Tanzania: Local Government Fiduciary Assessment and Procurement Review

1. Tanzania: Local Government Fiduciary Assessment and Procurement Review Parminder BrarLead Financial Management Specialist The World Bank Tanzania PER Annual Consultative Meeting Dar Es Salaam, May 12-13, 2006

2. Agenda Process Background LG PFM : Main Findings Next Steps Procurement : Main Findings Next Steps

3. Process • Joint Assessment: • World Bank…………………..…..Co-ordinator • Afritac • CIDA • DFID • Embassy of Finland • Embassy of Ireland • Haki Elimu • ODI • Policy Forum • Tanzanian Governance Noticeboard • UNDP • Wateraid • Conducted with the full support and assistance of the Local Government Reform Program (LGRP) and their Zonal Reform Teams.

4. Process • Seven councils chosen: • Arumeru • Rombo • Mwanza City • Muleba • Karatu • Bagamoyo • Mtwara Town • Analysis primarily based on PEFA set of indicators • Councils selected on basis of criteria such as audit certificate, capacity, eligibility for LGCDG, use of EPICOR, and dataset from 2003. • Teams visited each of the councils for two to three days. Discussions with DED, DT, Departmental Heads, Councilors and other key stakeholders.

5. Background There have been significant improvements in PFM systems at Local Councils. Source: LGRP

6. Background This is reflected in CAG Audit Reports. Source: CAG

7. Background • Significant improvements were also recorded at the Councils selected for the assessment. Source: LGRP and CAG

8. LG PFM: Main Findings • Message 1: Budget Credibility • The integrity of the budget formulation process is seriously undermined by Central Government changes to ceilings for block grant transfers after the budget is approved by the Local Authority. Source: Local Councils

9. LG PFM: Main Findings • Message 1: Budget Credibility • Teams struggled to find the “right” budget figures amongst competing statements in various reports. Source: LGRP

10. LG PFM: Main Findings • Message 1: Budget Credibility • Carry forward of unspent balances impacts the credibility of the budget. This is partly due to late releases by Central Government and donors. Source: Arumeru Local Council

11. LG PFM: Main Findings • Message 2: Planning • Bottom up planning processes do not connect well with top down budget guidelines. • The multiplicity of planning, budgeting requirements undermines the integrity of the whole budgeting/planning process and raises the question as to whether funds are being efficiently and effectively directed to local needs. • Excessive donor and government reporting requirements drain limited planning capacity at Local Councils.

12. LG PFM: Main Findings • Message 3: Cash Management • The lack of reliable data is a serious impediment to project implementation. Source: LGRP

13. LG PFM: Main Findings • Message 3: Cash Management • PE releases are made on time. Other releases are erratic – partly due to delayed donor funds. This seriously impacts service delivery. Source: Local Councils

14. LG PFM: Main Findings • Message 3: Cash Management • Local Councils are cash constrained while retaining large surpluses. Source: Local Councils

15. LG PFM: Main Findings • Message 3: Cash Management • Timely intimation of funds transfer is a real problem. Source: Mwanza Local Council

16. LG PFM: Main Findings • Message 3: Cash Management • Local Councils are required to maintain between 25-40 separate bank accounts - almost all in silos. Source: Rombo Local Council

17. LG PFM: Main Findings • Message 3: Cash Management • There are between 500-1000 Bank accounts in each local council. Arumeru Local Council Rombo Local Council Source: Arumeru Local Council Source: Rombo Local Council

18. LG PFM: Main Findings • Message 4: Accounting quality • At several Local Councils there was a disconnect between the ratings and the reality. In Arumeru cheques in excess of book balances were regularly issued this FY. In Muleba – the introduction of Epicor without adequate capacity building may have worsened FM and accountability. Source: Muleba and Arumeru Local Councils

19. LG PFM: Main Findings • Message 5: Internal Controls and Audit. • At three of the seven local councils visited, there was no internal auditor. Duplicative external audits and inspections seriously strain the limited capacity of Local Councils. One DED stated that they felt they “were continuously being audited”. • National Audit Office does the overall audit of the Local Council; • National Audit Office also does a separate audit for the Road Fund; • Price Waterhouse Coopers does the audit for the Health Basket; • Deloitte does the audit for the education sector (PEDP) • KPMG does the audit for the Local Government Reform Program; • Donors commission multiple audits for their own programs; • Central government ministries conduct their own inspections and have their own reporting requirements; • The MOF Sub-Treasury also carries out regular inspections/audits.

20. LG PFM: Next Steps • Longer dissemination and discussion planned. • Immediate Term Suggestions: • Ensure that by August of FY Local Councils approve annual budget figures that include final CG transfers, and unspent balances. • Increase budget support to Local Councils. • Allocate top priority to improving information and fund flows to service delivery units. Donors to ensure timely availability of funding. • Initiate discussions with NMB regarding improved reporting of transfers to field units, funds management and interest on balances. • Rationalize multiple planning and reporting requirements. • Initiate review of impact of EPICOR on LC’s. • Increase quality and quantity of internal auditors. • Empower and restructure CAG, and rationalize external audits. • Support LGRP for successfully implementing some of their initiatives.

