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March 09, 2017

How to Assess FMIS Performance

FMIS

Posted by Gerardo Uña[1]

Financial Management Information Systems (FMIS) are comprehensive systems that support the preparation and execution of the budget, accounting and financial reporting, and many other public financial management (PFM) functions. They are used to integrate budgetary, accounting, treasury, and public debt management processes, and to generate a country’s in-year fiscal reports and annual financial statements. As well as producing timely, relevant, and reliable financial data, well-designed FMIS can play a critical role in improving the quality of public expenditures and fiscal transparency.

After three decades of FMIS implementation across different regions, such as Latin America, Africa and Asia, many countries have initiated a process of modernization to improve the functionalities, coverage, and integration of their systems. However, the cost and implementation challenges of these reforms have been very large, leading to disappointing results in many cases. For these reasons, countries are looking for new ways of designing FMIS that make the best use of modern technology to integrate functions and processes efficiently and cost-effectively.

A report published by the World Bank in 2011[2], provided much useful information about the characteristics of FMIS developed over the previous 25 years, and the challenges of implementing them. More recently, the Bank has taken this work a step further in a paper on “A Diagnostic Framework to Assess a Government’s Financial Management System”[3] (click to open paper). This paper provides a diagnostic framework for assessing FMIS performance based on five dimensions and 36 indicators. The dimensions are:

  1. Treasury Single Account (TSA) status: related to the degree of consolidation of government cash balances and the extent to which they are under the direct supervision of the state treasury.
  2. FMIS coverage: a proxy to measure the extent to which financial transactions are registered in the information system.
  3. FMIS core functionality: an assessment of central functions such as the internal control of budget execution and treasury processes.
  4. Ancillary features: includes the FMIS’s interfaces with other information systems, such the management of government payroll and debt management.
  5. Technical aspects: covers issues such as the system’s IT architecture and the use of a data warehouse.  

The paper applies the framework to a sample of 22 countries in Africa (for example, Ghana, Mozambique, and Zimbabwe) and the Asia-Pacific region (for example, Cambodia, Malaysia, and the Philippines). The sample of countries covers both low-income countries, and emerging markets. The results of the analysis, which are summarized in the table below, result in a score for each dimension and for the Total System Strength (TSS), which receives a maximum score of 100 points. The paper also explores the relationship between the TSS score and the PEFA score for the same group of countries.

Table

The main findings of the study, based on the summary provided in the table are as follows:

  • The average TSS score is 58 points, but the range extends from 18 points (the Philippines) to 92 points (Malaysia). Most countries receive only medium or low scores for the dimensions on TSA status, FMIS coverage and FMIS core functionality, which pull down their overall rating.  
  • Especially weak areas identified in the study are that in many countries: (i) the recording of financial transactions in the information system is not timely; (ii) government cash balances are not consolidated in a TSA, and are not subject to direct state treasury supervision; and (iii) many of the core functionalities of the FMIS are not utilized fully, if at all. These weaknesses seriously undermine the overall performance of the FMIS as a budget management tool.

Based on this analyses, the paper concludes that, in many developing countries and emerging markets, further reforms would be most effective if they focus initially on expanding the coverage of the TSA, and the timely recording of all financial transactions by the FMIS, rather than investing in new IT platforms and technological enhancements.

Nonetheless, there are other important factors that should be taken into account in improving FMIS performance. It has long been recognized, for example, that an FMIS should be based on a well-crafted conceptual design[4]. As the earlier World Bank study recognized, insufficient attention is often paid to the prioritization and sequencing of FMIS implementation, and to the importance of strong leadership, secure financing, and good project management. Similar conclusions are reached in a recent study of FMIS development in Latin America[5], which also highlights the importance of the political economy context, adequate testing of the systems before they are implemented, and a cost-effective maintenance strategy.  

Finding different paths to increase the effective use of FMIS in a country’s budget management and decision-making processes is a continuous challenge for policy-makers, practitioners, and their technical advisors. To tackle this challenge requires new and innovative approaches based on a solid diagnostic assessment of existing needs and practices, effective leadership, sound projects management, and the effective use of the latest technological developments. These issues will be developed in a follow-up article.

[1] Technical Assistance Advisor, PFM M2 Division, Fiscal Affairs Department, IMF.

