Deloitte PFM reform leaders including Steve Lewarne, Principal, Deloitte Consulting LLP, and Julie Cooper, Deloitte Specialist Leader, presented at the 32nd Annual Training Conference of International Consortium of Government Financial Managers (ICGFM) held at the Marriott Biscayne Bay in Miami, Florida. The theme of this year’s conference was “Creating a Citizen and Business Enabling Environment.” As part of this year’s theme, the team gave a presentation on their experience in the field regarding GFMIS implementations, and specifically shared some of the main lessons learned while working in developing countries. The main message of the presentation is that GFMIS is a powerful tool for improving accountability, transparency, and to combat corruption, but deployment of the application is not enough. For GFMIS tools to be successful, reformers must have a thorough understanding of what the gaps in their public financial management practices are along with obtaining strong commitment from all levels of government to improve transparency and accountability.
GFMIS – A Tool for Improving Transparency and Accountability
Over the past 30 years, governments around the world have sought to improve their public financial management framework by utilizing information technology to streamline and automate practices. Government Financial Management Systems, or GFMIS, is the term used to describe the suite of electronic tools used to strengthen and automate financial management processes specifically for the government sector. The automated functionality of GFMIS tools has introduced the potential to greatly improve government’s PFM frameworks by helping them to generate more accurate, reliable, and timely financial information, thus directly contributing to improving accountability, improving transparency, and combating corruption.
Yet when GFMIS applications are implemented over inefficient PFM practices and weak controls, limited, if any, advancement can be expected in improving accountability and transparency. GFMIS can therefore be an effective tool to overhaul the underlying PFM practices and improve the government’s capacity to manage its public finances. GFMIS provides the ability for government to automate the full range of public financial management processes – budget formulation, execution, as well as financial reporting, monitoring and evaluation, and internal external control activities.
By concentrating on the primary objectives of PFM, GFMIS can help governments improve the provision of services, strengthen fiscal discipline, improve allocative efficiency, and increase operational efficiency and combat corruption. An example of where GFMIS has been successful in this regard has been Afghanistan. Deloitte’s experience in implementing the Afghanistan Financial Management Information System (AFMIS) resulted in a reduction in variances between budget and actual expenditure, the introduction of system controls to prevent or reduce corruption, and improved allocation of resources.
An Essential Pre-Requisite: The PFM Diagnostic
PFM diagnostics have been critical for identifying the underlying causes and effects of weaknesses in PFM performance. In a World Bank published report in January 2018, “Lessons from Reforming Financial Management Information Systems”, Ali Hashim, Moritz Piatti-Funfkirchen World Bank Group, the authors cited countries where detailed diagnostics identified a fiscal situation under stress. In the experiences of Honduras, Kazakhstan, the Russian Federation, and Ukraine, the causes of fiscal stress were weaknesses in legal frameworks, institutional structures, or legacy systems used for managing government finances. These situations have resulted in excessive deficits, leading to cash rationing and accumulation of arrears for example.
In each of the examples, the authors credit PFM diagnostics with improving GFMIS implementations as well as outcomes. For instance, improved fiscal control by ensuring expenditures complied with budget appropriations, better cash management by bringing all government accounts under the treasury’s control, timely and accurate reporting for economic management, the preparation of statutory financial statements, and improved baseline data quality for budget preparation.
In contrast, countries that omitted undertaking a detailed PFM diagnostic exposed reform efforts to serious limitations. Such as:
• Not establishing a Treasury Single Account (TSA) affected cash-flow transparency and the understanding of the financial position;
• Adopting a “black-box” approach to implementation that did not set priorities for implementing core budget execution processes;
• Embarked on advanced PFM reforms, e.g. performance budgeting, without first addressing basic budget execution processes.
Consequently, GFMIS implementations in these examples did not lead to desired budget management and control improvements.
A well-designed PFM Diagnostic consists of three dimensions: an examination of leadership, the application of the appropriate technology, in addition to an assessment of the gaps in the PFM framework. Understanding the commitment of leadership, the potential for cultural shifts within an organization, and the desired levels of accountably (both internal and external) form elements of the People dimension. A PFM diagnostic will also include an examination of system controls and how they interact with key PFM processes. This includes an exploration of the desired system functionality and assist with the identification of the appropriate technology. Finally, a PFM Diagnostic will examine key business processes, and identify gaps in the existing framework, which also support identification of the appropriate technical solution.
Leveraging PFM Diagnostics for Better Outcomes in GFMIS
A GFMIS must be the single source of truth for PFM and a proper designed and executed PFM diagnostic can greatly help governments to achieve greater transparency and accountability and combat corruption. Understanding that weak institutional commitment and the lack of political support for reforming PFM practices are key to understanding why many governments are unable to produce the quality of information desired and reduce the likelihood of successful GFMIS implementation. Reluctance to amend laws and regulations that support PFM or insistence on retaining manual financial controls and paper-based or legacy processes greatly impair the implementation of system-imposed controls and security and lessen the impact of even having streamlined or automated processes.
See entire presentation here –
https://www.icgfm.org/wp-content/uploads/2018/05/Day2-Sp4_ICGFM_GFMIS_vF_Lewarne_Cooper_Uggen_EN.pdf Julie Cooper is a Specialist Leader in Deloitte Consulting US International Development public finance practice and currently PFM Team Lead for the USAID funded Jordan Fiscal Reform and Public Financial Management project.
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