Accountants to the Rescue! A Whole System Approach to PFM Architecture

Posted by Suzanne Flynn

The UK based Chartered Institute of Public Finance and Accountancy (CIPFA) has issued an ambitious, but also a somewhat theoretic, draft consultation paper, with support from the UK’s Department for International Development (DFID) on what constitutes a PFM system. The paper aims to clarify the scope and characteristics of PFM systems, but also what PFM “architectures” exist to guide measures and aid program development, with the ultimate aim of improving public service delivery. The draft is available at http://www.cipfa.org.uk/international/consultation.cfm. Comments on the draft are welcomed by the Institute by the end of November of this year. If this document is to be useful—and clearly a lot of work and thought has gone into it—comments from a broad range of PFM practitioners would add tremendously to its value. In my view, particularly the views of non-accountants would enrich the present draft.

Performance-Based Budgeting in France: An Evaluation by Parliament

Posted by Franck Bessette.

 
  
  
In France, the parliament was the initiator and driver of performance-based budgeting, introduced by the organic by-law of  August 1, 2001 (the so-called Loi Organique sur les Finances Publiques -- LOLF) [for more details, see in particular this previous blogpost by Bill Dorotinsky  and its embedded PowerPoint presentation by Phillipe Debrose] and fully applied from January 1, 2006. This was a managerial “big bang” which reorganized completely the budget structure and public accounting (accrual based accounting was introduced), defined new players (program managers), new chains of decision, and for every program a series of objectives and indicators.

After three years of complete implementation, the Economic and Finance Committee of the National Assembly (Assemblée Nationale) has evaluated this performance-driven budgetary reform and made recommendations to further improve implementation. A general report followed by annexes for individual programs was recently published [click here for a copy of the report ]

Budget Classifications, GFS and Footnote 6

Posted by David Gentry.

Joseph Heller’s satirical novel, Catch-22, was published in 1961.  The novel is set during World War II and describes the efforts of military servicemen to survive war and the organizations established to wage it.  The title comes from a scheme by the novel’s characters to be discharged early from military duty.  According to a fictional military manual, a person could be discharged if he certifies that he is crazy, but a clause in the procedure, Catch-22, states that if he knows he is crazy then he isn’t crazy and thus is ineligible for discharge.  Catch-22 is a colorful reminder of how significant the fine print of a manual can be.

Incorporating Budget Programs in the Government Accounting System - The case of Namibia

Posted by Dimitar Radev [1].

Many countries do not fully benefit from all the possibilities of program budgeting in terms of budget credibility, expenditure control and public resource allocations. One common reason is that while they prepare the budget based on programs, they do not organize their accounting and expenditure control systems on a program basis. There is little value for these countries in further developing program budgeting if spending cannot be accounted for, reported, and controlled according to programs.

Namibia presents a good example of how such an issue can be successfully addressed.

A New IMF Fiscal Affairs Department's Publication: the Technical Notes and Manuals

Posted by Michel Lazare and Richard Allen.

The IMF has just launched a new series called: Technical Notes and Manuals.The first three issues have been authored by the IMF's Fiscal Affairs Department.

They deal with:

1. A Basic Model of Performance-Based Budgeting by Marc Robinson and Duncan Last  Download FAD Technical Manual 1
2. Transition to Accrual Accounting by by Abdul Khan and Stephen Mayes                     Download FAD Technical Manual 2
3. Modernizing Cash Management by Ian Lienert                                                              Download FAD Technical Manual 3

Earlier versions of these Technical Notes and Manuals were previously issued as part of a series of technical notes on our PFM blog.

Future issues will include topics in revenue administration, tax and expenditure
policy, and public financial management. Other IMF departments may also contribute notes to these series.

These notes and manuals aim at raising awareness among practitioners,
officials and academics of contemporary fiscal topics; and improving the dissemination of
FAD's TA advice. In particular, they will allow us to disseminate to a broader audience the advice now included in our TA reports, or provided through other advisory services.

