1. The DSA Project Financial Information Systems
Presentation by the DSA Project to
the Ministry of Finance and Economic Development
April 9, 2005
The DSA Project is implemented by Harvard University and funded by Development Cooperation Ireland (DCI), the Netherlands Minister of Cooperation, and
the United States Agency for International Development (USAID)

2. Topics Introduction DSA information system strategy and status
What is the DSA IBEX?
Live demonstration of IBEX Budget Module
International experience with IFMIS’s
Summary: current versus a new system
Discussion
Brief Tour (IBEX installation in the MoFED budget department)

3. I Introduction

4. Summary Points DSA IBEX is an IFMIS Meets international standards
Meets current user needs
Can evolve to meet future needs
Can be ‘deepened’ to include ‘non-core’ systems (e.g. debt, revenue, payroll)
Can use the new WeredaNet
Available now
Can meet government policy of nation-wide implementation of the budget and accounts reform by FY99
Is sensible: appropriate, sustainable, cost-effective

5. DSA Strategy of Financial Reform
Evolution
Ethiopia’s financial management is evolving
Second stage devolution to weredas
Donor conditionalities (JBAR, consolidated budget)
Procedures evolve driven by
Government requirements
Government capacity
Procedures have been evolved (improve and then expand) (pace of government)
Budget (cost center to performance)
Accounts (single to double entry, cash to modified cash)
Treasury (single pool)
Procedural reform drives IT design
IT systems support procedural reform and must also evolve
Implication: the custom approach has been appropriate to the rapid evolution of public finance in Ethiopia

6. History of the DSA IT systems
EMCP strategy (1996) was that the IT systems were to be developed by the EU and they were to replicate the procedural reforms of the DSA project
EU involvement was delayed for over 9 years
BIS/BDA: rapidly introduced by the DSA to implement the budget and accounts reforms in federal and regional governments
BIS/BDA continually upgraded to meet user requirements
IBEX is a further evolution of the BIS/BDA to meet international standards and provide a sophisticated platform for further evolution
Functional evolution (e.g. adding performance budgeting)
Scope evolution (e.g. payroll, debt, revenue)
Evolutionary ‘iterative’ approach to systems development fits with ‘international best practice.’

7. What is an IFMS?
An IFMS is a tool to support Public Financial Management
National Government level
An IFMS is a computer software application
Off the shelf package or
Bespoke software
Provides core public financial management functions, e.g.
Budget
Accounting
Key feature - integration between modules

8. What to acquire IFMS could potentially embrace whole of architecture
Wonderful vision of a totally integrated system
BUT for most countries
Would be unacceptably high risk and cost, take a long time to implement
Best to focus initially on core PFM areas
Only add other modules if essential
Acquire a system that can be extended to other modules
Keep it simple
Essential to develop clear vision of IFMS at an early stage

9. What Are Core and Non-core FMIS Systems?
Core systems
General ledger
Accounts payable and receivable
May include:
Financial reporting
Fund management
Cost management
Non-core systems
HR/payroll
Budget formulation
Revenue (tax & customs)
Procurement
Inventory
Property management
Performance
Management information

10. Cost Comparison
Proposed Pilot IFMIS: $6.45 million for 5 installations
World Bank Estimate: $33 million (three tier government)*
DSA IBEX: $2 million nation-wide
*(Source: World Bank, ‘Treasury Diagnostic Toolkit,” 2004)

11. II DSA information system strategy and status

12. DSA IT Strategy Two parallel tracks
Track 1: Continuing rollout of BIS/ BDA systems
Track 2: Upgrade to and rollout of IBEX

13. IT Strategy ICT Capacity Track 1 BIS/BDA BIS/BDA IBEX IBEX Track 2
No ICT
Limited ICT
Nationwide ICT available
ICT Capacity
Track 1
BIS/BDA
BIS/BDA
IBEX
IBEX
Track 2
IBEX
BIS/BDA Operational at BoFED and Zones
IBEX and BIS/BDA coexist
BIS/BDA where no ICT connectivity

14. Track 1: Continuing rollout of BIS/BDA
Rollout strategy
In four large regions, at BoFEDs and all zones
In smaller regions, at BoFEDs
Federal public bodies and reporting units
Currently operational (Exhibit #1)
Proven performance
Federal budget preparation since EFY 1994
Monthly reports within 2 months in three large regions
Rollout is on track to support government’s requirement of completing the financial reform by EFY 1999.

