1.  OPTIMIZING THE CHART OF ACCOUNTS DESIGN Review and Update of 2014 PEMPAL Paper
Mark Silins
January 2019

2. Background: 2014 PEMPAL paper on Integration of Budget Classification and Chart of Accounts
Report emanated from the first working group established in TCOP on chart of accounts reform
Membership of the group at that time included : Azerbaijan, Georgia, Kazakhstan, Moldova, Russia, Ukraine
Following a number of meetings, particularly in Kiev in 2013, a decision was made to prepare a paper to discuss common issues and experiences regarding integration of budget classifications (BC) and charts of accounts (CoA)
This was seen as a very specific challenge and issue for transition economies particularly due to:
a tradition of separate Budget Classifications and CoAs
the move to more integrate PFM and FMIS
The paper was finalized in 2014 and has been used as a reference document in many countries (including outside PEMPAL) – Poland, Belarus, Azerbaijan, Mongolia, Bahamas, Turks and Caicos, Fiji, Tonga, Cambodia and Swaziland are all recent examples

3. Why Revisit the Paper?
It has been a useful knowledge product regarding the creation of a single unique economic segment – but it does not cover the broader CoA including other segments, nor does it deal with some of the implementation issues experienced in countries moving to new CoAs
More recent country experience shows that some questions remain unanswered by the paper for example:
Is there a standard configuration for a modern CoA and what are the segments required in a modern CoA?
Does a CoA have to be implemented at one time?
What is the optimal way for budgetary management in the CoA?
What are the implications of GFSM 2014 on CoA design?

4. Possible Areas of Coverage for an Expanded Paper
Issues with accrual and how the CoA can be expanded overtime to support the move to accrual
Update for GFSM2014 changes including explaining why mirroring GFSM completely may not be a sensible idea
Discuss the challenges in development of the other segments in the CoA in detail particularly the Source of Funds Segment
How to support cash based budgeting and accrual accounting simultaneously in one structure
How to ensure budgetary control in the CoA
How a CoA can support consolidation and elimination issues
Linking CoA to other systems – procurement, asset registers, revenue systems, etc.
A more detailed CoA does not mean more detailed recording – the power of the relational database
CoA and ICT
CoA and a Treasury Single Account (TSA)
Developing a CoA Manual and training products
Annexes which include examples of good practice structures
Any others issues/topics?

5. Consideration/Discussion/Comment
Countries are invited to provide comments on the existing draft (both, on its structure and the content) and to share what other issues/challenges should be included in the redrafted paper in relation to different CoA segments
For the countries whose examples are included in the original paper – are you comfortable with these examples or should they be updated/removed?
Are there other countries that would like to provide examples for the paper?

6. Annex: Why are there separate BCs and CoAs in some countries?
Many countries manage cash against the budget (budget execution control), which is seen as separate and different from financial reporting and accounting.
Thus, in developing the BC and CoA, the structures focussed on the differences rather than the areas of convergence.
Other issues which probably contributed to the separation of these structures:
There was a strong historical institutional commitment to continue with the CoA operating in governments, making it difficult for it to be upgraded or amended to accommodate budget execution control;
The CoA was a modified accrual structure while the BC was generally cash based;
The CoA was more narrowly focussed on financial reporting, a more traditional accountants view of reporting, while the BC sought to include additional aspects, for consolidated management, such as the sources of financing (where the receipts came from) because of the important relationship to the financing of the budget;
In most cases, there was an urgent need to manage cash, both in terms of appropriation control by limiting unapproved spending, but also from a consolidated perspective, to improve cash management and also fiscal discipline. Thus, the BC initially anyway, was more operationally focussed – in some cases this urgent requirement meant the institutional commitment to the original CoA was an impediment to reform; and
There was a lack of automation in relation to accounting in general, making it difficult for implementers to integrate the two structures effectively.