IMF Hosts IPSASB Meeting - May 2009

Posted by Stephenie R. Fox and Abdul Khan.

The International Public Sector Accounting Standards Board  (IPSASB ) held its 2nd meeting of the year in Washington, DC from May 18-21, 2009 . The meeting was held at the Headquarters of the IMF, reflecting the growing relationship between the two organizations. The International Public Sector Accounting Standards Board (IPSASB) is an independent standard-setting body under the auspices of IFAC that develops high quality accounting standards for use by public sector entities around the world.  The IMF is an official observer to the IPSASB and their participation at meetings has provided a solid understanding of the issues the IMF sees as important.

Certification of the Financial Statements of Central Government: The French Case

Posted by Franck Bessette.

The 25th of May, 2009 the French Cour des comptes (Court of Auditors) certified that, with regard to the applicable accounting rules and principles, the Central Government’s general account as of December 31, 2008 is regular, truthful and gives a fair view of the financial position and assets of the Central Government, subject to 12 qualifications, the first nine being of substantial nature (http://www.ccomptes.fr/fr/CC/Accueil.html). This certification is transmitted to the Parliament “accompanied by the report on the audits conducted” in accordance with the Constitutional Bylaw on Budget Acts (referred to as its French acronym “LOLF”) which took full effect on January 1st, 2006. This is therefore the third such certification ever conducted in France.

Government Actions in Response to the Financial Crisis: An Emphasis on Transparency and Accountability

Posted by Abdul Khan

“Politicians will not be forgiven by future generations if liabilities and obligations incurred today are hidden from them today, but paid for tomorrow,” cautioned Mike Hathorn, the Chair of the International Public Sector Accounting Standards Board (IPSASB). Speaking at a seminar organized by the Fiscal Affairs Department of the IMF on May 22, 2009, he indicated that the IPSASB believes that transparency and accountability are crucial to explain to citizens the range of actions governments are taking in response to the financial crisis. In a frank assessment of the current state of affairs in public sector financial reporting, he said that, in his opinion, “most governments do not have the financial reports necessary to communicate to citizens in a transparent way….”

Recent Developments in Public Sector Accounting – World Bank Seminar

Posted by Ian Lienert.

The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), sets international public sector accounting standards (IPSASs) and encourages implementation of them in all countries. Given the evolving worldwide financial crisis and its impact on public sector balance sheets, it is important to know whether government accounting standards are adequate and if so, whether they are being applied. This was one question asked at a World Bank seminar, held on May 15, 2009.

The speakers, Professor Andreas Bergmann (member, IPSASB) and Mr. John Stanford (Deputy Director, IPSASB) addressed four evolving issues: (1) the conceptual framework for general purpose financial reporting by the public sector; (2) specific public sector projects; (3) convergence of public sector and private sector accounting standards; and (4) promotion and communication activities of IPSASB.

IFAC’S International Public Sector Accounting Standards Board Launches Review of Cash Basis Reporting in Developing Countries

Posted by Michel Lazare

The International Public Sector Accounting Standards Board (IPSASB) of the International Federation of Accountants (IFAC) is undertaking a review of the International Public Sector Accounting Standard, “Financial Reporting Under The Cash Basis of Accounting” (the Cash Basis IPSAS). The Cash Basis IPSAS was first issued in January 2003 and subsequently updated in 2006 and 2007.

As the invitation letter of Erna Swart, IPSASB Deputy Chair and Chair of the Task Force for the Review of the Cash Basis IPSAS puts it: "The primary objective of the review is to identify the major technical issues that public sector entities in developing economies have encountered, or are anticipated to encounter, in implementing the Standard. The IPSASB will then consider whether the Standard should be modified in light of these difficulties and/or if further guidance on its application should be provided by the IPSASB. The review will also identify whether additional reporting requirements should be added to the Standard.

