial Management 1394 1980 3374

1.Training Component Management xxx xxx xxx xxx xxx 72 21 128 144 272and quality control.

2.Review Basic Courses (SAFCO) xxx x 94 48 319 276 5953.Training Courses Delivery 307 - 1437 1437

a)introductory Course (C-1) xxx xxx xxx 30 Expenses 13s 133(2800 participants)

b)Accounting Course (C-It-A) xxx xxx 124 Expenses 586 586(C-ti-B), (CC-lt-A) (C-Ill-B)(1960 partieipents)

c)Financlal Acdlnistration xxx xxx xxx 79 Expenses 373 373(C-IV), (C-V-A), (C-V-B)(1300 participants)

d)gov.internal auditing for xxx xxx xxx 42 Expenses 196 196prof. from CGR * otherentities (390 professionats)(C-VI-A)O CC-VI-B)

e) Accountabitity (C-VII-A) xxx xxx xxx 32 Expenses 149 149(C-VII-B) (490 participants)

3. Master Degree Curriculuw xxx xxx xxx xxx 46 30 Uni. 907 Equip.150 587 123 7104. CLemplent Training Center

equipment xxx xxx xxx Contr.60 Equip.300 360 360

0. Line Positions 2990 2990

1. Ministry of Finance andother retated Ministries xxx xxx xxx xxx xxx 2070 2070

2. Recruit and dewelop a auditorsand managers CGR xxx xxx xxx xxx xxx 920 920

E.Project Administration 1160 290 1450

1. Project Administration xxx xxx xxx xxx xxx xxx xxx xxx xxx 720 290 10102. Management Fee

440 440F.PPF Refinancing

1500 1500Votat Base Costs

10177 9318 19495

Phsica Contingencies 300 280 580Price Contingencies 810 1400 2210

TOTAL PROJECT COSTS 11287 10998 2228511287 109 29

IOU VIA bum 2ibtic inncla agemnt ueaetion itProject Cost Simry

(UotiviIos'000) (US '000)

X Foreign h Total S forign K TotalLocal foreign Total Esdwar BoseCots Locl forign Tota l Eubww lasests- -_- _ a_ms eaum mu m uumm messA. firwclat Nut-gIIn Control

bum and Proceuwres1. Ldting 852 m 1625 48 2 247 224 471 48 22. tresswy/PiMic Credit SW 1059 1953 54 3 259 30? 566 S4 33. Accmting 4868 S841 10709 55 16 1411 16.° 3104 SS 164. Auditing 6S52 10616 17367 62 26 19"9 3135 S5 62 26Sat-Totat 1316S 1849 316S4 SS 47 3816 S359 95 58 47

B. Standards and Reguatiaon1. ReviselAdapt Neom 0 883 a8S 100 1 2S6 256 100 12. Draft new regulations 338 952 1290 74 2 9 276 374 74 23. Iptem.oper-pro9.per.proc. 200 414 614 67 1 58 120 178 67 14. Reorganization 297 366 683 57 1 86 112 196 S? 1Sit-Total 83S 2636 3471 76 5 242 764 1006 7n s

C. Training for fi -ucial N_gemant1. Review Basic Courses 1U49 1542 2991 52 4 420 447 867 S2 42. Training Oelivery 4958 0 4958 0 7 1437 1437 0 73. Raster Oegree Curricultu 424 2025 2450 83 4 123 587 710 83 44. Coqple.nt Eqypisnt 0 1242 1242 100 2 360 360 100 2SWi-Totel 6831 4809 11640 41 17 1960 1394 3374 41 17

0. Line Positions1. Ministry of Finance & rel. Ni 7142 0 7142 0 11 2070 2070 0 112. CGR's auditors snd managers 3174 0 3174 0 S 920 920 0 SSub-Total 10316 0 10316 0 15 2990 2990 0 1S

E. Project Adainistratfon 1001 4002 S003 s0 7 290 1160 1450 80 aF. PPF Refiancing 25S875 25875 100 4 1s5O 1500 100 a

TOTAL BASE LINE COSTS 32147 35111 672s5 S2 100 9318 1017? 19495 52 100Physictal Contingencies Y- TI Z°°l 5- 7m -2m 5"e 52 3-5Price Contingencies 4830 2795 7625 37 11 1400 810 2210 37 11TOTAL PROJECT COSTS 37943 30940 76853 S1 114 10996 11287 2228S 51 11438333333S33 33338 3:23 333 * 3 33 *-32* 338 333 3333

BOLIVIA Anuex3Pubtic Financial Nanagement Operation II

sumrary Account by Project Coqwonent(USS '000)

Fin.Nngt Coop. Stend.Reg.Coup.Training Coop. Proj.Admin. Total

==3Cz2mmmZ uuginnZZsinau=:3 333333333za gnauizinzz"m azmg

t. INVESTMENT COSTS

A. Consultant ServicesLocal 4084 242 294 4620Foreign 4343 764 868 5975

....................... ............... ....................... ............. ................... .......................

Sub-Total Consultant Services 8427 1006 0 1162 10595

B. Training 3095 3095C. Office Equipment 500 360 860

......... ................................ ............... ...... ........... .. . ...... ......... .. . ... .... ..........

Total Investment Costs 8927 1006 3455 1162 14S50

11. RECURRENT COSTS

A. Incremental Salaries 3000 3000B. Project Administration NSA 440 440

.... ........................ ....................... ............. ........................... ..........

Total Recurrent Costs 3000 0 0 440 3440

111. PPF Refinancing 1310 190 1500

Total BASE LIVE COSTS 13237 1006 3455 1792 19490Physical Contingencies 385 30 117 48 580Price Contingencies 1477 126 415 192 2210

.............. ................. ....................... ................. ......................

TOTAL PROJECT COSTS 15099 1162 3987 2032 22280.um.u:.inc= t=u..Umu.u=S= *.===u===== :u.c:s.us :gzas:.ruza

-42-

BOLIVIA Annex 4

Public Sector Financial Management Operation II

Credit Disbursement Schedule

IDA Fiscal Year Quarterly Cumulative Disbursementand Quarter Ending Disbursement (USS 000') (%of total)

Schedule(US$ 000')

FY92September 30, 1991 750 750 7December 31, 1991 750 1500 14March 31, 1992 700 2200 20June 30, 1992 700 2900 26

FY93September 30, 1992 700 3600 32December 31, 1992 700 4300 38March 31, 1993 700 5000 44June 30, 1993 600 5600 50

FY94September 30, 1993 600 6200 55December 31, 1993 500 6700 59March 31, 1994 500 7200 64June 30, 1994 450 7650 68

FY95September 30, 1994 450 8100 72December 31, 1994 450 8550 76March 31, 1995 450 9000 80June 30, 1995 400 9400 83

FY96September 30, 1995 380 9780 86December 31, 1995 300 10080 89March 31, 1996 300 10380 92June 30, 1996 300 10680 95

FY97September 30, 1996 300 10980 98December 31, 1996 300 11280 100

-43-

Annex 5Consultants Reauirements

A. MINrSTRY oF FINANCE

1. Directing and supervising the Project in areas for which theNinistry of Finance is responsible, and harmonizing and revising allregulations already prepared or to be prepared.

1.1 Directing and supervising the action to be taken in the Ministryof Finance with respect to Budget, Funds Flow and Official Credit,Accounting and Data Processing.

1.2 Coordinating activities in the Ministry of Finance with themanager of the ILACO Project and ministry officials.

1.3 Coordinating the work of non-Bolivian and Bolivian ILACO personneland counterpart staff.

1.4 Revising and examining all rules, instructions, procedures,instructional material, etc. prepared by the international orBolivian consultants, before submitting them for the Ministry'sconsideration.

1.5 Preparing work programs and schedules, supervising theirimplementation, and proposing any necessary changes to the ILACOmanager.

Throughout the period o; the operations in the Ministry of Finance, aninternational consultant will be permanently assigned to be responsible foroverall supervision and coordination of the necessary activities and, as abasic function, to analyze the rules (both legal and technical, as containedin manuals and in instructions) that have already been issued and are to beissued with regard to Budgets, Accounting, Funds Flow and Official Credit, inorder to harmonize them and maintain vertical integration within each systemand horizontal integration among all the administrative systems. For twomrnthe of the first year, it is planned to appoint another consultant toparticipate in the revision and harmonization of the rules governingnonfinancial administrative systems, Operations Planning, Administrativeorganization, Personnel Management and the Management of Goods and Services.

2. Preparation and issuance of basic rules and regulations for thefollowing systems:

2.1 operations Planning

2.1.1 Analysis of operations Planning methods, and adaptation and designof these for application to investment operations (for large-scaleor complex projects and simple projects), operations (thegeneration of current goods and services), and for the financingand regulation of economic and social actLvities.

Annex 5-44- Page 2 of 30

(Arrangements will be made to appoint an international consultantto each of these areas, with Bolivian consultants to providesupport.)

2.1.2 Preparation and issuance of the technical rules and basicregulations for operations planning, in line with the criteria anddesign developed in accordance with (2.1.1) above.(Performed jointly by international and Bolivian consultants.)

2.1.3 Discussion and adjustment of the rules and basic regulations tomatch needs. Harmonization with the budgetary methods adopted,and definition of the mechanisms integrating these regulationswith the process of formulating government budgets.

(The first part of this task will be performed jointly, and itwill then be continued by the Bolivian consultants.)

2.1.4 Preparation of the technical rules and basic regulations ofoperations Planning.

2.1.5 Discussion and adjustment of the rules and basi. regulations.

2.2 Administrative organization

2.2.1 Design of a register of nonfinancial public institutions atnational, departmental or regional and municipal levels.

2.2.2 Definition of the functions of the Subsecretariat for operationsPlanning, for the purpose of compiling and analyzing data andrecommendations on the elimination, rescaling and merging ofinstitutions.

2.2.3 Identification of analytical methodologies for eliminating theduplication of functions within a single institution and amongdifferent institutions.

2.2.4 Identification of analytical methodolcgies for simplifying theorganization of institutions.

2.2.5 Definition of the aspects of the interdependence betweenOperations Planning and Administrative Organization and Functions.

2.2.6 Preparation of the Basic Regulations for AdministrativeOrganization.

The international consultant will be a specialist in Administrative,Organization and will be responsible for the activities specified in (2.2.2)through (2.2.6) above.

The Bolivian consultants will be responsible for the activity specifiedin (2.2.1) above, and will participate in the others by providing support forth- international consultant.

-45- Annex 5Page 3 of 30

2.3 Personnel Management

2.3.1 Analysic of the Administrative Career Law (Ley de CarreraAdmInistrativa), the Personnel Management Law (Ley deAdmInistraci6n de Personal), and other existing legislation.

2.3.2 Study of options and definitions with .egard to the following items,among others:

- the institutional range of application of the rules andbasic regulations;

- the types and categories of personnel whose relationship tothe State will be governed by the rules and regulations;

- requirements with respect to seniority, training, etc.necessary for obtaining employment stability;

- mechanisms for personnel selection, hiring, promotions,penalties and dismissal;

- social security benefits, annual leave, special categoriesof leave, etc.;

- duties and responsibilities of the State and of governmentemployees.

2.3.3 Preparation and discussion of draft rules and basic regulations.

The international consultant, who will be a specialist in human resourcemanagement, will participate in all activities. The Bolivian consult.ants willparticipate in identifying existing legislation (see 2.3.1 above), gatheringdata and establishing classifications for existing personnel, social securitybenefits, systems governing special vacancies (for military personnel, lawenforcement officers, teachers, etc.), and preparing all necessary informationfor performing the activities defined in (2.3.2) above.

2.4 The Management of Goods and Services

2.4.1 Analysis of existing regulations governing the System for theManagement of Goods and Services.

2.4.2 Analysis of contracts with buying agents (PAHO, Crown Agents) andassessment of costs and benefits.

2.4.3 Preparation of basic rules to govern the following items:

- classification of commonly used goods;- catalogs of goods and services;- classification of goods and services;- procurement, storage and distribution.

-46- Annex 5

Page 4 of 30

2.4.4 Preparation of regulations governing purchases, contracts andbidding with respect to goods and services.

In all activities, the international consultant will be supported by theBolivian consultants.

2.5 Funds Flow and Official Credit

2.5.1 Preparation of rules to govern cash flow planning fordecentralized agencies and public enterprises.

2.5.2 Preparation of rules to govern monitoring, and recommendationsregarding the management of the institutions' cash flow programs.

2.5.3 Preparation of the Basic Regulations on Funds Flow Management.

2.5.4 Revision and adjustment of the Draft Regulations on the Managementof official Credit.

One of the international consultants will be a specialist in FundsManagement and will be responsible for the activities specified in (2.5.1) and(2.5.2) above, in addition to performing the activity defined in (2.5.3)j"intly with the other international consultant, who will be a specialist inOfficial Credit and will also execute (2.5.4).

Two of the Bolivian consultants will provide support for the first ofthese international consultants, and the two others will provide support forthe second.

3. Implementation of the Operations Planning, Personnel Managementand Management of Goods and Services Systems

3.1 Dissemination of Basic Rules in All Public-Sector Organizations

3.1.1 Preparation of Bolivian personnel to be responsible for the massdissemination of the basic rules and regulations prepared byILACO, by means of courses, seminars and direct contact withagencies.(To be performed by the international consultants.)

3.1.2 Mass dissemination of the systems to all public-sector agencies.This will involve providing courses and seminars, and resolvingqueries regarding the interpretation and application of tha rulesand regulations.(To be performed by the Bolivian consultants, initially withsupport from the international consultants.)

3.2 Preparation of individual rules Oor each of the main agencies orgroups of similar agencies.(To be performed by the agencies themaelves. The consultants will.deal with their queries and assist in solving any problems, inaccordance with 3.1.2 and 3.3.3.)

-47- Annex 5Page 5 of 30

3.3 Revision and harmonization of individual rules by theSubsecretariat for the Government Budget.

3.3.1 Revision of the rules prepared by each agency. Harmonization ofthese with the basic rules and regulations prepared in accordancewith (2) above.

3.3.2 Adjustment to affordable limits of those rules with budget costimplications.

3.3.3 Advice on amendments, including those necessary for adapting to anindividual agency those rules prepared for a group of similaragenries.

These activities will be performed by the international consultants.

4. Implementation of the Administrative Organization System

4.1 Gradual Reorganization of the Central Government

4.1.1 Identification and analysis of any dt'plication or overlapping ofactivities and functions among the various institutions of theCentral Government and between these institutions and theMunicipalities.

4.1.2 Preparation of recommendations for redefining the number ofagencies and the powers of each.

4.1.3 Submission of proposais to the competent authorities, anddiscussion of these proposals in the framework of ;he basic rulesand the regulations governing Administrative Organization.

4.1.4 Advice on the application of the resolutions adopted by theauthorities.

Basically, the activities specified in (4.1.1) through (4.1.3) will beperformed by the international consultants, with support from the Bolivianstaff. The activities indicated in (4.1.4) will be performed by the Bolivianconsultants, supported by the international consultants.

4.2 Dissemination of the Basic Rules

4.2.1 Preparation of the Bolivian personnel responsible for the massdissemination of the rules prepared in accordance with (2.2)above, through courses, seminars and training in the directprovision of services for the agencies.

4.2.2 Dissemination to all agencies of the rules applicable to each, inaccordance with their individual characteristics and degrees ofautonomy with respect to decisions on their own internaladministrative organization.

-48- Annex 5Page 6 of 30

The activities specified in (4.2.1) above will be performed by theinternational personnel, while (4.2.2) will be implemented by the Bolivianconsultants, initially supported by the international consultants.

4.3 Adjustments in the internal organization of each agency. Issuanceof individual rules, and revision of these by the Subsecretariatfor Official Credit.

4.3.1 Issuance of special rules by each agency or group of similaragencies.

4.3.2 Preparation of personnel from the Subsecretariat for theGovernment Budget, to enable them to analyze the rules. Jointanalysis with this personnel of the first ,ases to be submitted.Responses to queries on problems of interpretation andharmonization with the general regulations.

4.3.3 Revision and adjustment of all special rules prepared by theagencies.

4.3.4 Adjustments to the internal organization of each agency, in linewith the epecial rules as approved.

The activities identified in (4.3.1) and (4.3.4) above will be performedby the agencies themselves, supported by project personnel.

The basic responsibility for (4.3.2) will lie with the internationalconsultants, and the Bolivian personnel will initially participate asassistants (thus gaining advanced training) and then cooperate in analyzingand responding to individual cases.

The activities specified in (4.3.3) above will be performed by theSubsecretariat for the Government Budget, with advice from the Bolivianconsultants and initially supported by the international consultants.

5. Development of the Budget System

5.1 Integration of the rules governing the systems identified in(2.1), (2.2), (2.3) and (2.4) into the Budgetary Planning Method(already being applied).

5.1.1 For the purpose of integrating Operations Planning:

- analysis of the basic rules proposed for the OperationsPlanning system, together with the technical principlesunderlyinq them, in order to activate the mechanisms forintegrating them into the Budgetary Planning Method:

- adaptation of the processes and methods developed in thefirst phase, ti ensure that formulation and evaluation ofbudgets incorporate Operations Planning techniques;

-49- Annex 5Page 7 of 30

- development of mechanisms for integrating and clearlydefining the scope of the formulation, monitoring andevaluation processes of each of the subsystems, in order toavoid duplication and make the management of thesesubsystems more efficient.

The process of integrating Operations Planning will be initiated withthe support of an international consultant, who will be directly responsiblefor the first of the items listed above.

The remaining items will be shared with the Bolivian consultants, whowill be responsible for adjusting the integration mechanisms and providingdirect advice on their application by the agencies.

5.1.2 For the purpose of integrating Administrative Organization:

- definition of mechanisms and procedures for applying ,:heBudgetary Planning Method to the identification ofduplicated functions and activities within a singleinstitution and among a number of institutions;

- utilization of the Basic Regulations on AdministrativeOrganization, together with the progress made inrestructuring the Central Government and adjusting theinternal organization of each agency, in order to redefinethe units responsible for the execution of each of thebudget program categories;

- -application of adjustments to the allocation of inputs andthe planned results of each activity, in accordance with theredefinition of activities and functions.

The above activities will be performed by the Bolivian consultants. Theinternational consultant will be responsible for solving any specific problemsor questions of interpretation.

5.1.3 For the purpose of integrating the rules governing PersonnelManagement:

- analysis of the budgetary impact of projects for regulatingpersonnel management; preparation of proposals foradjustments, or adaptation of these to match the resourcesavailable for financing them;

- assessment of the flexibility required by the BudgetaryMethod to enable personnel to be reassigned to otherprograms and activities, and of the compatibility of thesemeasures with the rules governing stability of employment;

- definition of the appropriate budget treatment for socialcategories and benefits incorporated into the new personnelmanagement system and for the use of the new definitions for

-50- Annex 5Page 8 of 30

preparing human resource balances and assigning suitablepersonnel to the various budgetary activities.

Basically, the international consultant will participate in thepreparation of proposala for the adjustment of the rules as approved or thegradual application of such rules, in line with available resources. Theremaining tasks will be the primary responsibility of the Bolivianconsultants.

5.1.4 For the purpose of integrating the rules governing the Managementof Goods and Services:

- analysis of the criteria for identifying and classifyinggoods and services and making these compatible with currentbudgetary categories and with the notification requirementsapplied to the procurement and utilization of inputs forplanned activities;

- analysis of the proposed procedures for the procurement,storage and distribution of goods and services, and theirimpact on budgetary processes;

- harmonization of the budgetary rules and procedures with therules established in the Regulations Governing Purchases,Contracts and Bidding with Respect to Goods and Services.

The international consultant will be responsible for the first twoitems, and will review the activities performed under the final item. TheBolivian consultants will provide assistance for the first two items, and willbear the main responsibility for the final item.

5.2 Transfer of responsibility for budget formulation from programmersin the Subsecretariat for the Budget to the institutionsthemselves.

5.2.1 Analysis of the problems that have hitherto prevented the transferof responsibility for budget formulation to each organization.

5.2.2 Preparation of proposals for solving problems common to variousagencies. Discussion of same, and dissemination of the resultsthrough seminars and working groups arranged for the purpose.Advice on the application of the solutions.

5.2.3 Focus on the specific problems affecting certain agencies and sofar making it impossible for them to prepare their own budgets.Proposals for solutions. Discussion of these proposals andapplication of agreements reached.

These actions will require the joint efforts of the international andBolivian consultants. The international consultant should, preferably,analyze the problems raised and make proposals for solving them. The Bolivian

-51- Annex 5Page 9 of 30

consultants will basically be responsible for disseminating and applving thesesolutions.

5.3 Gradual improvement in the quality of budget preparationprocedures.

5.3.1 Analysis of weaknesses in the process of preparing governmentbudgets.

5.3.2 Internal discussion with those responsible for critical areas inthe Subsecretariat for the Budget. Proposals for adjustments andcorrections. Dissemination and implementation of the proposalsapproved.

5.3.3 Seminars to evaluate the progress made in budget formulation.Analysis of the difficulties and drawbacks facing full applicationof the techniques used. Discussions with the organizations onproblems and proposals to solve them. Support for theintroduction of these solutions.

5.3.4 Continuation of the training and instruction effort, given theturnover of personnel in government organizations.

The actions envisaged under this heading will be designed to solve theproblems encountered, following a sequence reflecting their size and scope.For example, the focus in the first year will be on the link between budgetsand the cost systems currently used in the enterprises, so that the conceptsof Productive Management Center (budget) and Cost Centers (accounts) can beassimilated, thus making budget execution the basis for cost accounting.

Attention can then be given to the problems of the regional operatingplans of the corporations; up to now these have not guided the preparation ofthe relevant budgets, which are prepared subsequently as a joint exercise;execution monitoring is based on these budgets and not on the legally approvedfigures. The sequence could be continued until all the most significantissues have beAn dealt with.

The Subsecretariat for the Government Budget will be responsible fordetecting and circulating information about current problems. Theinternational consultants will analyze these problems and propose solutions.The Bolivian consultants will participate in studying and discussing theproposals and will disseminate and apply them in conjunction with theSubsecretariat's analysts. At the end of the period, the Subsecretariat willtake over responsibility for maintaining and continuously enhancing the budgetprocess.

5.4 Strengthening the macroeconomic planning of public finance.

5.4.1 In-service training and instruction of professionals in theDirectorate for Budget Policy in the use of planning techniquesand the compilation and use of financial statistics.

