what is pfm df ppt aim v4 final
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What is Public Financial Management?Reforms in Accounting, Auditing and Expenditure Management in the Philippine Government
12 September 2014Asian Institute of Management
What will we talk about?
What is PFM?
Why are we doing it? (PEFA
assessment)
What is the PFM Reform
Roadmap?
PFM Reforms in Philippine
Government
UACS, GIFMIS, PIB, TSA
PFM and Internal Controls
Budget Law
Moving forward: where we need
to go
Photo Source: http://us.fotolia.com/Content/Comp/50523276
Simple Definition of PFMPublic Financial Management (PFM) is
the system by which financial resources
are planned, directed and controlled to
enable and influence the efficient and
effective delivery of public service
goals.
Photo Sources: http://commons.wikimedia.org/wiki/File:Philippine-stock-market-board.jpghttp://www.123rf.com/photo_11074205_3d-progress-bar-and-pie-chart-on-financial-analysis-report.html?term=financial%20planning
• PFM deals with all aspects of resource mobilization and expenditure management in government.
• It is about the way government raises its income (in the form of taxes, customs duties and other revenues), and
• Manages its expenditures to deliver essential services (like education, health care and other social programs, roads and infrastructure, rule of law and security, and those areas which generally make our lives better).
PFM – The Basics Image © philstar.com
PFM Core ElementsPFM refers to how government addresses the performance of its systems for:
budget preparation budget execution and financial controls
(including procurement) accounting and treasury management financial and fiscal reporting internal and external audit debt management, and other aspects related to the budgetary process
The PFM Cycle
Benchmarks of a good PFM
• Credibility of the budget
• Comprehensiveness and
transparency
• Policy-based budgeting
• Predictability and control in
budget execution
• Accounting, recording and
reporting
• External scrutiny and audit
Why are we doing it? (PEFA assessment)• Difficulty in fully assessing the
government’s ability to implement the budget given continuing appropriations
• General weakness in reporting on budget execution
• Delayed approval of GAA• Lack of an information system capable
of capturing resource flows to service delivery units on a timely basis
Why are we doing it? (PEFA assessment)• Limited role of Congress in
budget oversight and in reviewing/authorizing in-year budget amendments
• Weak revenue administration, weak monitoring and management of arrears and weak oversight of contingent liabilities and associated fiscal risks
• Weak financial accountability shown in COA audit reports
Public Financial Management Report Card
Indonesia Thailand Lao DPR Cambodia Vietnam2010 full 2014 rapid 2012 full 2009 full 2010 full 2011 full 2013 full
PI 4 - Stock and Monitoring of Expenditure Payment Arrears*
D+ D+ B+ A C+ C+ -
PI 5 - Classification of the Budget* D D A B C C D
PI 10 - Public Access to Key Fiscal Information
C B A B C C B
PI 12 - Multi-Year Perspective in Fiscal Planning, Expenditure Policy and Budgeting*
D+ D+ C+ C D+ B C
PI 16 - Predictability in the Availability of Funds for Commitment of Expenditure
D+ B C+ A B+ C+ B+
PI 22 - Timeliness and Regularity of Accounts Reconciliation
D D B C+ C C B+
PI 24 - Quality and Timeliness of In-Year Budget Reports
D D C+ B+ C+ C+ D+
Average Mark D D+ B B C C C
PhilippinesSelected PEFA Performance Indicators
* Not included in the 2014 rapid assessment
Why do we need a sound PFM?A working PFM system has three main objectives:
1. To ensure that our public spending is in line with available resources;
2. Our allocation of resources to priority needs is effective, and we can shift resources from poor to better performers; and
3. Our limited resources are used efficiently so that we can achieve maximum value for money.
Why do we bother? Poorer people need public services more than anyone.
Sound PFM systems are crucial to delivering these public services, and improving the lives of everyone in the
Philippines.
PFM is therefore an essential part of every government, the governance process, and the development of a vibrant,
inclusive economy with opportunities for all.
Image © Inquirer.com
Where is the pressure coming from?
