7sessiontreassystemshashim

8/4/2019 7SessionTreasSystemsHashim

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The Design and Implementationof Treasury Systems

Ali Hashim

Europe and Central Asia Region

World BankMay 3,2005


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Part I : Basic Concepts


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IFMIS: Integrated Financial ManagementInformation Systems

Not a very specific term

May mean different things to differentpeople.


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What are the main systems forGovernment Fiscal Management ?

Macro economic forecastingBudget preparationBudget execution, accounting and fiscal

reportingCash managementDebt management

Revenue administration (Customs and Tax)Civil service managementAuditing


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TREASURY SYSTEM

Functional

ProcessCentral

BankDebt

ManagementBudget

ManagementCash

Management

Govt.

SpendingAgencies

Revenue Collection

Agencies

Paying/

ReceivingBanksTaxes Customs

BUDGET PREPARATION

BUDGET MANAGEMENT

& FISCAL REPORTING

Ac.Receiv. Ac. Payable

Treasury General Ledger

AGENCY

BUDGETEXECUTION

DEBT MANAGEMENT

POSITIONMANAGEMENT

PAYROLL &PENSIONS

PERSONNELMANAGEMENT

TAXATION

AGENCY

BUDGETPREPARATION

CUSTOMS

Domestic Foreign

Invest ment Current

CASH

MANAGEMENT

AUDITINGSample Transactions from Government Systems to Auditing

Budget

Guidelines

Cash Forecasts; Allocations

C

O

MM

ER

C

IA

L

B

AN

KS

MacroEconomic

Forecasting

BudgetPreparation

BudgetManagementAccounting

&Fiscal Reporting

CashManagement

DebtManagement

Revenue

Administration

Civil Service

Management

Auditing

Estimate

ofBorrowing

andPublicDebt

Interest

Macro Economic Framework

Budget Proposals;

old & new programs

Audit

Organ.

Revenue Estimates

Approved Agency Budget

CENTRAL

BANK(TSA)

Payment Instructions

to Central Bank

Report on Payments& Receipts to TSA

Reports

onRevenue

Receipts

Information Systems Architecture for Government Fiscal Management

CentralOffice

RegionalUnits

EconomicPolicy

Treasury

Ministry of Finance

Government

Banking Arrangements

Feedback

fromAudit

Vendors

TaxPayers

Previousyears data

MACRO ECONOMIC FORECASTING


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The World Bank has financed a number ofTreasury Systems Projects world wide.

In some countries these projects haveinvolved building on and repairing existingfinancial management arrangements and

systems

In transition economies, they have required

setting up institutional structuresand accompanying systems, ab-initio, asthese countries move from centrally plannedto market economies


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It has been easier to implement Treasurysystems, ab-initio, at green field sites such as

countries of the Former Soviet Union

In other countries, e.g. Turkey, Pakistan,

where the reform required that old systems berepaired and modernized, greater difficultieshave been experienced due to resistance to

changes in the organizational and legalframework, functional processes andprocedures.


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Why Treasury Systems ?

Ensure that expenditures are in accordance withbudget appropriations, commitments and cash

allocations, thereby enabling better control overexpenditures, fiscal deficits, and arrears

Enable better cash management and reduction of

idle balances by bringing all government accountsunder the control of Treasury and consolidation in aTreasury Single Account (TSA)

Provide more accurate and timely information fordecision making and accountability by integratingtransaction processing, enforcement of controls,

accounting and comprehensive reporting.


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Why Automated Treasury Systems ?

Effective economic management requires the

availability of timely and accurate dataon all government expenditures andrevenues and balances in government accounts.

Without some degree automation this data maysimply not be available with the requireddegree of timeliness and accuracy since thisrequires compilation and consolidation of transaction

data from across a country wide network of offices


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Why Automated Treasury Systems ?

In addition automated systems enable:

Integration of transaction classification andposting with transaction processing thereby

increasing data integrity

Automation of many controls and

procedures


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What do Treasury Systems do?