-52- Annex 5Page 10 of 30

5.4.2 Direct participation in the process by providing support for thepreparation of the macrofinancial planning that will guide thepreparation of the 1992 and 1993 budgets.

5.4.3 Analysis and recommendations regarding the structure and functionsof the Directorate for Budget Policy and its relationships withthe other macrofinancial planning agencies (UDAPE, Central Bank)in order to institutionalize the system.

Task (5.4.1) will essentially be the responsibility of theinternational consultant; the other activities will be performed inconjunction with the Bolivian experts.

5.5 Review, adjustment and introduction of the budget evaluationsystems.

5.5.1 Review of the manuals, instructions and procedures applied duringthe first phase of the project, and preparation of proposals tomodify them. Discussion of these proposals until they areapproved.

5.5.2 Training of personnel in the Subsecretariat for the GovernmentBudget and the executing agencies.

5.5.3 Direct participation in the introduction of evaluation systems inthe Subsecretariat for the Government Budget and the principalagencies.

5.5.4 Responses to queries and solution of problems deriving from theintroduction of these systems in the remaining agencies.

Tasks (5.5.1) and (5.5.2) will essentially be the responsibility of theinternational consultant, who will provide the support for execution of theremaining activities, to be performed by the Bolivian consultants.

It is planned that, by the time of the evaluation work and reports atthe close of FY92, the system will be fully institutionalized and operating inall the principal public-sector agencies.

5.6 Design and introduction of the software for budget formulation andevaluation.

5.6.1 Review of existing budget preparation programs, as regards bothdata gathering and formulation of institutional budgets, and theaggregated and consolidated budgets for groups of agsncies and thepublic sector as a whole.

5.6.2 Design of new programs using data bases to make the pro'ess ofbudget preparation quicker and more flexible.

5.6.3 Testing and introduction of the new software both withinindividual institutions and at aggregate level.

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5.6.4 Design, testing and introduction of computer programs to evaluatethe physical and financial execution of budgets.

5.6.5 Maintenance and adjustment of the systems.

The international consultants will support the first phase of theprocess by defining the basic guidelines for the work so as to conform to thefeatures of the budgets of each institutional group, and to ensure that theoutput data completely meet the needs of the accounting system. The Bolivlanconsultants will be responsible for the remainder of the work.

6. Introduction of the Funds Flow and Official Credit System

6.1 Design and introduction of systems and procedures to govern theoperations of the Directorate of Official Credit of the Treasury, andestablishment of the linkages between these and the functions in thisarea that the regulations prescribe for the Ces 'ral Bank of Bolivia, theMinistry of Planning and Coordination and the government agencies inreceipt of such financing.

6.1.1 Design of procedures for contracts, disbursements, records,payments for services and monitoring of official credit.

6.1.2 Design of procedures for contracts, disbursements, records,payments and monitoring of internal loans obtained by the CentralGovernment and onlent to decentralized agencies and publicenterprises.

6.1.3 Definition of the participation of public agencies using financingfrom the Directorate for Official Credit, the Treasury, theMinistry of Planning, the Ministry of External Relations and theCentral Bank of Bolivia, in accordance with the procedures to bedefined.

6.1.4 Preparation of the bases of a trust agreement with the CentralBank that precisely defines its obligations as agent and those ofthe Ministry of Finance as principal in the administration offunds and the recording and filing of information on officialcredit transactions.

6.1.5 Training of the ILACO and Minietry of Finance personnel that willoper. -e the system and be responsible for disseminating the rules,meth. ologies and procedures to be designed.

6.1.6 Advice on the introduction of the rules, methodologies andprocedures.

Of the two international consultants, one will concentrate exclusivelyon task (6.1.4), which will be performed at the same time as (6.1.1), (6.1.2)mnd (6.1.3). The latter will be executed by the other consultant, who willalso carry out taeks (6.1.4), (6.1.5) and (6.1.6). The internationalconsultants will be assigned as follows:

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In 1991, two consultants will assist the international consultantin task (6.1.1), and two others will assist with (6.1.2).

In 1992, two international consultants will participate intraining, dissemination and provision of advice on the applicationof regulations and procedures for internal loans.

In 1993, one Bolivian consultant will remain for four months toadvise on implementation in general.

6.2 Introduction of the principle of a "single cash account," throughthe centralization of all Treasury funds, so that the cur',entaccounts for the exclusive use of the central government agenciesthat collect revenue will be eliminated.

6.2.1 Inventory of all the current accounts in the Treasury and centralgovernment agencies.

6.2.2 Elimination of all bank accounts in which no transactions haveoccurred for a considerable time, and analysis and submission ofjustifications for those that should be retained.

6.2.3 Elimination of the bank accounts into which are paid the "ownfunds" of central government organizations, and centralization ofrevenue in a Treasury account.

6.2.4 Preparation of draft "Single Cash Account Regulations," in whichthe accounts of government agencies arb regarded as "subaccounts"of the single Treasury account, and definition of the scope andlimits of the powers of the Undersecretary of the Treasury withrespect to the use of the funds in this account.

6.2.5 Negotiation with the State Bank with a view to creating themachinery for establishing, operating, making entries in andproviding information on the single account and the subaccounts.

6.2.6 Preparation of procedures for operating the single account.

6.2.7 Training of staff in the Treasury and central government agenciesin the rules and procedures to be _dopted.

6.2.8 Advice regarding the introduction of these rules and procedures.

The international consultant will be responsible for executing task(6.2.4) and will participate, together with the Bolivian consultants, inimplementing (6.2.6), (6.2.7) and (6.2.8).

The remaining activities, viz. (6.2.1), (6.2.2), (6.2.3) and (6.2.5),will be carried out by the Bolivian consultants.

6.3 The use of the banking eetwork for making payments, and theelimination of the present Subtreasuries.

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6.3.1 Detailed survey of the tasks and functions of the Subtreasuries.

6.3.2 Analysis of the ability of the State Bank and private banknetworks to operate in localities currently served bySubtreasuries.

6.3.3 Preparation of procedures for payment of wages and salaries,transfers, suppliers, contractors, revolving funds, etc. via thebanking network.

6.3.4 Preparation of the Treasury's verification procedures, to beapplied to payments by the banking network.

6.3.5 Preparation of the recording procedures to be operated by theTreasury and the Integrated Financial Data System of theGovernment Comptroller's Office.

6.3.6 Preparation of the computer programs required for introducingpayment, accounting entry and audit procedures.

6.3.7 Training for the staff involved in the procedures to be adopted.

6.3.8 Advice on the introduction of the procedures.

Tasks (6.3.1) and (6.3.2) will be performed by the Bolivian consultants.Subsequently, the international consultant will join them for four months toexecute (6.3.3), (6.3.4) and (6.3.5). Task (6.3.6) will be handled by twoBolivian consultants specializing in data programming, and once programpreparation has reached an advanced stage (task 6.3.6), the programs will befine-tuned through the participation of the international consultant, who willparticipate in (6.3.7) and (6.3.8).

6.4 Dissemination of the basic Funds Flow and Official Credit rules to alldecentralized and autonomous State agencies.

6.4.1 Drafting of Guides for the preparation of specific and basic ruleson Funds Flow and Official Credit for decentralized and autonomousState agencies.

6.4.2 Preparation of bibliographical and instructional material fortraining staff in the Treasury and the decentralized agencies.

6.4.3 Training of Treasury staff so that they can instruct thosepreparing the rules in the decentralized agencies and publicenterprises.

6.4.4 Training of staff from the 238 decentralized agencies in the basicrules and in the Guide to drafting specific rules.

The international consultant who prepared the draft basic rules onFunds Flow and Official Credit (2.5) must perform (6.4.1), (6.4.2) and(6.4.3).

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Two Bolivian consultante will provide the training referred to in(6.4.4).

6.5. Issuance by the autonomous agencies of their own individual ruleson funds flow, and review and harmonization of these with theTroasury.

6.5.1 Advice during the preparation of the special rules on funds flowin the decentralized and autonomous agencies.

6.5.2 Analysis of the draft rules prepared by these agencies so as toharmonize them with the basic rules.

6.5.3 Advice on the application of the special rules.

The activities will be executed exclusively and simultaneously by six8o01vlan consultants who will meet the needs of about 200 decentralizedagencies and public enterprises.

6.6. Rationalization of the issuance and administration of fiscalinstruments.

6.6.1 Survey of all fiscal instruments sold by various State agenciesand study of the legality of these items, such as airportsurcharges, stamp taxes, etc.

6.6.2 Preparation of draft rules depriving illegal fiscal instruments ofany validity.

6.6.3 Preparation of rules for the issuance and administration of fiscalinstruments by the Ministry of Finance.

6.6.4 Preparation of procedures for the supervision, issuance,safeguarding, distribution and sale of fiscal instrument.

6.6.5 Preparation of computer programs for proceseing data in thesystem.

6.6.6 Training of the personnel to be responasble for applying therules, procedures and computer programs.

6.6.7 Advice on the introduction of the rules and procedures.

The international consultant will be responsible for (6.6.2) and(6.6.3), will prepare the work plan to be executed by the Bolivianconsultants, and will participate in (6.6.4).

Your Bolivian consultants -- working for about five months each -- willcarry out the remaining tasks. Two of them will be responsible for (6.6.1)*nd (6.6.4) -- in conjunction with the international consultant -- and(6.6.5), in conjunctLon with the other two Bolivian consultants.

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Activity (6.6.5) will be handled by a systems analyst and a programmer,who will also participate in training the personnel that will be involved inintroducing the rules and procedures prepared in the Subsecretariat of theTreasury and the agencies concerned.

7. Integrated Accounting.

7.1 Review and introduction in all central government agencies of thesupporting records to complement the Integrated Accounting carriedout by the Comptroller's Office, and development of managementinformation for administering each of these agencies.

7.1.1 Completion of the design of the accounting manual for centralgovernment organizations, incorporating asset account transactions(funds and fixed assets).

7.1.2 Training of the staff responsible for operating the system incentral government organizations (27 agencies) and the personnelfrom SAFCO and the Controller's Office who will advise theseorganizations.

7.1.3 Analysis of the capacity and characteristics of the automatic dataprocessing teams in each organization.

7.1.4 Advice on introduction of the accounting manual and the productionof data outputs for integration into the central governmentaccounting system operated by the Comptroller's Office.

The international consultant will be a specialist in public accountingand will be responsible for completing the drafting of the integratedaccounting manual for central government agencies.

This consultant will also prepare the instructional material and willtrain personnel from SAFCO and the Comptroller's Office, as well as providinginitial training for the staff who will operate the system.

This consultant will explain the guidelines for preparing implementationprograms in each agency, will supervise their execution and will advise oncritical issues as they arise, so that specific solutions can be found foreach agency through the application of common criteria by Bolivian personnel;the international consultant will also modify the manual in light ofexperience of its use. I

The Bolivian consultants will train the staff of the agencies who willoperate the system and will advise on its introduction in the 27organizations, while also supervising the timely and reliable production ofdata outputs for incorporation into the system operated by the Comptroller'sOffice.

7.2 Dissemination and development of the Integrated Accounting Systemin the decentralized institutions and public-sector enterprises.

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7.2.1 Modification of the design of the accounting manual for nonprofitdecentralized institutions.

7.2.2 Training of staff members of SAFCO and the Controller's Office toassist the decentralized institutions with introduction of theAccounting Manual, and public enterprises with introduction of theGuide for Preparation of the Accounting System Manual for PublicEnterprises.

7.2.3 Training of staff members in the decentralized institutions tooperate the Integrated Account!ng System in each institution, andstaff members in the public enterprises to prepare or supervisethe design of the Integrated Accounting System Manual.

7.2.4 Advice to the decentralized institutions on adaptation andintroduction of the Accounting Manual.

7.2.5 Advice to public enterprises on preparing Accounting Manuals, andon preparing terms of reference whenever consultants are to behired to design the accounting system.

7.2.6 Advice to the Comptroller's Office on revising the Manualsprepared for public enterprises.

7.2.7 Advice to the enterprises on the introduction of the Manuals.

The international consultants will be respons'ble for the activitiesdescribed in (7.2.1), (7.2.2), (7.2.4) and (7.2.5). They will carry outactivities (7.2.6) and (7.2.7) jointly with the Bolivian personnel. They willbase their activities on the Accounting Manual for Decentralized Institutions(which will apply to 58 institutions), the accounting systems designed for tbe15 institutions selected in (7.3.2) and (7.3.3) [sic] (which will apply to 101similar institutions), and the Guide for Preparation of Accounting Manuals forPublic Enterprises (which will apply to 50 enterprises unable to afford thecost of hiring consultants to design their systems).

The Bolivian personnel will be responsible for training the staff of the223 decentralized institutions and public enterprises, where they will bguided and supervised by the international consultant specializing indecentralized entities, while they will work with the consultant in publicenterprises in performing activitiea (7.2.4), (7.2.6) and (7.2.7).

7.3 Establishment of special integrated budgeting, funds flow andaccounting systems in nonprofit pubLic agencies representative ofsubgroups consisting of institutions with similar characteristics.Preparation of a document containing a precise definition of thebasic characteristics of the integrated budgeting, funds flow andaccounting systems, for inclusion in the terms of reference forconsultants hired to design opecial systems for agenciesrepresentative of subgroups consisting of similar institutions.

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The international consultant will prepare the technical document on thebaoic characteristics of integrated financial management systems, forinclusion in the terms of reference for future consultants.

The Bolivian personnel will help disseminate and explain the features ofthis document to the decentralized organizations, and will assist in drawingup technical terms of reference supplementary to those included in thedocument.

7.4 At the ContLoller's Office, development of centralized financialdata bases for the entire public sector, so as to facilitateanalysis of such data and make available the infcrmation neededfor the preparation of fiscal statistics and the essential inputsfor the national accounts and for macroeconomic and budgetaryanalysis, ensuring the gradual elimination of the nonaccountingfinancial information presently used as a basis for decisionmaking(Emergency Program, DIFAD, SISIN, etc.).

7.4.1 Amendment of the instructions for the preparation of accrual-basisnational accounts for the public sector and for the preparation ofcash-basis public finance statistics, to take account of changesmade to the line items and to data outputs from integratedbudgetary and asset accounting.

7.4.2 Revision and amendment of the design of the Nonfinancial Public-Sector Data Base.

7.4.3 Design of data base.

7.4.4 Programming of data base.

7.4.5 Activation of data base.

7.4.6 Training in financial analysis for users.

7.4.7 Development of financial analysis module.

7.4.8 System documentation.

7.4.9 Data base operation and monitoring.

Two international consultants will be needed hero: one specializing inpublic-sector financial information systems and macroeconomic and budgetaryanalysis, and the other in computer systems design, with data basespecialization. Each consultant will handle the activities in his own field,but the two will also collaborate in certain areas. The financial informationsystems consultant will be individually responsible for activities (7.4.1) and

(7.4.6). The computer systems consultant will be individually responsible foractivities (7.4.4), (7.4.7) and (7.4.8), and the other activities will beperformed jointly. The Bolivian consultants will participate in activities

(7.4.3), (7.4.4), (7.4.7), (7.4.8) and (7.4.9).

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8. Preparation of special rules for agencies that are less structurallycomplex; the basic rules will take account of groups of instLtutions sharingsimilar characteriatice.

8.1.1 Selection and claseification of agencies for whlch special ruleswill be drawn up, such as: municipalities, asesitance centers,agricultural extension centers, education centers, airports,sports complexes, etc.

8.1.2 Formulation of budgetary, accounting and funds flow rules for eachgroup with similar characteristics.

8.1.3 Formulation of budgetary, accounting and funds flow procedures foreach group with similar characteristics.

8.1.4 Training of instructors and preparation of instructional materialfor training personnel assigned to apply the new rules andprocedures.

8.1.5 Staff training.

8.1.6 Advice on formulation of the special rules.

SelectLon of the international consultants will take &ccount of the newinetitutional classification, which will create separate groups ofinstitutions sharing similar organizational and operational characteristics,such as municipalities, education and agricultural extension centers, andinetitutions managing semiautonomous resources (airports, sports centers,etc.). The international consultants hired will be specialists in financialmanagement systems (budgeting, accounting and funds flow).

Given the large number of agencies included in this activlty, theinternational consultants will be responsible, once the classification processis completed (8.1.1), for activities (8.1.2), (8.1.3) and (8.1.4) for eachgroup.

The Bolivian consultants will be responsible for activities (8.1.5) and(8.1.6).

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B|. OFFICE OF THE COMPTROLLER GENERAL

X1. nlaternational Senior Consultant on Governmental Control: Duties andResponsibilities

For purposes of implementation of the Governmental Control compo.ent ofLaw 1178 and in accordance with the Management and Governmental ControlIntegrated System -- SAFCO-- the senior international consultant shall beresponsible before the General Comptroller of the Republic and the ILACOproject Director, including the supervisor of the Governmental Controlcomponent, of the following tasks:

1.1 Revision, dissemination, and continuous adjustment -- based on theresults of their application -- of norms, instructions, andguidelines for the following: Internal Control and GovernmentalAuditing; analysis procedures for administration, information, andinternal control systems such as the execution of audits carried outby CGR; audits carried out by the Internal Auditing Units of thepublic sector and for them to carry out external audits of theinstitutions for which they are responsible; contracting of externalauditing firms or specialized consultants for audits and managementprocedures of these contracts by the contracting agencies;evaluation of internal and external audit reports and otheractivities related to governmental control of the institution.

1.2 Advice on the compatibility of D.S. 22165 with Law 1178 and directresponsibility for implementation of Organization, System Analysisoperations, Auditing, Administration and Internal Control systems ofCGR.

1.3 Advice on implementation of staff performance evaluation and careerdevelopment at CGR and in the Internal Auditing Units of the publicsector.

1.4 Design and implementation of information systems related toprogramming, execution, and quality control of analyses and audits,follow up of recommendations, operational costs, and advice withrespect to additional tests, counseling on legal and administrativeprocesses, training and professional performance.

1.5 Development of the Technical Unit to carry out programming andfollow up of operations, quality control and audit efficiency, andadjustment to technical standards.

1.6 Development of present auditing units in four management officeswith four public accountants with international experience asadvisers, who will train senior supervisors along with the followingauditing managers:

- Public Enterprises and Utilities- Social Services and Local Governments- Rest of Central Government- Support to Departmental Audits

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1.7 Development of the Management Office for Administrative SystemAnalysis, Information, and Internal Control.

1.8 Contracting, under the direction of the General Controller of theRepublic, of special audits on large investments and major entitiesand follow up on compliance of contracts with support from theAuditing Management Offices and other CGR Units.

The consultant shall work exclusively on the ILACO project.

Requirementst

Education and Skills:

Public Accounting Degree; training and experience in financialadministration desirable.

Experience:

Minimum 10 years experience in External Auditing Management, five ofwhich in an international firm.

Languages:

Spanish; knowledge of English desirable.

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2. International Senior Consultant on Governmental Control Development:Duties and Responsibilities

The Consultant will work under the direction of the Assistant Controllerfor Operations and jointly will be responsible before the General

Controller of the Republic for the following:

2.1 Preparation and implementation of the guidelines on organization,operation, and execution of auditing by CGR.

2.2 Preparation of the guidelines for the public sector internalauditing units and for them to carry out external auditing of the

institutions for which they are responsible.

2.3 Dissemination of the basic norms for internal control andgovernmental auditing and the rules and guidelines for internal andexternal audits.

2.4 Dissemination and monitoring of the application of rules andregulations for contracting external auditing firms or specializedconsultants for audits and preparation of the guidelines on

management of these contracts by the public sector contractingagencies.

2.5 Preparation of terms of reference and supervision of the contractedconsulting firm for the development and implementation of the basicrules and regulations, guidelines, and organization and internal

management manuals for CGR in accordance with the basic guidelinesissued by the Ministry of Finance.

2.6 Preparation of terms of reference and provision of advisory serviceson contracting of international and local consulting firms andsenior staff to comply with PPFI and II.

2.7 Preparation of terms of reference for other consultants and seniorstaff to be contracted when project financing becomes disburseable.

2.8 Preparation, jointly with the contracted Public Accountants andAuditing Managers, of the policies and contracts for contractingauditing services, and provide assistance to the auditing managementoffices in the supervision of such contracts.

2.9 Evaluation of the proposals for the auditing operations programsubmitted by the Auditing Management Offices, monitoring compliance,and evaluation of the proposed adjustments.

2.10 Preparation of criteria for the evaluation of Project results and,

as much as possible, definition of measurable indicators of theresults.

2.11 Preparation of biannual progress reports drafts on the Project's B-1and B-2 components.

Execution of .he above tasks should serve as the basis for the future

establishment and development of the Programming and Technical Office.

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Requirements:

Education and Skills:

Degree in Public Accounting with special emphasis on governmentalcontrol standards and technical procedures.

Experience:

Minimum 10 years of experience in management and auditing operationsquality control, part of which should have been acquired in a stateor government auditing agency. Additional training and experiencein administrative analysis and public financial information systemsdesirable.

Languages:

Spanish; knowledge of English desirable.

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3. Public Accountant with Experience in External Auditingt Duties andResponsibilities

Under the direction of the Assistant Controller for Operations, the PublicAccountant shall be responsible for:

3.1 Developing and supporting the operations of the following auditingmanagement offices:

Public enterprises and Utilities

Social Services and Local Governments

- Support to Regional Audits.

3.2 In-house training in each of the entities, of nine SeniorSupervisors jointly with the Senior Auditing Managers.

3.3 Support the work of the Management Offices through programming,supervision, and quality control of the field work of thecorresponding audits.

Requirements:

Education and Skills:

Public Accounting degree; additional training in system analysisdesirable.

Experience:

Three years minimum experience at the level of External AuditingManager and some experience in government administration andauditing.

Age:

Not older than 35 years of age.

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Annex 5Page 24 of 30

4. Senior Consultant with International Experience in Legal Affairss Dutiesand Responsibilities

Under the direction of the General Controller of the Republic, theConsultant shall advise and assist in the development of legal services,relations with other institutions and communications of the GeneralControllership of the Republic, complying with the following terms ofreference:

4.1 Lead or assist and participate in the preparation of legal standardsderived from Law 1178/90 for which the Controllership is responsiblefor issuing and disseminating.

4.2 Assist in the development of technical regulations to ensure theircompatibility with the present legal framework.

4.3 Design and initiate the establishment of the Controllership's LegalOffice which will initially cover the following aspects, ensuringits independence from the Coactive Assistant Controllership:

4.3.1 Advice the Programming and Technical Office on legal mattersas requested and provide assistance in the dissemination ofLaw 1178/90 and on standards and regulations for which theControllership is responsible.

