Tanzania: PEFAR 2008 Building PFM systems and Reducing Fiduciary Risk

1. Tanzania: PEFAR 2008Building PFM systems and Reducing Fiduciary Risk Presentation to the General Budget Support Annual Review 2008 Ubungo Plaza, Dar es Salaam November 25, 2008

2. Overview • Background • Diagnostics • Reducing Fiduciary Risk: • Systems • Revenue • Expenditure • Cash Management • Fund Flows • Procurement • Internal Audit • Next Steps

3. Background • Tanzania has consistently been ranked as having one of the best PFM systems in sub Saharan Africa.

4. Background • Community of interest : • Governments preferred aid modality is budget support • Wants to see greater use of country systems – Paris Agenda • Improved accountability to domestic institutions • Build systems to reduce fiduciary risk • DP’s wish to provide budget support in situations where the level of risk is acceptable • Where there is a credible reform program underway • Fiduciary challenges are being adequately addressed

5. Background

6. Background

7. Diagnostics • The revised strategy for PFM Reforms was finalized in July 2008.

8. Diagnostics • Two reports reviewed fund flow arrangements.

9. Diagnostics • A Cash Management Study is underway.

10. Diagnostics • PEFA assessment for 2008 is being finalized.

11. Diagnostics • Two reports looked at PFM systems.

12. Fiduciary Issue 1: Systems • Core systems have significant weaknesses and are not adequately interlinked. Tax, HR, Procurement, Cash Management, Debt Management, Budget Preparation etc. are all stand alone programs. • MOFEA (Nov. 24, 2008): “…there are multiple uncoordinated IT initiatives across the Government and we believe this is the problem to sort out.”

13. Fiduciary Issue 2: Revenue • There is no central revenue database. MOFEA cannot reconcile revenue collections in Line Ministries with amounts actually deposited in BoT. Revenue retention schemes complicate the situation. • MOFEA (Nov. 24, 2008): “Testing of the database is expected to start in March 2009”.

14. Fiduciary Issue 2: Revenue • In 06/07 $202 m. of budget support from UK, Norway and Japan not recognized as revenue from August 06 to July 07. • Budget execution of the development budget in 06/07 was 39%.

15. Fiduciary Issue 3: Expenditures • Some software components – such as the budget reallocation module continue to be dysfunctional after 10 years. • Bank reconciliation has been and remains a major challenge. • Just one account – 16:140 (Miscellaneous Deposits) had T.sh 1 trillion of outstanding reconciliations to process. (July 08) • Around 80% of monthly transactions between MOF and BoT are not reconciled through the auto reconciliation process. • MOFEA (Nov. 24, 2008): “From our point of view we recognize this as a fundamental problem to the operation of IFMS.”

16. Fiduciary Issue 4: Cash Management • Government needs to gain control over its own cash from commercial banks.

17. Fiduciary Issue 5: Fund Flows • Erratic fund flows result in the build up of arrears and adversely impact service delivery.

18. Fiduciary Issue 6: Procurement • Procurement remains a major area of concern. In FY 08 only 42% public bodies responded to PPRA’s request for information. • Of the ones that responded, average level of compliance for MDA’s was 45%.

19. Fiduciary Issue 7: Internal Audit • Internal audit remains the weakest component of the control framework. It has consistently been rated “D” in PEFA assessments.

20. Next Steps • PFM reforms require a dynamic team and dedicated leadership. PFMRP Phase III is to be launched on November 27,2008. • There is need to focus on improving the IFMS, revenue recording, bank reconciliation, cash management, fund flows, procurement and internal audit. • We look forward to supporting MOFEA to ensure that the program achieves its objective to improve systems and reduce fiduciary risk.

21. Asanteni Sana