What is pfm df ppt aim v4 final

What is Public Financial Management?Reforms in Accounting, Auditing and Expenditure Management in the Philippine Government

12 September 2014Asian Institute of Management

What will we talk about?

What is PFM?

Why are we doing it? (PEFA

assessment)

What is the PFM Reform

Roadmap?

PFM Reforms in Philippine

Government

UACS, GIFMIS, PIB, TSA

PFM and Internal Controls

Budget Law

Moving forward: where we need

to go

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Simple Definition of PFMPublic Financial Management (PFM) is

the system by which financial resources

are planned, directed and controlled to

enable and influence the efficient and

effective delivery of public service

goals.

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• PFM deals with all aspects of resource mobilization and expenditure management in government.

• It is about the way government raises its income (in the form of taxes, customs duties and other revenues), and

• Manages its expenditures to deliver essential services (like education, health care and other social programs, roads and infrastructure, rule of law and security, and those areas which generally make our lives better).

PFM – The Basics Image © philstar.com

PFM Core ElementsPFM refers to how government addresses the performance of its systems for:

budget preparation budget execution and financial controls

(including procurement) accounting and treasury management financial and fiscal reporting internal and external audit debt management, and other aspects related to the budgetary process

The PFM Cycle

Benchmarks of a good PFM

• Credibility of the budget

• Comprehensiveness and

transparency

• Policy-based budgeting

• Predictability and control in

budget execution

• Accounting, recording and

reporting

• External scrutiny and audit

Why are we doing it? (PEFA assessment)• Difficulty in fully assessing the

government’s ability to implement the budget given continuing appropriations

• General weakness in reporting on budget execution

• Delayed approval of GAA• Lack of an information system capable

of capturing resource flows to service delivery units on a timely basis

Why are we doing it? (PEFA assessment)• Limited role of Congress in

budget oversight and in reviewing/authorizing in-year budget amendments

• Weak revenue administration, weak monitoring and management of arrears and weak oversight of contingent liabilities and associated fiscal risks

• Weak financial accountability shown in COA audit reports

Public Financial Management Report Card

Indonesia Thailand Lao DPR Cambodia Vietnam2010 full 2014 rapid 2012 full 2009 full 2010 full 2011 full 2013 full

PI 4 - Stock and Monitoring of Expenditure Payment Arrears*

D+ D+ B+ A C+ C+ -

PI 5 - Classification of the Budget* D D A B C C D

PI 10 - Public Access to Key Fiscal Information

C B A B C C B

PI 12 - Multi-Year Perspective in Fiscal Planning, Expenditure Policy and Budgeting*

D+ D+ C+ C D+ B C

PI 16 - Predictability in the Availability of Funds for Commitment of Expenditure

D+ B C+ A B+ C+ B+

PI 22 - Timeliness and Regularity of Accounts Reconciliation

D D B C+ C C B+

PI 24 - Quality and Timeliness of In-Year Budget Reports

D D C+ B+ C+ C+ D+

Average Mark D D+ B B C C C

PhilippinesSelected PEFA Performance Indicators

* Not included in the 2014 rapid assessment

Why do we need a sound PFM?A working PFM system has three main objectives:

1. To ensure that our public spending is in line with available resources;

2. Our allocation of resources to priority needs is effective, and we can shift resources from poor to better performers; and

3. Our limited resources are used efficiently so that we can achieve maximum value for money.

Why do we bother? Poorer people need public services more than anyone.

Sound PFM systems are crucial to delivering these public services, and improving the lives of everyone in the

Philippines.

PFM is therefore an essential part of every government, the governance process, and the development of a vibrant,

inclusive economy with opportunities for all.

Image © Inquirer.com

Where is the pressure coming from?

Greater expectations and rising aspirations of the people are placing more demands on limited public

resources. People are also putting greater emphasis on

transparency and accountability, and greater value for money, thus making effective, efficient and

economic use of public resources increasingly vital.