4.3.2 Assist the Assistant Controller for Operations on the legalaspects derivud from the audit exercise and other legal workrequired.

4.3.3 Follow up and participate in appeals of coactive legal suitsand extraordinary presentations.

4.3.4 Analyze or prepare draft responses to information requests andother consultations.

4.3.5 Prepare the programming and control procedures of this serviceto provide legal assistance to the Controllership.

.4.4 Participate as senior legal adviser in the Technical Committeepresided by the Assistant Controller for operations.

4.5 Advise and assist the General Controller with respect to thefollowing activities:

4.5.1 All legal matters and especially relatLons with theLegislative and Judicial Branches.

4.5.2 Relations with other governmental agencies, with othernational entities, and with international institutions.

4.5.3 Prepare a public information strategy on Governmental Controland its results.

4.5.4 Prepare the development of the above items and other supportservices for the General Controller.

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Annex 5Page 25 of 30

4.5.5 Other duties assigned by the General Controller.

Requirements:

Education and Skills:

Law degree with specialization in Administrative Law.

Experience:

A minimum of 10 years of experience in the legal field.

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5. International Senior Consultant for Regulation of Administrative LawsDuties and Responsibilities

The consultant will work under the direction of the CGR General Counseland along with him will be responsible before the General Controller ofthe Republic for the following:

5.1 Review and discuss with local legal consultants the followingprojects:

a) Regulations on responsibility for public service, includingthe ethical aspects.

b) Draft Bill on Organization and Procedures of the FiscalCoactive Tribunal.

5.2 Participate in seminars to identify p:oblems and adjust the aboveprojects.

5.3 Participate in explaining the projects to the correspondingauthorities.

5.4 Prepare terms of reference for the contracting of International andLocal Consultants and senior professionals for the execution of theB-3 component of the ILACO Matrix Project.

5.5 Develop criteria to evaluate and measure project results.

Requirements:

Education and Skills:

Law degree and specialization in Administrative Law; graduatetraining in Financial Administration or Public Administration verydesirable.

Experience:

Ten years minimum experience in Administrative Law and Management.Experience in defendant/prosecution litigation of public servantsand suits between the government and individuals desirable.

Language:

Spanish.

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6. Senior Professional with International Experienes in Training DevelopentsDuties and Responsibilities

Under the direction of the General Controller of the Republic, the SeniorProfessional with International Experience in Training Development willhave the following duties and responsibilitiess

6.1 Lead the reformulation and adjustment of the courses of the BasicTraining Program in Administration and Control Systems establishedby Law 1178.

6.2 Lead the execution of the Basic Training Program.

6.3 Lead the development of the Training Center of the GeneralControllership of the Republic in the academic and administrativeaspects.

6.4 Select participants to courses and evaluate them.

6.5 Participate in teaching courses whenever necessary.

Requirements:

Education and Skills:

College degree, preferably in Education, with training or experiencein Financial Management.

Experience:

Minimum of five years experience in Administration, preferably inhigher learning education centers.

Language:

Spanish; knowledge of English desirable.

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Page 28 of 30

7. Senior International Consultant in Training Development: Duties andResponsibilties

The consultant will be under the direction of the Director of the TrainingCenter of the General Contrallorship of the Republic "CENCAP", and alongwith him will be responsible before the General Controller of the Republicof the development cf the training program in Governmental Administrationand Control. He will be specifically responsible for the followlngduties:

7.1 Prepare and propose a detailed training progrem in accordance withthe objectives and activities of the ILACO project.

7.2 Participate in the selection of instructors and participants to thetraining courses from CGR and Central Administration as well asother institutions.

7.3 Supervise the annual execution of the Training Program.

7.4 Prepare the terms of reference for international consultants for thereview and adjustment of the courses in the train,ng program andsupervise their compliance.

7.5 Prepare criteria for the evaluation of training results and as muchas possible, define measurable indicators of the results.

7.6 Supervise the design of the Master's program in Public Accountingand Management.

7.7 Participate, while local instructors are in training, in teachingthe Governmental Auditing Course and the Introduction to Law 1178Course.

7.8 Advise the Director of the Training Center on aspects related toadministration of the Center.

Requirements:

Education and Skills:

College degree in Public Accounting with emphasis on financialadministration.

Experience:

Minimum 10 years of experience as higher education instructor andfive years in administration and management of training programs forpublic service employees.

Language:

Spanish; knowledge of English desirable.

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8. International Consultant in Financial Administration to Reformulate theProgramming and Financial Administration Course: Duties andResponsibilities

8.1 Based on the existing material for the current OperationsProgramming and Financial Administration Course ar.d any other usefulmaterials, the Consultant will reformulate and prepare, for theTraining Center of the General Controllership of the Republic, thetextbook for the new Programming and Financial Administration 11-ACourse, formerly V-A "Operations Programming, FinancialAdministration, and Management Information Systems."

8.2 The course will have a duration of 6 weeks (180 hours of classes),and will be geared to CGR and other Public Administration financialstaff; its main thrust will be the conceptual theoretical frameworkand the practical application of the following systems: operationsprogramming, internal organization, budget, collections and revenue,treasury and public credit, and the internal control of thesesystems established under Law 1178/90 being implemented by theMinistry of Finance.

8.3 The Consultant will prepare the textbook on the basis of thefollowing chapters: Public Finances; Public Sector Organization;The Budget as a Management Instrument; Budgetary Principles,Classifications, and Techniques; Programming Conditions; Basis forFinancial Programming; Budget Preparation; Coordination of BudgetExecution; Funds and Debt Administration; Programming and FinancialAdministration Internal Controls; Budget Execution Evaluation.

8.4 Preparation of the textbook includes the development of teachingmaterials, the corresponding teacher's manual, a manual on thepreparation of practical cases and their solution, and a manual forpreparation of tests, exams, or evaluations given to students.

8.5 In order to coordinate the new Course V-A with Courses V and III,the Conbultant shall analyze and reformulate the instruction schemeof these courses so as to make them compatible with Course II-A.

This analysis shall be geared toward:

a) Achieving a practical understanding of the structure andcontent, as well as the logic, of all the financial statementsand the notes accompanying the same, and training in itsmultiple uses for analysis and management decision-making.

b) The scope and logic of the norms of generally acceptedaccounting principles and their impact in the interpretationof financial statements.

C) The ioiportance of integrated governmental accounting as amanagement tool for the implementation of a managementinformation system and training in its application.

d) Defining the activities, methods, and procedures of aninternal control system that provides the necessary support onthe reliability of financial statements and goals achieved.

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In Courus II the current financial information system with itscomputerized accounting programs will be used as an example tohighlight the operational elements of the information systems.

8.5 During preparation of the textbook, teacher's aids and manuals, theConsultant will be assisted by a national professional.

8.6 After review by the Academic Director, the Consultant responsiblefor the implementation of the financial administration system., andthe International Supervisor of the Training Center, the finaltextbook, aids, and manuals for the Course will be submitted to theTraining Center Director.

8.7 Based on the textbook, the Consultant will teach a testing coursethat should include the training of three national instructors,among which the future instructors of the course will be selected.Likewise, he will supervise the teaching of a second course and willthereafter make the final adjustment of all the materials.

8.8 The consultantship shall be for a period of six months and shall besubject to the timetable of activities agreed by the CGR's TrainingCenter and the Consultant.

8.9 The textbook, teacher's aids and manuals prepared by the Consultantshall be the property of the Training Center.

Requireoentrs

Education and Experience:

Degree in Public Accounting or Economics; specialist in Budget andGovernmental Accounting, with 10 years of experience in the PublicSector.

Language:

Spanish.

-73-

ANNEX 6

ORGANIZATIONAL CHART OF THE MINISTRY OF FINANCE

I MINISTER OF FINANCE

INTERNAL AUDITING PUBLIC RELATIONS& PRESS

TECHNICAL COUNCIL

SUBSECRETARIAT OF TREASURY SUBSECRETARIAT GENERALOPER. PROGRAMMING/ SUBSECRETARIAT OF FIN. ADM. ACCOUNTINGBUDGETING I -~- I OFFICE

TREASURY PERSONNEL-l_ OPERATIONS ACCOUNTING

DIR. BUDG. LEGAL STANDARDSCENTRAL PUBLIC CREDIT COUNCILADMINISTRATION ACCOUNTING

GENERAL PROCESSINGDIR. BUDG. PROGRAMMING OF SECRETAR.DECENTRAL. BUDGET EXECUTION ACCOUNTINGADMINISTRA. OFICIAL AUDIT

INTERNAL REVENUE CUSTOMSDIR. BUDGET INFORMATIONPOLICY CUSTOMS SYSTEMS

DIR. ORGAN. IMPORT POLICYSTANDARDS &PROCEDURES TRADE COORDIN.

TAX POLICY

Total Staff - 630 (average salary US$ 195/month)

BOLIVIA Annex 7Public Financial Management Operation IIInter-Institutional Relationships Map

Planning and FinanceCoordination Ministry ControllerMinistry General

Under-Secr.of Public Invest. Budgeting Accounting Treasury Programming Dvuty ContrEconomic & Internation. Under-Secret. Under-Secret. Under-Secret Office GeneralPolicv At i>nnll

TrEaining Ct Adi Le9:C t] ~fairs

ComplementaxyExaminations

De utv Cont

Developmt. Public Budgeting Account.Sy Public _Strategies Investments Policy Audit Credit Auditing Internal Contr

Management A &Admin.systex3

Special Internatio. Centr.Ad. NrsPoe TesrProjects Cooperatio BudgetingmPoc Tperasions Auditing

Procesuggt nx Auditing Management C

Pre-invest. Admin. norm Computing& procedure Activities

EAdministra

Annez 8MATRIX OF ACTIVITIES, OBJECTlVES, AND EXPECTED OUTPUT

PROJECT. IMPLEMENTATION OF THE LAW FOR GOVERNMENTAL ADMINISTRATION AND CONTROL

ACTIVITY OBJECTIVEPHYSICAL INSTITUTION EXPECTED TIMING TARGOF5INDICATOR OF ARRANGEMENTS OUTPUT71MPACT (STARTINGIPERFORMANCE RESPONSIBLITIES COMPLEIION)

A Finanial Manarement &

L Budfi

1. Inusion of existing program- Budgets that reflect the Budgeting Subseartarial - Central Precise budget submissions that Aug-91 to Jul-92e budgeting the standards programming of inputs (both hutw4 a Administration and DeCent. nsti. reect physcal requirsememetioned (B 2.1,22 2.3,2.4) resources and goods and service.) Budgeting Divisions according to categories and critena(US$64,000) according to standards established developed in the standards.for the management of tbese inputsand to the organizational structuredeveloped.

2. Tnsfer of reponsibility for Budget submissions prepared by Budgeting Subsecreariat - Central Budget programming done as a Aug-91 to Dec-92badges formulation from Budget each entity. Transformation of Adm.nistration and Decent. InstL function of eatC eni.ty'sOffoce progammer to each entity current Budget Ofice programmers' Budgeting Divisions requirements. Trained financal(US$74,400) into financial analyst, capable ,f managers in pubk entities that aeproviding guidance to the entities. imernalized standards and control

functions

I Progresive improvements in Make the necessary budgetary Budgeting Subsecretariat - Central Minimization of diviations between Jul-91 to Dec-93quality of budgeting process for programming aljustments identified Administrative and Decent. lnsti the Budget and actual outlays - Six month inteals1992,1993, 1994. (USS103200) by budget evaluations. Budgeting Divisions based on careful programming ofinputs that reflect needs of eachentity.

4. Create Budget evaluation Create a Budget Subsecretariat that Budgeting Subsecretariat in A budget that is formulated and Mar-91 to Jul-93pmcedures in the Budget is able to modify ihe budget and coordination with the Planning subsequently evaluated as a functionSabseusriat (USS93,600) consolidate budget submissions to Minisuy and Central Bank. of dear policy guidelins.reflect government policy (ire Reallocation of public funds towrdinvestment prioritics, debt st.vicing) govermmental prioritis

AnmX 8Pagr 2 0(14

ACllVITY OBlECTIVBP HYSICAL INSTnITUION EXPECTED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUrPUTfiMPACI (STARTING/IBRFORMANCB RESPONSIBILMIlES COMPLMTION)

S. Develop budga enecutio Deveop pbysicl aNd fimnadl BiAdging Subsecrtariat Budget execution evaduation Mar-91 to Jul-93evaluation at tbe 1mt and emnity indicaton of performance for procedures in entities that provideLevel. (US$93,600) programs dnd executing agencie, feedback necssary for improving

Measure efwiency of public subsequent budget submission, andsemnts rpsible for carying out ultimately alocation of mosoprograms Measur costeffectieM of invetment.

6. Deveopment of budget Change from LOTUS to a more Budgeting Subsecretariat in Integrate budget Jan-91 to Dec-91formubltion and uation softwam flexible and agie software - to allow coordination Information Systems formulawionkoodation to(USS112Al0) intenelaticn with data bas Unit - GAO accountingAsnuzy system. Agile

budget formulationknatuationsysten

7. Equipment for Budget Ofrie Processing of budget submission Information Systems Unit - GAO Consolidated fully Integated System(USSS,o000) directly integrted Into data base

and other systems.

ACTlVlfY OBJECrrVBiPHYSICAL INSTrIITUION EXPECTED TliINO TARGEISINDICATOR OF ARRANGEMENS OUTPlU171MPACI (STARTINGIPERFORMANCE RESPONSIBILMITES COMl ETION)

IL Tlbr & Pubic Credit

1. Design and implementation of Dcvlop procedures and outline Tresury. Public Credit Divisio* in A functional management of Aug.91 to Jan-93Systems ad procedures for Public responsibilities for the Public Credit coordination with th[e subsectaty emtenal debt and adequate recordsCredit and Treasuy eompatible Division of The Treasury. Derine of Investment Planning and the of internal debt. Precisia3 and aqilewith that spelled in the SAFCO Responsibililies for the management Central Bans Externat Debt management of new credit lin andLaw. of both internal and external public Divison. conditions of repayment/"ebt

debt among the Central Bank of servidcg.Boivia, the Miniatty of Finance(Trsury) and the Ministy ofPlanning arnd Coordination.

2. Use of banking branch srem Develop and operation procedures Trasury - Budget Execulion Expedient payments with better Feb-91 to Jan-92for payments - etimination of Sub- for the payment A pensione Programming Division in co 'trol mechanism. Removal or aTreasries. (US$76800) public semnts, gtvernmenal coordination with tbe Tax source of corruption in thesupplier/ontram, through the Collections Division who has similar management of public fundsbanking network. Contracts agreed contracts with bankls for tax Reduction of necessary staff frotnto with pribate banks for these collections Treasury.

3. Dissemination TmL standards to Develop cash management Treasury - Budget Excution Contsol ihe amount of levsge Aug.91 to Dec-91decentralized institutlrs procedures and systems in public Programming Division taken on by public entities with the(U1SS28AO) entities Produce reliable objectives of minimizing ibe amountinfonmation on the managemnat of of debt the Treasuy must absrbdebt and funds for proper (subrogration). Coordinationcoordination with moneaFy poliy. monetary policy with managemtProduce stock ganres for amount of of funds More precise infomationdebt and lverage levels of principle on the extend of internal debt andpublic entities budga deGcit.

4. Speciric tandards reviewed by Speciric cash management Treasury - Budget Execution Greater efficiency for cash Jan-92 to Jul-94Subse y of Treay procedures at each entity, tailored Programming Division in management at ecKh entity.(US$144,A000 to the operating necessities of each, coordination with tbe GAO's Optimalizalion ot f os and stocb

yet compatible with genral Standards Diviion of funds at the entity kvel.standards. Standardized casAlebt management

stanars

Annee 8Page 4 of 14

ACTIWWY OBJECTlVE/PHYSICAL INSTrni ON EXPECTED TIMING TARGMSINDICATOR OF ARRANGEMENTS OUTPUT7IMPACT (STARTINGIPERFORMANCE RESPONSIBILMTIES COMPIlTION)

S. Rationle zation of issuante and Inventory of tax paperalcommissions Treasuty - Budget Execution Issuance of vaWores according to Feb-91 to Dec-91mme_t o fical papers charged by the treasury for services Programming Division in demand for services. Ckar ruis for(USS6400O) renderLd. Establishment of dear coordination with the Treasurfs the management of thes papers

rules for their use, storage and Operations Division and for the cost of sevismanagement. rendered by the public sector.

Elimination of unnecesary andunjustfifed administrtiWecommissions charged.

6. upment needs for Treastuy to Procurement of S mnicrcomputers Information Systems Unit - GAO Agile produetion of information on May-91 to Dec-94iidude reensues from taxes and to operate the public credit system - and Standards Division in management of Treasury funds andpayin tsruwgh Bank system. tracking Treasury payments through coordination with Public Credit and of public credit (levd, payments,(US$5000) the banking sytm and revnues Treasury's Budget Exec, timing).

Programming Div.

-t

tn

Anna 8Page 5 of 14

ACTIVITY OBJECTIVEIPHYSICAL INSTnIUMION BiXPECllED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUlTUTjIMPACT (STARTINGIPERFORMANCE RESPONSIBILMITES COMPLETION)

Ill. Accountimn

1. Review and implementation of Each Ministty and Central General Acmounting Office - Beutcr control of their own Feb-91 to Dec-92autiliary details sub-accounts and A'lmtinistration entity operating with Accounting Processing Division, expenditures, infotmal decisions onsupplementary accunts, a complete detailed account of their working dirctcly with thw 27 entities the allocation of resources withindevdopment of management asseslliabilities, and expenditures of the Central Administration. the Central Administration.information systems for each entity key to greater financial disciplinein the Central Administration.(USS233,600)

Z Developmenttdaptation of Installation of basic accountinS General Accounting Ofrice will Production of reliable and iimely Feb-91 to Jan-93integrated accounting systens from systens in the principle supervise the application of the financial informtion in the majorthe central administration to the decentralized institutions and public standards and procedures set out in decentralized institutions for theirdecentralized institutions and public enterprises, compatible wvih the the Manual for Decent. Inst. and own control of finances, and toenterprises application of manuals standards set out by the GAO, able the Guide for Public Enterprises. broaden the data base of the MF,and procedures devdoped during lo produce financial input that cmn Implemented by the Accounting for exrting greater control ofSAFCO program. feed into the integrated data base of Processing Division, reviewed by acpendimures and measuring(USS 483,200) the non-fin.pubsector. Standards Division. performance.

3. Review and development of Improve the qualityAlnstall financial General Accounting Office, in Systems functioning in all 15 Oct-91 to Mar-92specific financial administration administrative systems (budgeting, coordination with the Budgeting decn entities, easily transferable tosystems to a epresentative set of accounting, treasury) in a Subsecretariat, and the Treasury will entities of similar nature. A directdecentralized institutions. representative number of oversee sub-contracts for systems. number of inputs for the GAO's

3.1 Transformation of Treasury decentralized inslitutions. (Only 'Me computer systems unit of the data base, with subsequent incrasesand Integ. Accounting targeting decen.inst. that do not GAO will bc responsible for as the 15 model systems are appliedcomputer systems in place have their own financing - not transforming the exisLmg computer funher.towards an open version. Public Enterprises) integrated system into an openapplicable to different By developing models for other version, applicable at thecomputer decentralized institutions of similar decentralized lvel in differentsoftwarelhardware. nature, the pocess of disseminating software(US$66,000) SAFCO throughout the public All three division of the GAO will

3.2 Design & implementation sector will be accelerated. These panicipate Ace. processing inof 12 integrated ystems, model 15 entities will have a formulating and negotiating sub-based on an estimated cost multiplier effect on other similar contracts, and Standards Divisionof USS43,750 each. (see entities Le, other Regional win review.Anneed brakdown) Development Corporatisn, other(US$525,000) Perfectures to cover other regions

3.3 Development and and other leveb of goveznmenLimptementation of 2i-grated systems forsoual securt institutions,estimated cost USS140,000each. (USS?SO.00)

Anueg 8Page 6 of 14

ACTIVrfY OBJECTIVEIPHYSICAL INSTUTION EXPECTED TIMING TARGESINDICATOR OF ARRANGEMENTS OUTPUTIIMPACT (STARTING/PERFORMANCE RESPONS181LITIES COMPLETION)

4. Data bae in the General Financial information on The information processing unit in Data generated and accessible to Aug-91 to Dec.93Accounting Offre that will perfonnance and efficiency for the the General Accounting Offtce, in those involved in fiscal accounts,incorporate all public entities and non-financial public sector as a coordination with the Budgeting statistics, and macroeconomicproduce fsal stattic, whole and by entity. Inputs figures Sub-Secretariat and the Ministry of programming. Replace of the(US$223,000) for national accounting, statistics of Planning and Coordination existing 'Emergency Program".

the public sector, andnacroeconomic analysis.

S. Implementaatio of simplified Greater ditsemination of basic General Accounting Office Application of existing manuals and Jan-92 to Jul-94SAFCO systems in en0fities of ksser standards of financial administration Standards Division. standards to a greater number ofcompleity, induding lal in small municipalities, and public entitls. Impact: I) bettergovernments, taking into acount proincial health units etc. control of their own fnances andgroups of simiar ature. important for their own rnancial resources, and 2) a broader data(USS309,000) disciplin base for the Minishy of Finance to

measure performance and excercontrol of expenditures

6. Increase computer capacity of Capacity to prOCess financial General Accounting Ofrfce Reliable and agile processing of Feb-91 to Dec-91computer data bae in General statements of enie non-rfn. public InforMation SysteMs Unit, financial data of public sector.Accounting Office (US$285,000) sector - time and mnemty.

Provide required financial Emergency Program - to be Monthly information on the cash Feb-91 to Dec 917. Maintenane of 'Eergency information on the incorporated into General flow situation of the major publicPrograme until the development of pesforman"ecxpdltumr of the Aceuting Ofiwe, entities and the Centralaccounting sytem. ((US$600,000) public setor until awcouting Adminstration.

system ar in plae.