15. Track 1: Status of BIS/BDA Rollout (exhibit #1)
Current Status
Federal government uses BIS and BDA at over 130 Public Bodies
4 large regions at BoFEDs and all zones
Addis Ababa IBEX and BDA at BoFED and all sub-cities.
Benishangul BoFED
Upcoming
BIS to all small regions by EFY 1998
BDA to all small regions by EFY 1999

16. Track 2: IBEX What is IBEX? An upgrade of BIS/BDA IBEX = IFMIS
IBEX will run on WeredaNet
IBEX will enable us to devolve financial systems to all Weredas
IBEX and BIS/BDA will coexist
BIS/BDA as standalone versions

17. Track 2: Main reasons for IBEX
Scalability
Ability to grow and ease in which a system can be expanded in terms of capacity and users.
Maintainability
Cost and effort is marginal
Technical resources can be focused in central locations
No software to maintain on each client terminal
Functionality
Improved features and performance

18. Track 2: IBEX Timeline IBEX Budget Module pilots now operational
MoFED & Addis Ababa and 10 sub-cities
Went live April 4, 2005
IBEX Accounts/Disbursement Modules
Development and testing scheduled for completion in August – September 2005
IBEX (Budget Module) can operate NOW on WeredaNet.

19. III What is the DSA IBEX?

20. What is the DSA IBEX IBEX: Integrated Budget and Expenditure System
IBEX = IFMIS
Technical Implementation
A custom solution using industry standard frameworks
I. Technical platform for automation of Public Financial Management (PFM) functions.
II. Implemented functional PFM modules (core & non-core)
III. Migration tools: coexistence with standalone BIS/BDA

21. What is the DSA IBEX (continued)
CORE MODULES
NON-CORE MODULES
Accounts
Budget
Disbursements
Revenue
Debt HR
Payroll
Functional Modules
Security &
User Directory
Data
Warehouse
Reporting
Auditing
Technical
Platform
User
Interface
Web
Distribution
Internationalization
Migration Tools
Standalone
BIS/BDA
IBEX

22. Functional Modules
Current modules (core IFMIS functions) – (Exhibit 3)
Budget Preparation
Budget Adjustment
Accounts
Transaction Register
General Ledger
Financial Statements
Management Reports
Disbursements
Future modules and 3rd party systems integration… (non-core IFMIS functions) - (Exhibit 3)
Human Resources (OMNITECH already developing )
Revenue
Debt management
Banking Systems

23. Technical Platform Integrated Functional integration
Single ‘data warehouse’
Data entered once, available ‘everywhere’
Single user interface and user security system
Transactional integration
Distributed (Web-Enabled)
Real-time transactionality
Limited only by available communication infrastructure (WeredaNet)
Procedural integration
Integration with existing automated and manual processes

24. Technical Platform (continued)
Security (prevents unauthorized access to all systems and data)
Industry leading web-application security framework (Netegrity SiteMinder OTS system)
User based/role based security
Completely granular security on
Application data
Application ‘resources’ (ex. Reports, user screens, buttons etc.)
Network Security
Separate Security Server
2 Hardware Firewalls
128 bit HTTPS Encryption on all network traffic
Scalable (grows easily to serve additional users and locations)
Few installations.
Easy to support and upgrade.
Meets Govt. requirements for devolution to Weredas
Platform flexibility – Grows as telecommunication infrastructure grows
Robust architecture and components
Can support many more users and increased use