The IPSASB is particularly interested in drawing on the experience of those who have been involved in, or have advised on, the adoption of the Cash Basis IPSAS in developing economies or have otherwise had exposure to the Cash Basis IPSAS and can provide input to this review."

The deadline for responses to the questionnaire (below) is July 15, 2009.

Accrual Accounting for the Public Sector - a fad that has had its day?

By Andy Wynne, andywynne@lineone.net

The latest issue of the International Journal of Governmental Financial Management (www.icgfm.org/digest.htm) contains a useful review of the experience of implementing accrual accounting by central governments.  Its findings should increase the number of governments which have considered this approach, but have decided that other reforms are more important and are more likely to deliver significant benefits.

Comptabilité budgétaire

Par Benoît Chevauchez.

La « comptabilité budgétaire » est une forme courante de comptabilité publique et, pourtant, le manuel GFS- « bible » des comptables et statisticiens des budgets publics- n’en parle pas…

Budgetary Accounting

By Benoît Chevauchez.

“Budgetary accounting” is a common form of public accounting and yet the Government Finance Statistics Manual, which accountants and statisticians regard as their “bible,” has nothing to say on the subject.

Accrual Budgeting and Fiscal Policy—The Swiss Model

Posted by Abdul Khan

The Federal Government adopted the accrual basis for budgeting and financial reporting with effect from the 2007 budget.  Known as the New Accounting Model, this framework emphasizes two main objectives, also referred to as the dual perspectives of NAM: fiscal policy management at the macro level and a focus on performance of government departments and offices. Enhancing transparency of the public finances through the adoption of internationally recognized accounting concepts and standards is also stated to be an objective of the NAM.

The fiscal policy objective is focused on controlling aggregate cash expenditure. It is expressed through the debt brake rule that requires revenue and expenditure to be balanced over the business cycle. This is essentially a cash concept and the financing and cash flow statement of the budgetary central government, derived from the income statement and balance sheet in accordance with internationally accepted accounting practice, is the reporting tool used to monitor compliance with the debt brake rule.

Accrual Budgeting: What Does it Mean for Fiscal Discipline?

Posted by Mr. Marc Robinson

 

Is accrual budgeting a good idea? This is an highly controversial question in budgeting circles today. Many budgeting experts agree that accrual accounting for fiscal reporting is a good idea, at least for those countries which can afford the costs of running a more sophisticated accounting system. But on the question of whether the budget itself should be moved onto an accrual basis, there is absolutely no consensus. On one side of the boxing ring, there are those who think that the real benefits of accruals can only be realized by putting the budget on an accrual basis. They believe for example, that unless the full costs of programs and inputs are charged to ministry budgets, decisions about program priorities, the input mix and investment vs. maintenance will always be seriously distorted because under cash budgeting they are always based on the wrong “price signals”. Opponents of accrual budgeting, on the other hand, argue that it is unduly complex, confusing, potentially risky to fiscal discipline. They also argue that the efficiency benefits of accrual budgeting have been greatly exaggerated, and point – for example – to the abandonment by countries like Australia and the UK of the “capital charging” regimes as a recent example of the failure of the much-heralded benefits of accrual budgeting systems to become reality.

US Government Annual Financial Report

Posted by Eivind Tandberg

Comprehensive, transparent and reliable financial reporting is a cornerstone of good public financial management. The US Government financial report for fiscal year 2008 (October 2007 - September 2008) was released in December 2008. The report provides many examples of good international practices. However, the accompanying audit report from the US Comptroller General, which includes negative opinions for key government sectors, illustrates that it may be difficult to meet all requirements in this area, even for an advanced economy government with significant financial management resources.

IPSASB to Act Quickly to Facilitate Transparent Reporting of Government Actions in Response to the Financial Crisis

Posted by Abdul Khan and Sage De Clerck

The global financial crisis was a topic of considerable interest in the recent meeting of International Public Sector Accounting Standards Board (IPSASB) in Zurich. IPSASB noted that governments are undertaking a range of initiatives—often involving significant amounts of public money--in response to the crisis, and a key requirement would be to ensure that the financial implications of these actions are transparently reported. Since many of these initiatives would involve governments providing funds or issuing guarantees to private sector entities in exchange for acquiring equity or debt instruments, it is critical that public sector accounting standards deal with the recognition, valuation, and disclosure of these financial instruments in government financial reports.