Record initial budgets, revisions, spending unitexpenditure plansDistribute budget appropriations, spending limitsand warrant allocations

Record commitmentsRecord receipt of goods and servicesAuthorize payments after checking for controlsGive payment instructions to Bank

Record revenues and other receiptsEnable posting of all transactions, enforcement ofcontrols, accounting and comprehensive reporting


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What legal and inst it ut ional reformsare needed prior t o work on systems

design? Budget management law that provides a framework

for management of public funds

GFS compliant Budget classification system/Chart ofAccounts

Banking arrangements for consolidation of funds in aTreasury Single Account at the Central Bank

Re- engineered functional processes and institutionalarrangements for TSA based for payment and receiptsprocessing

Cash management unit within treasury


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What needs t o be done so that various syst ems

modules can w ork t oget her as an int egratedsystem?

The systems modules should:

Be able to exchange information without difficulty

Be organized alongfunctional and not organizational lines

Share commonly used data


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How to achieve systems integration?

Develop an information systems architecture

that provides an over view of the GFMsystems network in terms of its:

Components- scope, scale and type

Connections- information flows Agencies responsible


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Development of an information systems architecture

requires an analysis of:

Functional processes Responsibilities of agencies Information flows in processes

and between organizations

Nature, volume and frequency of flows Data characteristics

T S t C F ti l P d I f ti Fl


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Commitment and verificationtransactions

Payment orders

Accounting reports

Regional Systems

Budget Appropriations

Central System Government BankingArrangements

Consolidated FiscalReports

TREASU

RY

LEDGER

SYST

EM

TLS

Ministry ofFinance

Budget appropriations

Treasury System: Core Functional Processes and Information FlowsCase1: Treasury is directly responsible for making payments;

Central Bank responsible for banking operations

LineMinistries

&

CentralSpending

Units

RegionalSpending

Units

CentralBank(TSA)

RegionalCentralBank

Branches

BankBranches

CentralTreasury

andTreasuryOffices at

Center

RegionalTreasury

Units

Cash forecasts

Commitment Limits

Fund allocations

Commitment and verificationtransactions

Payment orders

Accounting reports

Payment transactions against TSA

Daily file of payments and receipts

Credit to suppliers Acs

Summary of receipts

Payment transactions against TSACredit to suppliers Acs

Receipts deposit to TSADaily file of payments and receipts

Commercial

Banks

TaxPayers Suppliers


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TREASURY

LEDGER

SY

STEM

Treasury System: Core Functional Processes and Information Flows

Tax and Customs Receipts and Refunds

TaxAdministration

CentralBank(TSA)

Treasury

Offices

RefundCredit

toImporters Acs

Tax Refund paymentorder drawn on TSA

Tax ReceiptsDeposited

in TSA

and Tax PayerDocuments

toCentral Bank

Daily file of

Tax Paymentsand Documents

to Treasury

Commercial

Banks

TaxPayers

Importers

CustomsAdministration

Customs Duties

Electronic fileand documents

toTax

Administration

Request for Tax Refund

RefundPayment

Order

Refund

Deposit toTax payerAccount

Customs DutiesDeposited

in TSA

Duties Refund payment

order drawn on TSA

File ofCustom Duty Payments

Duty Paymentadvice

to Customs

DutyRefund

PaymentOrder

Duty Refund Request

CustomsWarehouse

Imported GoodsConfirmation of Receipt of Custom Duty

Confirmation ofExport for VAT Refunds


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MOF

Spending

Ministries

and SUs

Treasury(Central &

Regional

Offices)

Treasury

Ledger

System

TSA held

at Central

Bank

Commercial

Banks

MOF

SpendingMinistries

and SUs

Ministry

LevelLedger

Systems

Treasury

Central

Office

Central

TreasuryLedgerSystem

TSA heldat Central

Bank

CommercialBanks

Budget appropriationsBudget appropriations



Fiscal Reports

Fiscal reports

Payment requests from Ministries and SUs to Treasury; Financial

reports from Treasury

Expenditure transactions from Treasury to TSA Bank;Reports to Treasury on payments and receipts

Payments to Suppliers Accounts; Government Receipts

Expenditure transactions from Ministries to TSA Bank; Reports to Ministries on payments and receipts

Payments to Suppliers Accounts; Government ReceiptsReports to Treasury on Paymentsand Receipts

