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June 16, 2017

Challenges of Modernizing FMIS

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Posted by Nicolas Botton[1]

Under pressure for fiscal consolidation, supranational directives, or merely the need to better allocate resources and manage cash, many governments around the world are trying to extract more information out of their Financial Management Information Systems (FMIS). Governments often use different systems for different purposes – budget execution, payroll management, cash and debt management, revenue collection, public procurement, and so on – using different technologies and processes, in different administrative and geographic locations. But modern financial management puts a premium on the efficient exchange of information, and for systems to communicate with each other – to use an unlovely technical term “interoperability”. Very often, the evolutions are impeded by the fragmentation of the data[2] Getting an across-the-board view and producing up-to-date analytical information on public finances is therefore a considerable challenge. What kind of solutions can be found?

The approach followed by many countries has been to implement an information system such as an Enterprise Resource Planning (ERP), which comprises a broad suite of public financial management (PFM) applications. Solutions like ERP, while comprehensive, can be expensive, often take many years to implement, and are not always successful. A World Bank Study[3] shows that a typical FMIS project takes a minimum of 6–7 years to complete with an average cost of US$ 7.7 million. The overall bill exceeded US$ 1 billion in the case of the French CHORUS program, if account is taken of all the associated training and change management costs. An FMIS project typically requires a substantial input from local IT teams, and a strong effort to formalize the government’s specifications for the new system and to redefine business processes. It also requires a high-level of centralization of financial data which can be a major challenge in many developing countries, where centralized web-based solutions using high-speed networks are often unavailable.

In some countries, tools such as Extract, Transform, Load (ETL), which enable different applications and PFM functions to communicate with each other, have been employed[4]. This approach, however, risks creating a complicated system with a vast number of sometimes outdated technologies, combined with complex interfacing issues.

Some advanced countries have chosen to combine the use of an ERP system and ETL tools. In the case of France, for example, a new ERP solution encompassing the whole expenditure chain (the CHORUS program) replaced the existing IT systems. On the tax side, another solution (COPERNIC) was implemented with the reshaping of 70 different tax management solutions to provide interoperability between the various systems.

In Western Africa, the cases of Mali and Senegal are interesting. In Mali, the implementation of challenging PFM reforms, including program-budgeting and accrual accounting, was based on keeping existing IT systems and adding an ETL tool called “The government’s objective has been to improve its access to financial data, improve interoperability, while limiting the overall cost of the new IT applications. Faced with a similar reform agenda from the West African Economic and Monetary Union (WAEMU), Senegal has chosen to implement a completely new ERP solution while also reshaping its PFM processes.

An important message is that key decisions on the design and implementation of new FMIS solutions cannot only be delegated to countries’ Information and Communication Technology (ICT) teams, nor be outsourced to the vendors. Making the harsh choice to implement a new government-owned financial information system, or to radically improve an existing system, is fundamentally political in nature. Based on solid diagnostic analysis, the minister in charge needs to exert a leadership role in evaluating his country’s existing FMIS, and choosing among the options for enhancing or replacing them. Sadly, such leadership is often lacking in practice.

Some broad guidelines for taking forward the work on implementing a major FMIS reform are as follows:

  • The project must remain in the hand of the national authorities from beginning to end. Many low-capacity governments may feel helpless when it comes to kicking-off a new project, and following up on issues they do not fully comprehend. Governments need to find a means of cutting through technical jargon, and the sometime cryptic specifications used by experts, to maintain ownership and firm control of the projects.
  • Mixed teams work better. Leadership of FMIS project management teams should mingle technicians and government representatives from various levels of the administration.
  • Tradeoffs must be found between what the FMIS can do and what the administrative requirements are. For example, FMIS functionalities should be employed to ensure that unnecessary or overlapping internal controls are removed while meeting the requirements laid down in the financial regulations..
  • In many countries, good governance is ensured through three layers: a steering committee or platform reporting to the finance minister at key stages of implementation; a technical committee monitoring daily businesses with vendors, donors and departments; and a user service unit dealing with the ergonomics of the system(s), and users’ training and support. This structure is often missing in projects undertaken in low-income countries.

[1] Nicolas Botton is a Resident Advisor in the PFM M2 Division of the IMF’s Fiscal Affairs Department, based in Mali.

[2] CEMAC-ADETEF Study coordinated by Nicolas Botton. 2014. Modernizing FMIS in the 15 Countries of the Franc Area. http://www.acteurspublics.com/2014/10/15/zone-franc-le-syteme-d-information-financiere-des-etats-en-question

[3] World Bank. 2011. Financial Management Information Systems: 25 Years of World Bank Experience on What Works and What Doesn’t.

[4] More information about new approaches to implement FMIS can be found in “A New Path to Improve FMIS Performance” by Gerardo Uña, PFM Blog, March 15, 2017.

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

It is instructive to understand the extent to which governments continue to implement legacy software solutions. This includes the use of "legacy ERP", as defined by technology analysts, the Gartner Group. These are ERP systems that rely on significant code customization to meet government needs. This is often what is responsible for project delays, and additional costs. More importantly, systems that require significant customization, including custom-developed systems, make future changes difficult and expensive. We have to recognize that there will always be public financial management reform, and there is a need to support legal and process changes in government.

It could be misleading to think that governments only have the choice between Commercial-off-the-Shelf (COTS) ERP or custom developed solutions. There are numerous COTS providers of government-specific solutions for core FMIS and other subsystems like tax administration. Some observers see this as ERP, but, by strict definition, ERP should support "enterprises" and multiple vertical markets.

Integration has moved beyond ETL to more seamless integration using Enterprise Service Buses (ESB), that leverage Application Program Interfaces (APIs), and the component-based Service-Oriented Architectures (SOA). ETL is used to pull information out of databases rather than connecting to the business logic of software applications. ETL is more often used for the creation of data marts and data warehouses for reporting and analytics where real-time information is not needed. ETL can be used in the FMIS context for posting among logical subsystems, however this might not be such a good idea when the subsystems (Payroll, Procurement, Assets etc.) are committing funds creating inaccurate budget availability in the FMIS.

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