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January 06, 2011

Basics First: Developing Accounting and Financial Reporting in Liberia

Posted by Camille Karamaga; IMF PFM Advisor, Ministry of Finance, Liberia

The Government of Liberia started improving its budgetary classifications with the modernization of the economic or object classification for the FY 2007/08 budget.The former Bureau of the Budget introduced new economic classifications for the budget, based on the GFS 2001 framework under a USAID funded project. This reform marked a major improvement over the previous fiscal years, with a greater level of analytical detail for both revenues and expenditures. Since then, the Ministry of Finance (MoF) has been producing quarterly and annual reports of expenditure and revenues on a cash basis. To date, these reports do not include any statements of assets and liabilities, even as annexes. Transactions are recorded against the administrative and object classifications of the budget, with no accounting codes for the other key elements contributing towards producing a comprehensive set of financial statements for Government—assets, liabilities, and reserves. In effect the government operates a single entry accounting system, which does not allow for reconciliation of accounts. The inability of government to produce timely and reliable financial statements poses a serious challenge for a satisfactory review of government finances by Liberian institutions and public as well as the country’s development partners.

Prior to the enactment of the PFM Law in 2009, public financial management matters were guided by, among others, legal instruments such as the Revenue Code (2000). A 2007 mission from the IMF’s Fiscal Affairs Department (FAD) noted that even though the Revenue Codeprescribes accrual accounting for the Government, this was unrealistic in the short- to medium-term, given capacity constraints and lack of adequate accounting infrastructure. The mission recommended that the Government concentrate first of all on establishing a double-entry cash-based accounting system that meets internationally acceptable standards. To facilitate this, a number of pre-requisites would have to be in place, including: introducing a new and robust Chart of Accounts (CoA), developing internationally-accepted accounting standards, and a restructuring of the accounting function within the Ministry of Finance. 

The Public Financial Management Act (2009) and the accompanying Financial Regulations (2009) provide a framework for addressing those challenges by greatly building and strengthening the accounting and reporting functions in government.[1] Following FAD recommendations, and the enactment of the PFM law, the MoF has quickly undertaken the required reforms in order to strengthen the double-entry accounting system. The reforms already undertaken include: i)developing a comprehensive CoA; ii) developing and adopting cash-based international accounting standards as the basis of accounting, reporting, and auditing; iii) merging the former Bureau of General Accounting with the Comptroller-General’s Office to form one unified accounting department; iv) implementing the Sun accounting software system funded by the World Bank as an intermediary measure towards a fully integrated financial management information system (IFMIS) and iii) fast-tracking the implementation of a full IFMIS under joint funding by the World Bank and Sida, the Swedish international development agency.

Crucial to these reforms was the preparation, adoption, dissemination, and implementation of a new CoA. After its completion and adoption the new CoA has been uploaded onto both legacy systems within the Ministry of Finance: the Sun accounting system and the Liberia Expenditure Control and Accounting Program (LECAP)-budget system[2] in order to prepare reliable data for uploading onto the IFMIS-ready for a parallel run from January-June 2011. The new CoA addresses limitations of the previous classification in many ways, notably :i) it meets government policies, macro-economic and statistical reporting needs; ii) it takes into account the nature of government operations; iii) it provides one uniform coding for budget preparation, budget execution, accounting, and financial reporting across government entities and ensures compatibility and interpretation; iv)allows reconciliation procedures; vi) it caters  for current and future budget reform needs, for example development of MTEF and program budgeting, and vii) it is based on IMF's GFSM 2001 and the UN's Classifications of Functions of Government (COFOG) standards and therefore permits benchmarking of government fiscal data.

Both the new CoA and the recently adopted government accounting standards are useful tools to strengthen the efforts in accounts reconciliation under the newly-established unified accounting department in the MoF. Under this arrangement, and the developing of financial reporting templates coupled with the ongoing training of budget, accounting, and finance personnel from line ministries and agencies, preparation and production of financial statements as provided for under the PFM Act (2009) should be possible in the immediate term. This would be consistent with the deferred provisions of the PFM law on financial reporting which would become effective one calendar year after its passage.