Greater expectations and rising aspirations of the people are placing more demands on limited public
resources. People are also putting greater emphasis on
transparency and accountability, and greater value for money, thus making effective, efficient and
economic use of public resources increasingly vital.
What are the direct results?1. Sound PFM systems help reduce the opportunity
for misuse of funds and help government decision-makers do their jobs better.
2. It helps them to channel funds to where they are intended and will do the greatest good.
3. More importantly, it helps to inform citizens where public funds are actually being spent.
Image © globalbalita.com
Who is responsible?• Everyone in government has a role to play in improving PFM in the Philippines.
Photo Source: Philippine Public Financial Management Facebook Page
Who is responsible?• PFM is the responsibility of
all public bodies and public employees at all levels of government, whether it is your department, or an elected senator or congressman, or the smallest of barangays.
• The leading actors in PFM reform in the Philippines are the central government agencies with responsibility for the economy and its financial aspects – DBM, DoF & its bureaus, and COA, with NEDA and OP as keen observers.
Are ordinary people involved?Civil society plays a role in holding government to
account. The 1987 Constitution explicitly recognizes the right
of people and their organizations to reasonably participate at all levels of social, political and
economic decision-making. President Aquino calls for citizen participation in
setting the budget.
Image © [email protected]
PFM Reform Roadmap Master plan for modernizing the
financial management system of the government
Executive Order 55 (s. 2011) directs the integration and automation of PFM systems
Improve efficiency, accountability and transparency of public fund use
Contribute to good governance and fiscal discipline as a strategy for inclusive growth and poverty reduction
Jointly formulated and approved by fiscal oversight agencies (COA, DBM, DOF-BTr) from 2009 to 2011
For 2014 to 2016, updated roadmap design is moving its focus from policy to implementation
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Good Governance
PFM Goal
Societal Goal
5 Priority Areas
Sector Goal Fiscal Discipline
Inclusive Growth and Poverty Reduction
“Kung walang corrupt, walang mahirap”
Anti-corruption/ Transparent, Accountable & Participatory Governance
Poverty Reduction & Empowerment of the Poor
Rapid, Equitable& Sustained Economic Growth
Just, Inclusive & Lasting Peace & the Rule of Law
Integrity of the Environment/ Climate Change Mitigation & Adaptation
Improve efficiency, accountability and transparency of public fund use to ensure direct, immediate and substantial delivery of public services specially to
the poor.
PFM reforms support Aquino Administration
priorities
Creation of PFM Committee & Governance Structure
Under EO 55, the Committee is tasked to:
Devise a 5-year plan for the development and installation of the GIFMIS
Oversee the implementation of the PFM Reform Roadmap
Shepherd and champion the passage of supporting legislation needed in Congress
Coordinate budgetary and donor funding
Creation of PFM Committee & Governance Structure
Reforms to PFM System• UACS – Unified Accounts Code Structure• GIFMIS – Government Integrated Financial Management
Information System• TSA – Treasury Single Account• Budgeting – Outcomes vs. Outputs, Performance Informed
Budgeting, Program Budgeting• Improvements to Internal Controls (of which Internal Audit is a
component)• Legal – improvements to the PFM legal and regulatory framework
Key PFM Initiatives in Philippine Government
The Unified Accounts Code Structure (UACS) is a government-wide harmonized budgetary, treasury and accounting code classification structure to enable timely and accurate financial and performance reporting.
As a coding framework for financial transactions, the UACS ensures:
that all government process from budgeting and cash management, to accounting and audit—will follow a single classification system or common language.
The new codes will make it easier to collect, aggregate, consolidate and report financial transactions across government.
The implementation of the UACS started in 2013 with the preparation of the FY2014 Budget using the Online Submission of Budget Preparation (OSBP).
To date, other PFM business processes and systems are being reviewed to make these UACS compliant.
Let’s watch a short clip about UACS
Is an IT-based system for budget preparation, management,
execution, accounting and reporting.
It is designed to make use of modern information and communication technologies to help the government to plan and use its financial resources more efficiently and effectively.
Will make for easier data capture and organization of financial and performance information that is accessible at one source, anytime and anywhere. The information can then be used for analysis that will support policy decision-making.