25. Technical Platform (continued)
Extensible (easy to develop additional functionality)
Modular design of PFM functions.
Easy to develop and ‘plug-in’ future non-core functions.
Easy integration with external systems / 3rd party applications.
Internationalized (supports multiple languages and cultural locales)
Can operate in any language. Currently operates in four languages (Amharic, English, Tigrigna and Oromiffa) and additional language support can be added very easily.
Supports multiple calendars, currency types, numbers, times etc…
Performance
Upgraded computing infrastructure
Data-Loss Prevention (Backup systems and policy)

26. Migration Tools Integrated tools to link BIS/BDA to IBEX
Provide seamless data integration between IBEX and existing BIS/BDA systems.
Support automation of reform in the absence of a comprehensive communications infrastructure
Will probably be necessary for some time to come. BIS/BDA are the standalone automation versions.

27. How IBEX Works

28. IBEX Summary IBEX = IFMIS
Includes core modules & establishes platform for rapid development of additional modules.
International best practices (Technical & Functional)
Implemented and functioning
Low cost yet functionally complete
Highly flexible as requirements and capacity evolve
Custom built functionality
Grows with infrastructure

29. IV Live Demonstration of IBEX Budget Module

30. V. International experience with IFMIS’s
Introduce yourself
15 years in Australian Government as financial controller for large government agency implementing budget and financial management reforms
Worked with several applications both bespoke and OTS in several different countries including Papua New Guinea and Samoa
I was on a team of people that developed a PGAS system in PNG from 1988 to I came back after 11 years to join PFMRP project just as GoPNG and donors were deciding whether to upgrade PGAS or buy a new OTS

31. Low success and sustainability rates for IFMIS’s in developing world – why?
IFMS solutions are complex relative to capacity and infrastructure limitations of developing countries
OTS are commercially oriented & require initial and ongoing customization
Complex procurement requirements of client government, & then of donor/lender
Donors & contractors tend to favor most sophisticated & expensive solution – with no cost benefit trade-off
Unreal expectations that IFMS will address other weaknesses (e.g. legislative, capacity, internal controls, work practices, accountability & HR management, and corruption).
Point 2 Customisation costs can be substantial, and can carry over into future years as the supplier releases new versions of their OTS
Point 4 Users are invited to put anything they wish for in the functional specifications, and they do, without any regard to cost. The suppliers first response to these is always “We can meet all of these requirements and more” (see Dilbert in Exhibits). What they really mean is, we can customize our product at your cost to meet these requirements.

32. Cost benefit trade off – why is it omitted?
Bells and whistles – functionality is maximized at the design stage
Design stage loan funded consultants often have links with potential IFMIS suppliers or implementation consultants
Availability of the soft loan/grant clouds the initial business investment decision
Donor has little interest in ongoing costs – license fees, maintenance costs, version upgrade costs, further customization costs, etc)
Point 3 Even if the IFMIS is being funded by grant or DBS, it is not without cost - you could be spending those funds on some other poverty reducing activity. Aid is fungible and spending it has opportunity costs
Point 4 The donor or lender will fund the initial purchase and implementation, and make sure strict procurement rules are followed. But they have little interest in the counterpart costs to the government – those mentioned above, plus training, market rates for skilled accountants and IT people

33. Cost benefits cont….
Budget, financial management & decentralization policies are not stable – vendors love this. Late changes = $$$
Piloting is useful technical tool, but should not cloud the 10 year benefit cost analysis and business investment decision – danger of ‘nose of the camel’ (Exhibit 7)
Point 1
Over the next 5 years FGE may implement reforms in
MTEF
Performance Budgeting
Cash management and liquidity management
IPSAS on financial reporting under a cash basis of accounting
GFS M2001
These reforms need to be implemented and stable before implementing an OTS, otherwise you will need to ask the supplier for major changes. But a bespoke system can respond to these incrementally.
Point 2
Piloting is used to identify technical and implementation issues and resolve them before full rollout.
Refer to Exhibit 7 from World Bank Treasury Diagnostic Toolkit
This is a USD32 million plus decision.
Pilot costs have opportunity costs too. Those funds can be spent elsewhere with donors support.