Reports from ministry systems

Alternative Arrangements for Payment Processing

Case 1: Treasury is Responsible for Payment Processing;

Central Bank responsible for banking operations

Case 2: Ministries and SUs are directly responsible for Payment

Processing; Central Bank responsible for banking operations

Alt ti B ki A t


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MOF

Spending

Ministries

and SUs

Treasury

(Central &

Regional

Offices)

Treasury

Ledger

System

Fiscal

Agent

Commercial

Banks

MOF

Spending

Ministries

and SUs

MinistryLevel

Ledger

Systems

TreasuryCentral

Office

Central

TreasuryLedger

System

Fiscal

Agent

Commercial

Banks

Budget appropriationsBudget appropriations



Fiscal Reports from System

Fiscal reports from system

Payment requests from Ministries and SUs to Treasury and Financial

reports from TreasuryExpenditure transactions from Treasury to TSA Bank;

Reports to Treasury on payments and receipts

Payments to Suppliers Accounts; Government Receipts

Expenditure transactions from Ministries to TSA Bank; Reports to Ministries on payments and receipts

Payments to SuppliersAccounts; Government

ReceiptsReports to Treasury on Payments

and ReceiptsReports from ministry systems

Alternative Banking Arrangements

(Banking Operations carried out by a Commercial Bank acting as a Fiscal Agent of the

Central Bank)

Case 2: Ministries and SUs are

directly responsible for

Payment Processing

Case 1: Treasury responsible

for payment processing;

CentralBank

(TSA)

CentralBank

(TSA)

I t t C t El t f T P j t


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Investment Cost Elements for a Treasury Project(Base Costs + Taxes and Duties+ Contingencies)

Policy and Design Consultancies

Legal Framework (Budget Law, CoA, Budget Classification Strc.)Functional Requirements (Information flows, documents, proceduresTechnical Design and Architecture (S/W, H/W, Comm Specs)Project Management

Equipment and SoftwareServers/Work stations ( incl. systems software and office software)Printers and office equipmentLAN Networking/WAN Networking/Information SecurityMisc- Site Preparation & InstallationApplication Software (Licenses, Parametrization, etc.)

DBMS and Application Development tools

TrainingEnd User TrainingTechnical Training for IT staff in the use of Specific Tools used

Financial Management Training for Managers


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Recurrent Cost Items

Hardware Maintenance / ReplacementApplication Software and DBMS/ Tools

License fees ( 15% of installed software)

Telecommunications Costs

Stationary, Utilities, Office Premises

Staff Costs

On Going Training


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Act ivit ies and tasks involved in t he

implementat ion of a Treasury syst em

Develop Legal and Institutionalframework

Develop functional design, manualsand proceduresDevelop technology design andarchitecture

Procure Application SoftwareParameterize/Customize S/WTest Application S/W for functionality


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Act ivit ies and tasks - cont inued

Implement system at Pilot sites

Procure and Install hardware at pilot sitesInstitute change managementprocedures

Train end user and technical staffImplement systems

Replicate systems across all sites

I di ti I l t ti S h d l


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Legal and Institutional Framework

Functional Design, Budget Classification, CoA, Procedures and Manuals

Technical Design

Systems Procurement

Gap Analysis, S/W Parameterization

/Customization/, Testing

Pilot Systems Implementation

Systems Replication

Change Management & End User Training

12-18 months 12-18 months 24-36 months

Indicative Implementation Schedule


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Part II: Implementation Experience


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Some Treasury Systems Proj ect s-

Financed by t he Wor ld Bank

Kazakhstan Treasury Modernization Project

Ukraine Treasury Systems ProjectRussia Treasury Development Project

Hungary Public Finance Management Project

Turkey Public Finance Management Project

Pakistan Improvement in Financial Reportingand Accounting-PIFRA-project

Indonesia- GFMRAP


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Institution Building / TechnicalAssistance Projects with Treasury

Components

Azerbaijan- IBTA II

Turkmenistan

AlbaniaArmenia

Uzbekistan-under preparationSlovakia

Moldova under preparation


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Kazakhstan Treasury Modernization Project

