IFMIS assessment for investment lending projects

1. IFMIS assessment for investment lending projects Gert van der Linde AFTFM Fiduciary Forum 2008

2. Transfer the risk… Accept the risk The business of risk….

3. Reduce the risk… Avoid the risk Mitigate the impact The business of risk….

4. Discussion outline • Critical PFM dimensions • PFM architecture and context • Potential areas of difference • Typical IFMIS configuration • Key decisions to channel investment lending projects through country PFM systems • IFMIS assessment issues • Conclusion and discussion

5. Critical PFM dimensions (PEFA) • Credibility of the budget - The budget is realistic and is implemented as intended • Comprehensiveness and transparency - The budget and the fiscal risk oversight are comprehensive, and fiscal and budget information is accessible to the public. • Policy-based budgeting - The budget is prepared with due regard to government policy. • Predictability and control in budget execution - The budget is implemented in an orderly and predictable manner and there are arrangements for the exercise of control and stewardship in the use of public funds. • Accounting, recording and reporting – Adequate records and information are produced, maintained and disseminated to meet decision-making control, management and reporting purposes. • External scrutiny and audit - Arrangements for scrutiny of public finances and follow up by executive are operating.

6. Policy Development and Review Budget Preparation Audit and Evaluation Budget Authorizations Consolidated Fund Financial reporting Commitment Management Integrated FMS Procurement/ Purchasing Debt and Aid Management Payments and Receipts Asset Management Payroll / HR Management Cash Management PFM Architecture

7. PFM context • Constitution normally requires all sources of revenue to be deposited into the Consolidated Fund • The use of all funds in the Consolidated Fund is subject to the appropriation authority of Parliament, unless specifically excluded by an Act of Parliament • The government accounting system accounts (on a cash basis) for the use of funds as appropriated, as well as the financial position of the Consolidated Fund and additional information on financial assets and borrowings (“Public Accounts”) • Government controls and procurement rules apply • The external audit system audits the ministerial “appropriation accounts” and the “Public Accounts”, but also extends to other public entities and sources of funding

8. Potential areas of difference • Budgeting • Projects (even though earmarked) to be included in annual budget for appropriation by Parliament • Accounting • Earmarked project funding to be accounted for in Government system • Internal Controls • Government rules to apply, also for procurement • Funds Flow • Projects subject to requirement to be channeled through the Consolidated Fund and government bank accounts • Financial Reporting • Project revenue and expenditure to be included in ministerial accounts and Public Accounts • External audit • SAI responsible

9. MDAs / Votes Treasury single account Central database Decentralized data input Central processing Government staff Government rules & procedures Government control systems Other configurations also possible Source: Treasury Reference Model

10. Key decisions to channel investmentlending projects through country PFM systems NO

11. Key decisions to channel investmentlending projects through country PFM systems 2 Yes Is co-mingling of project funds with Government funding acceptable to the Bank? Yes Is there a computerized (or manual) FM system that will effectively support the FM requirements of the project Yes Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk? B. Project on budget; integrated and complete use of the country IFMIS for funds flow, control systems, staffing, accounting and reporting arrangements; project reported in MDA financial statements No No No Ring-fence outside of PFM system

12. Key decisions to channel investmentlending projects through country PFM systems Yes 3 Co-mingling of funds not acceptable to the bank Yes Yes Possible to set up a separate bank account, general ledger, cash book, etc. in the IFMIS, reporting project trans-actions reliably and timely using the most relevant accounting basis for the project? Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk? C. Ensure legal authority to exclude project funding from the Consolidated Fund and budget, but use the Government’s IFMIS for ring-fenced funds flow, control systems, staffing, accounting and reporting arrangements No No Ring-fence outside of PFM system

13. IFMIS assessment issues • No ring-fencing (MDA implement; funds can be co-mingled) • Does IFMIS effectively support the FM requirements of the project? • Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk? • Ring-fenced in IFMIS (MDA implement, but no co-mingling of funds) • Is it possible to set-up a separate bank account, general ledger, cash book , sub-ledgers for the project in the IFMIS? • Will IFMIS support reporting of financial transactions of the project reliably and timely using the most relevant accounting basis for the project? • Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk?

14. No ring-fencing(MDA implement; funds can be co-mingled) • Does IFMIS effectively support the FM requirements of the project? • Project annual cash flow should be included in the appropriated budget – (i) Is this possible? (ii) Is the appropriated project funding safeguarded from virement procedures? • Is the project funding at risk of MoF not providing in-year authority to incur commitments or expenditure? • Is it possible to set-up a designated account for the project? • Can the project timely access cash in the government TSA or departmental bank account? • Accounting basis of MDA as supported by IFMIS acceptable for the project? • Timely and reliable in-year and annual MDA financial statements available? • Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk?

15. Ring-fenced in IFMIS(MDA implement; no co-mingling of funds) • Is it possible to set-up a separate bank account, general ledger, cash book , sub-ledgers for the project in the IFMIS? • Can the IFMIS actually support budgeting and budget execution procedures appropriate for the project? • Is it possible to set-up a designated account for the project, also accounted for in the IFMIS? • Can the project timely access cash in the designated account and local currency account? • Can the IFMIS Chart of Accounts accommodate the information requirements of the project? • Will IFMIS support reporting of financial transactions of the project reliably and timely using the most relevant accounting basis for the project? • Are the Government staff, rules, procedures, controls, documentation and audit trail acceptable to support project execution at a level of acceptable fiduciary risk?

16. Conclusions • In order to channel investment lending projects substantially through country PFM systems- • Project on budget and implementation to be handled by MDA • Bank position on co-mingling to be clear • If not allowed: possibility to ring-fence project within IFMIS to be assessed • Are the Government staff, rules, procedures, controls, documentation and audit trail as supported by IFMIS acceptable to support project execution at a level of acceptable fiduciary risk? Thanks for your time! Questions?