The new CoA was initially envisaged to take effect from July 1, 2010. This implied that although the budget for the Financial Year 2010/11 was prepared using the old budget codes, an intensive exercise was successfully conducted in April-May to convert the budget from the old codes to the new CoA. This exercise was preceded by training of more than 150 nominated officials, and the entire mapping exercise was completed by end of May 2010 in order to have the new budget with new codes by July 1, 2010 ready for budget execution for the FY 2010/11. However, in the end this was not possible because the legacy system hosting budget data (LECAP) had not been configured to accommodate the new CoA. Therefore budget execution in FY 2010/11 had to start using the old classification system until the end of 1st quarter of FY 2010/11. The new CoA has been effective starting November 1, 2010.

A newly developed IFMIS is expected to revolutionize central government accounting and reporting with the first financial statements being produced for the financial year 2011/12.It is anticipated that all technical preparations will be ready in the advent of the official launch of the IFMIS on a pilot basis by July 1, 2011. The initial phase of the implementation involves deployment of the core modules including General Ledger, Purchasing, Accounts Payables, Budgeting, Cash Management, Accounts Receivable, and the Payroll and Human Resource Management information System. In this initial phase, the IFMIS will be deployed at the MoF, the Civil Service Agency, and the General Auditing Commission with interfaces for tax and customs administration software and the Central Bank of Liberia. Off-site spending entities will have access to the system through the data-center located in the MoF. In the future they would have access to the system from their work places once the IFMIS has been rolled-out during the next phase of system implementation.

Implementing PFM reforms in Liberia, including computerization of systems and processes, continues to be a learning process. The implementation of the accounting function and the IFMIS has provided important lessons, notably: i) a realistic time table has to be set for all reform components; ii) budget and accounting data have to be converted into new accounting codes in order to have reliable data from the legacy systems to the IFMIS for parallel-runs in the transition period; iii) a full inventory of potential risks  needs to be taken before decisions are made; iv) an effective all-inclusive training exercise has to be done addressing all key actors; v) the terms of reference of experts MUST include a clear work-plan with specific deliverables in terms of transfer of skills to the local staff; vi) an agreed transition calendar must be in place with monitorable outputs, and; vii) senior management of the ministry MUST be continuously engaged and updated on the progress. On the capacity building side, an important success has been that a substantial number of local trainers will continue to support future training programs in IT, accounting, and reporting, subject to the sustainability of their remuneration packages from donors and/or their retention into the civil service.

[1] Sections 6(3),8(2)and 35(4) of the PFM Act 2009 give powers to Minister of finance to establish new structures inside the ministry, to issue a Chart of Accounts, and, to establish a central accounting function inside the ministry-respectively.

[2] LECAP-Liberia Expenditure Control and Accounting Programme. Budgetary allotments are done through this system.

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.


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As someone who was one of the first PFM persons to go into Liberia immediately after the departure of Charles Taylor I am glad of the progress that seems to have been made since then. However, considering the experience with FMIS in several countries across the world I would be little skeptical about the revolutionary potential of it just yet. This is not to cast any aspersions on the people there but is based on the simple issue of the difficultly which such projects face in implementation. A computer system was proposed there in 2005 but could not work much because the power generation at that point was minimal. I am sure these problems have all been ironed out now, yet 6 core modules may take a while to bring about a revolution, if implemented all at the same time.
My best wishes to all involved though.

Liberia has indeed undertaken an ambitious reform program and should be congratulated for having the gumption to undertake this approach, albeit with ample safeguards. As inferred from the article, much of the success thus far can be attributed to the project champions - within and outside the government.

The IFMIS project includes key leaders who have successfully worked with the same underlying system in Sierra Leone and other countries, helping to guide the project while mitigating the risks inherent with any large scale initiative.

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