What are the direct results?1. Sound PFM systems help reduce the opportunity

for misuse of funds and help government decision-makers do their jobs better.

2. It helps them to channel funds to where they are intended and will do the greatest good.

3. More importantly, it helps to inform citizens where public funds are actually being spent.

Image © globalbalita.com

Who is responsible?• Everyone in government has a role to play in improving PFM in the Philippines.

Photo Source: Philippine Public Financial Management Facebook Page

Who is responsible?• PFM is the responsibility of

all public bodies and public employees at all levels of government, whether it is your department, or an elected senator or congressman, or the smallest of barangays.

• The leading actors in PFM reform in the Philippines are the central government agencies with responsibility for the economy and its financial aspects – DBM, DoF & its bureaus, and COA, with NEDA and OP as keen observers.

Are ordinary people involved?Civil society plays a role in holding government to

account. The 1987 Constitution explicitly recognizes the right

of people and their organizations to reasonably participate at all levels of social, political and

economic decision-making. President Aquino calls for citizen participation in

setting the budget.

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PFM Reform Roadmap Master plan for modernizing the

financial management system of the government

Executive Order 55 (s. 2011) directs the integration and automation of PFM systems

Improve efficiency, accountability and transparency of public fund use

Contribute to good governance and fiscal discipline as a strategy for inclusive growth and poverty reduction

Jointly formulated and approved by fiscal oversight agencies (COA, DBM, DOF-BTr) from 2009 to 2011

For 2014 to 2016, updated roadmap design is moving its focus from policy to implementation

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Good Governance

PFM Goal

Societal Goal

5 Priority Areas

Sector Goal Fiscal Discipline

Inclusive Growth and Poverty Reduction

“Kung walang corrupt, walang mahirap”

Anti-corruption/ Transparent, Accountable & Participatory Governance

Poverty Reduction & Empowerment of the Poor

Rapid, Equitable& Sustained Economic Growth

Just, Inclusive & Lasting Peace & the Rule of Law

Integrity of the Environment/ Climate Change Mitigation & Adaptation

Improve efficiency, accountability and transparency of public fund use to ensure direct, immediate and substantial delivery of public services specially to

the poor.

PFM reforms support Aquino Administration

priorities

Creation of PFM Committee & Governance Structure

Under EO 55, the Committee is tasked to:

Devise a 5-year plan for the development and installation of the GIFMIS

Oversee the implementation of the PFM Reform Roadmap

Shepherd and champion the passage of supporting legislation needed in Congress

Coordinate budgetary and donor funding

Creation of PFM Committee & Governance Structure

Reforms to PFM System• UACS – Unified Accounts Code Structure• GIFMIS – Government Integrated Financial Management

Information System• TSA – Treasury Single Account• Budgeting – Outcomes vs. Outputs, Performance Informed

Budgeting, Program Budgeting• Improvements to Internal Controls (of which Internal Audit is a

component)• Legal – improvements to the PFM legal and regulatory framework

Key PFM Initiatives in Philippine Government

The Unified Accounts Code Structure (UACS) is a government-wide harmonized budgetary, treasury and accounting code classification structure to enable timely and accurate financial and performance reporting.

As a coding framework for financial transactions, the UACS ensures:

that all government process from budgeting and cash management, to accounting and audit—will follow a single classification system or common language.

The new codes will make it easier to collect, aggregate, consolidate and report financial transactions across government.

The implementation of the UACS started in 2013 with the preparation of the FY2014 Budget using the Online Submission of Budget Preparation (OSBP).

To date, other PFM business processes and systems are being reviewed to make these UACS compliant.

Let’s watch a short clip about UACS

Is an IT-based system for budget preparation, management,

execution, accounting and reporting.

It is designed to make use of modern information and communication technologies to help the government to plan and use its financial resources more efficiently and effectively.

Will make for easier data capture and organization of financial and performance information that is accessible at one source, anytime and anywhere. The information can then be used for analysis that will support policy decision-making.