AnnR 8Page 7 o 14

ACTIVJTY OBJECTJVE/HYSICAL INSTIMON EXPECTED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUrPUr/IMPACT (STARTINGIPERFORMANCE RESPONSIBILTIES COMPLET10N)

IV. Govrnment Audit Function

1. Central Policy and Planning Document in writing and formally Deputy ComptroUer General Guidance in place and opeative Apr-91 to Dec-92Establish the Technical and issue the nonnative and regulatory (DCG) and Executive Director of both for the implementation ofProgramming ornc (TO) to pravions to govern the auditing in Technical and Programming Office CGR responsibilities under the newcowlidate and document technical, the government and the operation (EDJ`PO) with international 'Internal Control and Audit Systemwoperating and administrative po'icy, of CGR. consultants will prepare rive pemons throughout the public sector.standards and guidance rdating io a) Organization and administrative to head major TPO functions. Continual updatinp andgovenment auditing and the CGR manuals for CGR improvement of g6.dance baedand to provide ongoing techical b) Regulations for audit staff upon feedback from its applicationadvice to the goverment audit performance evaluation and reported by auditorm Annualfunction. (USS752,200) profesional development priorty assipment and planning for

c) Standards of Intenal Control CGR's audit functions includingand Government Auditing provision of advice to CGR staffd) Regulations for contracing and public sector cntitles rtgardingauditing firms to perform audits the technical aspects of the Intenalc) CGR Auditing Manual Control and Auditing System. aoI) Regulations governing financialreporting and audit of non-publicsector entities which handle public

g) Regulations regaing fow upytems for contracts, legaptocema and otber lgal mailttesh) Annual audit plan for 1992 andach pear thereafter incudingompition of Interal audit plans.

Annex 8Page 8 of 14

ACTIYITY OBJECTiVEIPHYSICAL INSTiTUTION EXPECTED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUTPUT/IMPACT (STARTING!PERFORMANCE RESPONSIBILITMES COMPLEIlON)

Z Establishment of Audit Three central Audit Departments DCG and Deputy Comptroller for Audits being performed in Apr-91 to Dec-93Operations Units: Set up the organized, statfed and functioning: Audit Operations (DC/AO) with accordancdc with annual plan and instructure staff and train formally a) Public Corporations and international consultants will conformity with the standards issuedand on-the-job a cadre of Services prepare four audit managers to of about 20% annually of the publicprofessional auditors to carry out b) Social Services and Lo1 head the three centralized audit sector entities with reports issuedthe field audit operations necessary Governments units, the decentralized audit on a timely basis and follkwupto fulfill CGRWs mision c) Remainder of Central function, and the administrative and carried out to assure action on audit(US$2,509,700) Government and Departmental systems dcvelopment function. findings and nrmmendations.

Governments Fve: audil professional prepared toThree decentralized audit units head major functions andorganized, staffed and functioning in approximately 300 audit staffthree major cities, members organized, trained and inDepartment for development and various stages of professionalmonitoring of administrative and development (supervisoms teaminternal control systems organized, leaders, senior auditors, juniorstaffed and functioning. auditors, etc.) actions andConracts executed for six specal improvements in the omancial ccexaminationL systemns and operations of the 'Initiation of specialized audit entities audited. Non-financialsupport to develop operational audit professionals prepared to initiatecapability. operational audits having gained

experience collaborating in thespecal examinations performed byfirms

3. Lgal and Investigatory Support Three centralized legal departments DCG and Deputy Comptroller for Legal counsel being pmvided to Apr-91 to Dec-92for the Audit Function Set up the organized, staffed and funttioning: Legal Services (DCAQS) with auditors during field work including,basic legal services required for a) legal Analysis international consultants will where necessary, field work byCGR to carry out its mission b) Legal and Administrative Follow prepare three managers to head the lawyers as audit team mmbepreparing legal and investigatory Up departments and a core group of Analysis of legal implications of allspecialists to advise auditors, c) Complementaty Examinations about 20 lawyers for legal analysis audit findings and refeml of lgalanalyze reports, investigate criminal (Criminal Investigations) function and three for codification action as appropriate includingacts, gather prosecutory evidence, Draft and formally issue regulations function. They will also set up, staff criminal prosecutions. Specializedand follow up the resultant egal covering accountability for and train the specialized group of criminal investigatory activity toprosess (US$821,200) government resources handled by auditorlinvestigators. development evidence for

any party. prosecution functioning to feedDraft and present to the legisiative cases to public prosecutor. Seminarbranch law to set up Administrative held on legal and technial ethicsLaw Court. Personal computerized data base seAdministrative Law Codification up on administrative law being usedsystem designed and initiated. to facilitate updating and

improvement as well as forreference purposes

Annex 8Page 9 of 14

AClIVffY OBJECTrVEjPHYSICAL INSTITJI.ON EXPECTED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUTPUT/IMPACT (STARTINGfPERFORMANCE RESPONSIBILITIES COMPLETION)

4. Complete Electronic Equipment: Equipment acquired to permit DCG and Diretor of Finance and CGR operating various Jun-91 to Dec-91Provide remainder of computer and planned data bases and systems. Administralion to arrange for computerized tracking and follow upcomputer-related equipment to acquisition. systems for public sector and itsenable CGR to carty out its mission own internal administrative andduring the next fne yea financial systems(US$427,400)

4.1 Organize IS Function and An organized information systems Ability to operate computerizedReview IS Program function within CGR and systems reliably, and effective

appropriale policies for IS technical suppon for users ofmanagement developed. computing tools.

4.2 Develop Audit Operations System operational and audit A data base of allProgramming and Control program loaded. Database of audit programmed auditSystem. recommendations loaded. operations, their scheules,

costs, and human resourcesavailable for management wof CGR's operational worlu

- Increased ability to trackcompliance with auditrecommendations andincreased effectiveness andcredibility of accountabilitysystem.

4.3 Develop Legal Proceedings System opeirational ard data base Decrease in gernment judicialTracking System. loaded. losses from non-compliance with

coun deadlines.

Annes 8Page 10 of 14

ACTIVITY OBJECllVB/PHYSICAL INSTMIMllON EXPECTED TIMING TARGE1SINDICATOR OF ARRANGEMENTS OUTPUThAMPACT (STARTINGIPERFORMANCE RESPONSIBILITIES COMPLETION)

4.4 Develop Human Data base operational and query A regitr of mancalRP-w /lhninS facltyavailable. Trainig pwgntm proiaon (audEtou,Syms. loaded. accouants, fiaial

manag.) aable forhuman resourc

- A gpergw at<x- waattendsu%

chedules, and ems wil beavailable for onlineconsultation admanagement i CGR`Straining prgram.

4.5 Dvelop LeA Data Basc A pilot data bald ystem Incrased abilliy to determinecperatial and legality and admbtatliveaprpriate inde6.u& compliance of public ectorthesaurus, and etracting institutions, and inceasdpredures defined. effecties of judicial pmceedings

- Progeie indusbo ofadminisatiwe laws in thedata bae to occur over theentire project leth

4. Pnmure computer - Purdhae cntmct arded. Audit teams able to perform betterequipment fcr CORI Computer equipment ted more effective, and

install and operational, moe complet audit

At 8r&,e 11 of 14

ACTrVTfM OBJECllVE/HYSICAL INSITrLMON XPCI1ED TIMING TAROG1MINDICATOR OF ARRANGEMENTS OUWUIYFIMPACr (STARlINGIPERFORMANCE RESPONSIBILRX1ES COMPLETION)

B. Stadard ad ReuatIBns

1. Reie nd adjust eisting Adopt constent staards in the Budgeting Subse aral - Develop an integnted set of Feb-91 to Ju-94tan s & regulations to that Minisity of Fnanee for ihe rtmncial Standards and Pocedu Dvsio. tandard that will save a a

splled out in SAFCO bw: administratiom sysems called for in Coordinating with Iheuuy, GAO, uormative foundaton for theOtpnizahion of the Msty of the SAFCO Law. and other Budgeting Dision devepmet of rfancialFnao, Budgeting, lTuay. adminisation stems in the publicIntegrat Accountift Aconting sector. Adjusting odting andMaul for public enteprises and reiwin new oe deveoped.de'Pnt. insitution Dkectim ofMm. of Fun axmpomeas(USS2SO00

*2. Drafting of stndards and Deveopment consistent slandards Budgeting Subsecretariat - Rationalize the management ofrphations for the Folwing and procedu,cs for the management Standards and Procetrm Disiop. reated administrative sytems thatsystems: of non-financal systems in the Budget Exec. Prog. Division of alkng with the fmancial

Z Opertions Progamming public sector. Develop procedures Treasuty Public Credit Dision of administrative systems will faciitate Feb-91 to june-91(USSI24.00) for debt management ad cash Treasury. S;andards Dvson GAO. the exction of govmental

22 Adminsatbve mament for the public sector. polides and investment programs. Feb-91 to May-91Organization (US$41,600)

2.3 Peesonnel Magement Feb-91 to Dec-91(USsM3,60")

2.4 Protrt JtlMU Feb-91 to Ma3F12 Goos&sv. (US$41,600)

2.5 Treasu atzy s Public Ctdt Feb-91 to Aug-91(USSZO)

I Impementtion of Opentio Develog*djus peeral sanards to Budgeitng Subsecetaat - Basis for developmet of noenProgmmfi setems, Peomd specfic institutional needs or goup Standard and Procedur DWivi financal sytm in each entity.Mnagement, and of nstituto Ens compatibity Iation Of the stem WithProement/Am. df goods nd of spedfic standards to genaelized the finanal rystm of the pubficServices. sandardsd sector Minit d Fin -

31 D ttmintlm of standa_s ovesse . Jun.91 to D1-2(USSISA

3.2 Dsaftlqof spselc Jsml-91 to Dec92_ds for sea aor

33 Rule and 1DM io Dg-9

Mnhff by Buget OhM.(Ud _01

Anncx 8Page 12 of 14

ACTIVMTY OBJECTVEJPHYSICAL INSTTUnTION EXPEC7ED TIMING TARGETSINDICATOR OF ARRANGEMENTS OUTPUVIPMPACT (STARTING/PERFORMANCE RESPONSIBILITIES COMPLETION)

4. Implementation of Administ. Elimination of ctisting duplication Budgeting Subsecrtatiat - Savings in public expenditures byOrganizational System of functions between public entities. Standards and Procedures Division. reducing the number of enities,

4.1 Restructuring of the Functional definition of eliminating those whose function is Sep-91 to Aug-92Central Administration and responsibilities within public better performed by other existingdecentralized entities, entities, thereby, separating entity or mechanism. Facilitate theredefining the number of incompatible functions and allwving application of internal controlentities, responsibilities and for basic iniernal control and procedures wilhin the publicscope of each (US$76,000) auditing. institulions by applying standardized

4.2 Disseminatio, of basic rational organizational structures. Jul-91 to Dec-91organizational standardsaccording to type of entity.(USS30,400)

43 Adjustment to the internal Jan-92 to Jul-93organization of each t,ajorentity or group of entitts -to reflect operations prog. OD(USS91,200)

Ah8Pae 13 of 14

ACr[VrTY OBECTlVEPRHYSICAL INSIrILMON EXPECTED WMNG TARGETSINDICATOR OF ARRANGEMENTS OtUtUTf/IMPACr (STARTIOIPERFORMANCE RESPONSIBILMrIES COMPuETnON)

C Thtmng FLauclaAdminio and Govumment

1. Compoca Managmet and Plan, supervise, coodinate activities Director of CGR's Traiing Center Training Ceater ornized including Oct-91 to Jun-93quality Co_ rol (USS312,000) and ensure quality of outputs. and Training Compoent programming, control, admit.Managenent International Systems so as to monitor, evluateConsuhant and provide fced-back a needed to

yield quality outputs, that is stfffrom all levels of admin. wlltrained in implmenting the SAFCOlaw.

Z ReviewAJpdate/ Complement PFMO I Courses to be adapted to Intemnational Consultant and S Basic coreses revised; 7 new Feb-91 to Aug-92Basic Courses (US$660,000) progress made in implementing the Academic Director of the Training courses designed; 12 new texts forSAFCO law, new courses to be Center with support from an programmed instruction coherentdesigned including adapted didactic Institution specialized in with didactic aids and instnicors ODaids programmed instruction. guidesI

3.1 Delivery of Basic Introductory 60 Basic 5-day Courses to be Training Center Personnel Induction curse on the SAFCO law Mar-91 to Jun-93Course (US$131000) delivered to introduce content of for 2,700 professionals of mid- andthe SAFCO law and its practical higher-levels (about 7% of total civilimplications servants)

3.2 Specialized training for staff Delivery of about 100 courses of 3-9 Ditto 100 finandal professional from Mar-91 to Jun-93frm central and decentralized adm. weeks of duration in i) financial central admin. & 35 decentr.(US$1,065,W00) -tatements and integrated entities plus 130 profes already in

accounting; ii) accounting systems; the process of being trainetd plusiii) oper. programming; iv) internal 200 audit staff trained in addition toorganization and financial 120 more in processadministration; v) personnel admin.and procurement; vi) auditing; andvii) public sector accuntability

3.3 Leislation rdated training Delivery of 35 3-6 week coures for Ditto 70 lawyers from CGR trained and Apr-91 to Jun-93relited training for laes, financial and non-financial staff from 35 entities plus 30 in proeess;aigneesi and othes frotm central from public sector entities at all and 30 engineers and other profesLand decentralized ad-ini levds on financial administration, to participate in multi-disciplinary(USS241,000) accounting and same as above but audit work.

from the kgal viewpoint.

hp 14 U14

ACTVWt ORJECTlVBEPHYICAL MTOFnON EXPECFED TlaMNG TARCOEINDICOLTOR OF ARRANGEMBNIS OlmUTPIU ACr (SrARITIPERFORMANCB RESPONSIBILBflBS COmpLWnON)

4 Mae degpee for PMic Hiig of Co _nltants from a Ditto Ma Degree edg apprd and J1.92 to Apr-93Aamint and FWAdl and foreignuesty to deugan trdy for inpemeauin inAdmlsatatiom and Control ao d cunciulum "ltkhin Bodvian ua_ie ft h is 1(US5,00) one or m Boliin univerik. that by 1995,37 nSat dege wIn

ban been awared.

S. liing Center Pbysil Improvement of four da moms in Ditto 4 dan room eqipped and fhuid Apr,41 to Dec-92Upgrading (US$360,00D) two regi to decenmisae the to two regions and LA Paz Cadeivy sysm Upgading of upgraded wth lanag trnslation

ftialcs in La Paz Center inldding facility impved cateria and ataching rooWs, caftia, technical libray nalled andauditofium akd techical library to equipped with 3,000 volumcbe initily equipped with about3,000 techil volumes

Co

-89-Annex 9

BOLIVIA I PUBLIC FINANCIAL NANAUEKNT OPERATION II

Integrated Information Systems Program

CONTENTS

r- PROGRAM SUMMARY 2

Ir- CURRENT CONSTRAINTS 2

A- Accounting 28- Budgeting 3C- Auditing 3D- Treasury and Public Credit 3Z- Organization and Management 3

III- PROGRAM DESCRIPTION 4

IV- IMPLEMENTATION SCHEDULE, INPUTS, AND COSTS 10

an -q 13

9.1 Computer Equipment Configurations 139.2 Cost Summary for Computers and Other Equipment 14

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Annex 9Page 2 of 12

2

I- PROGRAM SUMMARY

1. The integrated information system (IS) program is a collection ofactivities from each of the components of the PFMOII project which deal withcomputerized information system development, computer procurement, ortechnicalassistance in information systems. The general objective of this programis to implement an integrated financial management system in the Bolivian publicsector by continuing and expanding the activities and accomplishments of PFMO.

2. This document consists of four sections as follows: Section II describesthe current constraints to be addressed by the program. Section III describesthe constraints, activities, indicators of performance, and expected results ofthe program. Section IV contains an implementation schedule, inputs, and costsummary.

II- CURRENT CONSTRAINTS

3. What follows is a description of those aspects of the current informationsystems environment which represent constraints, shortcomings, or problems inachieving the objectives of the PFMOII project, and which will be addressedthrough activities described in Section IV.

A- Accountina

A.1 At present, the "Sistema Integrado de Informacion Financiera - SIXF,developed under PFMO, operates only in the central government, andneeds to be extended to the entire public sector.

A.2 SIIF currently lacks a module to maintain a public sector data basesuitable for frequent and high-level consultation.

A.3 Several key linkages need to be developed to integrate thegovernment's financial management system. SIIF does not receiverevenue data disaggregated by revenue source on a timely basis; itdoes not have an operational linkage with the SISIN system in theMinistry of Planning (which tracks the implementation of theinvestment program); finally, it lacks a linkage to the EmergencyProgram to capture cash expenditure data from public sectorinstitutions.

A.4 There are four different and incompatible technical environments usedfor the SIIF system, the Emergency Program, the provisional budgetformulation systems, and the tax administration systems. These needto be normalized and integrated in this project.

A.5 The current configuration of the Wang VS-5000 minicomputer issaturated and needs replacement to cope with the increasing workloadof an expanding SIIF.

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B- Budaetina

B.1 The current systems are prototypes developed in Lotus. They now needto be replaced by industrial-strength systems on which to base thelong-term operation of the budgeting function in the Government.

B.2 The budget formulation and evaluation systems need to be extendelbeyond the central government to the entire public sector.

B.3 The "Subsecretaria de Presupuesto" has at present a complement ofold, underpowered microcomputers and only a few relatively modernunits. It is necessary not only to obtain better analyticalworkstations, but to connect them to a central data base and throughit to the SIIF system in the main computer.

C- Auditina

C.1 The Controller General Office (CGR), which has undergone substantialdownsizing through elimination of ex-ante control and otherfunctions, has now acquired a responsibility to audit ex-post notjust the financial but the operational aspects of public sectormanagement. At the moment, the CGR does not have any technologysupport for this new responsibility. It lacks minimal auditoperations and resource control systems, it does not have a systemto track numerous legal proceedings occurring nation-wide, and itlacks office automation and analytical tools to speed up and recordthe audit work in the field.

C.2 The CGR lacks computer equipment on which to operate any systems thatare developed as per above.

D. Treasury and Public Credit

D.1 The Treasury function is poised for major redesign with theimplementation of the "Caja Unica" concept and the proposed use ofthe banking system for disbursements. A cash management controlsystem is needed to control the treasury operations nationwide.

D.2 The Treasury needs microcomputers to speed and improve analyticalwork. It also needs computer equipment to operate the cashmanagement control system nientioned above.

E. Oraanization and Management

E.1 At present, neither the Ministry of Finance nor the CGR has a solidinformation systems organization.

E.2 There are no established policies and procedures for use andmanagement of IT assets, no standards for systems documentation, andno deliberate policy on accountability for costs and operation ofinformation systems.

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8.3 A professLonal training program ie lackLng which provldes DolivLanInformation Technology experts periodic contacts with tite producersof technology.

III- PROGRAM DESCRIPTION

4. The integrated flnancial information system (IS) Program under PFMOIIconslsts therefore of the activities and investments necessary to eliminate theconstraints, resolve the problems, and develop the missing capabilities describodin Section II above. These activLties and their resource requirements aredescribod in thie section ln the order of the broad PFMOII component areas towhich they pertain.

S

IV - IMPLEMENTATlION SCHEDULE. INPUT AND COSTS

Problem/Constralnt | Activitie OblactivesPhsieal Indiceator

A. Accountina

A.1 lirited institutional Coverage 1.1 Install SIIF in 15 decentralized Signed contracts with consulting firns Evidence of implemntation progress.of financial management institutions. for development and instailation of SIIFsystem - SIIF. In each instituton.

Signed letters of agreement between Resources, schedule, cost,MF & each individual institution on responsibiitis of MF and eachinstallatic' of SIIF. institution clearly defined.

SIIF systewn istalled end producing Increasing share of publtc fundsfinancial reports in each institution. properly and timely accounted for and

ability to obtain relable pubfic seatmfinancial stetonoms.

A.2. Incomiplete functional 1.2 Implement Public Sector Date base loaded and querylreporting Capability to view on demond thecoverage of SIHF. Financial Data Base. facility operational. aggregated picture of public finances

in Bolivia, for plonring and controlpurposes.

1.3. Develop custom auxiliarV Custom modules installed and running Timeliness, efficiency, and relay inmodules for central in each Ministry. feeding data to SIIF.govemment institutions.

A.3. Lack of Integration of SIIF 1.4. Develop a software linkage to Financial date on investment program Increased reliability of investmentwith other governmental transfer data to SISIN". collected through SIIF for Ministry of project data end simplification of SISINsWytems. _ Planning. systom adinistration. |

1.5. Graduate decentrai.zed Decreasing numnber of institutions in Increasing integration of financial Xinstieutions from Ernergency Emergency Program. management system. Gradual phesingi LnProgram. out of Emergency Program. 0

1.6. Develop a data linkage for Revenue data by source received Increased ability for financial revenue data. montMy by SIIF. management.

6

IV * IMPLEMENTATION SCDULE. INPUTS AND COSTS

ProblemlConrtralnft Activities I Obiectlves/Physical IndicatoRr [uA.4. Incompatible 1.7. Select an open software Operating end database software

hardwarelsoftware environment for decentralized systems selected.technology financial management

system.

1.8. Develop a transportable, open Version of SIIF producing identical Ability to install SIIF or customversion of SIIF. results in different hardware versions ' it in decentralized

environments. institutions on demand.

A.5. Insufficient computer 1.9. Acquire computer - Tender document finalized. Sufficient computing capacityequiprnent hardware/software for MF. available.

-New equipment installed and Increased timeliness of computerizedoperational. management reports.

B. Budba

B.1. Provisional Budget 2.1. Develop & install Budget Budget Formulaton System operational Increased efficiency and accuracy inFormulationlEvaluation Formulation System. or new software environment. budget fornulation work.Systems. _

2.2. Develop & install Budget Budget Evaluation System operational Increased efficiency and accuracy inEvaluation System. on new software environment. budget evaluation work.

B.2. Umnited institutional 2.3. Implement budget systems in FormulationlEveluation Effective decentralization of budgetcoverage. decentralized Institutions. systems opersting in managemnt and increasing

increasing number of accountability of managers.institutions.Reduced number of analysttravel days.

8.3. Insufficient computer 2.4. Expand computer equipment New equipment instafled and Increased efficiency and accurecy in '

equipment. of Subsecretaria de operational. budget formulation, consolidation, aPresupuesto. management and control. Success of X

C.___________________________ Auditino_____________________ _____________________________ activities 2.1 end 2.2 is precondition. a'0C. Ago=in

7

IV - IMPLEMENTATION SCHEDULE. INPUTS AND COSTS

ProblemlConstraint| Activhies Objectives/Physical Indicator OutputlResult

C.1 Inadequate information 3.1 Organize IS Function and An organized Information systems Ability to operate computerizedsystems support for CGR Review IS Program function within CGR and sppropriate systems reliably, and effective

policies for IS management developed. techrncal support for users of| ___________________________________ ____________________________________ ____________________________________ com puting tools.

