1. Tanzania: Improving Public Financial Management – Central and Local Governments General Budget Support Annual Review Meeting November 25, 2009

2. 2 1. Background 2. Key Issues: i.Integrated Financial Management System ii.Cash Management iii.Fund Flows iv.Reporting v.Budget Management 3. Next Steps Overview

3. 3 The Public Financial Management Reform Program (PFMRP) has provided support for PFM reforms for more than a decade in Tanzania. Background

4. 4 Strategic Plan for PFMRP III was launched in November 2008. The MOU governing financing arrangements was signed in April 2009. Background

5. 5 In 2008/09 PFMRP provided funding for key PFM reforms:  Shift to GFS 2001 Economic Classification  Introduction of IPSAS Accounting  Professionalizing Internal Audit  22 Sub Treasuries connected to IFMIS  70 Procurement Audits  Major support to four FM training schools of MOFEA  Improving External Audit – move to Level 3 of Afrosai E.  Support to Parliamentary Accountability Committees  Support for revenue enhancement systems to Min. of Nat. Resources and Min. of Lands  Support to PMORALG for IT and Financial Management Specialists  Zanzibar – support to MOF, Audit and the Assembly. Does this make for a credible reform program? Background

6. 6 Background The priority for 2009/10 is to ensure that core systems are further strengthened:  Integrated Financial Management System  Cash Management  Fund Flows  Reporting  Budget Management

7. 7 Integrated Financial Management System

8. 8 Integrated Financial Management System

9. 9 Limited improvement over the last 10 years Many activities still conducted outside EPICOR –Cash Planning, Procurement Planning, Tendering, Requisitions, Quality Control, Inventory, Revenue Collection (except for summaries), Asset Management, Budget Planning & Monitoring, Auditing, Debt Management Approach to project development –Not seen as a comprehensive system. Developed as separate components Contractual agreements with vendors –None-existent for some key systems functions –Over reliance on vendor Ownership –System still largely viewed as Acc Gen application with insufficient focus on Budget and Planning functions Reliability –Some improvement in incorporating a budget reallocation table. However there are ongoing challenges in bank reconciliation, data warehousing, revenue reconciliation, Electronic Funds Transfer (EFT). Integrated Financial Management System

10. 10 Integrated Financial Management System Local Government implementation of IFMS is much more challenging than for Central Government. Source: Survey of District Treasurar’s on their biggest constraints - 66 responses (August 2009).

11. 11 Integrated Financial Management System CAG is undertaking a major review of IFMS due to ongoing concerns regarding reliability, effectiveness and appropriateness.

12. 12 There are ongoing challenges regarding cash management – including timely deposit of government revenues into the Consolidated Fund, control over government cash in commercial bank accounts, liquidity and debt management. Cash Management

13. 13 On the revenue side there are challenges regarding the quantum of revenue collected. CAG’s report for 2008 /09 states: –The amount reported as transferred from TRA to the Exchequer Account as per the consolidated statement was Shs.3,352,642,632,000 which differs with that reported by TRA of Shs.3,548,831,912,503 a shortfall of Shs.196,189,280,503. (US$ 151 m.) –The disparities noted cast doubt as to the reliability of the data reported in the National Consolidated Accounts and Treasury management is called upon to follow up and make the necessary reconciliations and adjustments. Cash Management

14. 14 There are also challenges regarding proper collection and timely transmission of revenues from Line Ministries to the Consolidated Fund. Cash Management

15. 15 GoT revised its estimate of government bank accounts with commercial banks from 36,406 in 2007 to 43,406 in July 2009. In August 2009, MOFEA instructed BoT to close 31,441 bank accounts. Cash Management

16. 16 District Treasurar’s operate between 25-40 bank accounts each. Cash Management

17. 17 Several local governments have large monthly balances. These are in bank accounts where Banks charge interest for retaining these balances. Cash Management

18. 18 Fund Flows Fund flow arrangements are overly complex.

19. 19 There are ongoing concerns regarding the quantum and timing of release of funds. Fund Flows

20. 20 There are ongoing concerns regarding the quantum and timing of release of funds. Fund Flows

21. 21 Fund Flows Project Aid has been less predictable than budget support.

22. 22 Fund Flows Predictability of fund flows from Basket Funds has been mixed.

23. 23 Fund Flows Predictability of fund flows from Basket Funds has been mixed.

24. 24 Fund Flows Predictability of fund flows from Basket Funds has been mixed.

25. 25 Fund Flows Predictability of fund flows from Basket Funds has been mixed.

26. 26 Fund Flows Sectoral fund flows - e.g. for HIV AIDS - are difficult to map.

27. 27 Reporting CAG has commented on the inability of the IFMS to generate accurate and timely financial statements.  The Epicor system has not been activated to incorporate and process records of non- current assets, inventories, and generation of LPOs, Cheques, and generic reports.  In addition, the system does not allow for individual sub-vote holders to prepare their bank reconciliation statements.  A number of modules in the system were found not operative including the inability of the system to prepare the end of year financial statements. Even after 10 years EPICOR is not integrated with either PLANREP or SBAS or other planning and budgeting tools in GoT.

28. 28 Reporting Monthly multiple reporting requirements deplete the already weak capacity of units such as Local Governments.

29. 29 The MTEF is not a good predictor of resource allocation for the outer years. In some cases it is also not a good predictor of resources for the current year. Cluster I : Growth of the economy and reduction in economic poverty Cluster II : Improvement of quality of life and social being Cluster III : Governance and Accountability Budget Management

30. 30 Neither the Clusters nor the sectors have a good idea of what the resource envelop for the year is going to be as can be seen in the data for FY 2008/09. Budget Management

31. 31 Budget Management Issues such as equity in allocations are still to be resolved.

32. 32 Budget Management Carry forward of unspent balances in LGA’s defeats the very purpose of effective budget management.

33. 33 CAG’s Report for 07/08 states:  For a number of years I have noted huge sums of development funds remaining unspent at the end of the year. The same were not rebudgeted in the subsequent year. This defeats the logic of preparation and approving of the Council’s budget. Budget Management

34. 34 Service delivery will improve if resources are delivered in a predictable manner, are used effectively and efficiently and there is improved monitoring and oversight. We need to work together to ensure that there are visible improvements in:  Integrated Financial Management System  Cash Management  Fund Flows  Reporting  Budget Management Summary

35. 35 Thank You