Project approved: July 1966

Loan amount: $15.8 millionGovernment Financing: $5-10 million

Project Status: Treasury Organization / Legal Framework in

place Treasury Offices in Oblasts and Rayons Payments and Receipts Centralized

through Treasury Interim Computer System was first Installed ORACLE- FINANCIALS based full function

system installed and working

Ukraine Treasury Systems Project


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Ukraine Treasury Systems Project

Approved: March 1988

World Bank Loan: US $16.4 millionGovernment financing: $10-15 million

Status:

Treasury organization / Legal frameworkin place; business processes re- engineered

Payments and receipts centralized throughTreasury for both central and local

governmentAutomated Treasury system installed and

working at HQ, 27 oblasts, and about 650rayons

Russia Treasury Development Project


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Russia Treasury Development Project

Project approved: June 2002

World Bank Loan: $231 million ( Ist tranche)Estimated Cost: $400 millionStatus:

Treasury Organization, Legal framework in place,

business processes re-engineeredPayments and receipts processed through TreasuryTreasury Single Account established at CentralBank of Russia

Assorted Interim systems in useNew systems to be implemented under this project

Hungary PFMP Treasury Component


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Hungary PFMP Treasury Component

Project Approved: 1998

Loan Amount: $7.5 millionGovernment Financing: $5-10 millionStatus:

Treasury Organization, Legal framework

in place, business processes re-engineeredPayments and receipts processed through

TreasuryTreasury Single Account established at

Central Bank of HungaryCustom developed treasury system installed

and in useCovers Central Government transactions


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Critical success factors

Government commitment andmanagement support

Good project management Interagency cooperation Orientation and training Technical skills Management of change


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Commitment and Support of the MOF -1

A Government wide payment andaccounting system, has implications formultiple agencies and possibly for multiple

levels of government. Implementation ofsuch systems therefore requires the fulland active support of the MOF.


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I t is difficult to get senior policy makers in theMOF actively involved if reform measures areframed in terms of resolution of an accounting

problem, e.g. non-conformity w ithinternational accounting standards, use of anarchaic chart of accounts, lack of timelyreporting etc.

Such a strategy w il l focus primarily on the

reform of the organization and processesrelated to the accounting function.

Commitment and Support of the MOF 3


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Such projects should be framed as initiatives designedfor reform of the expenditure management systemsrather than merely accounting systems reform.

This raises the importance of the problem to a levelwhere senior level policy makers in the country and

their counterparts in donor organizations can relate toit.

Linkages can then be established between the

Treasury development program and requirementsunder policy based lending from both the Bank andIMF. The MOF then starts taking an active interest inensuring that project milestones are met.

Project Management and Interagency


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Project Management and InteragencyCoordination

The project needs to be headed by acompetent public sector manager from the

functional side who enjoys the respect of his

colleagues and superiors in the Governmentservice system and should have adequatefinancial and administrative authority.


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Core group of professionals need to be set up from

the core functions, who are trained and can act as

change agents as the system is rolled out.

Representatives of participating agencies need to be

represented on the team to manage the interface withtheir agencies.

Project secretariat should have specialist staff with

experience in the installation of large scale ITsystems and IT procurement

Orientation and Training 1


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Orientation and Training -1

A large number of stake holders in various

agencies need to become familiar with projectscope, advantages (what it will do for them)and timeline.

A very large number of staff need to be trainedin the actual use of the system.

This number and the training task couldappear overwhelming if a training plan is notprepared in a structured manner.



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Training effort needs to be coordinated closely

with implementation plans and focused to specificrequirements of a given site implementation

Training should be imparted just before

implementation

Most staff need to know only specific features of the

system

Help Desk; Hand holding clinics.

Technical Skills and Capacity:


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Technical Skills and Capacity:

Lack of career prospects for technical IT staff

within Government has been a major area ofconcern for sustainability of such projects

This could be remedied within the context ofan overall civil service reform effort - this ishowever, a long term measureOther solutions:

Hire specialist IT staff on contract atprivate sector salariesOutsource the technical operations and

maintenance of the system

Management of Change


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Management of Change

Need to overcome opposition from vested

interests who perceive the new systemsas a threat

advantages of new system need to be recognizedby MOF management and opposition resisted

perception of the system being a threat has to beremoved

Lack of incentives for change in a civil service

Setting

Bureaucracies are normally risk averseGive examples where this has been done

successfully

Show case results internationally

Extending the central system to sub-national


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Extending the central system to sub-nationallevels

This has posed problems in many countries. Sub-national levels of Government normally like to be ableto control payments without reference to afunctionary of the center.