3.2 Develop Audit Operations System operational and audit program - A data base of allProgramnrming and Control loaded. Database of audit progranmed auditSystem, recommendations loaded. operations, their schedules,

costs, and human resourcesavaslable for management ofCGR's operational work.

- Incresmed ability to trackcompliance with auditrecommendations end viincreased effectiveness andcredibility of accountability

____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____ ___ ___ ___ ___ ___ ___ ___ ___ ___system.

3.3 Develop Legal Proceedings System operatiosal and data base Decrease in government judicial lossesTracking System. loaded, from non-compliance with court

____________________________________ ~~ ~~deadlines.3.4 Develor '.n,man Resource / Data base operational and query facirity A register of

Training SVstem. available. Training progran loaded. financialprofessionals(auditors, accountants,financial managers) avaiktlefor human resurcemanagement.

- A regster of courses, linrstuctors, attendants, D Dschedules, and costs will be Xavailable for onlinte consultation andmanagenent of CGR's

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ training p rogra m.

8

IV - IMPLEMENTATION SCHEDULE, INPUTS AND COSTS

Problem/Constrints Activities Obiectives/Physical Indicetor OutnutlResult

3.5 Develop Legal Data Base. - A pilot data based system Increased ability to deterrnine legalityopertional, and appropriate and administrative cornpliance ofindexing, thesaurus, and public sector institutions, endextracting procedures increased effectiveness of judicialdefined. proceedings.

- Progressive inclusion ofadministrative laws in thedata base to occur over theentire project length.

C.2 Insufficient computer 3.6 Procure computer equipment Purchase contract awarded. Audit teams able to perform betterequipment. for CGR. - Computer equipment installed documented, more effective, and morej ,_________________________________ and operational cornplte audits.D. Treasury and Public Credit

D.1 Inadequate information 4.1 Develop e Public Credit System completed and operatinal. Ability to track cash operations, tosystems support for Control System. estsbish cash posion of GOO onTreasury. demand, an4 to rniirza financid

D.2 Insufficient computer 4.2 Procure computer equipment Equipment installed and operationah. Increased analytical capacity.equipment. for the Treasury. Abirty to operata the Public0 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~crecrit Sysemr.E. Oraanization ak.

Manaaernent

EA Weak IT support 5.1 Develop IT support PFMOII IT Coordinatororganization. organizaton. appointed.

m (D- IT Steouing Committee formed O Xand operatng.

* IT support orgardzaionapproved and staffed.

9

IV - IMPLEMENTATION SCHEDULE. INPUTS AND COSTS

ProblemlConstradnts Activities Oblcve/Phsiucal Indicator OutputIR__u_t

E.2 Inexstent IT policies and 5.2 Develop IT policies and Completed policy and procedureprocedures. procedures. statements for system documentation.

computer equipment operation and Reliable planning, protection,maintenance, programming standards, adrinistration, and control ofsystems security, system development, information technologyproject management, accountability for assets at MF and CGR.IS projects and assets, and costallocation for IS projects and assets.

E.3 Inadequate professional 5.3 Implement IT professional Full documentation oftraining prograrn for IT staff. training prograrn to acquaint software technology available

staff with latest advances of for use by staff.technology being used,provide contacts with sources - Training courses taken byof technology in US, and each IT staff at MF and CGR.maintain knowledge of best

'practices in use of - Yearly attendance to user atechnology. group meeting.

00tDMsD

'0

10

Vt - IMPLEMENTATON SCHEDULE. INPUTS AND COSTS

Imnplementation Schedute per Project Yoas | Project Costs IUSS;OOO)

1991 1992 1993 1994 1995 Consultants Consu .; Equip Projet FiancinActhvdtieslnpnuts .rsterslna n i n 1 mmffwds Contrau's,an

lat 2rid 1st 2nd 1st 2nd 1st 2nd 7gt Local Intem. For.Exch. Local Total

A. Accountina

1.1. nstaltSttF In 15 decentralized -t846 846 0 _44insttutions.

1.2. Imnplerent Public Sector 40 10 89 60 140Fhwncal Data Base. _______

1.3. Develop custom auxaTy 44 0 66 esnmduLes for central governmentntiautions.

1.4. Develop a software tnkage to 0 0 Otransfer deta to 'SlSltN. ¶ I _

1.5. Gsaduate dceamatzed r"O=0 0 0insitutions frm Emegenc yPtogramn.

1.6. Develop a data tinkage for xtoooooooox 0 0 0revenue data.

1.7. Select an open software mccx 0 0 0environrnent for fhnciatmanagenent system. _ _____

1.d. Acquire computer xx_oooooaoC 285 285 0 285 ghwdware/softwwto lto MF.__X

1.9. Develops transportable. open _ 12 6 48 18 66 |O qOvesion of SIIF. 0

Subtotal- Accountina 96 16 846 285 1.259 144 1.403

11

VI - IMPLEMENTATION SCHEDULE. INPUTS AND COSTS

_______________________ Implementation Schedule per Project Year Project Costs IUSSO00I1991 1992 1993 1994 1995 Consultants Consultng Equip Project. FinancingActivitieslinputs . -- _ ___- Semesters ---- --- (manlmonthsl Contracts nment1st 2nd lst 2nd 1st 2nd let 2nd let Local Intem. For.Exch. Local Total

B. Budoetfin

2.1. Develop & instal Budget X,OO ocXX 30 3 24 45 69Formulation System.

2.2. Develop & install Budget =X18 2 16 27 43Evaluation System.

2.3. Transfer budget fomulation end 0 0 0evaiuation responsibility to

decentrarlzed hinstutions.

2.4. Expand computer equipment of xxxxxx 50 0 0 0Subsecretadra de Presupuesto. I

Subtotal - Budaetina 48 5 50 90 72 162C. Auditina

3.1. Develop IS Organization and xXcx Tu xxxx XXXX xmt 4 32 0 32Review IS proram_______

_ __eI3.2. Develop Audit Operations 6 3 24 9 33Programming and ControlSystem. I_II

3.3. Develop Legal/Adminrative | 4 j 1 8 6 14 | Proceedings OQ ProgrammingfTeckhg System. 00

3.4. Develop Human Resource I | 8 | 3 24 12 36Training System. _ J 3 035. Develop Legal Data Base. |a oaaoo,cX 8 24 9

12

VI IMPLEMENTATION SCHEDULE. INPUTS AND COSTS

Implementation Schedule per Project Year Project Costs IUSI'O0O)I . _._ _ _ __ l l~~~~I 1991 1992 1995 1994 1995 Consultants Consutin| Equip Project FmancogActivities/lnouts . Semesters ---------- ----- (mnwmonthsl Contracts | m1lst .nd 1st 2nd lot 2nd lot 2nd Ist Local Intem. For.Exch. Local Tota

3.6. Procure computer equipment for xxxx,oax xmexxx Soo O OCGR.

I I_ Subtotal- Auditing

24 1_4 O_ 600 _

36 7480. Treasrv and Public Credit

4.1. Develop a Pubic Credit Control xxooaoooox 36 - 64 54System. _ --

4.2. Procure cornputer equipment for xxxxxx 19 0 0 0the Treasury. __

Subtotal - Treasury and Pun Gedit 36 0 19 19 54 73

E. Maneaement end Oraankation

6.1. Develop IT SuppoIt Organizati n 9 -_ 72 72

5.2. Develop IT Polices and |x _xx 9 72 72Procedures tI_ I_____

6.3. IT TraInIhg Program and xxxx xxx0x cx xxxx xxxxx = 64 64 64Software Updates I - - - -

Subtotal Mananement and 18 64 208 208

TOTAL 5__ 204 53 910 954 2.288 |306 |2S4

0

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Annex 9.1

COMPUTER EQUIPMENT CONFIGURATION

Microcomputador Tlvo A. Costo asdmando promadlo: 02.700.

- Unidad cantral de proceso 80286 a mojor. con I megabyte de memowa.Disco duro de *proximadamento 30 megabytes.

- Unidad de diskette de 3.6.- Impresora de matrix de puntor do baja volooldad.- Software procesador do palabras tal como Wordparfect.

Planila de cilculo eslctrdnlco tat como Lotus.

MSreacomputador Typo B. Costa etimado: 08,000

Tondrin 80 mogabytes de almacenarnionto on dIsco, 2 mogabytes de momorl, usain en o mbcroproosador B0388SX o mejor. todrinuna Improsora de matrz de puntos, y pantallas a color. El coato del softwre aplicativo, b*rn de datoe, et.e rAesesbs par Ia funcMnasignads a cada computador do oat. tipo ostJ inclufdo an el praco ostltmdo do 85.000. quo por tanto presponta un pfemedlo eotmado.

hlcrocomputador Tipo C. Costoestim do: *1.000

Procesador 80288 con 1 mb. deo mord, monitormonocrommtco, une unided do diskettede 3.6' nlngOn softwre proplo porcu nto sinusedor con conexi6n a un servidor de red local.

Microcomputador Typo D - Portable. Costo ostwmado $2,700

- Unidad contral de proceso 80288 o major, con I megabyto de memola.- Disco duro do 20 megabytes.- Unidad de diskette de 3.5.- Impresora de matrix de puntoa de bala volocidad.

Software proesador de palabras tal como Wordperfact.- PlaniUla de cilculo electrdnkco tal como Lotus.- Utilitarlo de directorlo telof6nico, libreto do notas, manojo de archivos y ceWuladora otebtniba tel oomo Sidekick.

Microcomputador TIpo E. Costo estimado: *26,000.

Microprocos6dor 80386 o major, 4 mnb mInima, 26 mhz o mpjor. 320 mb de atmacnamiento. dskotte de 3.5., color VGA. mnutlpexorparo custro tenninales.

* 4 torminals sin Intoligencle.- Improsora de matrih rdpida de 400 cpa o major.- Unidad de cinta para backup.

Sistema operative Unix a similar.Base de datos relacional en versldn do desarrollo.

8enddor do Red. Costo estimado pronedlo: 026,000.

Cads red consta de un servidor de alta volocidad, un disco duro do 300 megabytes, uns Improsor Moor, y va tlisetas contrladora y cablesrncesarios. Estas conexiones permitirin compartir recursos tales como Improsoras I1der. unidad de almsce ainlento on disco y softwareoperativo tal come base de datos, procosador de palabra. haoJ electr6nbca. etc.

DIAIIM OF CGERIV EtT HAUGtEUiT AM CONIROL STSEltS (LAW 1171)FOR IltEKEUTATION OF PUBLIC POLiCIES, PROGlIS AJI PROJECTS

S AIPTRATEGIA# PLICItCT? AATIOlt Rl DIM CISIO

I ~ ~ ~~~~~~~~~~~~~~~~I Socfo Ecornmic ttATIUR Quatitatlre

Statistics ACIMTS Inforatlon-Ecology. Publicopinins. quatityof life, etc.

GOWE NEMT STRATE6fAND PtlICY <

VI

Sectoriel amd Regionet Plans

Moiwory Fiscat t3 Progrm - Pol icy

lnstmnt Export aid Ceratiors Progruuing S:> Eqployent Plan

A

RI b 0t _ ,_ttMaratement InEo r-

T I S 0 ints d CIntrnat _us t EG Audittf of dec lidrOFeromit rSt i- YL G ~~~~~~~~~~~~~~~~~~0

_ ST _ l t bitities IA O CDebt otw_gewent *AMAGEDENT X I MFt ItX Folt ou-p Exmina- t D R |Cah Cotltect ion Forecats _ -Awlyt lc l ntegrat ion tions of Audit a t { li*Coa_l tme Prrwrs Integrated Accwnting ,Findings E I P I Buget lopteeentotlon * operating date t SXR tSiEfsis for Cas Nwagew * Adminitestive d5t8 j tt O It

SMa A t_ _ v i t | | C T E r , R ~TICt 6

PRE AID POST ITERM CMITRolS INCORPORATED INO T P tCRCUX12ATISM AD PROCEDURES Of EACH SYSTEMS I T T E |.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,. "1 a

O' A~~~~~3 0 Smwce: Contralorla Georal de to Rephlice de Bolivia, Vy 1991

zz_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ n

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Annex 11Page I of 6

The Training Co:n2onent

Background

1. The SAFCO program (PFMO I; was successful in (a) improving budgeLformulation, operation-programming and other organizational reforms in theMinistry of Finance ; (b) procedural changes in budget execution anddisbursements at Treasury; (c) improvement in governmental. accounting; (d) cashreporting ssytems in major public entities; and (e) improved internal controlprocedures and auditing norms. The new norms, procedures, standards and ingeneral, the public financial management skills required by the SAFCO law, neededto be created and/or upgraded througout the Ministry of Finance and theController's Office and then throughout the public sector administration. Thisis why PFMO I also provided 31 training courses to about 800 public servants fromabout 120 public entities in (i) basic principles of the SAFCO law; (ii)acounting ano internal control; (iii) operation-programming; (iv) internalorganization, personnel administration and procurement norms; (v) governmentauditing; and (vi) principles and practice of accountability.

2. However all the above-described training activities were delivered at atime when the SAFCO law was not approved by Congress and without having thecorresponding description of how it would be translated in entity-relatedprocedures and norms and }!ow '.t would be enforced. Since the law has beenapproved in July 1990 and the proposed PFMO II is aimed at helping strengthen theinstallation of SAFCO law princirles and define how they would be practicallyimplemented and enforced throughout the public administration, that is includingdecentralized and lccal levels, an extensive training program has been designedand included in PFMO II to address precisely these needs as described below.Attachment 1 provi-es detailed information on courses supported by the proposedproject.

Training Component Justification and Obiectives

3. New administration and government control systems as spelled out by theSAFCO law, require the generation of professional and technical personnel fortheir understanding, dissemination, practical implenmentation and enforcement.Indeed, the lack of qualified public financial management staff at all levels ofthe administration, is the main bottleneck to the immediate implementation of theSAFCO law and its enforcement at all levels of the public administration. Thetraining program defined below is a sine qua non condition to the implementationof new public financial management procedures and accountability procedures.

4. The training component has four major objectives: (a) produce updated andmore detailed text books and didactic aids, instructor guides for programmedinstruction to be used in all training activities included in this component; (b)instructor training to ensure program sustainability; (c) basic training forController Office's. central administration's and other public entities' staff

Annex 11-104- Page 2 of 6

involved in implementing the SAFCO law, one way or another; and (d) strengtheninghLgher-level staff in the Controller's Office and in the central administrationthrough the generation of masters in public financial management usingInternational standards to guaranty the quality and objectivity of externalauditing.

Training Activities

5. Trainin2 Comnonent Management (USS312.000). The specialized nature andscope of the training component and the need for constant updating andsupervision of activities, as well as the management of the delivery system andthe evaluation of impacts for follow up, make it necessary to include a high-level management system and procedures. The ultimate objective of the trainingcomponent management is to ensure that the generated flow of high- and mid-levelof public financial managers is sufficient, of good quality and following thepace required by the effective implementation of the SAFCO law so as to achievethe intended new administrative and government control systems. This specificmanagement capacity is to be maintained throughout the duration of the proposedproject.

6. Review of the Basic Training Cycle (USS660.000). Both the content andformats of the new administrative and government control systems as they resultfrom the approved law, require updating and modifications of the basic trainingcourses as defined and delivered during the duration of PFMO I. Changes willaffect both the curricula and instructors' profiles and skills. Besides, text-books and other didactic aids, require uniformity under new contents andstandards to ensure training activities based on programmed-instructiontechniques.

7. Delivery of Basic Cycle Courses (USSl.44m). All participants to anycourse must have approved a one-week course (Course Code: C-I) on SAFCO law basicprinciples to ensure common understanding and information about what the law isand on what accountability principles it is based. The concepts of publicadministration and government control are also explained in details in thiscourse. It is expected that about 2,800 participants will be enrolled inthis course, including managers, professionals and other mid-level staff holdingfinancial and non-financial positions throughout the public admininstration(about 1.62 of the total number of 180,000 public servants in Bolivia).

8. About 120 specialized courses would be offered to 530financial management staff from about 30 central administration entities and 40other entities on: integrated accounting systems and techniques (Course C-II-A);computerized accounting systems (Course C-III-A); administrative organization(Course C-IV); operation programming, financial administration and managementinformation systems (Course C-V-A); and public functions accountabilityprinciples and practices (Course C-VII-B). These entities' audit personnel wouldalso participate in the above courses.

9. About 70 specialized courses to atout 150 participants, lawyers in CGR andthe central administration and personnel from 35 major entites includingengineers and other specialists to enable them all to participate inmultidisciplinary audit work. Courses would address topics such as financial

2

Annex 11-105- Page 3 of 6

statements and public integrated accounting systems (Course C-II-B); automateddata processing (Course C-III-B); operation programming and managementinformation systems (Course C-V-B); public sector responsibility/accountabilityand the procurement of goods and services (Course C-VII-A); and government auditprinciples (Course C-VI-B).

10. Master DeRree in Public Accounting and Financial Management and Control(US$800,0Q0). To enable the Ministry of Finance and the Controller General'sOffice in particular and other public entities in general, to hire competenthigher-level staff for making the SAFCO Law actually work and yield expectedbenefits, Bolivia needs to entice Universities to get prepared to produce themas soon as possible. This component input is key tc the sustainability of overallproject benefits. A master program would be designed by a foreign university incooperation with one or two Bolivian universities. This program would include sixperiods of four months each and would feature state-of-the-art public accountingand government auditing within the spirit of the SAFCO Law which seeks to developaccountability principles. It is expected that by the end of projectimplementation, at least two Bolivian universities would be able to practicallylaunch the actual delivery of the master program, for which further financialassistance will be sought by GOB since there are no Bolivian professors in thecorresponding subject matters.(Attachment 2 provides detailed information about this Master curriculum andAttachment 3 about detailed costs).

Others Inputs

11. The Training Compnent would finally help upgrade and complement theTraining Center of La Paz and four more class rooms in two regions 3o as todecentralize somehow the delivery system. In LaPaz, the Training Centerauditorium and the cafeteria would be upgraded and in the regions the classroomswould be furnished. In addition, a technical library would be created in CGR withinitial 3000 technical volumes. Total cost of this part of the Component isestimated at US$360,000.

3

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Attachment 1

Training ComponentCourses Contents and Costs

Instructors Didactic Refreshmients rTV Reserve Total Paptici- Unit Cost DurationAids pants particip./ In weeks

course

Course C-I I(Basic Introduction)

1991 8480 28000 5000 4620 48000 1000 481992 12971 38400 6500 6529 62400 1300 481993 6000 14000 2600 8000 24500 500 49

Course C-II-A 9(Fin.Statements)

1991 15648 3840 7200 2112 28800 180 1801992 39els 81e0 16300 3817 88890 340 1971993 28680 6904 11070 4189 49843 246 202

Course C-II-B 6(Integrat.Account.)

1991 8876 2880 8000 31600 5185 49440 120 4121992 10470 3578 3726 1003 18774 149 1281993 1335 456 475 128 2392 19 126

Course C-III-A 6(Comput.Account.)

1991 10484 2952 8076 82288 6384 64143 123 4401992 39822 8788 7060 74026 12298 139783 282 4981993 30328 6184 6400 5e700 9627 107139 218 498

Course C-III-B 4(Data pr.automation)

1991 8928 2840 2200 23100 3912 40780 110 3711992 13999 2884 8004 824 20711 120 1381993 6009 1032 1076 377 7493 43 174

Course C-IV e(Admin.Organiz.)

1992 62789 9022 11277 1679 74847 378 1991993 38310 8820 8060 1453 64433 273 199

Course C-V-A 6(Operation Program.)

1991 14560 4392 4675 48038 7981 79638 183 4361992 24050 4483 4860 48819 7887 89889 188 4831993 10800 1988 2060 21617 3668 39893 82 484

Course C-V-8 4(Fin.Admin.)

1992 11732 2402 2603 887 17324 100 1731993 11849 2378 2476 680 17180 99 173

Course C-VI-A 9(Govern.Auditing)

1991 20962 3848 8840 71820 11623 114783 162 7561992 15907 1392 2810 27406 4218 61530 68 888

Course C-VI-B 6(Gov.Aud.Principles)

1992 8799 1848 1926 528 13100 77 1701993 11018 2472 2576 378 18441 103 169

Course C-VII-A 6(Accountability/Contracts)

1992 7329 984 1025 10783 1788 21889 41 6341993 6200 e84 900 9460 1670 18984 3e 527

Course C-VII-B 8(Accountability Principles)

1992 9878 6962 3720 39080 6822 65430 248 2841993 7880 3884 2416 26358 2996 42493 181 264

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Attachment 2

Master Degree in Public Accountingand Financial Management and Control

Curriculum Structure

Accounting Systems Calculus SocialAuditing

4-MonthPeriods

I Vocabulary & Computing Refresher SocialWriting Analysis

II Accounting I Accounting I Advanced Economics ICalculus

III Accounting II Administrative Statistics Economics IISystems & Sampling

IV Financial Project imple- Market Hum. Res.Management mentation Analysis Dev. Mangt.

V Auditing Management Strategic StrategicInfo.Syst. Planning Planning

VI Govern.Admin. Commercial One entity One entity& Control Law auditing auditing

4

-108- Annex 11Page 6 of 6

Attachment 3

Master Dearee in Public Accountingand Financial Management and Control

Detailed Costs

International Number of Trips Man/Month TotalConsultants Subject

Matters

(l)Supervisor 4 4 12.5(Acc./Audit)

(2)Management 2 1 5Systems

(3)Administr. 2 1 5Systems

(4)Statistics/ 2 1 5Sampling

(5)Soc.Analysis 2 1 5& Hum.Res.Dev.

(6)Fin.Admin.& 3 2 7.5Strat.planning

Consultants Costs(US$6,300 monthly +US$40 a day=US$7,500)

International Cons. 40 300,000National professors(7x3=21x3,000) 63,00012 Support Professorsbeing trained (US$1,500) 40 60,000Equipment/Copying 150,000Travel/Insurance 10 25,000Administrative Support(6%) 36,000Universities(Overhead) 76,000

710,000Contingency 90,000

800,000======

5

-109-

ANNEX 12Page 1 of 5

THE GOVERNMENT AUDIT COMPONENT

Background

In the late 1920's the Kimmerer Commission visited Bolivia and was responsiblefor various improvements in the area of financial management, including thecreation of the Comptroller General's Office and the Central Bank, among otherinstitutions. The financial management and control system implanted was in thenew (1921) US model of the GAO; however, it included many aspects of the priorcustoms inherited from Spain.