21. Procurement Baseline • Key 2003 CPAR recommendations include: (a) separating the operational and regulatory functions of the Central Tender Board and transforming the Central Tender Board into a regulatory authority responsible for procurement policy and monitoring of public procurement; (b) fully decentralizing procurement operations to MDAs; (c) establishing a new cadre of procurement specialists and a system of certification for the same; (d) restructuring the composition of the District Tender Boards to exclude councillors; (e) establishing a whistle-blowing mechanism to curb corruption in procurement; and (i) replacing the system of pre-shipment inspection by destination inspection.

22. Procurement Reform Status Tremendous progress has been made. • The most critical achievement was the enactment of the new Public Procurement Act, on May 1, 2005, which abolished the Central Tender Board, fully decentralized the procurement function to MDAs and established a procurement oversight body, the Public Procurement Regulatory Authority (PPRA). • Since its enactment, the PPRA has put priority on the dissemination of the new Act and the associated Regulations through several workshops and seminars. In addition, the Government has fully operationalized the Public Procurement Appeals Authority (PPAA) by appointing board members, setting up a permanent office for it and issuing the Public Procurement Appeals Rules which sets up the procedure to be used by the Appeals Authority in handling complaints. • With the operationalization of the PPAA, Tanzania has now got one of the most comprehensive and robust complaints review mechanism in the world.

23. Procurement: Main Findings : Mainland Pillar I:Legislative and Regulatory Framework Issues: (i) Local government has not yet prepared regulations in accordance with PPA 2004 (ii) Functions of the PPAA chairperson, members of the Board, and Secretary are not clearly defined (iii) LG staff and management are not much aware of the new law Recommendations • Prepare and issue new local government regulations based on the new law • Amend the law to articulate clearly the functions of the chairperson, members of the Board, and secretary to the PPAA • Conduct awareness workshop of the new law to LG staff and management

24. Procurement: Main Findings : Mainland Pillar II: Institutional Framework and Management Capacity Issues: (i) For lean procuring entities, PMU does evaluation and approval tenders (e. g. TanRoads) (ii) Some PMUs are under DAP while DAP is a member of the tender board. At LG Supplies Unit is under Treasurer (iii) Many tender board meetings in one procurement cycle, especially selection of consultants under QCSB procedures Recommendations • PPRA to provide guidance on how to separate the responsibilities of PMU and tender board in case of lean procuring entities • PMU to be under the accounting officer to minimize a perception of conflict of interest between PMU and tender board • Reduce tender board meetings to 2 – 3. PMU to share with tender board all procurement proceedings

25. Procurement: Main Findings : Mainland Pillar III: Procurement Operations and Market Practices Issues: (i) Procurement plans (PPs) are prepared after the budget approval (ii) A requirement of a bid security for minor works is very prohibitive to small contractors (iii) Domestic preference: The sliding rule for joint venture as per fourth schedule does not provide incentive to foreign bidder to associate with local contractors Recommendations • PPs should be part of the budgeting process • Provide as an alternative Tender Securing Declaration Form • Conduct a study on better use of domestic preference to enhance local contractors’ capacity

26. Procurement: Main Findings : Mainland Pillar IV: Integrity of the Public Procurement System Issues: (i) Procurement audit is by two entities: PPRA is entrusted by law to carry out procurement audit. NAO is also entrusted to carry out value for money audit (ii) There are many entities conducting procurement audit at LG Recommendations • Harmonize procurement audit to minimize duplication of effort

27. Procurement: Main Findings : Zanzibar Pillar I: Legislative and Regulatory Framework Issues: (i) The law is deficient in a number of areas (ii) The law is being implemented without regulations Recommendations • Prepare and issue regulations • Harmonize procurement laws and regulations of both parts of the United Republic of Tanzania

28. Procurement: Main Findings : Zanzibar Pillar II:Institutional Framework and Management Capacity Issues: (i) No independent regulatory authority (ii) Head of PMU is a member of parastatal and regional tender boards (iii) Many tender board meetings in one procurement cycle, especially selection of consultants under QCSB procedures Recommendations • Revise the law to create an independent regulatory authority • Revise the law to remove the head of PMU from being a member parastatal and regional tender boards • Amend the law on appointment and composition of the parastatal and regional tender boards

29. Procurement: Main Findings : Zanzibar Pillar III: Procurement Operations and Market Practices Issues:(i) Procurement plans (PPs) are prepared after the budget approval (ii) Complaint mechanism involves arbitrators and trade tribunal Recommendations • PPs should be part of the budgeting process • Review the complaint mechanism • Provide detailed guidance in the draft regulations on how to handle complaints and educate bidders on the complaint mechanism

30. Procurement: Next Steps • Longer dissemination and discussion with key stakeholders has been planned for May 31,2006.

31. Thank you.