34. PNG experience with a bespoke system: Lessons for Ethiopia
Bespoke system worked well whilst budget management, accounting and decentralization requirements were evolving
PGAS development driven by accounting users
OTS is a 5 years plus commitment, (with several years before any pilot is possible)
Also commits substantial government funding and skilled resources for 5 to 10 years
PGAS had to be upgraded because it did not have the core finance modules—it did not have a budget module like BIS.

35. PNG experience The life cycle of a bespoke system
Provincial Government Accounting System (PGAS): developed from 1988 to 1991 to support 20 provincial governments
1991 to 1993 – PGAS adopted by federal ministries based on success in provinces
PGAS was owned and developed by Public Accounts Dept – not IT Dept. User owned and user driven.
Development was responsive and flexible over 10 year period. Code was purchased.
Revised and standardized procedures, manuals and training also contributed to PGAS success
Evolved until 2000 when demands of users and donors forced a decision on replacement or upgrade of PGAS
Point 3
These users were Provincial users and Federal users. People were recruited from or seconded from Provincial Governments. The product met their needs which was principally to get control of expenditure and commitments

36. Drivers for PGAS upgrade
Capacity building projects had greatly increased number of skilled financial managers at provincial & federal level
No budget preparation function, and shift from single year to medium term focus for budgeting
Limited analytical ability of PGAS
Inadequate reporting and data sharing ability
Budget classification code not flexible enough to meet evolving demands from GFS2001 and performance budgeting
PGAS had strong input controls but maturing users wanted output and performance information
Corrupt users could bypass internal controls, eg suspense accounts abuse
Point 7
Suspense accounts – the system was accepting expenditure with invalid budget classification and account codes, including payroll. It was posted to suspense, with procedures saying the relevant department had to clear their suspense account each month. They soon learned it was in their interest to leave things in suspense, because that left more money to spend in the genuine or valid budget classification programs and projects. It was a small step to deliberately miscode expenditure

37. The decision to upgrade to OTS
2000 – GoPNG & donors agree to FMIP and indicative funding for new IFMS
Dec loan funded project management consultants selected (my return after 11 yrs)
April 2003 – decision made to purchase COTS, and not to upgrade PGAS
Mar 2005 – COTS supplier selected and contract negotiations commence
Why did it take so long? (Exhibit 2)
Point 3
This was a very close decision. PGAS had 15 years of development, training, skills, manuals, infrastructure. PNG is now decentralising service delivery further down from Provincial Government to District Govt and PGAS continues to be installed in Districts and training delivered.!!
I remember the meeting when Ministry of Finance made the decision. The PFMRP project really thought they would decide to upgrade PGAS. It was a close call. They know they have launched into a major 10 year plus project with high risks
Point 5
If you look at Exhibit 2 some time you will see that selecting and implementing an OTS is a very skilled labour intensive and time consuming exercise. Even when these steps are all followed, only 21% of IFMS projects were successful, and only 6% would be sustainable. Following a strict project management and procurement methodology, it still took nearly four years to get to a stage where a pilot was possible.

38. Repeat - Lessons for Ethiopia
Bespoke system worked well whilst budget management, accounting and decentralization requirements were evolving
PGAS development driven by accounting users
OTS is a 5 years plus commitment, (with several years before any pilot is possible)
Also commits substantial government funding and skilled resources for 5 to 10 years
PGAS had to be upgraded because it did not have the core finance modules—it did not have a budget module like BIS or IBEX

39. VI Summary: Current versus a new system

40. Why should the current systems be replaced now?
Central Policy Issue
Why should the current systems be replaced now?
Why should you buy an OTS system when a custom system is in place?
The issue is not about the pros and cons of custom (bespoke) versus Off-the-Shelf (OTS) systems.
An IFMIS can be done either by a custom or OTS approach.