During the 1960's and early seventies AID provided technical assistance financialmanagement to Bolivia and financed the construction of the building for theComptroller General's Office (CGO). A new accounting system was set up underresponsibility of the Finance Ministry, and a professional approach to auditingwas introdu1.ed in the CGO through an intensive nine month training programoffered over several years for the audit staff. New decree-legislation set forthmodern accounting principles and standards, a new structure for the CGO and a"National System of Control". Unfortunately, the legislation attempted tocombine the old and new systems and ultimately the former prevailed.

By early 1983 when efforts were again made to assess and improve the situationthe accounting system had completely collapsed and only a handful of thepreviously trained auditors remained in the CGO. The country's economic collapseand low government salaries had forced almost all competent staff to flee to theprivate sector.

The SAFCO Project which had been originally foreseen to cover at least five toten years was reduced to less than three years when finally funded. Thereforemuch remains to be done. The ILACO Project would extend the financial managementimprovement efforts another 2 1/2 years which is not sufficient time toinstitutionalize the reforms and assure against, as in the late 1970's, anotherperiod of deterioration of Bolivian financial management. Therefore a thirdphase must also be contemplated.

SAFCO ACCOMPLISHMENTS IN AUDIT

The nature of auditing is such that it is dependent upon at least some sort offunctioning financial management and internal control systems. In Bolivia, sinceall of these had collapsed it was necessary to begin to organize accounting,budgeting and treasury functions before audit could be of much use. The delayin the approval of the SAFCO Law until July, 1990 postponed the whole process.On the other hand the major accomplishment is the law itself, something few othercountries have been able to produce.

During the period while the law was being considered the CGO, with SAFCOadvisers' assistance prepared drafts of internal control and auditing standardsand other provisions which now need only to be compatibilized with the finalversion of the law to be issued and applied. Training in accounting and auditingalso went forward. Though only 29 auditors have received basic training thusfar, many CGO staff members have received basic training in accounting and are

-110- Annex 12Page 2 of 5

ready to receive basic auditing training.

The most important achievement has been the elimination of functions incompatiblewith auditing from the CGO's duties, especially the precontrol and approval ofdisbursements. A compromised and corrupted supreme audit institution has nowbeen supplanted by an independently managed and financed institution with thepotential at last to perform independent professional audits in the public sectorand assure that audits performed by others also meet appropriate standards ofquality, professionalism and independence. That potential will be developedduring the execution of PFMO II. Now with a legal framework in place and manyof the regulations and standards necessary to implement it in draft form, CGO ispoised to become an independent and professional auditor of the public sector.

THE PFMO II AUDIT COMPONENT

The audit component of PFMO II will consist of 233 person/months of internationalconsultants plus 554 person/months of locally hired professionals, about one-halfof whom will be at the senior level and the remainder at the intermediate level.Total cost is $5.3m including $.4m in equipment. These resources will bedirected to building upon the foundation laid in PFMO I to establish a CGO auditstaff with a strong financial audit capability and to initiate efforts to gainproficiency in operational and investigatory auditing.

Central Policy and Planninn for Government Audit

Almost all successful Supreme Audit Institutions have one central unit which isin effect the "brains" of the organization. This unit provides the technical andmethodological know how to carry out the professional audit function assuringthat it meets the highest standards. CGR has never had such a unit. Perhaps themost important aspect of PFMO II so far as audit is concerned will be thecreation and staffing of the new CGR Technical and Programming Office (TPO). TheTPO must be staffed by the best young technicians available in Bolivia inprofessional accountancy and audit who will under the guidance of internationalconsultants develop the entire technical and methodological framework forinternal control and audit for the GOB.

TPO's work covers two major areas: the internal framework and working of the CGRitself, and the external framework and design of what the SAFCO law calls the"Internal Control and Audit System" which is to be "implanted under its (CGR's)direction and supervision." Specific legal duties of the CGR which TPO willcarry out include the issuance of "basic standards for internal control andexternal audit" and the regulations under article 5 of the law governingfinancial reporting and audit of non-public sector entities which handle publicresources. Perhaps even more importantly TPO will provide the technical guidancein the form of regulations, manuals, guidelines, and similar instruments foralmost everything that CGR does. These will include the internal operational andorganizational manuals and instructions of the CGR itself instrumenting theadministrative systems called for by the SAFCO law (operations programming,administrative organization, budgeting, personnel management, acquisitions andsupply management, treasury management, accounting, and internal audit)incorporating the appropriate provisions to insure internal control. Alsoincluded will be the provisions governing the CGR's staff performance appraisaland professional and career development. These documents must be carefullyprepared so that they may serve as examples for sxmilar internal provisions in

-111- Annex 12Page 3 of 5

other entities of the public sector.

Technical documents which TPO will develop in addition to the basic internalcontrol and audit standards applicable throughout the public sector will includeadministrative instructions for all types of audits, regulations for selectingand contracting private auditing firms to perform audits in the public sector,regulations regarding the entire staff training program, the follow up system forcontracts, legal proces_es and other legal matters, the framework for thedevelopment of the annual audit plan by the CGR and the internal audit unitsthroughout the government and their integration into a single coordinated auditeffort, the audit quality control review methodology and system and the auditrecommendation follow up svstem. Many of the foregoing will require personalcomputer based data processing systems design and implementation in collaborationwith outside experts provided to get these systems going.

On an annual basis TPO will be responsible for the preparation of the annualaudit plan and its presentation to the Comptroller Ceneral for approval, forcompiling and integrating the annual internal audit plans, for operating thevarious follow up systems and for the selection and contracting of privateauditing firms when considered necessary. It will also periodically update allexisting standards, manuals and other documentation and must be prepared toprovide advisory assistance to the staff of the CGR and to the various publicentities in all the areas of its activity. Clearly TPO will be the mostimportant technical organ of the CCR and its development must be carefullyplanned and implemented.

Establishment of Audit Operations Units

The principal purpose for existence of CGR is to perform government audits.Therefore the larger part of its staff must consist of qualified, trainedgovernment auditors organized in such a way as to be able to carry out the fieldaudit operations necessary to fulfill CGR's mission. PFMO II will assist CGRin setting up, staffing and training its professional audit staff which will beunder the direction of the new Deputy Comptroller for Audit Operations (DC/AO)who will report to the Deputy Comptroller General (DCG). Initially three auditdepartments will be set up under the DC/AO. They are to be the Departments ofAudit of (1) Public Corporations and Services, (2) Social Services and LocalGovernments, and (3) Remainder of the Central Government and DepartmentalGovernments. In addition the DC/AO will provide support for the threedecentralized audit units serving government departments.

As auditors graduate from the specialized basic audit training course they willbe assigned to perform audits as team members in one of the three auditdepartments or decentralized units. The major problem that these units will facewill be the provision of adequate experienced supervision in professional auditfor the newly trained auditors. It is unlikely that CGR will be able to recruitfor its own staff auditors who already have such experience. Therefore a keyrole of PFMO II will be to contract at least four experienced Latin Americanaudit managers with extensive professional audit supervisory experience toprovide such supervision until CGR's own best auditors, based on evaluatedperformance, can be promoted to auuit manager posts.These individuals will provide the necessary on-the-job training and supervisionto complement the theoretical formation the staff auditors have received in theclassroom. They will also provide quality control over the audit field work and

-112- Annex 12Page 4 of 5

resultant reports. As the audits staff grows their work will tecome more complexas they must select the audit team leaders and future supervisors and auditmanagers based upon the performance of the new auditors.

Another key department which will report directly to the Deputy ComptrollerGeneral (DCG) will deal with the development of administrative and internalcontrol systems of public sector entities to facilitate the implementation of theSAFCO law by them. Due to the lack of elemental administrative and internalcontrol systems in the majority of the public entities, during the first yearsof the execution of the ILACO Project the CGR must give special emphasis to theevaluation of adminlstrative and management information systems and the internalcontrols incorporated within them including the establishment, planning andoperation of internal audit units. The results of this departments analyses andstrengthening of administrative and control systems of public entities willprovide feedback for the planning of the financial and compliance audits in thepublic sector which must, of course, be directed to areas of greatestvulnerability to risk and least existing controls over significant amounts ofresources.

The DCG will also need to develop the capability to supervise the selection,contracting and execution of six special examinations to be performed byauditing/consulting firms financed under PFMO II. These examinations willinvolve specifically identified activities and/or operations of six of the GOB'slargest and most complex public corporations. They will require a level ofexpertise not available normally in the country and their finding and conclusionscould be controversial. Therefore the entire contracting and execution processmust be carefully carried out to assure that the work achieves the degree ofobjectivity and independence of criteria expected of the audit function. CGRstaff auditors will participate with the contr"cted firm staff in carrying outthese examinations in order to gain experience in broader scope examinations sothat eventually CGR may develop an ability to perform operational audits in thepublic sector.

Legal and Investigatory Support for the Audit Function

The Deputy Comptroller for Legal Services (DC/LS) will play a major role in allefforts carried out by CGR due to the legal compliance aspects inherent to allstate functions and activities. An extremely important new legal responsibilityof the DC/LS under the SAFCO law is the drafting of the regulations coveringaccountability by any party over any resources received from the GOB. Thisinvolves not only the application of such resources but also the effectiveresults produced from their use. As a means to determine the content of theseregulations a seminar on legal and technical ethics will be held early in theproject. DC/LS must also draft the new law to set up the Administrative LawCourt which will replace the former CGR judicial function of judging accounts inthe tradition of the old courts of accounts, an antiquated process completelyeliminated by the SAFCO law. Once this court is set up all legal files of CGRrelating to its former judicial functions must be transferred to it. PFMO IIwill also assist the DC/LS in developing a computerized administrative law database both for purposes of general reference and in order to facilitateappropriate updating and improvement.

Three legal departments will be established under DC/LS: (1) legal analysis, toprovide legal support for the audit function including making available lawyers

-113- Annex 12Page 5 of 5

to perform field work along with auditors where considered necessary; (2) legalprocess acceleration, to provide for follow up and acceleration of the undulyslow legal actions which follow the audit process and make it effective; and (3)"complementary examinations", a term used to describe the criminal investigatoryprocess which often results from the auditors' findings and requires evidencegathering techniques beyond those customarily applied by auditors. For thislatter function an elite group of "auditor/investigators" must be selected andtrained in investigatory audit techniques. This group must be given on-the-jobtraining in fraud auditing, criminal law and the investigation of the varietytypes of "white collar" crimes which typify government operations.

The legal analysis department will provide legal research and analysis to supportthe legal counsel provided to une CG and his entire staff including especiallylegal support for the audit staff. This unit will review audit findings fortheir legal implications and advise regarding their further pursuit.

The department charged with accelerating legal processes will determine thestatus and provide follow up on all CGR generated legal processes making surethat those legal officers responsible in the ministries and other entitiesprovide prompt action where necessary. Failures to assure prompt processing willbe duly reported and corrective actions taken.

Complete Electronic Eguipping of CGR

The computer equipment necessary to provide support for the audit function willbe completed by PFMO II through acquisition of additional mini and microcomputersand printers.

The End Product - A Professional Audit CaRabilitv

All of the foregoing including, as well, the training of the CGR audit staff isdirected toward the very important goal of developing and maintaining aprofessional audit capability within CGR. This is essential to maintain thediscipline in the public sector demanded by the SAFCO law. The diversity,complexity and magnitude of the modern State requires that the audit process beoriented initially to the weaknesses detected in the administrative functions soas to establish or strengthen the internal controls which must be a part of theseprocedures and assure the validity and credibility of the information producedand the analysis and use by management of such data. It is no longer sufficientthat government audit establish only legal compliance and arithmetical accuracy.To improve government operations , the audit of management systems and theresults they produce should provide feedback into the decision making process,the strengthening of implementation tools and the qualitative improvement of theinformation generated.

The scope of GOB audit must be gradually broadened to include operational orcomprehensive audit of major public entities on a cyclical basis at the same timethat the breadth of government audit is expanded to provide for competentinternal audit units providing more systematic, timely and complete auditcoverage than CGR can ever achieve. Much of this expansion will be beyond thetime frame and capability of PFMO II; however, the groundwork is being laid byPFMO II to eventually provide for comprehensive, professional, and independentaudit of the affairs and resources furnished by the Bolivian taxpayers.

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Annex 13-115- Page 1 of 6

ANNEX 13

THE ACCOUNTING COMPONENT

1. The accounting component includes three basic sub-components thattogether aim at disseminating and implementing the integrated informationsystem (budgeting, treasury/public credit, and accounting), specificallyaccounting standards and procedures, government-wide. This is to beaccomplished by focussing on three different groups: a) 14 representativemodels for their further dissemination to 116 entities; b) those entities thatare noc part of the representative sample nor adhere to similarcharacteristics or needs as those in part a); and c) those smaller lesscomplex entities in local or regional governments.

A. The 14 Models

2. The effort for the 14 representative entities will consists of:

a) converting the current information system used in the centraladministration for accounting and treasury disbursements (budgetexecution) to an open version applicable to microcomputers. This willinvolve the conversion of the PACE software, currently used forconsolidation purposes, to a transportable software technology fordecentralized institutions who are expected to have only microcomputerequipment available. This activity is estimated to require 6 months ofinternational expert and 12 of national consultants at a cost of US$66,000. Note that once this activity is performed, it is applicable toall 14 entities selected, that is, it is done only once;

b) analyzing the existing procedures and systems of accounting,budgeting and treasury in each entity;

c) develop specific procedures, drawing from existing manuals andprocedures (Accounting Manual for the Central Administration, AccountingManual for the Decentralized Irnstitutions, and the Budgeting Manual) foreach entity;

d) adapt the account classification and software to the needs of theentity;

e) formulate specific Drocedures and administrative guidelines for themanaging of accounting, budgeting and treasury systems;

f) implement systems in each entity and supervise their adoption;

For activities b-f, an estimated an average of US$43,750 per entity wascalculated, taking into account economies of scale (an original US$ 85,000unit cost was calculated). An average of 4 m/m of an international financialspecialist and 8 m/m of national systems analyst and financial specialist tohelp implement new procedures and to adapt software and accounts. (US$525,000total).

Ann.x 13-116- Page 2 of 6

3, The 14 entities chosen are based on the following criteria: a) theirtransferability to other entities of similar nature, b) the importance of thepublic service rendered, c) the amount of resources administered, and d) theirrepresentation in various regions, facilitating the decentralization process.The list is as follows:

One Perfectura, or political head of the Departmental Government and therepresentative of the Executive Branch in each Department. This isapplicable to eight other perfecturas (9 in total);

Two Regional Development Corporations (RDCs), one large (Santa Cruz) andone small one (Oruro). RDCs currently are responsible forinfrastructure as well as the promotion of agricultural and industrialprojects. They have been chosen due to the magnitude of resourcesmanaged from petroleum royalties. One RDC is in an agricultural regionand the other in a mining, small farmer region. These two aretransferable to seven other RDCs (9 in total);

The National Road Service. This decentralized institution reports tothe Ministry of Transportation, and funds itself with its own resources,TGN contributions, and external donations targeted for civil works.While there is only one such entity nation-wide, it has representativeentities in each Department (1 in total);

The National Service for Community Development. This entity is dedicatedto rural construction of roads, small schools, sanitary posts, andpotable water works (1 in total);

Two HosRitals (La Paz and Trinidad) that provide medical care to thegeneral public. These two (again one large and one small) arerepresentative of numerous hospitals around the nation. HospitalGeneral de la Paz is transferable to 12 similar hospitals and HospitalGeneral de Trinidad is transferable to 15 (27 in total);

One Departmental Committee for SRorts Facilities. This entity isresponsible for the promotion and construction of sports facilities ineach department. It is regionally administered aid funds itself withits own resources. There are 9 similar committee nation-wide (9 total);

One Departmental Institute for Sports Activities. This institutionmanages all sports activities and resources developed or constructed bythe Committee. The development of sports activities is a priority ofthe government as a major deterrent for drug addiction and alcoholism inthe Bolivian youth. There are 9 similar institutions nation-wide (9total);

One University. There are 9 similar universities throughout thecountry, dedicated to higher level education, research activities, andextension (9 total);

Two MuniciRalities (Santa Cruz and Pando). These are representative of10 similar municipalities nation-wide, 5 large and 5 small. They arethe local government representatives of cities and small towns. (10total);

-117- Annex 13Page 3 of 6

In addition, two social security institutions were chosen:

i) Fondo de Pensiones de la Administracion Publica, one pens1.n fund forthe public sector workers that are covered by the "Ley de ia CarreraAdministrativa" rather than the General Labor Law, and

ii) Fondo de Pensiones de la Caja Nacional de Salud, one pension fundfor public sector workers covered by the General Labor Law andaffiliated to the Caja National de Salud. Its method of incomeregistration, organization and contribution are quite different from L).The fund is representative of 30 funds such as the bank workers fund,the petroleum workers fund, the university workers funds and themilitary fund. (30 total).

The development of accounting systems, budgeting and treasury systems in theabove two institutions will require more resources as their accounting is morecomplex. An estimated US$ 140,000 for each (US$280,000 total).

B. 108 non-representative entities

4. Of a total of 238 decentralized enitiesl apart from the centraladministration, 64 are public enterprises and 174 are decentralizedinstitutions. Of the 174 decentralized institutions, 116 are covered in theabove point, however, 58 can not easily adapt the central administration'ssystems. In addition, of the 64 public enterprises, it is estimated that 14can finance the development of their own accounting systems (see attachedlist), thereby leaving 50 unattended.

5. For these 108 institutions, 58 decentralized institutions and 50 publicenterprises, the General Accounting Office (GAO) will disseminate accountingprinciples and procedures outlined in the "Accounting Manual for DecentralizedInstitutions". This work is less vigorous than the 14 models above, since nointegrated system will be developed, nor made compatible with budgeting andtreasury procedures. However, the work is supervision-intensive as there are108 to cover. It is estimated that the activity will require: in year one, 20m/m of international financial specialist (two, one for decentralizedinstitutions and the other for public enterprises) and 40 m/m of localspecilist to support the dissemination; in year two, 24 m/m of theinternational specialists and 48 m/m of national specialist; and in yearthree, 2 m/m of inter. specialist and 8 m/m of local specialists. A total costof US$ 483,200 is estimated for this activity.

C. Smaller Less Comglex Regional Entities

6. The regional public entities are further divided into provinces,sections and cantons. Each of these provinces has a sub-perfect and eachsection has a municipality, a sanitary post, at least one educationalfacility, one sports facility and at least one entity representing MACA. Forexample, the La Paz Department has 19 provinces and 66 sections.

I/ Note that this number differs from the number of decentralized institutionsthat currently present budget submission (135).

Annex 13-118- Page 4 of 6

7. A sample group for these entities was selected. This group consists of:2 municipalities, 2 hospitals, 2 education centers, 2 sports facilities, and 2entities representing MACA per Department. If these entities are then used todisseminate financial administration systems to the other 8 Departments, 90entities would be covered by this effort.

8. This effort basically consists of the establishment and implementationof simplied budgeting, treasury and accounting procedures. The objective isto give these smaller entities the basic tools and standards for soundfinancial management. This will in most cases not involve computerizedprocessing of their financial information, but it is expected that whateverinformation produced will eventually feed into the GAO.

Attached:

1. List of the public enterprises that are able to finance their ownaccounting systems.

2. Composition of the Non-Financial Public Sector. Note that 7.3.1 and7.3.2 refe: to activity 1 above, and 7.2 refers to activity 2.

-119- Annex 13Page 5 of 6

1. LIST OF PUBLIC ENTERPRISES THAT CAN FINANCE THEIR OWN ACCOUNTING SYSTEMS:

1. YACIMIENTOS PETROLIFEROS FISCALES BOLIVIANOS YPFB2. EMPRESA NACIONAL DE TELECOMUNICACIONES ENTEL3. EMPRESA NACIONAL DE ELECTRICIDAD ENDE4. CORPORACION MINERA DE BOLIVIA COMIBOL5. FABRICA NACIONAL DE CEMENTO FANCESA6. EMPRESA NACIONAL DE FERROCARRILES ENFE7. LLOYD AEREO BOLIVIANO LAB8. ADMINISTRACION AUTONOMA DE SERVICIOS AUXILIARES AASANA9. EMPRESA METALORGICA SUBSIDIARIA VINTO VINTO10. ADMINISTRACION AUTONOMA DE ALMACENES ADUANEROS AADAA11. SERVICIO AUTONOMO DE AGUA POTABLE Y ALCANTARILLADO SAMAPA12. FABRICA DE ACIETES VILLAMONTES13. INGENIO AZUCARERO BERMEJO14. PLANTA INDUSTRIALIZADORA DE LECHE PIL LA PAZ

l120I Annex 13ij'1IIVI,I,jA4iyVURUEL IiECTUH PUIJI. I CU Page 6 of 6

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-121-Annex 14Page 1 of 16

GOVERNMENT OF BOLIVIA

LAW OF GOVERNMENTAL MANAGEMENTCONTROL AND AUDIT

Law No. 1178 of July 30, 1990

Jaime Paz Zamo*aConstitutional President

of the Republic

THE NATIONAL CONGRESS

HEREBY DECREES:

THE LAW OF GOVERNMENTAL MANAGEMENTCONTROL AND AUDIT

CHAPTER I

PURPOSE AND SCOPE OF APPLICATION

Article 1. This law regulates the Management and Control systems for State

resources and their relationship to the national Planning and Public Investmentsystems in order to:

a) Program, organize, execute, ad control the effective and efficientcollection and use of public resources for the fulfillment and timelyadjustment of Public Sector policies, programs, services and projects.

b) Make available useful, timely and reliable information, ensaring fairpresentation of financial statements and reports.

c) Assure that regardless of rank, every public servant assumes fullresponsibility for their acts and is accountable not only for achievingthe objectives for which public resources were placed in their custody butalso for the means and results of their usage.

d) Develop the administrative capacity to prevent, or disclose and proveimproper use of State resoturces

-122-Annex 14Page 2 of 16

Article 2. The systems regulated by this law are:

a) For programming and organizing activities:

- Operations Programming- Administrative Organization- Budgeting

b) For implementing programmed activities:

- Personnel Management- Acquisitions and Supply Management- Treasury and Public Credit Management- Accounting

c) For controlling the management of the Public Sector:

- Internal Control and Audit

Article 3. Managerial and control systems shall be established in all publicsector entities, without exception. These are defines as the Presidency and VicePresidency of the Republic, the Ministries, the office of the ComptrollerGeneral, the Electoral Tribunals, the Bolivian Central Bank, the Superintendencyof Banks and Insurance, the Development Corporations, the State financialintermediaries, the Armed Forces, the National Police, the DepartmentalGovernments, the Universities and the Municipalities, all institutions,organizations and enterprises belonging to national, departmental an localgovernments, and every other legal person or entity in which the State is amajority equity owner.