Because it is considered the centerpiece of the PFM reforms, the GIFMIS provides a strong foundation where other PFM initiatives can be anchored. It contributes to the irreversibility of the PFM reform program because it will harmonize financial procedures and processes across all government agencies, and institutionalize financial management transparency.
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GIFMIS Scope
Budget Preparation
Budget Management
Accounting & Fiscal Reporting
Debt Management(ROSS, ADAPS & DMFAS)
HR Management(GMIS/GHRIS)
Payroll Management
(NPS)
Payments Management
Receipts Management
TSA Operations at Central Bank
(IT systems at Central Bank)
Government Servicing
Banks
(IT Systems for recording tax/revenue collections)
Audit Mgmt(IRRBAS)
Fiscal Simulation (Macroeconomic
Forecasting)
Revenue Collections (IT Systems at
BIR/BOC/NGAs)
Budget Execution
GIFMIS
Commitment Management
Asset Management
Public Procurement(PhilGEPS)
Cash Management
Commercial Banks
(IT Systems for recording tax/revenue collections)
Government Executive Information Management
(GEIS)
Changes with GIFMIS
• No more check or cash payments
• Reduction of the forms, documents, signatures, stamps, etc.
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XX
XXX
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Economic Benefits• Large interest savings due to the centralization of
government cash balances (such savings/costs can range from 0.1% to 0.7% of the public expenditures);
• More timely payments (total duration for the payment of invoices and other expenses was reduced from 3 - 4 weeks,
to 1 - 3 days in most cases); • Improved transparency, accountability and participation
(broader public access to budget and performance information published from GIFMIS databases);
• Minimization of net borrowing costs, by both ensuring the availability of cash and avoiding unnecessary idle cash balances;
• Facilitates the central bank’s monetary policy task due to lower volatility of the government’s cash balance;
• Possibility to target a low and stable TSA balance, which should be remunerated; and
• To borrow only when needed.
The PIB is a budgeting approach that uses performance
information to assist in deciding where the Government’s funds will go.
Performance information—both financial and non-financial—are presented in the appropriations document which provides the context for the program, activities and projects pursued by the different agencies of the government.
For budget preparations for FY 2015, the current PIB is further enhanced with the shift to an outcome-based PIB.
The PIB differs from the traditional line item-based budgeting in that it focuses more on outputs and outcomes and places less emphasis on the inputs. It links funding to results, thus providing the framework for more informed resource allocation and management.
PIB in FY2014The introduction of
Performance Informed Budgeting (PIB) in the FY2014 budget cycle gave the National Expenditure Program and General Appropriation Act (GAA) a new face and stronger focus – delivering results through outputs and outcomes towards improved public service delivery
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Let’s watch a short clip about PIB
The TSA is a unified structure of government bank accounts that will consolidate and optimize the use of Government cash resources.
An account maintained by the Bureau of the Treasury (BTr) and the Central Bank of the Philippines, the TSA is an important initiative of the reform program that enables the Government to consolidate cash resources on a daily basis and reduce borrowings that are necessitated by perceived cash shortage arising from holding several bank accounts and a fragmented system for handling receipts and payments.
To support the implementation of the TSA, a TSA Reporting and Monitoring System (TRAMS) managed by the Land Bank of the Philippines was installed in January 2014. The system provides the BTr up-to-date information on collections as well as reports from the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC), and other NGAs; tracks aggregate balances of the TSA on a daily basis; and supports Treasury cash management activities.