 Because it is considered the centerpiece of the PFM reforms, the GIFMIS provides a strong foundation where other PFM initiatives can be anchored. It contributes to the irreversibility of the PFM reform program because it will harmonize financial procedures and processes across all government agencies, and institutionalize financial management transparency.

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GIFMIS Scope

Budget Preparation

Budget Management

Accounting & Fiscal Reporting

Debt Management(ROSS, ADAPS & DMFAS)

HR Management(GMIS/GHRIS)

Payroll Management

(NPS)

Payments Management

Receipts Management

TSA Operations at Central Bank

(IT systems at Central Bank)

Government Servicing

Banks

(IT Systems for recording tax/revenue collections)

Audit Mgmt(IRRBAS)

Fiscal Simulation (Macroeconomic

Forecasting)

Revenue Collections (IT Systems at

BIR/BOC/NGAs)

Budget Execution

GIFMIS

Commitment Management

Asset Management

Public Procurement(PhilGEPS)

Cash Management

Commercial Banks

(IT Systems for recording tax/revenue collections)

Government Executive Information Management

(GEIS)

Changes with GIFMIS

• No more check or cash payments

• Reduction of the forms, documents, signatures, stamps, etc.

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XX

XXX

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Economic Benefits• Large interest savings due to the centralization of

government cash balances (such savings/costs can range from 0.1% to 0.7% of the public expenditures);

• More timely payments (total duration for the payment of invoices and other expenses was reduced from 3 - 4 weeks,

to 1 - 3 days in most cases); • Improved transparency, accountability and participation

(broader public access to budget and performance information published from GIFMIS databases);

• Minimization of net borrowing costs, by both ensuring the availability of cash and avoiding unnecessary idle cash balances;

• Facilitates the central bank’s monetary policy task due to lower volatility of the government’s cash balance;

• Possibility to target a low and stable TSA balance, which should be remunerated; and

• To borrow only when needed.

The PIB is a budgeting approach that uses performance

information to assist in deciding where the Government’s funds will go.

Performance information—both financial and non-financial—are presented in the appropriations document which provides the context for the program, activities and projects pursued by the different agencies of the government.

For budget preparations for FY 2015, the current PIB is further enhanced with the shift to an outcome-based PIB.

The PIB differs from the traditional line item-based budgeting in that it focuses more on outputs and outcomes and places less emphasis on the inputs. It links funding to results, thus providing the framework for more informed resource allocation and management.

PIB in FY2014The introduction of

Performance Informed Budgeting (PIB) in the FY2014 budget cycle gave the National Expenditure Program and General Appropriation Act (GAA) a new face and stronger focus – delivering results through outputs and outcomes towards improved public service delivery

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Let’s watch a short clip about PIB

The TSA is a unified structure of government bank accounts that will consolidate and optimize the use of Government cash resources.

An account maintained by the Bureau of the Treasury (BTr) and the Central Bank of the Philippines, the TSA is an important initiative of the reform program that enables the Government to consolidate cash resources on a daily basis and reduce borrowings that are necessitated by perceived cash shortage arising from holding several bank accounts and a fragmented system for handling receipts and payments.

To support the implementation of the TSA, a TSA Reporting and Monitoring System (TRAMS) managed by the Land Bank of the Philippines was installed in January 2014. The system provides the BTr up-to-date information on collections as well as reports from the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC), and other NGAs; tracks aggregate balances of the TSA on a daily basis; and supports Treasury cash management activities.

