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June 2011

June 29, 2011

Malaysia National Audit Department Applies Accountability Index to Rank Management Performance

Posted by Mario Pessoa

The National Audit Department (NAD) created a ranking system to measure effectiveness of administrative controls. NAD is the Malaysian Supreme Audit Institution responsible for evaluating management performance of all ministries, departments, and autonomous entities at the central, states and local governments in Malaysia. To respond to concerns of the government on the repeated cases of non-compliance and weak internal controls mentioned in the annual audit reports, NAD developed a detailed rating system to measure control performance according to eight major criteria: (i) organizational management control; (ii) budgetary control; (iii) receipts control; (iv) expenditure control; (v) bank accounts control; (vi) asset and inventory management; (vii) investment and loan management; and (viii) financial statements. The methodology used is based on a four-star rating classification of a set of indicators and sub-indicators to indicate if performance is considered excellent, good, satisfactory, and not satisfactory. The Accountability Index is a very objective way to measure and compare control effectiveness across the entire government. The information since 2007 is available at NAD webpage www.audit.gov.my under the label “Accountability Index”.

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June 28, 2011

Job Offer: Lead Public Sector Management Specialist, World Bank, Jakarta

Worldbank Title: Lead Public Sector Management Specialist
Grade: GH
Department/Division: PREM East Asia Sector Department (EASPR)
Location: Jakarta
Appointment Type: Co-terminus (International)
Duration: Twelve (12) months initially
Funding: PFM Multi-Donor Trust Fund (MDTF)

 Background

The ongoing reorganization of the Ministry of Finance (MOF) in Indonesia is expected to herald the emergence of a radically transformed entity for the management of public finances that will be in line with modern international practices. However, major challenges in sustaining and managing fundamental changes in organizational structure, processes and systems will continue to confront the leadership over the medium term. Managing institutional and technical change of this magnitude will require intensive support as well as dedicated human and financial resources for the duration of program implementation. Change management and communications strategies are also envisioned as key program components.

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June 27, 2011

Timely Bank Reconciliation – One of the Most Important Internal Control Mechanisms of a Government

Posted by Mark Silins

A review of country PEFA assessments in the Caribbean highlights poor performance in the important area of bank reconciliation. Most country assessments were awarded a “C” or lower rating for this criterion. In fact, through ongoing technical assistance it has emerged that some countries stopped doing proper reconciliations when their new accounting system was implemented, perhaps under the false belief that the system would do it for them.

The consequences of delayed bank reconciliations can be dire. Firstly, the reconciliation ensures that all receipts and payments are correctly recorded in both the bank and the ledger. Delayed reconciliation may result in inaccurate reports from the IFMIS. Departmental staff and the bank may be making systemic errors which will require significant work to correct. If caught early this workload would be significantly reduced. Finally, the bank reconciliation may reveal misuse of public funds or fraud. The earlier the reconciliation, the more likely the perpetrator will be caught.[1]

Work on bringing reconciliations up to date has revealed that many errors have been made in the accounts. Given this, it is surprising that some Director’s of Audit have not provided qualified opinions for the financial statements.

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June 24, 2011

Can Internal Control of Public Finances Eliminate the Risk of Any Loss?

Posted by Mohamed Moindze

The proper control of public finances is essential to improve fiscal governance.  The aim is to ensure that public funds are used in conformity with parliamentary authority, applicable laws and regulations and with due regard to efficiency and effectiveness.  Such control may be internal, when it is undertaken by officials internal to the administration, or external, when it is undertaken by an organization which is operationally separate and independent of the administration.  This later body should review the whole of the administration and verify whether financial management conforms to the legal requirements and is appropriate.

It is becoming clearer and clearer that many Francophone African states do not adequately control their public expenditure.  This allows an increase in payment arrears and the loss of budgetary credibility, but also waste and irregular use of public resources.  Assessments of systems of public financial management in these states using the PEFA methodology indicate an alarming situation.  Most of these countries score only a C or D on a four-point scale from A to D, where A is the best score.  In addition, the assessments indicate insufficient systems of control or controls that are regularly violated. 

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Le contrôle interne des finances publiques peut-il éliminer tous les risques de perte?

Affiché par Mohamed Moindze

Le contrôle des finances publiques est un élément fondamental pour l’amélioration de la gouvernance des finances publiques. Il vise à s’assurer que l’usage des deniers publics se fait conformément aux autorisations parlementaires, aux lois et réglementations nationales ainsi qu’avec efficience et efficacité.  Cette surveillance peut être interne, lorsqu’elle est mise en œuvre par des acteurs internes de l’administration, ou externe, lorsqu’elle relève d’un organisme opérationnellement séparé et indépendant de l’administration (dont les pouvoirs de contrôle couvrent l’administration dans son ensemble et qui vérifie si la gestion financière est conforme à la légalité et appropriée).

