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February 24, 2014

Treasury Management and Government Accounting

Posted by Carlos Pimenta and Mario Pessoa

Events_management_system__Regional_Policy_Dialogue_on_Public_Financial_Management (2)
A high-level seminar, bringing together treasurers and accountant generals of Latin American and Caribbean countries, was held in Washington DC on February 12-14. The participants discussed key issues on treasury management and public sector accounting, and defined a common agenda to facilitate future coordination and technical developments.

The seminar was jointly organized by the Inter-American Development Bank (IDB) and the IMF’s Fiscal Affairs Department (FAD). It was attended by 170 participants from 22 countries in the region, including six vice ministers of finance, 15 treasurers and 16 heads of general accounting offices. 36 presentations were delivered by the IMF, the IDB, academics (Harvard School of Government and University of Illinois), country officials (USA, Austria, Brazil, Korea, France), experts (United Kingdom), and officials from Latin American and Caribbean countries (15 country presentations).

The issues discussed at the seminar covered a wide territory: challenges in implementing public financial management (PFM) reforms; the organization of treasury and accounting functions; the implementation of accrual accounting and accrual budgeting; the integration of budget, financial and accounting data in automated information systems; the implementation of a treasury single account; cost accounting in the public sector; and fiscal transparency.

The Vice President of the IDB, Santiago Levy, opened the event by emphasizing that treasury and accounting functions were of critical importance in measuring, controlling and managing fiscal risks. One of the challenges in many countries is to identify and measure the contingent liabilities associated with unfunded pension schemes, public-private partnerships, debt guarantees, judicial claims against the government, and public corporations. Gilbert Terrier, Deputy Director of FAD stressed the importance of good fiscal management, fiscal transparency, and the lessons of the recent financial crisis. The IMF’s revised fiscal transparency code, which takes a risk-related approach, should be helpful to countries in improving their overall fiscal management.

Matt Andrews of the Harvard Kennedy School delivered the keynote presentation on the challenges of implementing PFM reforms. He emphasized that almost every country is trying to modernize its PFM systems, but many of the reforms look better on paper than in reality. PEFA assessments indicate a big gap between the laws on PFM and what is really implemented. The main problems are related to unrealistic and ambitious objectives without properly considering the cultural and managerial context, poor coordination, and insufficient communication with the main stakeholders. Professor Andrews suggested bringing line ministries and other entities together with finance ministries to participate in decision-making on the design, prioritization and sequencing of PFM reform programs, which should not be driven purely by ministries of finance.

Carlos Pimenta from the IADB discussed the importance of fiscal transparency and the effectiveness of public expenditure on economic growth and fiscal sustainability. He also discussed different models used by ministries of finance around the world to organize the treasury, public debt, and accounting functions. The main challenges are to expand the coverage and reliability of fiscal information to increase the credibility of fiscal policy.

Joseph Cavanagh, former Director of the National Audit Office of UK, discussed the importance of implementing accrual accounting and applying international standards. In many countries such reforms have taken 10-20 years to complete. A long-term perspective and a sustained effort across government is therefore required. Mr. Cavanagh presented a framework for implementing accrual accounting in stages, which will be appropriate in many developing countries with weak institutions and low capacity.

Barbara Magero from the Brazilian Treasury and Jorge Domper from the Argentinean Treasury presented the importance of well-integrated budget and accounting information in order to prepare credible and timely fiscal reports. In both countries, the systems automatically generate financial statements and budget reports, if required on a daily basis.

Arnaud Delaunay, Advisor to the IMF’s Executive Director for France, explained how the French Treasury operates a Treasury Single Account that is one of the most comprehensive and advanced in the world. Gerhard Steger, the Director of the Budget Office in Austria, explained how his country has implemented accrual accounting and accrual budgeting. The main message from these two presentations was that governments should invest in good communications with the ministries and legislature, invest intensively in training, and have a realistic approach about the scope and expectations of the reform program.

James Chan, Professor Emeritus of Accounting of the University of Illinois, discussed the challenges of implementing cost accounting in the public sector. These challenges include the lack of international standards that define the cost objects and methodology of cost accounting. Stephen Porter and Shivendra Verma from the United States Patent and Trademark Office (USPTO) explained how they have implemented an activity-based costing system that is widely used to define the fees charged by the USPTO. Nevertheless, even after ten years, implementation of cost accounting remains a challenge because the system is permanently evolving to incorporate new activities and changes in the organization.

Finally, Teresa Curristine and Mario Pessoa of the IMF delivered a presentation on PFM challenges in a post-crisis environment and the new fiscal transparency evaluation (FTE) assessment instrument. The FTE has already been used to assess fiscal transparency in countries such as Ireland, Bolivia, Costa Rica, Russia and Mozambique. The new FTE Code will soon be finalized after a one year of testing and public consultation.

In addition to the seminar, 13 heads of general accounting offices in Latin America met to establish a forum that will exchange experiences and technical discussions, prepare research studies, and develop training courses to improve capacity. The Accountant General of Chile offered to host the first annual seminar of this new group in Santiago in November 2014, and the Accountant General of Colombia proposed a follow-up event in Bogota in June 2015. This initiative by accountants general is similar to the group of Latin American treasurers (FOTEGAL) that has been working for several years with the IMF, the IDB, and the World Bank.

FOTEGAL also met to discuss the agenda of its fifth annual seminar that will take place in Montevideo, Uruguay in August 2014. Issues that are likely to be discussed at the seminar include the relationship between debt and cash management; indicators to measure the performance of state treasuries; the implementation and management of sovereign wealth funds; the impact of budget planning on treasury operations; and financial risk management.

The presentations made at the seminar are available in the following webpage. http://events.iadb.org/calendar/eventDetail.aspx?lang=en&id=4295


1/ Principal Modernization of the State Specialist, Inter-American Development Bank.

2/ Deputy Division Chief of the Public Financial Management Division, IMF Fiscal Affairs Department.

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.

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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Hey, PFM blog, is there any chance you can ask the World Bank officials who were involved in the implementation of the Malawi IFMIS to provide their views on the matter?
In case you are not aware of what I'm talking about:
You can use your Google Machine in case you want additional references.

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