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October 13, 2020

A Stacked Layer Model Approach to PFM Digitization

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Posted by Ali Hashim and Moritz Piatti-Fünfkirchen[1]

Digitization of processes in public financial management (PFM) holds a lot of promise. It can support efficiency, foster accountability and transparency, and ensure continuity of essential services during times of crisis. Countries are increasingly investing in aspects of digitization. However, how digitization relates to PFM is highly complex and requires an understanding of how a multitude of factors interact with one another. For this a “stacked layer model” can help.  

Stacked layer models help simplify complex systems by breaking them down into their components organized by layers. A drill down into each of these layers provides the necessary detail on a system’s architecture and interrelationships. These models have been used extensively across disciplines, though not yet systematically in the area of PFM. In geo-spatial systems, for example, each layer provides specific types of information about the geographical terrain. In PFM digitization this concept could be used to map out essential layers, each of which provides greater detail on processes and relationships.

A PFM digitization stack layer can be visualized as follows:     

Graph

The various layers involved in PFM digitization are as follows:

Layer 1:  The legal framework that underpins PFM functional processes. This includes:  

(a) the laws and regulations that describe the basic functions of budget management, budget execution, financial reporting, debt management and so on, and;

(b)  the operational procedures and rules related to these various PFM functions, such as the structure of the chart of accounts, fiduciary and financial reporting requirements; and the accounting model.

Layer 2: The institutional framework: This includes the roles and responsibilities of the institutions entrusted with various PFM functions and their organizational structure.  

Layer 3: Government banking arrangements and the payment systems architecture. This includes the architecture of the treasury single account and its interfaces with the banking system.

Layer 4: Major PFM functional processes. This describes the various functional processes such as macroeconomic forecasting; budget preparation; budget execution; accounting and reporting; debt and aid management; public procurement; revenue administration and auditing.

Layer 5: The data architecture. This includes information on the entities for which data is required to maintain and support the overall system.

Layer 6: The information systems architecture. This includes the IT modules required to support PFM functions, and the data flows between the systems;

Layer 7: Technology architecture and techniques for analyzing and transmitting data.

(a) Technology architecture. This is the infrastructure and technology platform required to operate the system and the information security protocols required to guarantee its integrity.

(b) Innovative techniques and disruptive technology for analyzing and transmitting data for better service delivery. These include smart cards and mobile money; block chains; robotic process automation; artificial intelligence and data analytics; and presentation tools (dashboards).

In addition to these layers, adequate functioning of a PFM system requires a suitable enabling environment and cross-cutting facilities. Major factors that determine a successful outcome are:

(a) Strong government commitment - necessary to drive change and address political economy issues;

(b) Adherence to standards;   

(c) Training and change management; and

(d) Adequate system coverage and utilization.  

A stacked layer model can help break down a complex system, such as the digitization of PFM, into its component parts. It illustrates the relationships among layers and external factors. This helps in understanding the working of the system and enables targeted interventions for better PFM reform outcomes. The model could have many potential applications in digitizing PFM systems.

 

[1] Ali Hashim is a former Lead Treasury Systems Specialist and Moritz Piatti-Fünfkirchen is a Senior Economist at the World Bank.

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

Very interesting depiction of PFM digitization by using layered structure. The diagram shows clearly the stack of tasks to be solved in the process. As with any model it is done at the cost of simplifications.
Stacking structure suggests that the layers are somehow independent of each other with their relations going from top to bottom – each lower layer depends on higher one.
In reality it is more complicated – as IT specialist I can focus on lower layers (5 to 7,
and to some extent 4). As we know Information Technology is one of the fastest changing and therefore infrastructure (Information and Communications technology) may be limiting possibilities for higher layers (6, 5, and even 4). In other words systems architecture and consequently data architecture may be limited by current state of infrastructure. That means there is also relation bottom-up in this layered model.
In some cases even functional processes can be modified because of infrastructure (and systems architecture, data architecture).
For example in one real situation on-line access to central system over large territory using satellite channels was not possible due to latency limitations in database system. While in case of land-lines it was possible.
Change Management is quite important but frequently not done seriously. And it should be the most important task of the Agency (User).
Last but not least it is necessary to have well defined procurement strategy taking into account not only acquisition but also maintenance, necessary modifications and upgrades.

Agreed, keeping track of files of statutory authority and requirements, financial regulations, system specifications, staff guidance manuals, risk assessment, audit plans, recovery plans, staff training systems and records, and review processes etc are all essential whatever the mix of manual and digital processes happens to be. There should also be a clearly identified senior responsible officer for ensuring compliance in every aspect of these various arrangements.
Most specifically, digital processing must come with a very hard assessment of the ICT capacity to install, operate, maintain, fault-find, upgrade and recover the systems that have been installed or are planned to be installed. Responsible officials need to assess and be continuously aware of: (i) the availability of adequately trained and experience ICT personnel who are prepared to work for the public sector at the pay rates offered; (ii) the competence of the current in-house ICT function; (iii) the adequacy of internal ICT staffing levels (both authorised and in post); and (iv) the extent and standard of internal ICT training. In addition it is important to understand the availability of technically proficient PFM staff who are available to support the ICT function in undertaking any developments that are envisaged. In my experience the biggest risk to digitization is the capacity of the ICT function and PFM support staff. The more complex your systems and the higher your aspirations for development the more competence is required. Risks here are far too easily waved aside.
An organisation putting itself in the hands of consultants for the performance of some or all of the various requirements adds a whole new set of costs, limitations and risks to the above. It is a decision that requires thorough assessment and authorisation at a very senior level within the relevant organisation.

This is a great way too present and look at the interface of technology with PFM systems. FMIS and TSA as core systems were to a certain extent successful in strengthening PFM system in the past decades. However, it is time to scale-up the approach. Considering it as a holistic model from legal framework to use of disruptive technology aligns well with the emerging requirements of Governments.

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