Future Initiatives

• Future Enhancement of TSA (2015)– Possibility of including

LGU accounts, subject to discussion with different authorities

– Comprehensive study of GOCC’s for inclusion

– BTr capacity building will aid in improving the TSA

Let’s watch a short clip about TSA

Rolling-Out Key PFM Reforms

PerformanceInformedBudgeting

Checkless Payments Expanded

MDPS

Treasury Single Account

Government Integrated Financial

Management System

GAA as Release

Document

In 2014:

Unified Account Code Structure

Towards:

Broader & Deeper Citizen’s Engagement

(e.g. BPAs & Grassroots Budgeting)

39

Good Progress AchievedGood progress achieved to date. Highlights include:

UACS and revised Chart of Accounts adopted

GIFMIS design

completed; procureme

nt in process

TSA designed

and operation

al for revenue

Accounting and audit standards

harmonised to

international standards

Substantial awareness-raising and training across all initiatives

Competency Framework designed

Financial reports being

harmonised

PFM & Internal Controls Can also be called Financial

Management & Internal Control (FM&IC)

The system of FM&IC is the responsibility of the head of the Agency (PD 1445, AO 119-1989)

National Guidelines on Internal Control Systems in place since 2008; Phil. Govt. Internal Audit Manual 2011

COA invariably cites the lack, or failure, of internal controls as a reason for qualifying agency accounts

FM&IC not only refer to financial transactions, but to all aspects of the organization’s operations.

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The responsibility to take care that such policy is faithfully adhered to rests

directly with the Chief or Head of the Government Agency involved.

Administrative CodeBook V, Subtitle B, Chapter 1, Sections 1&2

“All resources of the Government shall be managed, expended or utilized in

accordance with law and regulations and safeguarded against loss or wastage through

illegal or improper disposition to ensure efficiency, economy and effectiveness in the

operations of Government.”

“Tone at the Top”• Managerial Accountability is the

foundation for implementing a robust financial management and internal control system.• This is the expectation that senior managers across

government are responsible and accountable for: Setting and meeting performance targets for their

programmes Controlling their costs Mitigating adverse risks to their operations, and Ensuring that programs are managed with integrity and

in compliance with applicable laws

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It allows us to….• Stay focused on the department’s pursuit of its operations

and performance goals • Operate within the confines of relevant laws (compliance),

and minimizing surprises (risk management) along the way.• Enables the department to deal more effectively with • changing economic and service environments, • shifting priorities, • leadership changes, and • evolving practices.

Photo Source: http://www.shutterstock.com/pic-149841719/stock-photo-compliance.html?src=91R1W2/aN7zQnPiPeXBaiw-1-0

What does it mean in PRACTICE? All managers in all government

agencies should be aware of their operational objectives and should report on (a) their achievement of these goals, and (b) on their use of resources in achieving their goals.

FM&IC is not limited to specialized accounting or finance functions. It is a comprehensive process that should be integrated in the activities of each government agency, and performed by all management and staff of that agency.

Components of FM&IC

There are 5 integrated components working together:

Risk Assessment – process for identifying and assessing risks to achieving objectives

Control Environment – set of standards, processes & structures

Control Activities – the actions established to mitigate risks and achieve objectives

Information & Communication – to deliver a clear message about internal control activities

Monitoring Activities - e.g. Internal Audit, and other evaluation processes to provide timely information Photo Source: http://www.shutterstock.com/pic-189811220/stock-photo-group-of-business-people-working-on-an-office-desk.html?src=FB29AfQpyGnpND8D9Ws5YA-1-0

A Continuous Process

What is Effective FM&IC?• An effective system reduces - not

eliminates - the risk of not achieving the agency’s objectives

• It provides reasonable assurance only - do not look for perfect outcomes!!

• Each of the five components is present, functioning and operating together

• For the design and implementation of the IC system, judgment of its effectiveness must be used within the boundaries of regulations and standards.

Limitations of Internal Controls• The system cannot prevent

poor decision making, bias or bad judgment

• External events outside the organization’s control can put a policy off track

• Errors will occur – it’s called human nature!

• Management can sometimes override controls

• Even the best systems may not detect collusion

The need for a Budget Framework Law- There is a need to draft a framework or

primary legislation to provide the government with a legal basis for introducing or reinforcing the various elements of FM&IC.

- Preparation of the primary and secondary legislation should take place in Year 1. It is understood that it will take some time to pass any laws through Congress, particularly as we approach a presidential election year in 2016.

