Establishment and Development of Treasury System in Ukraine

1. Establishment and Development of Treasury System in Ukraine Experience with the World Bank Project Implementation Olexandr SHLAPAK Head of the State Treasury of Ukraine PEM-PAL Workshop Treasurers Community of Practice Slovenia, Ljubljana, June 26-27, 2006

2. The State Treasury of Ukraine The State Treasury of Ukraine in Brief • April 27, 1995 – establishment of the State Treasury of Ukraine • 3-tier structure • Head Office – 404employees • 27 Territorial (Oblast) Departments – 4 049 employees • 635 Rayon and Municipal Offices – 12 436 employees • Total – 16 889 employees • Workload • 80ths spending units • 12thslocal budgets • 600thsaccounts for budgets’ expenditure side • 5 000thsaccounts for budgets’ revenue side • 15.4thsPCs • 40%of electronic payment orders in EPS NBU • 2004 – 136.8mln settlement and payment documents (24.1mln – revenue docs , 70.5mln –expenditure docs, 42.2 – IPS) • 2005 – 161.5mln settlement and payment documents (25.2mln– revenue docs , 87.9mln. –expenditure docs, 48.4 – IPS) • 1997 – 1998 – implementation of Treasury services for the expenditure side of the State Budget • 1999 – 2003 – implementation of Treasury services for the expenditure side of local budgets • 2002 – joining EPS NBU, setting up Treasury Single Account

3. The State Treasury of Ukraine • 8 years of WB Projects’ implementation history • Bringing together efforts by the Government of Ukraine, IMF and the World Bank. Sample investments into Information system (1996 – 2005): • Total – 158.4mln UAH • WB loan – 84.5mln UAH (53.3%) • the State Budget of Ukraine – 73.9 mln UAH (46.7%) • 1. Capacity building loan (3614UAH, 1996 – 1998) • Treasury subcomponent – 2 101.9ths US dollars • Information technologies – 1 687.7ths US dollars • Consultancy services – 388.3ths US dollars • Training – 25.9ths US dollars • Co-financing of Ukraine – none • 2. «Treasury System Project» (4285UAH, 1998 – 2004) • Total – 16 400.0 ths US dollars • Information technologies – 14 877.0 ths US dollars • Consultancy services – 1 253.0ths US dollars • Training – 270.0ths US dollars • Co-financing of Ukraine – 23.0mln UAH (4.5mln US dollars)

4. Prior to the Project Lack of regulation in the legal grounds of the budget process No methodology for Treasury services, including Chart of Accounts for budgets’ execution Cash based budgets’ execution through banking system “Manual mode”in managing public finances Limited Treasury capacity Lack of technical treasury infrastructure No trained Treasury personnel While Implementing the Project Adoption of the Fiscal Code of Ukraine Legally fixed powers and responsibilities for the State Treasury bodies Establishment of the State Treasury institutional structure Formulation of the methodology grounds for Treasury based budget execution, including the accounting system Designing the application software for treasury services AS “КАZNА” Designingand upgrading the interim Treasury information system Implementation of Treasury services for budgets’ expenditure side Implementation of Treasury services for budgets’ revenue side Implementation of Treasury services for local budgets The State Treasury joins EPS NBU Establishment of Treasury Single Account (TSA) and consolidation of budget finds at TSA Enhancing accountability for public finds uses The State Treasury of Ukraine Goal of Treasury System Project – establishment and implementation of the fully functional automated treasury system as an efficient instrument for budget execution and cash management

5. The State Treasury of Ukraine • The Ukrainian Model for Treasury System • Key provisions • The State Treasury of Ukraine is a direct member of the Electronic Payment System of the National Bank of Ukraine (EPS NBU) • The accounting model for budget execution makes the foundation for treasury services • A spending unit is a holder of an expenditure account • The General Ledger is formed at the moment of making an operation • Concept for application software АS“КАZNА” • One “treasury function bank” per oblast as a TSA “element” • Maximum information in bank accounts • Processing information in real time mode at oblast level • No client software – WEB-based technology • Low requirements to telecommunication channels • Development challenges • The necessity to change from the modified cash based budget execution mode to accrual based budget execution • Відокремленість програмних модулів казначейського обслуговування • There is no transaction data base for budgets’ execution, information exchange between tiers and financial reporting consolidation • There is no transparent interface with the major spending units • Instruments for managing financial resources are not developed

