Financial Management Reform in Guatemala

1. Financial Management Reform in Guatemala María Antonieta del Cid de Bonilla Minister of Public Finance May, 2006

2. Contents • Origin of the Reform • Implementation of the Reform • Components of the Reform • Reform Areas • The reform of the municipal financial administration • Covering of the System • Assessment of the Financial Management in Guatemala (CFAA-CPAR / WB-IADB) • Reform Challenges

3. Origin of the Reform • The financial management reform in Guatemala began at the middle of the 90s, with two essential objectives: • Enhance the efficiency and transparency of the financial administration of the public sector; and • Improve the delivery of public services, through dis-concentration of the management of financial resources to the public entities.

4. Origin of the Reform • Since the beginning, the process has counted with the World Bank´s assistance, and it started with an integral diagnosis and a conceptual design of the financial management system, worked out by international experts in budget, accounting, treasury, public credit, auditing and procurement fields. • Guatemala: Conceptual Design and Plan for the Development of a Governmental Financial Administration and Control System. E. Perez, E. Estrella, C. Fernandez, R. Jimenez, C. Lara, M. Pastor, D. Turman, J. Villalobos, 1994.

5. Origin of the Reform • The main weaknesses were: • The governmental authorities didn´t have accurate, timely and relevant financial information available to support them in the decision making process; • The Ministries in line lacked control and responsiblities on their financial operations; • Administrative defficiencies concerning the formulation and execution of the budget generated high costs in efficiency and accountability or transparency terms.

6. Implementation of the Reform • The design and implementation of the reform han been supported by international experts in the different areas of financial management. • But the implementation has mainly been in charge of national officials in the different public entities, fact that has generated conditions for its sustainability.

7. Components of the Reform • Legal reform • Function reorganization • Procedure reform • Information system • Training

8. Legal Reform • The financial management reform is based on a legal framework in agreement with its objectives. • In 1997, a new Organic Law of the Budget was approved, which regulates the budget, governmental integrated accounting, treasury and public credit systems.

9. Legal Reform: budgetary system • The budgetary system is the group of principles, agencies, norms and procedures that govern the budgetary process of the public entities. The Ministry of Public Finance is the principal of the process and its main functions are: • To dictate the norms for the formulation, programming of the execution, modifications and evaluation of the budgets of the public entities. • To develop the management control tools of the results linked to the fulfillment of the objectives and goals of the public sector.

10. Legal Reform: accounting system • The governmental system of accounting is the group of principles, agencies, norms and procedures that permit the registration of the facts that have effects on the budget and on the patrimony, and the flows of public funds. • The Ministry of Public Finance is the principal of the system, and it is responsible for prescribing, to put and to maintain in operation the system in the whole non financial public sector.

11. Legal Reform: treasury system • The system of treasury is the group of principles, agencies, norms and procedures for the administration of the public resources and its use for the payment of the government obligations. The main attributions of the Ministry of Public Finances are: • To administrate the Common Fund. • To formulate,execute, control and check the cash budget of the Central Government. • To control and to guidethe efficient use of availabe balance of cash of the checking acount of public entities,not incorporated to the common fund.

12. Legal Reform: public credit system • The system of public credit is the group of principles, agencies, rules and procedureswith regard to celebration, execution and manage of debt business that the State do, with the object to obtain financial forms. • The Ministry of Public Finance is the agencyin charge of the public credit, with the function to guarantee the efficient programming, use and control of the financial forms that may be obtain by public credit operations.

13. Function Reorganization • Under the principle of normative centralization and operative dis-concentration, the direct responsibility for the administration of the financial resources was transfered to the Ministries in line, which assumed more control over their budget. • In each public entity, was created a Financial Administration Unity, with the purpose of carrying out the functions of budget, accounting and treasury that were concentrated in the Ministry of Public Finance.

14. Procedure Reform • Procedure manuals and working standards were defined according to the best international practices to process, register and report the financial information of the public sector. • In this way the procedures were simplified and bottlenecks were removed, which propitiated inefficiencies and lack of transparency in the execution of public resources.

15. Information System • A modern integrated system of financial information is available, which operates through Internet and allows a more efficient execution and monitoring of the financial operations of the government, as it relies on a single database at the central level, which is capable to transmit automatically the data between the subsystems of the budget, accounting, treasury and public credit.

16. Training • Capacity building is a core component of the reform. Continuously, staff of the public entities is trained in areas of the budget, accounting, treasury and public credit. • The international experts, who have supported the reform, have been the main responsibles for the training, and at the present, also national experts that have been formed during the process, as well as international institutions in the areas to be innovated.