- However, a technical working group (TWG) can already be identified and preparation of a draft PFM Law for discussion can be completed by 2015.

What can the Budget Framework Law do?

• Support a well functioning integrated management cycle for public finances by:

- Establishing the fundamental requirements for the integrated management cycle in the law

- Addressing issues in current laws- Supporting the development of good PFM

practices the Philippines is developing or planning, in line with capacity to implement changes

PROCESS OUTLINE

1

2

3

4

5

P la n n in g , b u d g e tin g , m a n a g e m e n t, re p o rtin g a n d re v ie w

Cabinet sets fiscal framework & policies by approving Fiscal Strategy

Departments & agencies propose realistic budgets within spending limits, provide annual plan for delivering required services, annual budget prepared and adopted

Country leadership sets overall priorities for government- development plans

Departments, agencies deliver services, perform functions

Reporting, monitoring, audit review , sanctions

Outline of Public Finance Framework Law

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a. Fiscal principles/rulesb. Content and presentation of fiscal strategyc. Deviationsd. Reporting

a. Unit of appropriation, reallocation, & carryover rulesb. Budget documentationc. Procedures for budget preparation & approvald. In year reporting, contingency reserve, supplementary & excess vote

a. Banking & cash management arrangements, collection, deposit of revenuesb. Issuance of loans, guarantees & sale of assetsc. Asset managementd. Internal audit

a. Coverage & standards for accountingb. Timetable for preparation and submission of accountsc. External audit of reports, performance audit, follow-up

Main parts Example Key Provisionsa. Congress including committeesb. President, Cabinet, Minister of Finance, Line Ministersc. Permanent Secretaries, Boards, Councils, CEOs, CFO,

Financial officersd. Special bodies e.g., planning bodiese. Fiscal Councils or budget office

II. Macro-Fiscal Policy

III. Planning & Budgeting

IV. Financial Management

V. Accounting & Audit

I. Roles & Responsibilities

VI. Oversight/entity accountability

a. Local governmentsb. State-owned enterprisesc. Extra-budgetary fundsd. Other bodies

Other parts preliminary, sanctions, transitional provisions, consequential amendments

Suggested draft contents for PF Framework Law• Preliminary• Roles and responsibilities• Fiscal policy and responsibility,• Planning and budgeting• Financial management• Entity accountability• Reporting, auditing, review• Sanctions• Final provisions: subsidiary legislation, transitional

arrangements, consequential amendments

What do the reforms mean for the PFM workforce?• Government changing = People

changing• People changing = Acquiring new

competencies• Competencies more than task

specific skills• Learning to learn

PFM Capacity Building

PFM Competency Framework

Awareness Briefings and Consultations and Business Process Reviews with Stakeholders

INPUT

LEARNING AND DEVELOPMENT PROCESSES

Global Better

Practices

Reengineered Business Processes

GIFMIS Systems

Functional Users Training• Reengineered Business

Processes • GIFMIS Systems

IT Technical Users Training • Reengineered Business

Processes • GIFMIS System

Professional Development Courses• Productivity Tools, Financial Analysis,

Ethics and Accountability,

PFM Competency Based Education & Training leading to certification, diploma or master’s degree in PFM

Informed and educated PFM executives, managers, employees, public, CSO stakeholders, etc.

Professional, competent PFM workforce in budgeting accounting, internal audit, treasury management, revenue management, govt IT audit, etc.

Transparent and accountable PFM systems, etc.

DESIRED OUTPUT/OUTCOM

E

Monitoring and Evaluation

Moving forward: where we need to go

- There is a need to institutionalize the reforms and ensure its sustainability and irreversibility. It is important to ensure a smooth transition process and get government support to move to this arrangement.

- While progress in embracing several of the reform initiatives may be modestly incremental, nonetheless, they are anticipatory in nature. The full transformative impact of the PFM program is expected to be felt, recognized, and appreciated beyond 2016.

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