Article 4. The administrative units of the Legislative and Judicial branchesshall be subject to this law, in accordance with their own objectives, plans andpolicies, within the framework of their independence and the coordination of thebranches of government.

Article 5. Any entity not included in Article 3 and 4, whatever its legalnature, which receives resources from the State for investment or operation,benefits from subsidies, advantages or exemptions, or which provided publicservices not subject to free competition, pursuant to the regulations and subjectto exceptions in the amounts such regulations may determine, shall report to thedesignated public entity, on the use, means and results of the management of suchresources and public privileges, and shall submit to it duly audited financialstatements. in addition other qualified and independent opinions may be requiredconcerning the effectiveness of some or all managerial and control systems inoperations.

-123- Annex 14

Page 3 of 16

CHAPTER II

MANAGERIAL CONTROL AND AUDIT SYSTEMS

Article 6. The Operations Programming system shall define strategic objectivesand plans for each entity, in conformity with plans and policies generated by theNational Planning System, in the form of concrete results to be achieved over theshort and medium term, specific tasks to be performed, procedures to be utilized,and the means and resources to be used, all of this in function of time andspace. Such programming will be of comprehensive nature, including the

functional operations and preinvestment and investment implementation. Theinvestment programming precess shall correspond to projects in conformity withsectoral and regional policies in accordance with the National Public InvestmentSystem.

Article 7. The Administrative Organization System shall be defined and adjustedin terms of Operations Programming. It shall avoid duplication of objectives andfaculties through modification, merging or elimination of entities, in compliancewith the following precepts:

a) The functions of policy making, issuance of standards, and monitoring

implementation and compliance will be centralized in the governing entityof the sector, and policy implementation and operation of managerialsystems will be deconcentrated or decentralized.

b) Every public entity shall organize itself internally, in terms of itsobjectives and the nature of its activities applying the managerial andinternal control systems provided for by this law.

Article 8. The Budgeting System shall anticipate, in terms of government policy

priorities, the amounts and sources of financial resources for eacil fiscal year,and their allocation to the financial requirements of the operations programmingand the administrative organization adopted. It will adhere to the followinggeneral precepts:

a) Government entities receiving resources from taxation, social security andother payments, royalties or Treasury transfers, shall adjust theirexpenditures tot he availability of such receipts, to loan conditions dulycontracted, and to legal budgetary limitations. Transfer of budgetedresources from capital investments to operations is hereby prohibited.

b) Entities with managerial and equity autonomy, whose revenues proceedexclusively from the sale of goods or services, shall finance theiroperating expenses, their contribution to capital investment funding, andtheir debt payments from such revenues. Their expenditure budgets shallreflect their operations and capital investments.

c) Expenditure budgets of the Central Bank and publicly owned financial

intermediaries subject to the monetary program of the Central aoverr.nentand to monitoring by the Banking Superintendency shall reflect their

-124-Annex 14Page 4 of 16

operations and non-financial investments.

d) Execution of expenditure budgets of the entities listed in paragraphs b)and c) of this article, is subject, according to regulations to compliancewith government policies and standards related to the nature of theiractivities, including those referring to amendments, transfers andassignments within their own budgets, as well as to their effectiverevenue availability after allocation and payment of their financialobligations, reserve requirements, capital increases, taxes on net worthand other taxes due. Transfers of amounts budgeted for capital investmentor of amounts of revenues received in excess of budget estimates for thepurpose of financing operating expenses ave hereby prohibited.

Article 9. The Personnel Management System, seeking efficiency in public sectormanagement, shall determine which positions are actually necessary and therequirewents and mechanisms for filling such positions. it shall implementmechanisms for evaluation and compensation for work performed, develop the skillsand aptitudes of public servants, and establish procedures' for termination ofemployment.

Article 10. The Acquisitions and Supply Management System shall establish meansof contracting for, managing and disposing of goods and services. It shalladhere to the following precepts:

a) Prior to processing acquisitions, ensure the availability of funds forobligation, or define the conditions required for financing; segregate theauthority to request, authorize initiation and carry out the contractingprocess; simplify processes; and identify those responsible forcontracting decisions concerning quality, timing and price competitivenessof commodities, including the effect of payment terms.

b) Entities shall use the goods and services contracted for the purposesestablished in operations programs, and shall perform preventivemaintenance and safeguard assets, identifying those persons responsiblefor their use.

c) Regulations shall establish mechanisms for the write off or timely sale ofassets, tRking into account the specific needs of the entities which ownthem. The sale of shares of jointly owned companies and the transfer orliquidation of State enterprises shall be made only after specific or

general legal authorization and after proper public legal publicationbefore, during and after these operations.

Article-II. The Treasury and Public Credit Management System shall mangerevenues, financing and public credit, and shall schedule obligations,liabilities and payments to execute the expenditure budget. It will apply thefollowing general precepts:

a) All internal or external public debt with a term equal to, or greaterthan, one year, shall be contracted by the governing authority of the

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Page 5 of 16

State Treasury System, for the account of the National Treaoury or that ofthe beneAiciary entity which assumes responsibility for servicing therespective debt.

b) Public debt with a term of less than one year shall be contracted by eachinstitution aubject to the financial program established by the governingauthority of the State Treasury System.

c) Public sector entities shall comply with the policies and standardsestablished by the governing authority of the State Treasury System forthe management of funds, securities and debt.

Article 12. The Accounting System shall integrate all budget, financing andequity transactions in a single, timely and reliable system which shall be therepository and source of all data expressed in monetary terms. Based onfinancial and nonfinancial data it shall generate relevant and useful informationfor use in decision making by central government officials and those of eachentity ensuring that:

a) The accounting system of each entity or group of similar entities respondsto their nature and their operating and managerial requirements andobserves generally accepted accounting principles and standards.

b) The accounting system identifies when appropriate, the cost of Stateactivities and measures the results achieved.

Arrticle 13. The objective of the Internal Control and Audit System shall be toimprove (1) efficiency in the collection and use of public resources and in Stateoperations; (2) reliability of information generated by such resources andoperations; (3) procedures assuring that every official is held accountable fortimely performance; and (4) managerial ability to prevent, or identify and proveimproper handling of State resources.

This system shall cover the functions of all public resource managerial systemsand shall be composed of:

a) The Internal Control System, which shall encompass controls in theorganizational plan and in the regulations and procedural manuals of eachentity, and the internal audit function; and

b) The External Audit SI3tem which shall review operations already executed.

Article 14- Internal pre-control procedures sh.all be applied by all units of theentity prior to the execution of their operations and activities, or before theiractions take effect. These comprise verification of compliance with regulatorystandards and of supporting facts, as well as of appropriateness and timelinessbased on tha purposes and programs of the entity. The exercise of pre-controlby those responsible for internal audit, and by individuals, units or entitiesdifferent from, or external to, the unit executing the operations is herebyprohibited. No special unit charged with the direction or centralization pre-control shall be established.

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Annex 14Page 6 of 16

After the fact internal controls shall be exercised by:

a) senior responsible officials, with respect to the results achieved fromoperations and activities under their direct li..e of authority; and

b) The internal audit unit.

Article 15. Internal audits shall be performed by a specialized unit of theentity, which shall conduct the following activities separately, in combinationwith, or as part of an integrated effort: evaluation of the degree of compliancewith, and the effectiveness of administrative systems, and of the internalcontrol processes ir.corporated within them; determination of the reliability offinancial records and statements; and analysis of the results and efficiency ofoperations. The Internal Audit Unit shall not participate in any other operationor managerial activity, and shall report to the highest executive authoritywithin the entity, whether it be a board or an individual. It ohall formulateand execute its schedule of activities with full independence.

All internal audit reports shall be submitted immediately upon completion to thehighest governing board or authority, to the highest authority of the entityhaving an oversight role over the entity audited, and to the Comptroller Generalof the Republic.

Article 16. External audits shall be independent and impartial, and may examineat any time the operations or activities already carried out by the entity, inorder to evaluate the effectiveness reliabili.ty of accounting and o,erationalrecords; provide an opinion on the reasonable presentation of financialstatements; and evaluate results on the basis of the efficiency and effectivenessof operations. These external post audit activities may be executed separately,in combination with, or as part of an integratad effort, and compliance withtheir recommendations, after discussion and acceptance by the audited entity, ismandatory.

CHAPTER III

RELATIONSHIP WITH THE NATIONAL PLANNINGAND CAPITAL INVESTMENT SYSTEM

Article 17. The national systems for Planning and Capital Investment shalldefine government strategies and policies to be implemented through theManagement Control and Audit systems established by this law.

Article 18. For the annual operation of systems for Operations Programming,Administrative Organization, Budgeting, and Treasury and Public Credit Managementthe national systems for Planning and Capital Investment shall conform andintegrate objectives and strategic plans of each entity, and the capitalinvestment projects they are to implement, with medium and long terms plans,monetary policy, revenues received and available financing, maintaining theunitary and integral nature of budget formulation, of the treasury and of publiccredit.

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Article 19. The Internal Control and Audit system, besides promoting theefficiency of administrative systems, shall evaluate the results achieved duringthe year, taking into account, among other criteria, government policies definedby the national systems for Planning and Capital Investment.

CHAPTER IV

INSTITUTIONAL ATTRIBUTIONS

Article 20. All systems provided for under this law shall be governed by anorganization responsible for their direction, whose basic functions shall be to:

a) Issue basic standards and regulations for each system;

b) Establish terms and conditions for preparing secondary or specializedprovisions or standards and the progressive implementation of the systems;

c) Make compatible or evaluate, as appropriate, specific provisions preparedby each entity or group of entities carrying out similar activities, basedon their nature and the basic standards; and

d) Monitor the proper functioning of specific systems, whether dispersed ordecentralized, and consolidate the information generated by them.

Article 21. The governing organization of the National Systems for Planning andCapital Investmenit is the Ministry of Planning and Coordination, which will alsoassure the integration of the standards and procedures of such systems with thoseof the Government Management Control and Audit Systems. It will have thefollowing functions and responsibilities:

a) Set forth the medium and long term framework for formulation ofoperational programs and budgets for the various public entities on thebasis of guidelines on economic and social policies developed by thePlanning and Capital Investment Systems.

b) Ensure compatibility of strategic plans and objectives of public entitieswith the national strategic plans and objectives and with the CapitalInvestment Plan.

c) Elaborate, based on the continuous generation of initidtives, the CapitalInvestment Plan which shall contain preinvestment and investment plansapproved at the sectoial and regional levels.

d) Negotiate, on behalf of the State and within the framework of publiccredit established by the Ministry of Finance, the granting of allexternal credits, whatever their type, origin or destination. Concerningthe promotion of financing from bilateral agreements, it will have thesupport of the Ministry of Foreign Affairs.

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e) Process, with the corresponding authorities, commitments aesumed by theState, through the Ministry of Finance, consolidating all externalfunding, and underwriting bilateral agreements with the support of theMinistry of Foreign Affairs.

f) Schedule, by implementation years, the Financial Capital Investment Plan,evaluate its execution, and keep it up to date, based on informati-ngenerated by the Management and Control Systems.

Article 22. The Ministry of Finance is the fiscal authority and governingorganization of the Operations Programming, Administrative Organization, Budget,Personnel Management, Acquisitions and Supply Management, Treasury and PublicCredit Management, and Accounting Systems. These systems are to be implementedunder the direction and supervision of the Ministry of Finance, which willparticipate in the design of economic policy and will be responsible fordeveloping fiscal policy and public credit policy for the Government.

Article 23. The Office of the Comptroller General of the Republic is thegoverning organization for the Internal Control and Audit system, which shall beimplemented under its direction and supervision. The Comptroller General of theRepublic shall issue basic standards for internal control and external audit,shall evaluate the effectiveness of the internal control systems; shall conductand supervise external audits, and shall exercise the regulatory supervision ofthe accounting systems of the Public Sector in the charge of the GeneralAccounting Office of the Ministry of Finance. It shall promote the establishmentof accounting and internal control systems, and conduct training andspecialization programs for public servants in the operation of the systemsprovided for by this law.

Article 24. The Bolivian Central Bank shall be the only monetary authority inthe country, and the governing organization of any system for collection ofresources and financial intermediation. As such, it is responsible for themanagement of monetary reserves. Besides providing standards and regulationsunder the legal provisions providing for the operation of such systems, it shallpropose and enter into agreements with the pertinent organizations of theexecutive branch regarding monetary, banking and credit policies, ad shallimplement these independently, being authorized to deny credit to the financialsystem when it exceeds the limits established under the monetary program. Theoperations with the Bolivian Central Ban% only through the General Treasury ofthe Nation.

Article 25. The Board of Directors of the Bolivian Central Bank shall consistof the President of the Bank and five directors, to be designated as follows:

a) The President of the Bolivian Central Bank shall be designated by thePresident of the Republic, from a list of three candidates proposed by theHouse of Representatives. He shall serve for four years and may be re-elected. He shall perform the functions of Chairman of the Board, withvoting rights, plus a tie-breaking vote in case of a tie.

b) Three directors to be appointed by the President of the Republic andconfirmed or rejected by the Senate. They shall serve for four years and

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may be reappointed for similar periods. Notwithstanding, these directorsshall be appointed for the first time starting from the date ofapplication of this law, for periods of one, two and three years,respoctively, and thereafter, they may be designated for additional four-year periods.

C) Two directors to be appointed by the Minister of Finance ard the Ministerof Planning and Coordination to represent their Ministries, who shall beprohibited from performing any other public duties.

d) In case of resignation or incompetency of either the president or any ofthe directors mentioned in the above paragraphs, other shall be designatedin the same manner, as provided for in this article, and they shallexercise their functions until the end of the period initially granted,and thereafter may be appointed to additional four-year terms.

Article 26. The Banking Superintendency is the governing organization for thecontrol system of the collection of public resources and financial intermediationof the country, including the Bolivian Central Bank. For this purpose, it shallissue standards and regulations for the internal and external audit of theseactivities, and without affecting the powers of the Comptroller General of theRepublic, it shall exercise or supervise external audit, determining, and ifnecessary demanding compliance with the provisions of law, technical standards,and regulations by all public, private or joint private and state investmententities which conduct financial intermediation activities, both on the offer anddemand side, in Bolivian territory, as well as by all legal or physical personsconducting auxiliary activities for the financial sector. Based on the above,it shall give an opinion on the effectiveness of the standards and regulationsissued by the Bolivian Central Bank for the operations of the systems forfinancial collection and intermediation, and if necessary, it shall make specificrecommendations to the Bolivian Central Bank in this respect.

The Banking Superintendency, jointly with the Bolivian Central Bank, mayincorporate within its scope of authority other existing, or to be crated,persons or entities which conduct financial operations whenever justified bymonetary or credit policies.

Article 27. Each public sector entity shall prepare, within the framework of thebasic standards promulgated by the governing organizations, specific regulationsfor the operation of the Management and Control systems established by this law,and the Planning and Capital Investment systems. The highest authority of theentity shall be responsible for implementation. For this purpose:

a) Any oversight role pertaining to one public entity with respect toanother, shall include the promotion and oversight of the implementationand operation of the Planning and Investment and Management and Controlsystems. In the case of capital investment operations programming, theexercise of territorial competence or oversight of another entity, itshall include the evaluation of the corresponding projects prior to theirinclusion in the Capital Investment Program.

b) The oversight role includes the power to perform ex post evaluations

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Page 10 of 16

without prejudice to the powers of the Comptroller General, as well ao theobligation to perform timely external poet audits of the entities whosesmall number of operations and limited ar,ount of resources managed do notjustify their own internal audit units.

C) Every entity, official or person collecting, receiving, paying or havingcustody of funds, securities or goods belonging to the Sate, is underobligation to account for the activities performed, through the accountingsystem, providing the supporting documentation and making arrangements forits filing.

d) For the purposes of external post audit, entities subject to this lawshall forward to the Comptroller General a copy of their contracts andpertinent supportPig documentation, within five days followingpreparation.

e) Within three months of the end of the fiscal year, each entity with ownequity and financial autonoL.ly must deliver, on a mandatory basis, to itsgoverning entity and the General Accounting Office, and make available tothe Comptroller General of the Republic financial statements for theprevious year, together with explanatory notes as appropriate and thereport of the internal auditor.

f) The highest governing board, if any, and the chief executive of eachentity, shall be responsible to the Comptroller General of the Republicfor the independence of the internal audit unit, and for its impartialityand the professional quality of its work.

g) The legal units of the public sector entities are responsible for theeffectiveness of compliance with obligations related to the protection ofthE interests of the State. They must submit periodic reports to theComptroller General's office concerning the status of administrativeprocesses, payment requirements, and legal proceedings in their charge, inaccordance with the provisions of this law.

CHAPTER V

RESPONSIBILITY FOR PUBLIC FUNCTIONS

Article 28. Each public servant shall be accountable for the results achievedduring the performance of their duties and functions. For this purpose:

a) The administrative, executive, civil and criminal responsibilities of eachindividual shall be determined taking into account the results of actionsor omissions.

b) The legality of the operations and activities performed by each publicservant is presumed unless shown to the contrary.

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C) The term "publi- servant", as used in this Law, refers to dignitaries,officials and any other person rending services as an employee of Stateauthoritic, regardless of the source of their remuneration.

d) The terms "authority" and "executive" as used in this Law are synonyms,and refer to public servants who, because of their hierarchy endfunctions, are the parties primarily responsible for the management of theentities in which they perform their duties.

Article 29. A responsibility is administrative when the action or omissionviolates the juridical-administrative mechanism and the rules regulating thebehavior of public servants in the exercise of their functions. The competentauthority shall apply, according to the seriousness of the violation, penaltiesvarying from a fine of up to twenty percent of the monthly remuneration,suspension of up to thirty days, or dismissal.

Article 30. A responsibility is executive when the authority or executive: (1)fails to account as required under pSragraph c) or Article 1, and Article 28 ofthis Law; (2) fails to comply with the provisions of the first paragraph andparagraphs d), e), or f) of Article 27 of this Law; or (3) it is disclosed thatdeficiencies or negligence of the executive exercise of functions are of suchsignificance that they will not permit achievement under existing circumstancesof reasonable results in terms of effectiveness, efficiency and effectiveness.In such cases, the penalties provided under paragraph g) of Article 42 of thisLaw shall apply.

Article 31. A responsibility is civil when the action or omission by a publicservant or by private natural or legal persons results in damage to the State inan amount quantifiable in monetary terms. The determination thereof shall besubject to the following precepts:

a) The top ra zing official shall be held co-liable for authorizing improperuse of Sta 2 goods, services or resources, or where such improper use hasbeen made Iossible through deficiencies in managerial and internal controlsystems which reasonably could have been implemented by the entity.

b) Civil responsibility is incurred when natural or legal persons, not beingpublic servants, benefit unduly from public resources or are the cause ofdamages to State property.

g) When there are several persons responsible for the same actions or eventsresulting in damages to State, they shall be held jointly responsible.

Article 32. The State entity ordered by a court of law to pay damages in favorof public entities or third parties, shall claim restitution from the authorityresponsible for the actions or facts which caused the penalty.

Article 33. Administrative, executive or civil responsibility shall not beestablished when it is proven that a decision was made in pursuit of a greaterbenefit and to safeguard property of the entity, within reasonable inherentoperational risks and according to the circumstances existing at the time ofmaking the decision, or when acts of God cause the decision or influence thefinal results of the operations.

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Article 34. Responsibility is criminal when the action or omission of the publicservant or private parties falls under this definition under the Panal Code.

Article 35. When the acts or facts examined reveal indications of civil orcriminal liability, the public servant or the auditor shall report them to thepertinent legal unit which shall petition directly, through the competent legalauthority, to the judge in charge to take all precautionary measureo inpreparation of a legal action, if justified, or shall submit a formal accusationbefore the prosecuting agency.

Article 36. Every present or former public servant of any State entity andprivate individuals having contractual relationships with the State, whoseaccounts and contracts are subject to internal or external audit, shall submitall documentation and information as required for further examination, and mistsubmit all required copies, subject to the limitations contained in Article 51,52, and 56 of the Commercial Code.The authorities of public sector entities shall ensure access by former publicemployees to pertinent documentation required of them for audit purposes. Thosefailing to comply with the provisions of this article shall be liable accordingto the penalties established in Articles 154,160, and 161 respectively of thePenal Code.

Article 37. Internal or external audits shall not modify administrative actionswhich result in adjudication of private claims, and shall be limited todetermining the responsibility of the authority which expressly authorized, oromitted taking, proper action, if any.

Article 38. Public servants are responsible for the reports and documents theysign. Lawyers, serving on an advisory position in the public sector, shall alsobe held liable when the processing of the cause contains procedural defects, orwhen the appeal or recourse presented is overruled due to formal aspects.

Article 39. The judge or court of law in charge of the case at the time ofmaking payment of civil damages, shall adjust the amount of the debt forinflation, taking into account for this purpose, the parameters established bythe Bolivian Central Bank for maintenance of value of active assets in BolivianCentral Bank for maintenance of value of active assets in Bolivian currency.Administrative and judicial proceedings established under this Law, cannotforego, in any of their degrees or stages, legal costs or professional fees,which must be charged to the parties to the legal proceedings.

Article 40. Judicial actions and obligations emerging from civil liabilityestablished under this Law shall terminate under the statute of limitationswithin ten years following the date when the act which prompted the action tookplace, or since the last legal action was carried out. The term for theapplication of the statute of limitations shall be suspended or interrupted inaccordance with causes and form, as set forth in the Civil Code. For theinitiation of legal action for acts occurring before the enactment of this Law,the statute of limitations shall be computed from the date the Law becomeseffective.