41. Current Systems Work: they are not deficient
Manages 90% of public expenditure
No failures
Rapidly being implemented nation-wide
Can meet the EFY 1999 deadline of nation-wide rollout of budget and accounts
Meets government requirements
Meeting evolving donor requirements
(Consolidated national budget/JBAR/Fiduciary Assessment)

42. IT Systems Should Exactly Replicate the New Procedures
Why Should the Financial Reform be Restarted? We are at Year (8) not Year (0)
IT Systems Should Exactly Replicate the New Procedures
$30 million reform (procedural not just automation)
Manual system developed
30,000 trained to date
28,000 being trained
Key Integration: Manual to Computer
User requirements designed (consultative and documented)
Functioning manual system (e.g. forms-- ledger cards, manuals, procedures—training manuals)
Seamless operation (manual-automation) needed due to infrastructure constraints or lack of automation
Implications: A new system must replicate exactly the current system or the reform has to be restarted with enormous sunk costs.
Replication requires extensive customization of an OTS package which is costly and takes time.

43. The DSA System is an IFMIS
International Functional Standard (Exhibits 3,4)
Accounting System
General Ledger
Accounts payable and receivable
Financial/Management Reporting
DSA’s Systems Go Further
Budget
Disbursement

44. DSA IFMIS Meets International Best Practice Process
Focus on core financial functions
(budget, accounts, disbursement)
Integrated but not comprehensive (Exhibits #3,4)
Does not include non-core functions
Integrated with manual system
Core focus limits complexity and failure
Incremental (evolves with procedural change and user capabilities and needs) (Exhibit #6)

45. DSA IFMIS (Custom) is preferable to an OTS IFMIS
Custom: meets unique and changing needs
Customization not standardization required now given evolving requirements
Evolving reform
2nd stage devolution to Weredas
Single Treasury System (single pool)
Zero Balance Disbursement system (Exhibit 5)
Users learning about financial automation and refining their needs

46. DSA IFMIS: Works New IFMIS: Risky
International Experience of 27 Countries
21% successful
6% likely to be sustainable
7 years on average to complete
US$ 33 million (Exhibit #7)
“General experience of procurement of large systems in public and private sectors is bad.” “High failure rate, with many systems abandoned before completion.”
(Bill Dorotinsky, Implementing Financial Management Information System Projects: The World Bank Experience, 2003).

47. Drawbacks of an OTS IFMIS
Requirements not stable
Costly and lengthy customization
Limited modification capabilities
Massive retraining
Cost
Sustainability

48. Conclusion Decision Rules for Procurement
Can the country afford the system—or is a ‘soft’ loan simply encouraging profligate expenditure?
Does the government have both the technical capacity and future financial resources to sustain the ‘gold-plated’ system
Most importantly, will the new system enable better government?
Could most of the benefits be achieved with a simpler and less expensive solution?
(Source: Michael Parry, “Why government IFMIS procurements so often get it wrong,” ACCA International Public Sector Bulletin, Issue 4, January 2005, p.6.)

49. Way Forward Not the time to introduce a new system
EFY 1999 implementation deadline: current system is the only solution
Requirements are changing (e.g. Oromia request for zero balance treasury system)
Urgent demands by govt (fiscal devolution) and development partners (IMF conditionalities, JBAR, SDP data requirements)
Distraction and diversion of scarce DSA and government IT resources
Assessment and a decision on a new system should be done after the EFY 1999 rollout
Requirements more stable
A common nation-wide system using a common IT system
ICT available

50. VII Discussion

51. VIII Brief tour of the MoFED IBEX