Emerging themes in public sector financial reporting

Posted by Abdul Khan

Let us face it. Government accounts are usually pretty boring documents, mainly focused on compliance with budgetary spending limits, and presented in a form designed to discourage all but the most determined readers. Some countries have gone a step further and adopted what are referred to as generally accepted accounting principles and are generating accounts that provide a more complete view of the government finances by providing information about not just cash flows, but also about revenues earned and expenses incurred, and assets and liabilities. Despite these improvements, government accounts have mainly been backward-looking documents – they focus on the past year’s transactions and their impact on the balance sheet. They also mainly provide financial information without relating it to services delivered or objectives achieved.

All this may change. The International Public Sector Accounting Standards Board is considering a major redefinition of the scope of government accounts. The Board is working on a conceptual framework for public sector financial reporting.

New EU-Supported Financial Information Management System Public Finance in Serbia

Posted by Michel Lazare

Here is a YouTube video presenting the key features of a new financial management information system introduced in Serbia with the support of the EU-European Reconstruction Agency.

Going hybrid! A practical approach to setting government accounting standards?

Posted by Holger van Eden

In the Netherlands, but also in a number of other OECD countries, the debate on the usefulness of accrual accounting standards, both for financial reporting and budgeting, has led to a hybrid set of accounting standards being used in government. This hybrid approach has been questioned by the Dutch Supreme Audit Office, and is generally not appreciated by accounting purists. However, the hybrid approach, in which part of government works under accrual standards, and part remains under cash, may be a practical way to reap some of the benefits of accrual reporting and budgeting, while not incurring the substantial costs of implementing accrual accounting standards government-wide. Accountability and transparency at the national level may also be better served by a straightforward cash-based approach.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the first part of this YouTube video; parts 2 and 3 appear in other posts published today.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

International Journal on Governmental Financial Management Available

Posted by Bill Dorotinsky

The latest issue of the International Journal on Governmental Financial Management (Volume VIII, No. 1, 2008) --- formerly known as the Public Funds Digest --- is now available. The Journal, sponsored by the International Consortium on Government Financial Management (ICGFM), is available for download in PDF format from the ICGFM website link above.

This issue has some interesting articles, covering a range of topics from anti-corruption to gap analysis on auditing standards. Specific articles include

• diagnostic tools for auditing and accounting, enabling gap analysis between national and international standards
• the Europe and Central Asian peer-assisted learning initiative in public expenditure management
• measuring and improving supreme audit institutions in developing countries
• two articles related to accrual accounting, one of which explains the 'German' cameral accounting model as an alternative to accrual accounting
• as well as articles on fighting corruption in Nigeria, Nigerian pension reform, and bureaucracy in Bangladesh.

A good collection of articles for public finance aficionados.

Ian Ball (IFAC CEO) Visits the IMF to Discuss the Role of Accrual Accounting in Government Financial Reporting and Fiscal Management

Posted by Abdul Khan

“Accrual concepts are fundamental to both Economics and Accounting” said Mr. Ian Ball, the Chief Executive Officer (CEO) of the International Federation of Accountants (IFAC), the worldwide organization of the accountancy profession. In a well attended and lively seminar of Fund and World Bank staff on Thursday, May 23, Mr. Ball argued that accrual based accounting provides better information, be it to assess the impact of the public sector on the economy, enhance transparency to citizens or tax payers, or facilitate management decisions on resource allocation.