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CHAPTER VI

OPERATIONS OF THE OFFICE OF THECOMPTROLLER GENERAL OF THE REPUBLIC

Article 41. The Comptroller General ef the Republic shall have operational,technical and administrative autonomy in performing external post audits. Inorder to ensure its independence and impartiality with respect to theadministration of the State, the budget of the Comptroller General's Office,prepared by it and substantiated in its operational program, shall beincorporated, unchanged by the Ministry of Finance within the proposed GeneralBudget of the Nation for consideration by the National Congress. Once approved,the Ministry of Finance shall make disbursements required by the ComptrollerGeneral's Office in accordance with the cash flow schedule prepared by saidoffice.

Article 42. For the exercise of external post audit, the Comptroller General ishereby granted the following powers:

a) The Comptroller may contract the services of qualified and independentfirms or professionals, or order entities of the Public Sector and personsincluded in Article 5 of this Law, to contract such services, determiningthe scope of the external audit to be performed, whether technical adviceor specialized external audits are required, or whether profeseionalresources necessary to implement the work are lacking. In every case,contracting shall be subject to the regulations which will be issued forthis purpose by the Comptroller General.

b) Every 3iternal or external audit report shall be forwarded to theComptroller's Office immediately upon completion in the form andaccompanied by the documentation required by the regulations.

c) The Comptroller General's Office shall have access to the audit programsand work papers of public sector internal audit units and independentprofessional firms without affecting their responsibilities.

d) The Comptroller General's Office may examine at nay time the records andoperations conducted by the entities subject to its audit.

e) In case of default of the terms and conditions for progressiveimplementation of the required systems by any of such entities, theComptroller General of the Republic may order:

- The freezing of the bank accounts of the entity;- The suspension of disbursements by the State Treasury of by any

financing organization

f) In case of violation of this law by a public servant, the ComptrollerGeneral of the Republic, as a matter of course, or through a petitLon bythe governing organizations, or other oversight bodies, may recommend tothe chief executive of the entity or a higher authority, the imposition ofthe corresponding penalties in accordance with Article 29 of this law,without prejudice to any executive, civil or criminal liabilities.

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g) In case the Comptroller General establishes charges against the chiefexecutive officer or an entity he may recommend to the highest governingboard, provided it is not involved in the deficienciee being questioned,and to the highest overright authority, the suspension or dismissal of thechief executive, and if appropriate, of the entire governing board,without prejudice to civil or criminal lidbilities, if any, reporting theeactions to the respective commissions of the National Congress.

h) For the cases contemplated in the last part of Article 36 of this law, theprosecuting attorney for criminal cases shall order arraignment withintwenty four hours from the receipt of a petition from the Comptroller,accompanied by prior warning notice, in accordance with the Penal Code andits Procedures.

Article 43. Without prejudice to legal actions which may subsequently beinitiated by public entities against those who default on their commitments, atthe request of the entity, or as a matter of course, the Comptroller General ofthe Republic, based upon audit reports, may issue an opinion on the charges inaccordance with the following precepts:

a) The legal opinion of the Comptroller General of the Republic, and thesupporting reports and documents, shall constitute pre-established proofin resulting administrative, executive and civil actions.

b) Based on the legal opinion determining responsibility, the individualspresumed responsible shall be notified, and the Comptroller General shallremit, as a matter of course, copies oi all documents evidencing theaction taken to the entity, so that it can comply with the determination,and should it appropriate, demand payment of the obligation ae determined,granting for this purpose ten days to the debtor for payment, underpenalty of initiating the proper legal action.

c) In case the pertinent entity does not initiate the administrative processor legal action within twenty days following receipt of the determination,the Comptroller General of the Republic, or his designated representativein each capital of department, shall instruct the appropriate official, toproceed to dismiss the chief executive officer in question, and the chieflegal advisor of the entity and to initiate the proper legal action. Theobligations under these procedures which led to the dismiseal of theirpredecessors continue in effect for the newly designated authorities underwarning of similar penalties.

Article 44. The Office of the Comptroller General of the Republic may demand andact in administrative, compulsory fiscal, civil or criminal proceedings relatedto economic damage inflicted on the State. Action shall be brought by theComptroller General of the Republic or his designated representatives in eachcapital of Department who shall be empowered to delegate such faculties.

Article 45. The Comptroller General of the Republic shall propose to theExecutive Branch, for enactment under Supreme Decree, the regulations pertainingto Chapter V, "Responsibility for Public Functions" and for the exercise of thefunctions conferred to it by this Law.

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Artigle 46. The Comptroller General of the Republic shall only perform thosefunctions consistent with its role as Supreme External Audit Institutions inaccordance with the provisions of this Law. For this purpose, it shallcoordinate with the Executive Branch the elimination or transfer of any otherfunction of activity it has been performing.

CHAPTER VII

ADMINISTRATIVE LAW PROCEEDINGS

Article 47. An Administrative Law Court is hereby created which shall handle allaw suits instituted as a result of the acts of public servants, of the variouslegally constituted public entities, or of private or legal persons who haveentered into administrative contractual agreements with the State, against whomcivil liabilities have been determined as defined under Article 31 of this Law.Administrative contracts are those which refer to the contracting of civil works,the supply of materials, goods and services, and others of a similar nature.

Article 48. Matters of a civil nature not contemplated under Article 47, orcriminal, commercial or tax violations, pertaining to ordinary courts or taxcourts, and all those which, although related to acts of public administration,are assigned by law to other jurisdictions, shall not fall under theadministrative law proceedings.

Article 49. Conflicts of jurisdiction arising between the administrative lawcourt and other jurisdictions or courts of law, shall be resolved in accordancewith the determinations of the law to whicn Article 51 of this Law refers.

Article 50. Administrative law proceedings are limited to their territorialjurisdiction, and cannot be delegated to other jurisdictions. Their exercise byadministrative authorities and other shall result in the annulment, as a matterof law, of all such proceedings and obligations.

Article 51. The Administrative Law Court shall be a part of the Judicial Branch.Its organization and the administrative law procedures shall be determined bymeans of a specific law, which shall be submitted by the Executive Branch withinthe first thirty days' session of the next Ordinary Legislature.

Article 52. Decree No. 14933, dated September 29, 1977, is hereby raised to therank of a Law only as regards the part concerning administrative law proceedings,and shall continue in effect until the law to which the previous article refersbecomes effective, except for the cases under appeal to be tried by the NationalTax Courts.

CHAPTER VIII

ABROGATrONS AND REPEALS

AL.gtic 53. The following provisions are hereby repealed and replaced by thelaws

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Page 16 of 16

- The Law of organization of the Office of the Comptroller General ofthe Republic of May 5 1928.

- The Budget, Accounting and Treasury Law, S.D. 08321 of April 9,1928.

- The National FlnancLal System, D.L. 09428 of October 28, 1970- PrincLples and Norms of Fiscal Accourcing, S.D. 12329 of April 1,

1975.- External Pre-Control, Law 493 of December 29, 1979 and D.L.18953 of

May 19, 1982.

Art$c1e 5J4. The following provisions are hereby repealeds

- The Budget Organization Law of April 27, 1928, excepting Articles 7,47, 48, 49, 50, and 51.

- The Law of Organization of the Office of the Comptroller General ofthe Republlc, excepting Articles 3 and 4, without paragraph b), and5, also the law of Fiscal Control, except Article 77, pertaining toD.L 14933 of September 29, 1977.

ArtLcle SS. All provisions contrary to this Law, contalned in the followingprovisLons, and in any other legal regulations, are hereby repealed:

- organization of the Higher Institute of Public Administration, S.D.06991 of December 10, 1964.

- The Law of Administrative Organization for the Executive Branch,D.L. 10460 of September 15, 1972.

- The Law of Organization of the Ministry of Planning, D.L. 11847 ofOctober 3, 1974.

- The Law of Personnel and Administrative Career Systems, D.L. 11049of August 24, 1973 and its amendments introduced by S.D. 18850 ofFebruary 5, 1982.

- The Law of the National Planning System, D.L. 11848 of October 3,1974.

- The Law of the National Projects System, D.L. 11849 of October 3,1974.

- The Law of Organization of the Bolivian Central Bank, D.L. 14791 ofAugust 1, 1977.

- Statute of Limitations exception of Indebtedness to the State, D.L.16390 of AprLi 30, 1979.

- State Indebtedness Dollarization, S.D. 20928 of July 18, 1985.Supreme Decree 22106 of December 29, 1988.

- Supreme Decree 22165 of April 5, 1989.

Pass on to the Executive Branch for constitutional purposes.

Ynacted in the SessLon Room of the Honorable National Congress, on the ninth dayof July of the year nineteen hundred ninety.

Therefore I promulgate this statute for compliance as Law of the RepublLc.

ln the governmental Palace Ln the city of La Paz on the twentieth day of July ofthe year nlneteen hundred ninety.

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CLOSURE OF PROVINCIAL SUBTREASURIES

1. BACKGROUND

1.1 Physical and Financial Volume of Operations - Staff Assigned toEach Subtreasury. (Attachment 1)

2. JUSTIFICATION FOR THE MEASURE

2.1 Reasons for elimination of Subtreasuries:

The principal reason is to avoid corruption and misuse of fiscalrevenues. Most of the Provincial Subtreasuries were createdbecause the banking system was unable or was not authorized toprovide the services it now provides to the State.The Government is resolved to curb public spending and reduceimmoral practices within its agencies.

2.2 Advantages of eliminations

It facilitates administrative procedures by and eliminates therisk of fiscal revenue misuse.

It concentrates greater attention and more funds on thoseSubtreasuries remaining operational.

2.3 Possible bank participation:

Talks are to be held with the banks, although it seems from theirpast record that they could meet certain good service criteria, asin the case of their payments to Veterans of the Chaco War, andautomatized reconciliation of Treasury bank accounts.

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Attachment 1PHYSICAL AND FINANCIAL VOLUME OF MONTHLY OPERATIONS

STAFF ASSIGNED TO EACH PROVINCIAL SUBTREASURY SLATED FOR ELIMINATION

SUBTREASURY NO. OF EXPENSE NO. OF % Bs %EMPLOYEES ITEM OPS.

Aiqule 4 Assets 22 69 103,807 81Expenditures 10 31 23,597 19

100

Bermejo 5 Assets 14 82 68,021 81Expenditures 3 18 15,857 19

100

Camargo 6 Assets 39 78 189,141 88Expenditures 11 22 25,548 12

100

Camiri(*) 6 Assets 59 65 580,017 81Expenditures 32 35 137,304 19

100

Puerto Suarez 7 Assets 22 92 93,772 81Expenditures 2 8 21,860 19

100

Riberalta 8 Assets 22 73 352,181 67Expenditures 8 27 173,193 33

100

Robor6(*) 7 Assets 8 40 253,321 72Expenditures 12 60 100,222 28

100…---------------------------------------------------------------------__-----__-----------

Sta. Ana Yacuma 3 Assets 8 73 37,920 74Expenditures 3 27 13,648 26

100---------------------------------------------------------------------- _____--____--__--__-

Tupiza 7 Assets 36 49 2,390,653 95Expenditures 38 51 113,513 5

100…----------------------------------------------------------------------__----__-----------

Uncia 5 Assets 23 46 394,665 85Expenditures 27 54 70,025 15j

100…-------------------------------- ---------------------------------- --__ ----- _ ____ -___-___-

Uyuni 6 Assets 16 50 275,516 75Expenditures 16 50 93,795 25

100--------------------------------------------------------------------- _…----- -------------

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Annex 15Page 3 of 5

Villaz6n 7 Assets 15 38 114,446 66Expenditures 24 62 58,809 34

100--------------------------------------------------------------------- ___------__-----------

Villamontes 4 Assets 11 50 82,277 78Expenditures 11 50 23,366 _2

100___________________________________________________________________--______________________

Yacuiba 9 Assets 27 71 206,944 75Expenditures 11 29 69,755 25

100

* Bimonthly execution.

The Subtreasuries listed above are to be eliminated, as well as afurther six (not yet identified), representing an overall staff reduction of142 (61%) out of the present total of 233. The Subtreasuries in thedepartmental capitals will be retained to provide support for futureregionalization.

-140-

Annex 15Page 4 of 5

MACROECONOMIC PLANNING OF PUBLIC FINANCEAS A FRAMEWORK FOR THE BUDGETARY PROCESS

Schedule for Strenothening theSubsecretariat for the Government Budget

in the Develooment of that Function

1991March-September Training of professionals from the Directorate for

Budgetary Policy in the management of planningtechniques and in the compilation and use of fiscalstatistics, supported by UDAPE and by expertsrequested from the IMF (to help manage the Fund'scomputation and analysis methodologies).

August Macroeconomic planning exercise to provide theframework for the 1992 budget process. This willserve basically as an input to enable the Macro Group,supported by UDAPE and the Central Bank, to preparethe final version.

September-December Review of progress and in-service training ofprofessionals from the Directorate for BudgetaryPolicy by ILACO project consultants.

1992Starting in January Intensified in-service training to ensure that,

starting with formulation of the 1993 budget, theSubsecretariat for the Government Budget is able toassume responsibility foe tne macrofinancial planningthat provides the framework for the budgetary process.

1993Starting in January Final institutionalization of the system.

Improvements in planning techniques and procedures.Review and expansion of the Fiscal Statistics Database.

2 -141- Annex 15Page 5 of 5

BUDGET EVALUATION SYSTEMProiect Execution Schedule

1991March Physical planning of 1991 budget execution, for the

principal enterprises and agencies.

April onward Gathering of data on physical and financial budgetexecution. Training of Subsecretariat staff to serveas evaluators and instructors.

July-August Budgetary execution audit exercise covering the firsthalf of 1991, to be performed by the Subsecretariatfor the Budget.

August-December Training of staff in the institutions to enable themto perform internal evaluations.

October-November Second, aggregate-budget exercise, with closing datafor the third quarter and preparation of evaluationreports for the management levels of each institutionand for the Minister of Finance.

1992January-February-March Evaluation of 1991 budget execution by the

Subsecretariat for the Government Budget.

starting in March Upgrading and final institutionalization of thesystem.

At the time of the presentation of the GeneralAccounts for FY91 to the National Congress, it shouldalso be possible to submit an evaluation report onbudget execution, both for the aggregate budget andfor the budgets of the principal public-sectorinstitutions.

PUSLIC FINANCIAL NAAGEMENT OPERATION I - LESSONS LEARNED AWNEX 16

Page I of 3OBJECTIVES ACTIONS TAKEN & SHORTCOMINGS ACTIONS REQUIRED ANDOF PFKO I PERFORKMACE PROPOSED

LEGAL FRAMEWORK

Replacement of unuerous Repeatment of 19 legal provisions The promulgation of the SAFCO late A very cooWehensive and ambitious programantiquated, conflinting laws by by a comprehensive law which outtines suffered from tong detays and caused aimed at disseminating standards and systema sing(e taw uhich provides an overhaul andd modernization of delays in other activities dependent developed in PFMO I to other governmentmodern systems for financial the entire pubtic administration and upon it (particularly auditing). levets and institutions is proposed.management as welt as for overall baseic financiat institutions. Onty with wuch assistance and training willpublic sector marageent. pLblic entities be able to report finanialinformation and establish financialmnagement capabilities called for by theLa".

BUDGETING

Reptacement of an inqperative budget Design of modern participative provisions Budgets are primarily being produced by Devetopnent of budget formulationuhich had been fully abondoned in the for budget formulation which wilt permit the Ministry of Finance's staff. white capabilities at every public entity.midst of economic chaos with cLear the formulation of realistic financial line Ministries awd decentralized Establishment of budget executionbudgeting criteria and procedures. plans by those wfo are responsible for institutions work along with the MF*s evatuation procedures at the MinistryCreate the ability to allocate their implementation. programadores", but have not taken of Finance's Budget Subsecreriat as wellresources according to goverrmental Design of detaited manuals and standards on the responsibility for formu' sing as at the entity tevel. Devetopment ofpriorities and investment programs. for program-based budgets, including their own budget submissions. operations-programming techniques anda detaited coding and classification The Budget Subsecretariat does not have procedires, as well as standards forof expenses and revemnes. FY90 and FY91 the capabitity to evatuate budget execution. inputs (goods and services, personnel).fromulated with this methodology. Public Existing budget formutation methodotogy does Incorporation of these into budgetingservants trainined at the Ministry of not reftect physical programing of inputs. formutation methodology.Progressive reviewFinance in budget formulation. Coaputer software Is too slow and not of the implementation of these. Conversionflexible. Needs to be made compatible existing software into one co patible withexisting softare for accounting and budget accounting and budget execution systems.execution. Purchase of microcomputers for additional

processing capabilty at the BudgetSub3secretarlat.

Annex 16Page 2 of 3

OBJECTIVES ACTIONS TAKEN & StIIRTCCNIIIS ACTIONS REQUIRED ANDOF PFND I PERFORMANCE PROPOSED

TREASURY & PUBLIC CREDIT

Replacement of subjective ad hoc Establishment of a true cash management Treasury payments for pensioners and Design and implement System and proceduresdisbursements of Treasury funds by system in which the Treasury has the other recurrent payments are charmneled for Public Credit and Treastry comatibleclear buget execution procedures. fuiction of managing budget execution. through sub-treasuries. The nuber of with that spetled out in the SAFCO law.The previous system was based wholly Few contries in Latin America have been Treasury staff in these smb-treasuries Replacement of those paymentsupon availability of cash to pay onty abte to make such progress. Estabtishlnent greatty exceeds the flow of payments. chamelled through the sub-treasuries bythe most obstinate or influencial of clear priorities for payments and Incame proyections are rudimentary payments made through the banking network.creditors, or those wilting to automation of payment request with ard there are significant time lags in Dissemination of Tres. standards and"facilitate" the payment process. automatic rejection of request that do receiving tax collection information. procedures to decentralized institutims.

not have budgetary allocations (quotas). Pubtic credit functions are shared by Rationalization of comissioris charged forCreditor disbursements are processed in 10 a great mu3ber of institutions, no clear pubtic services in name of the Treasurysteps rather than 23, payrotl disbursements detineation of responsibilities. (Note "valores fiscales".in 21 rather than 34, and pension that the SAFCO law establishes fuictionaldisbursements, saving time and reducing responsibilities, but they ust bethe nurber of people involved in the implemented. Cash management and publicdisbursement process, thereby reducing credit procedures need to be established atopportunities for corruption. the decentralized institutions for greater

control and information on pt*Aic debt andcash availabitity.

ACCOUTING

The provision of opportune and reliable I,plementation of the "Emergency Program" The Emergency Program only provides cash Review and implementation of auxillary Wfinancial information, replacing a for the reporting of cash flows from ftow information, for a limited number. accounts for the central adeinistration,comptete vacUUm of accounting systems. major plbtic entities..his program currently Institutionat coverage of the integrated providing greater levet of detail forEnabte every entity to base decisions encompasses 90X of totat expenditures and accounting system is timited. The current their cm financiat management. Developmenton reliable inventory control, asset provides statistics for controt of system also tacks a modute to consolidate of specific accountirg systems, consistentvaluation, payments and cash flow budget expenditures and for macroeconomic data into a data base suitabte for fequent with budgetary and treasury systems, forinformation. performance (usefut for the IMF in evatuating and high tevel consultation. This system a setected rnmber of decentralized

their Erhanced Structurat Adjus. facility). is not integrated with revenue data nor with institutions (14 models) for their furtherCreation of an integrated accounting system the SISIN system (project eval. system at dissemination to 116 other entities.currently able to provide financial the Ministry of Plarning), nor the Emergency Dissemination of accounting standards andstatements for the central administration. Program. The decentralized entities stiLl manuals developed to 58 decentralizedCreation of the General Accounting Office can not prepare financial statements, no institutions and 50 public enterprises.responsible for financial reporting and financial data is available on their Provide the GAO with the capabitity ofrendering accounts on the performance performance nor can they use accounting info. consolidating financial information fromof the pubtic sector to Congress. iv.. their own financial management. the entire putlic sector. NaintainThe drafting of accounting manuats the Emergency Program until the accountingand cLassification of accounts for systems are developed.the centrat administration as well as amranuat for decentralized institutions.

Annex 16Page 3 of 3

OBJECTIVES ACTIONS TAKEN & SHORTCONINCS ACTIOIS REQUIRED ANDOF PFNO I PERFORMANCE PROPOSED

AUDITING

Replacemaent of a cowromised and The removat of ex-ante control functions for Lack of experienced auditors, as the first Execution of an aral audit plan, as weltcorrupt supreme audit institution by the Contro(ler General, thereby removing training course for auditors has just further rationalization of CGO regionat offan liJependentty manged and financed an important source of corruption. concluded. Lack of skills necessary Reorganization of the Controtter General Ofinstitution with the potentiat to The drafting of internal control guidelines, to perform financial and compliance audits. to enable the CGO to enforce accountabitityperform professional audits. and govemmental auditing standards. Preparation of basic regulations cilledReduction of reduntant staff in the for by the SFACO law (Artitle 5) relatingregional offices. Assistance in lobbying for to the reporting and audits of thosethe passage of the SAFCO law through both entrusted with public funds. Develop ancongressional chambers. audit quality contrat progrm, taudit staffperformace review and evaluation program.Establish micro-comuter tracking systemfor audits performed. Perfornce of sixOspecialized exainations" for major publicinvestamet projects or pultlic enterprises.Separtion of the judicia lfunctions of theCGO, transfered to 1%e Judicial Branch. Dralaw to set up new Administrative Law Court.

FINANCIAL MANGEMENT TRAiNING PROGRAM

Reinitiate traininp in financial manag. Coepletion of 7 courses in financiat adninis. Format training courses have just begun to Review and inprove the basic training cyclefor both financial managers & auditors and controt.The training center has condacted scatch the surface of the vast universe providing programed tearning texts for altFitt the existin void of quatified 31 format courses and trained 791 pubtic of potentiat trainees who most learn courses. Offer basic training courses toaccountants and auditors in Bolivia. eaptoyees in 1990. in addition, the training basic principles of accountabitity and a ruch larger ruviber of participants.center has provided administrationi and control. Training courses msut be Design a masters degree program in accotntiguidance for 11 budgetary seminars for 540 updated to take into account new procedures financial management, and auditing.public servants. A totat of 120 institutions and systems established by the Law and to Cocplete the physicat infrastrucuture erd were served. To date, 31 participants have be devetoped. equipent of the Training Center.rreached the level 6 course and approximatety I1,200 have gone through the first course

in the past two years.A total of 3,000 publicservants have been trained.

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