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November 18, 2019

Good Financial Information Systems for Good Fiscal Transparency

Fmis
Posted by Richard Allen and Gerardo Uña[1] 

The Global Initiative for Fiscal Transparency (GIFT) organized two recent events to discuss how good financial management information systems (FMIS) are good for fiscal transparency. One of them was a webinar (http://www.fiscaltransparency.net/publish/) and the other was a working lunch at GIFT’s headquarters in Washington, DC. The webinar moderator was Lorena Rivera del Paso (GIFT), and the speakers were Neil Cole (CABRI, South Africa), Gustavo Merino (Ministry of Finance, Argentina), and Richard Allen and Gerardo Uña, both from Fiscal Affairs Department, IMF. Other participants included representatives of the US Treasury Department, the Open Government Partnership, and the International Budget Partnership.

FAD’s recently published note on “How to Design a Financial Management Information System (FMIS): A Modular Approach” was discussed at the two events.  In addition to the main findings and recommendations of the note (https://blog-pfm.imf.org/pfmblog/2019/05/rethinking-the-design-of-fmiss.html), valuable suggestions were made about the challenges that many developing countries face in modernizing their financial information systems. Key issues raised include the following: 

  • The modular approach proposed by FAD’s How to Note can be linked to the step-by-step development of capability in the ministry of finance to apply increasingly more sophisticated PFM systems. As institutional capabilities are developed—for example, in areas such as budget preparation, internal control and cash management—the FMIS’s core modules and functionalities can become progressively more advanced.

  • The modular approach creates opportunities for finance ministries to introduce digital innovations in their PFM information systems and to adopt agile software development methodologies that can produce significant improvements in the efficiency and security of the systems in a short period of time.

  • It is critically important for national governments to build a strong capability to manage contracts with private sector firms providing hardware and software and other FMIS-related services. Weak contract management. among other factors, is a potential source of poor design, delays and cost overruns for the FMIS projects. In the past many countries have had their fingers severely burned by poor capability to manage contracts. These lessons have still not been fully absorbed.

  • The fact that FMISs are often prone to corruption—the Malawi “cashgate” crisis is a good example—if the basic internal controls are not in place implies that development of more corruption-resilient FMIS should incorporate the application of new technologies (such as Artificial Intelligence and Machine Learning) to detect fraudulent transactions.

  • There are several institutional reasons for the poor performance of FMIS, e.g., the absence of high-level leadership in preparing and implementing an FMIS reform project, lack of agreement between accountants-general and budget directors on issues such as accounting standards, and split responsibilities for implementing FMIS between the finance ministry and other agencies. Such institutional issues should not be overlooked when projects for modernizing FMISs are being designed.

  • It is important that the users of financial information—including civil society organizations (CSOs), professional groups such as chambers of commerce, accountancy firms, and think tanks, and international agencies—should have a voice in determining what reports should be generated by the FMIS and published as a part of the government’s fiscal transparency portal. This process needs to be well managed to produce valuable inputs. The US Treasury Department’s initiative called usaspending.gov represents good practice in this area. CSOs should be clear and precise about what information they require and in what form. The finance ministry may have a legal requirement to publish large amounts of fiscal data but not necessarily of a kind and in the form that the recipients find useful. Indeed, finance ministries may have an incentive to publish voluminous quantities of data that often confuse rather than clarify fiscal issues.

Many countries continue to face severe challenges in modernizing their FMISs. Events such as those reported above enrich the discussion about the importance of good financial information systems for good fiscal transparency, and good fiscal governance in general.  

 

[1] Both authors are Senior Economists, Fiscal Affairs Department, IMF.   

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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