The solution to this problem has to be found in thecontext of the local political economy and therelationships between the central and sub-nationalgovernments.

If the central government is the sponsor of the


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If the central government is the sponsor of theproject then the scope should be restricted to centralgovernment payments and receipts.

If the central government wants to extend its controlto provincial level payments then it should have somefinancial leverage and control over provincial

finances; e.g. it should be funding a major portion ofthe LG budget.

Two types of solutions

Use of same system across multiple levelsof governmentUse of common standards, CoA anddata exchange protocols

Russia: The Provincial treasuries are


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Russia: The Provincial treasuries arerequired to use the central system if it is adeficit province. Surplus provinces can

develop their own treasury systems basedon agreed standards and provide data atspecified time periods to the Federal

Government.

Ukraine and Kazakhstan: Central and Local

Governments use the central treasury system.Moneys are banked in the Central Bank.


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Pakistan: Central and Provincial governments

are required to use the same system. Moneys

banked at the Central bank/ National bank inSeparate accounts.


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Use of the Central System and CentralGovernment Treasury offices for payment

processing can alleviate capacity constraintsat local Government level.

However, care should be taken to ensurethat this system use is provided as a servicerather than an attempt to control localgovernment budget execution by the center.

Local government moneys should not be co-mingledwith central government.

Realistic time frames for reform program


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Realistic time frames for reform program

The functional reforms have taken several years to

be implemented. Sustaining management supportover long periods has been a problem. Linkage toIMF program and/ or SAL operations has often beenused to reinforce commitment

Some times interim technical solutions have beenimplemented to support these reforms followed byfull function systems. This has proved useful.

The whole process has can easily take 8-10 years

Procurement delays using Bank procedures

ECA- Technical Infrastructure and Capacity


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ECA Technical Infrastructure and Capacity

Technical capacity has not been a major constraint

in ECA

Relatively good quality telecommunications

Expertise in the technical areas is relatively easilyavailable from the local private sector.

However, there is a dearth of expertise in the

functional areas.

Pay and remuneration in Government is a key

constraint.


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Some closing words

Institutional and political economy issuesare more difficult to resolve and take moretime for resolution than technical issues

Reform of underlying fiscal management

processes should be the basis for systemsdesign

MOF/ Loads Budget

Treasury SystemModules


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Treasury makes apportionments

for line ministries and lineministries make allotments for

subordinate spending units

MOF/ Loads BudgetAppropriations

( Initial, revised andsuppplementary)

LineMinistries

MOF/Treasury

Budgetappropriations

Treasury makes Warrantallocations to ministries and

ministries make sub warrantallocations for subordinate units

Warrant allocations

Spending Units registercommitments/ enter purchase

order and contracts data after

checking for budget availability

System passes commitments datato Accounts payable module and

Treasury authorizes paymentsfrom TSA after checking funds

availability/ prior commitment

CentralBank

TSA

Paymentorders

Vendors/Govt.

CreditorsBanks

TaxPayers

Bank

Payments

Receipts

System records receipts

information provided by the Banks

Apportionments

SpendingUnits

Line Ministries enter consolidatedcash requirements for year for all

subordinate spending units.

Debt Management Department

enters debt commitments, debtservicing expenditure and loan/ aid

receipt transactions

Debt

ManagementDepartment

Develop revenue and expenditureforecasts/ monitor cash balances/

determine warrant amounts/

borrowing requirements

FiscalReports

to MOF

Fiscalreports

Management of

Budget Authority

Commitment

Management

Payments

Management

Receipts

Management

Cash

Management

Debt

Management

Cashforecasts

RevenueCollection

Agencies

Revenue forecasts

Borrowing requirements

Donors/

Aid

Givingagencies

Loan/ AidReceipts to

TSA