Or, l’on constate de plus en plus que de nombreux pays d’Afrique francophone ne contrôlent pas suffisamment les dépenses publiques; ce qui aboutit à l’accumulation d’arriérés, la perte de la crédibilité du budget, mais également aux gaspillages ou aux détournements des ressources publiques. Les évaluations des systèmes de gestion des finances publiques selon la méthodologie PEFA effectuées dans ces pays montrent une situation alarmante : la plupart de ces pays ont obtenu des scores qui oscillent entre C et D, sur la base d’une échelle ordinale à quatre points qui va de A à D, avec A le score le plus élevé. En outre, les diagnostics qui révèlent des systèmes de contrôle insuffisants ou systématiquement violés.

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June 23, 2011

Job Offer: International Budget Partnership Seeks Events Coordinator

The International Budget Partnership (IBP) is based at the Center on Budget and Policy Priorities in Washington, DC.  The IBP provides a range of services to help non-profit organizations in developing and transition countries to analyze and influence public budgets.  The IBP is seeking an Events Coordinator (exempt post) to join the administrative team that supports and assists all IBP programs.  The Events Coordinator will report to the Director of Operations. 

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June 22, 2011

Postcard from São Paulo: the Latest Global Fiscal News—and Some of It’s Actually Good

Posted by Carlo Cottarelli and previously published on iMFdirect

Cc 
In São Paulo, Brazil last Friday we launched our latest assessment of the state of government finances, debts, and deficits.  While many countries are slogging through a tough fiscal time, there is some good news, including in the United States where the deficit will be lower this year than previously expected.  I will also give you an assessment of how the new information affects our sense of what needs to be done in the future.

Let me start by talking about the advanced economies where, as is well known, the fiscal accounts are generally weaker, reflecting large increases in deficits and debt ratios since the start of the crisis in 2008.

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June 17, 2011

How Can Development Partners Decrease Fiduciary Risk in the Caribbean?

Posted by Mark Silins

Most agree that moving towards a treasury single account makes sense.[1]  It means countries need to reconcile only one or a small number of accounts, cash balances are consolidated allowing idol positive balances to offset any overdraft, controls are enhanced (as all receipts are collected in a common way), and payments are paid only when consistent with appropriation and warrant authority.

Why then do many development partners insist on new bank accounts for each project?  It is clear that development partners are concerned, particularly in the current cash-challenged times, that their earmarked grants or loans are only used for the purpose prescribed. However, in my opinion, requiring a separate bank account for each project is not the best solution. In fact, in many cases this approach reduces internal controls.

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June 14, 2011

Discussions of PEM PAL Treasury Community of Practice on Public Sector Accounting and Reporting Reforms

Posted by Anila Çili (Director, Central Harmonization Department on Financial Management & Control
Ministry of Finance, Albania) and Deanna Aubrey (Budget, Treasury and Internal Audit Community Facilitator, PEM PAL CEF Secretariat, Center of Excellence in Finance, Slovenia)

From 18-22 April 2011, 41 participants from Ministries of Finance and Treasuries from 15 European and Central Asian countries[1] met in Ljubljana, Slovenia to discuss public sector accounting and reporting reforms as part of the ongoing network activities under the Public Expenditure Management Peer Assisted Learning Program (PEM PAL) program.[2]  This program has 21 member countries from across the Europe and Central Asia (ECA) region who regularly meet in ‘communities of practice' to discuss reform issues in the areas of budget, treasury and internal audit (www.pempal.org). The event was also linked to a conference on international trends in public sector accounting reforms organized by the Center of Excellence in Finance, Ljubljana Slovenia held on 20-22 April.[3] The conference involved discussions on the increased role of accounting in the public sector, especially in the post financial crisis era, its evolution in the recent years and the lessons learned.

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June 10, 2011

America’s Public Debt: Destination clear, but ooh what route to take???

Posted by Carla Sateriale[1]

At a Capitol Hill seminar last Tuesday here in Washington DC, four former Congressional Budget (CBO) directors shared their perspectives on how the US Congress could squeeze the federal deficit to temporarily avoid a breach of the debt-ceiling, which, if no action is taken, is expected to reach its allowed limit on August 2nd. The panel consisting of Alice Rivlin, Rudolph Penner, Robert Reschauder, and Douglas Holtz-Eakin, who collectively have 22 years of experience in directing the CBO, perhaps more importantly also discussed the long-term prospects and remedies for US public finances, which are hampered seemingly not by a lack of agreed fiscal targets, but more by a lack of concrete measures that are politically acceptable to both parties.

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June 08, 2011

Developing Program Budgeting AND Getting the Basics Right: Lessons from Mali

Posted by Guilhem Blondy  

Program budgeting is considered an important tool for developing countries to target more efficiently their resources towards the achievement of their development goals. However, limited public financial management (PFM) capacities are usually described as a strong constraint for the development of program budgeting in low-income countries. According to Allen (2009), the development of performance budgeting systems has resulted in many developing countries in “the accumulation by the finance ministry of vast databases of unused information”. The Fiscal Affairs Department (FAD) of the IMF has advocated for a long time a prudent approach, giving priority to basic requirements of PFM, like a realistic annual budget presented according a sound economic classification, effective budget execution controls, reliable fiscal reports, and strong cash management. The case of Mali tends to confirm the importance of “the basics first” (Schick, 1998) in the successful implementation of PFM reforms.