6. The State Treasury of Ukraine • Charts of Accounts in EPS NBU (1) • Charts of Accounts • The Chart of Accounts of the National Bank of Ukraine • The Chart of Accounts for commercial banks • The Chart of Accounts for the State and local budgets execution (the State Treasury of Ukraine) • The Charts of Accounts as the foundation for the accounting model of the State and local budgets execution • 1. Assets • 2. Commitments/Liabilities • 3. Funds of budgets and spending units • 4. Settlement • 5. Budget execution outcome • 6. Budget revenues • 7. Budget expenditures • 8. Managerial accounting • 9. Off-balance sheet accounting • Coding of analytical properties is regulated by the following: • The Uniform State Registry for Enterprises and Organizations in Ukraine • Budget Classification of Ukraine • The NBU Reference Books • The TSU Reference Books

7. The State Treasury of Ukraine • EPS NBUChart of Accounts (2) • Sample coding for revenue accounts BBBB K SSS H RR TTT– account number coding (14 digits) XXXX..................................– balance sheet account (4 digits) .......... X ............................. – control figures set EPS NBU (1 digit) .............. XXX ..................... – symbol for revenues reporting (3 digits) ...................... X .................. – property for consolidated account (1 digit) .......................... XX ........... – property for agency (ACC) (2 digits) ................................. XXX .. – number for analytical properties’ set (3 digits) ВВВВ = 3111 – Accounts for revenues to the General Fund of the State Budget SSS–reporting symbol matching budget classification by revenues (8 digits) Н – property for consolidated account for entering taxes of the given territory (matchingthe last year figure) RR– property matching agency classification code for budget expenditures,or other property TTT–порядковий номер, matchinganalytical properties’ set : - codes and names of budget territory in Ukrainian and Russian according to State Classificatory - budget code according to the MoF Budgets Reference - codes of oblast, city, rayon, settlement, village - code and title of an STU body - code and title of an STA body • Sample coding for expenditures accounts BBBB K GGG NNNNNN– account number coding (14 digits) XXXX..................................– balance sheet account (4 digits) .......... X ............................. – control figures set EPS NBU (1 digit) .............. XXX ..................... – code for account type (3 digits) ...................... .. XXXXXX ... – # of account holder (6 digits) ВВВВ = 3521 – Spending units’ registration accounts with respect to funds of the General Fund of the State Budget GGG– code for account type given to the analytical properties’ set: - agency classification code - code by the program classification for expenditures or by functional expenditures’ classification - code by the spending unit network - spending unit’s subordination level - funds’ property - code of the STU body - code of the STA body NNNNNN – the number ensuring account uniqueness with the respective analytical parameters’ set (given to account holder by software means when an analytical account is being opened)

8. The State Treasury of Ukraine Management: limits, support Cash flows HO STU Banking part - ABS Electronic payment orders • Treasury Single Account within Budget Process (1) Commitments AS Kazna-Center Allocations, planned indicators MSU Information TSA management system RFTS NBU Preliminary Treasury control HO STU, STUD 1…27 Banking part– ABS Assigning allocations against registered commitments Client-Bank STA,SCSSPF AS Kazna-Revenues TCA (1…27) SU 2 Treasury part AS Kazna-Expenditures SU 3 EPS NBU Commercial bank WEB Tax payer Commercial bank Supplier of goods, works and services SU 3 STUO Hard copy documents

9. The State Treasury of Ukraine • Treasury Single Account in the budget process (2) List of Abbreviations TSA - Treasury Single Account ABS - Automated Banking System AS - Automated system NBU - National Bank of Ukraine EPS - Electronic payment system RFTS - Rapid funds transfer system TCA - Technical correspondent account MSU - Major spending unit SU2 - 2d level spending unit SU3 - 3d level spending unit HO STU - Head Office of the State Treasury of Ukraine STUD - STU Department (Oblast) STUO - STU Office (Rayon) STA - State Tax Administration SCS - State Customs Service SPF - State Property Fund

10. Sommaire The State Treasury of Ukraine • Information System (IS) Fire Wall Central level (SAN) HP Virtual Array (MS SQL) AS Kazna-Center (VPN) FrameRelay 64 KBit/sec StandBy Primary SQL А – Basic Users (60 PC’s/IE) ”UKRTELECOM” SQL В – Аrchive WEB (ORACLE) AS Kazna-Revenues (MS SQL) AS Kazna-Expenditures (ORACLE) AS Kazna-R (MS SQL) AS Kazna-E Oblast level - 27 Fire Wall SQLB SQL А Users(45- 120 PC’s/IE) StandBy Primary WEB’s (SAN) HP Virtual Array Fire Wall LAN (Ethernet) FrameRelay – 210 Anolog Leased Line – 146 RadioEthernet – 118 xDSL – 49 TCP/IP - 31 Dial-Up – 27 X.25 - 25 Direct Connection –15 ISDN – 11 LAN - 4 MF Server SAN Users (5 - 60 PC’s/IE) WAN Rayon level -635