Future Initiatives
• Future Enhancement of TSA (2015)– Possibility of including
LGU accounts, subject to discussion with different authorities
– Comprehensive study of GOCC’s for inclusion
– BTr capacity building will aid in improving the TSA
Let’s watch a short clip about TSA
Rolling-Out Key PFM Reforms
PerformanceInformedBudgeting
Checkless Payments Expanded
MDPS
Treasury Single Account
Government Integrated Financial
Management System
GAA as Release
Document
In 2014:
Unified Account Code Structure
Towards:
Broader & Deeper Citizen’s Engagement
(e.g. BPAs & Grassroots Budgeting)
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Good Progress AchievedGood progress achieved to date. Highlights include:
UACS and revised Chart of Accounts adopted
GIFMIS design
completed; procureme
nt in process
TSA designed
and operation
al for revenue
Accounting and audit standards
harmonised to
international standards
Substantial awareness-raising and training across all initiatives
Competency Framework designed
Financial reports being
harmonised
PFM & Internal Controls Can also be called Financial
Management & Internal Control (FM&IC)
The system of FM&IC is the responsibility of the head of the Agency (PD 1445, AO 119-1989)
National Guidelines on Internal Control Systems in place since 2008; Phil. Govt. Internal Audit Manual 2011
COA invariably cites the lack, or failure, of internal controls as a reason for qualifying agency accounts
FM&IC not only refer to financial transactions, but to all aspects of the organization’s operations.
Photo Source: http://www.123rf.com/photo_10832355_calculator-computer-and-report.html, http://www.123rf.com/photo_5680174_magnifying-glass-over-financial-figures--shallow-dof-cyan-tone.html?term=audit
The responsibility to take care that such policy is faithfully adhered to rests
directly with the Chief or Head of the Government Agency involved.
Administrative CodeBook V, Subtitle B, Chapter 1, Sections 1&2
“All resources of the Government shall be managed, expended or utilized in
accordance with law and regulations and safeguarded against loss or wastage through
illegal or improper disposition to ensure efficiency, economy and effectiveness in the
operations of Government.”
“Tone at the Top”• Managerial Accountability is the
foundation for implementing a robust financial management and internal control system.• This is the expectation that senior managers across
government are responsible and accountable for: Setting and meeting performance targets for their
programmes Controlling their costs Mitigating adverse risks to their operations, and Ensuring that programs are managed with integrity and
in compliance with applicable laws
Photo Source: http://www.shutterstock.com/pic-157130114/stock-photo-conceptual-image-of-businessteam-working-cohesively-interaction-and-unity.html?src=Z5hsUnlbsp5IoEmHaZlucA-3-39
It allows us to….• Stay focused on the department’s pursuit of its operations
and performance goals • Operate within the confines of relevant laws (compliance),
and minimizing surprises (risk management) along the way.• Enables the department to deal more effectively with • changing economic and service environments, • shifting priorities, • leadership changes, and • evolving practices.
Photo Source: http://www.shutterstock.com/pic-149841719/stock-photo-compliance.html?src=91R1W2/aN7zQnPiPeXBaiw-1-0
What does it mean in PRACTICE? All managers in all government
agencies should be aware of their operational objectives and should report on (a) their achievement of these goals, and (b) on their use of resources in achieving their goals.
FM&IC is not limited to specialized accounting or finance functions. It is a comprehensive process that should be integrated in the activities of each government agency, and performed by all management and staff of that agency.
Components of FM&IC
There are 5 integrated components working together:
Risk Assessment – process for identifying and assessing risks to achieving objectives
Control Environment – set of standards, processes & structures
Control Activities – the actions established to mitigate risks and achieve objectives
Information & Communication – to deliver a clear message about internal control activities
Monitoring Activities - e.g. Internal Audit, and other evaluation processes to provide timely information Photo Source: http://www.shutterstock.com/pic-189811220/stock-photo-group-of-business-people-working-on-an-office-desk.html?src=FB29AfQpyGnpND8D9Ws5YA-1-0
A Continuous Process
What is Effective FM&IC?• An effective system reduces - not
eliminates - the risk of not achieving the agency’s objectives
• It provides reasonable assurance only - do not look for perfect outcomes!!
• Each of the five components is present, functioning and operating together
• For the design and implementation of the IC system, judgment of its effectiveness must be used within the boundaries of regulations and standards.
Limitations of Internal Controls• The system cannot prevent
poor decision making, bias or bad judgment
• External events outside the organization’s control can put a policy off track
• Errors will occur – it’s called human nature!
• Management can sometimes override controls
• Even the best systems may not detect collusion
The need for a Budget Framework Law- There is a need to draft a framework or
primary legislation to provide the government with a legal basis for introducing or reinforcing the various elements of FM&IC.