Mr. Ball explained the organization and role of IFAC, with particular emphasis on its work through one of its Boards, the International Public Sector Accounting Standards Board (IPSASB), which develops standards for use by governments in preparing their financial statements. More than seventy countries have agreed processes or have a project in place to adopt or align with IPSAS. In addition, IPSAS have also been adopted by international bodies such the UN system, OECD, the European Commission, and NATO, Mr. Ball said.

Welcome to the new ICGFM Blog

Posted by Bill Dorotinsky

This week, the International Consortium on Government Financial Management holds their  22nd conference in Miami, Florida. (See our December 12, 2007, blog post on the ICGFM fall Washington, D.C. Conference on IFMIS.) The focus of this year's Miami Conference is on accountability, and is entitled “Joining Forces for Responsible Leadership to Enhance Good Governance:  Citizens, Public Officials, Private Sector and the Press”.

As part of this years event, ICGFM has introduced a blog spot, with daily coverage of presentations, including access to the presentation material and YouTube video's. Well worth a visit!

Improving Government Financial Management Systems -- Lessons from a U.S. GAO Report

Posted by Bill Dorotinsky

Countries around the world are working to improve their public financial management (PFM) systems, and the U.S. is no exception. While for many countries the U.S. example may seem remote --- too unique in the authority of the Congress or too economically developed --- the similarities and lessons are more relevant than might appear at first glance. A recent GAO report, Highlights of a Forum: Improving The Federal Government's Financial Management Systems (GAO-08-447SP, April 2008), provides some fascinating insights into the state of PFM in the U.S.

Sri Lanka: Improving Transparency and Accountability in Budget Processes

Posted by Justin Tyson

A TV report posted on YouTube in September 2007 provides a short, but interesting, introduction to debates about improving the transparency and accountability of budget-making in Sri Lanka. Topics covered by the video include: the move away from incremental annual budgets towards Activity-Based Budgeting; the need to have more in depth review of expenditure purposes and outcomes; and, the role of parliament in scrutinizing the budget process.

A Primer on Accrual and Cash Deficits--Understanding Similarities and Differences--the US Case (GAO Report)

Posted by Michel Lazare

In December 2006, the United States Government Accountability Office published a report on "Understanding Similarities and Differences between Accrual and Cash Deficits": Download gao07117sp_accrual_and_cash_deficits.pdf.

This report constitutes a good introduction to the differences about these two notions of fiscal balance. In addition, it explains in a clear way how some of the categories of expenditures are accounted for in cash and in accrual terms. It is also candid about the weaknesses in some of the data reported in accrual terms and the need for a "plug" (i.e., unaccounted for differnces) to fully reconcile the two deficit numbers.

A Hitchiker's Guide to Budget Classification....

... or how to recognize a budget classification from quite a long ways away.

Posted by Jean-Luc Helis and Davina Jacobs

Why should countries care about budget classification? Who cares about budget classification? These questions appear at first glance to be of concern only to economists doing research on public finance and budgets or to officials in the ministry of finance in a country. However, everyone-from members of parliament or congress and yes, also the proverbial "man in the street", should be interested in budget classification. Properly defined revenues and expenditures give us information on the intimate workings of the budget and government. Do you want to now how much was spent last year on education? Or health? How much company income taxes were collected by the government? To get the answers to these questions, the budget has to be appropriately classified.

Secrets of Public Accounting in Brazil are Revealed!!!

(unfortunately only in Portuguese)

Posted by Mario Pessoa

If you are interested in understanding how the public accounting system in Brazil works and what are the concepts behind the government financial information system (SIAFI), you have a good guide through the book Public Accounting in Brazilian Central Government (“Contabilidade Publica no Governo Federal” in Portuguese). (Click the link to access the book and the spreadsheet exercises.)

David Walker (GAO): Long-Term Fiscal outlook--Action is Needed to Avoid the Possibility of a Serious Economic Disruption in the Future

Posted by Michel Lazare

Further to our January 29, 2008 post on "David Walker (GAO head): The USA is Living beyond its Means -- Difference between Accrual and Cash," here is below the summary of David Walker's testimony before the Committee on the Budget of the U.S. Senate: "Long-Term Fiscal Outlook--Action is Needed to Avoid the Possibility of a Serious Economic Disruption in the Future."