[2] C. Dener, J. Watkins, and W. Dorotinsky, 2011, “Financial Management Information Systems: 25 Years of World Bank Experience on What works and What Doesn’t.” World Bank, Washington DC.  

[3] Hashim, Ali and Moritz Piatti. 2016. "A Diagnostic Framework to Assess the Capacity of a Government's Financial Management Information System as a Budget Management Tool." Independent Evaluation Group. World Bank, Washington, DC.

[4] A Khan and M. Pessoa, 2010, “Conceptual Design: A Critical Element of a Government Financial Management Information System” TNM 10/07, FAD, IMF, Washington DC.

[5] C. Pimenta and G. Uña, 2015, “Integrated Financial Management Information Systems in Latin America: Strategic Aspects and Challenges”, in C. Pimenta and M. Pessoa (eds.), Public Financial Management in Latin America: The Key to Efficiency and Transparency.” IMF- Inter-American Development Bank, Washington DC.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Comments

Dear Gerardo,
Thank you very much for this thoughtful and well written piece. It is encouraging to see that there is interest in this important topic.

The purpose of the diagnostic framework is to assess the current state of the FMIS and its capacity to serve as a budget management tool. The fundamental questions we structured the diagnostic around are:
(i) what is the underlying policy environment?
(ii) what are the functionality characteristics and how do they embed controls and other features prescribed in the legal and institutional framework?
(iii) does the coverage of the system ensure that the majority of budgetary resources are subject to these controls?
(iv) what is the state of technology and its deployment?

You are absolutely right in pointing out that there are many implementation considerations that will determine the success of the system. How the system is designed, political commitment, attention to prioritization, and change management aspects are among many factors that will determine eventual effectiveness. However, the purpose of the diagnostic is only to provide a vehicle to practitioners to help them determine current capacity. Once deficiencies are identified, they will have to judge what reforms should be prioritized and draw on lessons from international experience to inform their implementation strategy. This is however beyond the scope of the diagnostic.

We are very much looking forward to your follow up piece. Best wishes
Moritz and Ali

Very interesting and potentially useful assessment tool for national PFM authorities, especially if they are thinking about the 2nd generation of FMIS reforms and sometimes to much obsessed with solely "advanced IT solutions will solve all their problems"

In the introduction of the report, the budget transparency comes as one of the desired outcomes of the FMIS system, so it would also be good to see in your chapter 4 whether there is any correlation with IBP's open budget index (OBI). As all readers of this blog probably know, the latter assesses the budget transparency more from the end-user perspective (outsider) rather than the capacity of a FMIS (or the overall budget system) to be transparent. In other words, OBI looks whether the budget system is de-facto transparent vs. whether the system can be transparent.

I don't know the results in advance, but I suspect there could be less stronger correlation of your FMIS index with the OBI performance (compared to the FMIS index vs. PEFA selected PIs). anyway, just a thought crossing my mind as in many countries MOFs are being supported technically by the WB and IMF (and others) on building strong PFM systems (supply side) while the actual performance of MOFs is much poorer to what they could have done because of lack of demand from parliaments, media and civil society. I appreciate it is nit fully comparable, but (by an expert qualitative assessment) if OBI shows poorer correlation vs the FMIS score then it is an indicator to work with governments on the demand side.

Dear Gerardo,
Thank you very much for this thoughtful and well written piece. It is encouraging to see that there is interest in this important topic.

The purpose of the diagnostic framework is to assess the current state of the FMIS and its capacity to serve as a budget management tool. The fundamental questions we structured the diagnostic around are

(i) what is the underlying policy environment?
(ii) what are the functionality characteristics and how do they embed controls and other features prescribed in the legal and institutional framework?
(ii) does the coverage of the system ensure that the majority of budgetary resources are subject to these controls?
(iv) what is the state of technology and its deployment?

You are absolutely right in pointing out that there are many implementation considerations that will determine the success of the system. How the system is designed, political commitment, attention to prioritization, and change management aspects are among many factors that will determine eventual effectiveness. However, the purpose of the diagnostic is only to provide a vehicle to practitioners to help them determine current capacity. Once deficiencies are identified, they will have to judge what reforms should be prioritized and draw on lessons from international experience to inform their implementation strategy. This is however beyond the scope of the diagnostic.

We are looking forward to your follow up post.
Moritz and Ali

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