experience sharing on LOCAL PFM & CURRENT REFORM INITIATIVES

experience sharing on LOCAL PFM & CURRENT REFORM INITIATIVES

Babu Ram Shrestha, MOFALD

Assessment of Nepal’s Public Financial Management System (PFM)

Nepal’s PFM at the national level. Nepal’s PFM at the sub-national

level. Current reform initiatives in local

PFM

Nepal’s PFM at the national level. The Government’s PFM Initiatives. To address PFM issues, the government developed a Public Financial Management Reform Program (PFMRP) for 2010-2013

Nepal’s PFM at the sub-national level. The Government’s local government program and sub-national PFM issuesThe government’s Local Government and Community Development Program (LGCDP, 2008-2014) has at the forefront of local governance reforms. In the course of LGCDP implementation, there were occasional reports of fiduciary risks and compliance issues.

FIDUCIARY RISK ANALYSIS (FRA)

ADB and its development partners conducted a Fiduciary Risk Assessment (FRA) of LGCDP.

Donors subsequently financed a Public Expenditure Tracking Survey (PETS) of LGCDP.

The FRA highlighted cases of lack of transparency in grant allocation, Undue interference by political parties, Poor accounting and reporting, Non-compliance with procurement

regulations, and Lack of internal and external audit.

Fiduciary risks were identified such as Poor compliance with participatory processes, Diversion of resources, Abuse of authority in decision-making, Poor design and budgeting, Delays in budget releases, Poor revenue management, Weak procurement systems, Poor internal controls, and weak oversight.

Categorizing the issues

Budget and fiscal management issues at the local level.

Fiduciary risk at the sub national level

Public procurement problems. Governance problems.

The new PFM and Fiduciary Risk Reduction Action Plan (FRRAP)

In response to the above assessments of LGCDP, the Ministry of Federal Affairs and Local Development (MOFALD) in March 2012 approved a Fiduciary Risk Reduction Action Plan (FRRAP).

The plan reflects lessons learned from LGCDP implementation, notably importance of strengthening PFM systems and

Capacity building in PFM at the local level, and the value of demand-side mechanisms.

Purpose and Objectives of the Plan

The purpose of the PFM & FRRAP is to identify the tasks and activities involved in addressing essential PFM reform initiatives and mitigating and minimising the fiduciary risks in LBs’ operations with the following objectives:

• Aggregate fiscal discipline• Strategic allocation of resources• Efficient use of resources for service delivery

Introduction to the Plan

This PFM & Fiduciary Risk Reduction Action Plan (FRRAP) integrates the many PFM and related fiduciary risks into a comprehensive action plan. The action plan includes the tasks, priorities, timings, resource estimates, responsibilities, management controls, reporting procedures, as well as risks to the plan itself.

PFM cycle and key fiduciary risk Areas Planning programming and budgeting Funds flow, including budget release Implementation, including procurement

management Internal accountability External auditing, reporting and monitoring

and evaluation, and Revenue management

Strategies

Strengthen participatory planning process Improve accounting and reporting systems Promote transparency, Enhance capacity Mitigate perceived risks Strengthen civic oversightPEFA FRRAP will mainly be executed through

local bodies

Expected results

Improved planning programming and budgeting Improved funds flow, Improved implementation, Improved internal accountability Improved auditing and monitoring & evaluation,

and Improved revenue management

Fiduciary risk rating matrix for LBs

LBs comprise all 75 DDCs, 58 Municipalities and 3,915 VDCs. This action plan categorizes risks rating into low (L), medium (M), and high (H). Low risk - Represents a situation where there is basic compliance with existing rules of LBs of Nepal, although coverage may not be 100% Medium Risk - Indicates there are some significant weaknesses in compliance or that procedures need to be changed High Risk - Indicates substantial failure to comply or that the system will require substantial upgrading to meet the standard

Classifying fiduciary risks in LBs

Fiduciary risks in local bodies have been classified into process, result and corruption related risks

Process RiskProcess Risk Corruption RiskCorruption RiskFiduciary Risk

Fiduciary Risk

Result RiskResult Risk

Reform cycleImplemen

t PFM reforms

Recommend PFM reform

measures

Identify main PFM weakness

es

Investigate underlying

causes

Formulate PFM reform

program

Identify main PFM

weaknessesRecommend PFM reform measures

PFM-FRRAP

Local PEFA Assessment

Reform initiatives Strengthening Public Management Program

(SPMP) 2012/13-2014/15 supported by ADB, implementation under

LGCDP-II Reform budget, fiscal and fiduciary risk

management at the sub national or local government level DDCs, Municipalities and VDCs

Public procurement and Oversight and accountability institutions

Current reform initiatives in Local PFM Budget and fiscal management Fiduciary Risk management at the

sub- national level (FRRAP) Public procurement reforms Oversight and accountability

capacity building

Objectives of reform initiatives Budget and fiscal management Objective: To promote fiscal

sustainability and more predictable and timely fiscal transfers to the local governments through improved budget and expenditure management

Fiduciary Risk management at the sub- national level

Objective – To promote transparency and accountability of public expenditures of local governments.

Public procurement reforms Objective: To promote economy and

efficiency and reduce fiduciary risks in public spending at the national and local level.

Oversight and accountability capacity building

Objective – To help prevent and reduce corruption in public institutions by strengthening the capacity of anti-corruption and accountability institutions.

Components of SPMP reform program supported by ADB at the National & sub

national level

Component 2Fiduciary risk

management at the local government

level18 MILLION $

Component 1Local government budget and fiscal

management7 MILLION $

COMPONENTS OF SPMP

30 MILLION $

Component 3Public

procurement reform

3 MILLION $

Component 4Oversight and accountability

capacity building 2 MILLION $

Component wise activities

Local government budget and fiscal

management

Local government budget and fiscal

management

Enforcement of blended block-grant guidelines and prescribed timelines to improve fiscal transfers;

introduction of results-based management for DDCs and municipalities;

Strengthening local accounting systems, including use of IT tools to automate transactions;

Enhancing local resource mobilization and fiscal sustainability, including the development and pilot implementation of a Municipal Administration and Revenue System (MARS); and

Support for drafting a Fiscal Responsibility Bill.

Promotion of public auditing by Ward Citizen Forums and Citizen Awareness Centers;

Strengthening external and internal audits of local bodies, including application of risk-based internal audits of village development committees (VDCs) by DDCs;

Capacity-building on auditing and results-based reporting of local bodies; and

Follow-on subnational PEFA survey and PETS of LGCDP.

Fiduciary risk management at the local government level

Fiduciary risk management at the local government level

Institutional, legal and regulatory reforms to strengthen public procurement;

Development and implementation of e-Government Procurement (e-GP);

improved procurement management at national and local levels, including developing local bodies’ procurement plans, drafting standard bidding documents, etc; and

Capacity development of PPMO and key staff at central and local levels.

Public procurement reform

Public procurement reform

Legal and regulatory reforms to elevate Nepal’s anti-corruption regime per its commitment to the U.N. Convention against Corruption (UNCAC);

Human resource development of the National Vigilance Center (NVC);

Implementation of Corruption Vulnerability Diagnostics of select ministries; and

Social audits of select local bodies.

Oversight and accountability capacity building

Oversight and accountability capacity building

Stay in touch

Babu Ram Shresthaemail: [email protected]

Cell no. 98511 92 992

THANKS FOR YOUR KIND ATTENTION