(link to the full text of David Walker's testimony: Download gao08411t_longterm_fiscal_outlook.pdf )."

Transition to Accrual - A Stepwise Approach

Posted by Bill Dorotinsky

As countries struggle with implementing accrual counting, more and more resources are emerging to assist with their efforts. In an October 15 blog, we posted an IMF FAD Technical Guidance Note on Transitioning to Accrual Accounting. A blog reader kindly brought to our attention another useful reference, "A Stepwise Approach to Transition from a Cash, Modified Cash, or Modified Accrual Basis of Accounting to a Full Accrual Basis for Developing Countries," published in the February 2007 issue of Public Fund Digest (available on-line at the link above). The Public Fund Digest is a publication of the International Consortium of Government Financial Management (ICGFM) -- a recent December 2-4, 2007 conference on which we also blogged about.

The article, written by Jesse Hughes, Professor Emeritus of Accounting at Old Dominion University, provides a succinct series of steps and issues to be addressed in transitioning to an accrual basis:

1. Identifying and classifying government reporting entities -- not an easy task, as the  article notes, compounded by the wide variety of governmental and quasi-governmental bodies and varying degrees of government control.
2. Accounting for Cash -  deemed relatively easy in the article, as many governments already have some procedures in place to start with. However, as the note points out, transfers between entities need to be netted out, which is far more challenging than might at first seem the case.
3. Compiling asset and liability information for reporting entities - a challenge for any country, and an optional disclosure item under the Part 2 of Cash IPSAS.
4. Other optional IPSAS Cash Basis Part 2 Disclosure Items -- really many elements, including disclosure of administered transactions, transactions of related parties, comparison of actual versus budgeted revenues and expenditures, disclosure of ownership interest in controlled entities, and joint ventures.

Two of the most useful aspects of the article appear as Appendices -- a decision-tree for determining the level of control of another entity for financial reporting purposes (Appendix 1) and a detailed spreadsheet action plan for implementing the transition (Appendix 3).

David Walker (GAO head): The USA is Living beyond its Means -- Difference between Accrual and Cash

Posted by Michel Lazare

The YouTube video below is a presentation on long-term fiscal issues in the US made by David M. Walker, the US Comptroller General and head of the U.S. Government Accountability Office (GAO). 

Two-years after the "Big Bang:" an update on France's PFM Reforms

Posted by Francois Michel

In 2001, France enacted a new organic budget law, including many reforms such as program budgeting, empowerment of the line ministries, increase of parliamentary controls, extension of commitment authorizations, and introduction of multifaceted accounting reforms. The law envisioned four years to plan the reform, with full implementation planned over a decade. Two years into implementation, many lessons are emerging from implementation of these significant transformations.

On December 7, 2007, the IMF Fiscal Affairs Department (FAD) hosted a high-level seminar with senior officials from the French government to explore the intricacies of the reform, and to try to identify the challenges that still lay ahead. Speakers were Messrs. Hürstel and Mordacq, respectively Assistant Director at the Budget Directorate and General Director of State Modernization, and Mrs. Morin, Deputy Director of the Accounting Directorate.

IFAC World Accountancy Forum:

Government, the Accountancy Profession and the Public Trust: Current Initiatives and Future Challenges

Posted by Richard Allen

The International Federation of Accountants’ (IFAC) held its 30th Anniversary World Accountancy Forum on December 4, 2007, in New York. The forums theme covered the accountacny prfoessional and the public and private sectors as well as civil socity. Three forum sessions covered Imperatives for Strengthening Government Accountability; Convergence of Accounting and Audit Standards; and Finding the Right Balance between Corporate Governance, Oversight and Business Growth. The second and third topics were primarily focused on private sector accounting and oversight practices; the first, however, tackled issues of enormous importance for public finance.