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June 07, 2011

En quoi les procédures exceptionnelles de la dépense affectent négativement la bonne gouvernance dans les pays francophones d’Afrique?

Préparé par Jean Pierre Nguenang

Dans les pays francophones d’Afrique, l’exécution de la dépense publique suit deux types de procédures : la première est qualifiée de normale (ou de droit commun) et la deuxième est dite dérogatoire ou exceptionnelles) et se distingue de la première en raison de sa souplesse. Suivant la procédure normale, la dépense publique doit passer par deux grandes phases: la phase administrative et la phase comptable. La phase administrative comprend trois étapes successives pour l’exécution de la dépense: l’engagement, la liquidation et l’ordonnancement. La phase comptable porte sur les paiements et la tenue de la comptabilité. Les procédures dérogatoires à la procédure normale d’exécution de la dépense publique sont multiples ; celles-ci sont présentées en détail ci-après. Si l’utilisation de ces procédures, pour l’accélération des paiements des dépenses urgentes est admissible, les procédures exceptionnelles sont aussi utilisées, dans la pratique, pour contourner les contrôles et autres vérifications usuels. Cette pratique (i) réduit la crédibilité du budget et la discipline budgétaire, (ii) mène à une information tronquée sur les dépenses de l’Etat,  (iii) rend possible une modification de la composition de la dépense en exécution ;  et (iv) dans le pire des cas, ouvre la voie à une mauvaise utilisation des ressources de l’Etat...

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June 06, 2011

How Exceptional Expenditure Procedures Interfere with Good Governance in Francophone Africa

Prepared by Jean Pierre Nguenang

In francophone countries, two types of public expenditure execution procedures exist: normal procedures (subject to ordinary law) and waiver (or exceptional) procedures. The second differs from the former in that they are far less stringent. Spending, managed through the normal procedure, involves two major phases: the administrative phase and the accounting phase. The administrative phase comprises three successive expenditure execution stages: commitment, verification, authorization. The accounting phase deals with payments and bookkeeping. There are multiple waiver procedures that can derogate from normal procedures. These are discussed below in some detail. While the original rationale for such exceptional procedures may have been understandable – accelerating emergency expenditure – the practice has long become one of bypassing appropriate checks and balances. The practice undermines budget credibility and fiscal discipline, leads to misreporting of government expenditure, and provides scope for misappropriation and, in the worst case, misuse of government resources.  

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June 03, 2011

PFM Lessons from the U.S. Congressional Budget Office

Posted by Phil Joyce[1]

Arguments in government occur as often over assumptions as they do over priorities. At a time when partisanship in the US seems at an all-time high, institutions that produce credible facts are particularly valuable. In this context, I have spent a lot of time thinking about a particularly influential and important national government institution—the U.S. Congressional Budget Office (CBO), an agency that is now 36 years old. Just last month, Georgetown University Press published my book on CBO, which is the first ever institutional history of this agency (The Congressional Budget Office: Honest Numbers, Power, and Policymaking).

CBO’s importance in US national debates, obvious to many observers for a long time, became apparent once again during the debates on the Obama health reform bill in 2009 and 2010. The President, who had insisted that any bill could “not add one dime to the deficit,” put CBO, as the official Congressional cost estimator, in the position of heavily influencing the content of the eventual health reform legislation. This was not the first time that CBO had been in such a position. History is chock full of instances where key initiatives of a majority party—the Carter energy policy in the 1970s, the Reagan program of the 1980s, the Clinton health reform of the 1990s—were called into question by CBO. It is nothing short of amazing that the United States Congress—as partisan an institution as it is possible to imagine—actually tolerates (and in fact, supports) such and inconvenient nonpartisan institution staffed by its own employees. 

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June 02, 2011

Inter-Agency Task Force Releases Online Public Sector Debt Statistics Guide

IMF Press Release No. 11/201, previously published on imf.org

Fulltext[1] 1 
The Inter-Agency Task Force on Finance Statistics (TFFS) has released an online, pre-publication version of the Public Sector Debt Statistics—Guide for Compilers and Users to help standardize classification of public sector debt liabilities and achieve more internationally comparable public sector debt data. The Guide complements the World Bank-International Monetary Fund (IMF) Public Sector Debt Statistics Database, which offers free access to public sector debt statistics for 35 countries (see Press Release No. 10/473).

Increased focus on general government and, more broadly, public sector debt sustainability and fiscal consolidation globally has heightened interest in public sector debt statistics. The Guide will be an important reference for national compilers and users, providing a comprehensive conceptual framework for the measurement of gross and net debt of the public sector and all its components.1 This guidance can be applied across the different components of the public sector and across various liabilities that constitute public sector debt. The Guide provides a structure for classifying debt liabilities by instrument and by sector of the counterpart to the debt instrument. The Guide also offers valuable advice on practical problems in recording public sector debt, including numerical examples.

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