- Preparation of the primary and secondary legislation should take place in Year 1. It is understood that it will take some time to pass any laws through Congress, particularly as we approach a presidential election year in 2016.
- However, a technical working group (TWG) can already be identified and preparation of a draft PFM Law for discussion can be completed by 2015.
What can the Budget Framework Law do?
• Support a well functioning integrated management cycle for public finances by:
- Establishing the fundamental requirements for the integrated management cycle in the law
- Addressing issues in current laws- Supporting the development of good PFM
practices the Philippines is developing or planning, in line with capacity to implement changes
PROCESS OUTLINE
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2
3
4
5
P la n n in g , b u d g e tin g , m a n a g e m e n t, re p o rtin g a n d re v ie w
Cabinet sets fiscal framework & policies by approving Fiscal Strategy
Departments & agencies propose realistic budgets within spending limits, provide annual plan for delivering required services, annual budget prepared and adopted
Country leadership sets overall priorities for government- development plans
Departments, agencies deliver services, perform functions
Reporting, monitoring, audit review , sanctions
Outline of Public Finance Framework Law
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a. Fiscal principles/rulesb. Content and presentation of fiscal strategyc. Deviationsd. Reporting
a. Unit of appropriation, reallocation, & carryover rulesb. Budget documentationc. Procedures for budget preparation & approvald. In year reporting, contingency reserve, supplementary & excess vote
a. Banking & cash management arrangements, collection, deposit of revenuesb. Issuance of loans, guarantees & sale of assetsc. Asset managementd. Internal audit
a. Coverage & standards for accountingb. Timetable for preparation and submission of accountsc. External audit of reports, performance audit, follow-up
Main parts Example Key Provisionsa. Congress including committeesb. President, Cabinet, Minister of Finance, Line Ministersc. Permanent Secretaries, Boards, Councils, CEOs, CFO,
Financial officersd. Special bodies e.g., planning bodiese. Fiscal Councils or budget office
II. Macro-Fiscal Policy
III. Planning & Budgeting
IV. Financial Management
V. Accounting & Audit
I. Roles & Responsibilities
VI. Oversight/entity accountability
a. Local governmentsb. State-owned enterprisesc. Extra-budgetary fundsd. Other bodies
Other parts preliminary, sanctions, transitional provisions, consequential amendments
Suggested draft contents for PF Framework Law• Preliminary• Roles and responsibilities• Fiscal policy and responsibility,• Planning and budgeting• Financial management• Entity accountability• Reporting, auditing, review• Sanctions• Final provisions: subsidiary legislation, transitional
arrangements, consequential amendments
What do the reforms mean for the PFM workforce?• Government changing = People
changing• People changing = Acquiring new
competencies• Competencies more than task
specific skills• Learning to learn
PFM Capacity Building
PFM Competency Framework
Awareness Briefings and Consultations and Business Process Reviews with Stakeholders
INPUT
LEARNING AND DEVELOPMENT PROCESSES
Global Better
Practices
Reengineered Business Processes
GIFMIS Systems
Functional Users Training• Reengineered Business
Processes • GIFMIS Systems
IT Technical Users Training • Reengineered Business
Processes • GIFMIS System
Professional Development Courses• Productivity Tools, Financial Analysis,
Ethics and Accountability,
PFM Competency Based Education & Training leading to certification, diploma or master’s degree in PFM
Informed and educated PFM executives, managers, employees, public, CSO stakeholders, etc.
Professional, competent PFM workforce in budgeting accounting, internal audit, treasury management, revenue management, govt IT audit, etc.
Transparent and accountable PFM systems, etc.
DESIRED OUTPUT/OUTCOM
E
Monitoring and Evaluation
Moving forward: where we need to go
- There is a need to institutionalize the reforms and ensure its sustainability and irreversibility. It is important to ensure a smooth transition process and get government support to move to this arrangement.
- While progress in embracing several of the reform initiatives may be modestly incremental, nonetheless, they are anticipatory in nature. The full transformative impact of the PFM program is expected to be felt, recognized, and appreciated beyond 2016.
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