17. Reform Areas • The financial administration areas that have been reformed are the following: • Budget • Accounting • Treasury • Public Credit • Governmental Control • Procurement

18. Budget Reforms • The public budgetary process has been reformed to incorporate the multi-annual expenditure programming and the assessment of the execution´s results. In 2005, a proccess to define performance indicators of public entities was started. • Thus, the budget could be an accountability and social auditing instrument, of both, the financial aspects as well as the results of the public management.

19. Accounting Reforms • The accounting records are performed automatically with the record of the budgetary execution, through one single bill. The basis of accounting records is the accrual system (goods and services already received and pending of payment). • The programming of the budgetary execution is carried out annually, the commitment quotas are quarterly approved; and accrual and payment quotas are monthly approved.

20. Treasury Reforms • There is one single account of the Treasury, which applies for all entities of the Central Administration and for all financing sources, with the objective to avoid inefficiencies in the use of resources. • The National Treasury performs the payments of the accrued expenses charging the common fund it maintains with the Central Bank, through electronic deposits to the bank accounts of the suppliers.

21. Public Credit Reforms • A registration system for public credit operations is available, based on the system of financial analysis and debt administration (SIGADE) of the United Nations Conference on Trade and Development (UNCTAD) and with an automatic communication link for the updating of the budgetary execution and the accounting records.

22. Reforms in the governmental control • In 2002, a new Organic Law of the Nation´s Comptrollership was approved, with the objective to modernize and strengthen the instruments and procedures of the governmental control. • An Informatic System of Governmental Auditing is available, which interacts with the Information System of the Financial Administration, thus optimizing the auditing function.

23. Procurement Reforms • There is an information system of public procurement, GUATECOMPRAS, the use of which is compulsory in all entities of the non financial public sector and the Municipalities. • In the norms of budgetary execution of the year 2006 was established that international or not governmental agencies that administer public funds, should publish their acquisitions with these funds in GUATECOMPRAS.

24. Procurement Reforms • A draft bill on procurement han been elaborated which seeks to make the public administration more efficient and transparent, and which will be submitted to the Congress for approval. • In the initiative of law it is proposed to establish in a permanent way the obligatory use of GUATECOMPRAS, for all public or private entities that administer public funds.

25. The reform of the municipal financial administration • In 2002 a new Municipal Code was approved, which defines the organization and functioning of the municipal governments and includes the integrated municipal financial administration, according to the guidelines established by the Ministry of Public Finance. • At the present, the implementation of the Integrated System of Financial Administration is being executed in 33% of the municipal governments.

26. The reform of the municipal financial administration • In 2006, the General Comptrollership of the Nation approved the rules of technical character for accountability of the Municipalities of the Republic. • These rules establish that: “the accounting information shall be generated by the SICOINWEB, SIAF-MUNI and/or SIAFITO-MUNI systems, which are the only ones recognized by the General Comptrollership of the Nation as official registration and control systems for the municipalities and their utilities”.

27. Covering of the System • The system covers at the present 100% of the agencies of the Central Administration, 77% of the decentralized and autonomous entities, and 33% of the municipalities. • For 2007, the target is to cover 100% of the decentralized and autonomous entities and 66% of the municipalities. This will allow the consolidation of fiscal accounts of the non financial public sector in an automatic manner, through the system.

28. Assessment of the Financial Administration in Guatemala • “The implementation of the integrated financial management system (SIAF), built upon a good normative framework and facilitated by a modern technological platform, has contributed to efficiency in executing financial transactions and to the production of opportune information on most government finances.” • Guatemala: Country Financial Accountability and Procurement Assessment Report. World Bank and Interamerican Development Bank, 2005.

29. Assessment of the Financial Administration in Guatemala • “Effective controls of government’s cash position, including an efficient common fund system and rather complete central government debt records, are in place. Both the annual budgets and financial reports provide considerable government financial data that is publicly available.” • Guatemala: Country Financial Accountability and Procurement Assessment Report. World Bank and Interamerican Development Bank, 2005.

30. Reform Challenges • To consolidate the integration between the planning, budget and procurement systems, in order that the budgetary programming fully responds to the governmental policies and the working plans of the entities. • To consolidate the reform of the municipal financial administration, through the production of conditions that have allowed the system´s sustainability at the Central Government.

31. Reform Challenges • To support the strengthening of the capacities of the Nation´s Comptrollership, in order that it can control in an efficient way the public expenditure and to evaluate its quality, according to its constitutional law. • To achieve that the decentralized and autonomous entities make public their financial information and their results of management through the financial management system, in order to facilitate the social auditing.

32. Financial Management Reform in Guatemala www.minfin.gob.gt www.guatecompras.gt Thanks for your attention