1. PIFRA – FMIS in Pakistan Budget Execution and Implementation for Public Expenditure and Financial Accountability Course January 2003

2. Project Rationale Serious deficiencies in financial data, systems, and staff skills Planning, budgeting, reporting, and controls were unreliable with adverse impacts –Cash, asset, payment, and debt positions with leakage Unknown commitments/obligations – pension, depreciation –Uneven resource allocation, spending, and revenues –Weak governance and accountability

3. The Vision Pakistan – Improvement to Financial Reporting and Auditing Project (PIFRA) –Implement an accounting system based on modern standards, principles, skills, and IT –Implement a governance and legal framework for independent and effective audit function –Move in parallel to public sector reforms, NRB Core Team: Lee, Subramanian, Hashim + Partners: PREM, IMF, ADB, DFID

4. 3 Development Objectives Improve public sector accounting and financial systems Provide basis for enhancing public sector accountability Support improved institutional capacity for economic policy-making and management

5. Planned Project Outputs New financial rules & regulations New Accounting Model and CoA Improved auditing and accounting skills New systems to support decision making Accountability frameworks

6. Policy Changes Improved accounting principles and standards for the government sector Enhanced independence and capacity of Audit –Phased responsibilities for accounting moving from the Auditor to CGA Enhanced skills and capacity of government finance staff plus HR and training policies

7. HR Issues Major realignment in structured career path for accounting and auditing specialists –Job descriptions, recruitment, training, deployment –Skills, numbers, locations, roles, incentives –Staff rotations based on experience, interest Initial and continuing training requirements Objective and transparent evaluation –Depends on overall civil service reforms

8. Status of PIFRA I SAP ERP package –PWC designed A&A aspects + Acceptance Tests –Siemens configured and implemented –Audit Manual, HR, Change, and Training STCs 2 pilots are now operational –Replicate to 52 sites – although straight replication is too simplistic –Training has begun –Communication plan to disseminate benefits

9. Looking Back Policy goals unlikely to be fully achieved –Improve public sector accounting and financial systems –Provide basis for enhancing public sector accountability –Support improved institutional capacity for economic policy- making and management Budgetary goal limited to expenditure management Out of scope are strategic allocation of resources Revenues and taxation Performance measurement/audits

10. Devolution Moving from centralized, top-down model Governments at 3-4 levels to have more autonomy, but must provide more services More local control over system, but ERP design –Simpler systems may be used by local governments –Data summaries roll up to next level for consolidation –Need reports designed for local decision making

11. FMIS Issues Moving in right direction, evolutionary 26% of overall funds are in PIFRA scope –Not Defense, Railways, PIA, SOEs.... 96% accounts reported to be “ reconciled ” and aligned with budget categories – but unreliable –Any reports would reflect same No linkage to budget development, planning, treasury, tax, debt management

12. Emergence of PIFRA II PIFRA II - now in preparation ($87m) Can ’ t wait for systems to be rolled out under PIFRA I to begin massive training campaign –Long lead times, intensive needs in A&A, transactions –More customization and scaling than anticipated –New devolution process is underway, not envisioned Add 75 more sites to PIFRA I ’ s 52 sites  127

13. PIFRA II Objectives Jumpstart training and fill in the gaps Increase accuracy, completeness, reliability, and timeliness of financial reports at national, provincial, district (and lower levels) –Assumes improved budget execution Improve public financial management, accountability, transparency, credibility –Key CAS objectives, reform window is open

14. Planned PIFRA II Outputs Delivers/builds upon PIFRA 1 outputs Upgraded government financial system –Credible financial data to support decision makers at multiple levels of government At a minimum, expenditure analysis Rigorous internal controls Fully qualified accounting and audit staff

15. Lessons Learned – 1 Difficult to resolve: –Policy Change: accountabilities, public disclosure, devolution mandated by 2006 Legal framework slow to embrace change –Organization Change: roles and responsibilities, shifts in charter, new functions Can control your resources, not those of others –HR Change: civil service rules, groupings, certifications, incentives, staff reductions Civil service reforms are measured in years

16. Lessons Learned - 2 Progress depends upon level of commitment and individual champions –Turnover causes major rework, delays –Missions fail if reviews are not timely –Security situation adds another layer Factor in starting point tailored to client –Timelines are local - use realism in government ’ s implementation capability –Small steps are necessary

17. Lessons Learned - 3 Need much more attention to: –Change management: everyone is affected by new processes, procedures, or linkages (ERP) Automating existing processes yields few benefits Cross-cutting reforms help motivate, mandate –Communication: resistance can build quickly if all stakeholders don ’ t know proposed benefits –Training: building skills for thousands is complex –Documentation: critical, overlooked, delayed

18. Ideas for Discussion What FMIS linkages are d esired/required? –Budget planning, development, cash management, debt management, assets, revenue, tax Critical ingredients to improve accountability? Budget discipline leads to improved service delivery? Decentralized systems change decision making? What re-engineering is ideal, necessary, possible? Other?

19. Supplemental Materials Pakistan FMIS

20. PIFRA I: History & Components Board approval: September ’ 96 for $29m Effectiveness : February ’ 97 Closing: June ‘ 02  May ‘ 04

21. Separation of Audit and Accounts Inherent conflict between compiling and auditing accounts –Staffing considerations and career paths Build capacity and tools in both new functions Legal/regulatory, administrative, and procedural issues Experienced major delays – now on track

22. Creation of an MIS Branch Three facets of MIS –Standards and Policies - define and review all audit and accounting implications of systems, technical aspects of hardware and software –Systems Development – develop and maintain applications and interfaces –Implementation – install, operate, and upgrade systems around the country Need incentives to attract/retain qualified IT staff outside existing civil service mechanism

23. Technology Strategy Open, scalable, portable, distributed architecture and RDBMS –Evolving under devolution Processing nodes to optimize workload, fault resistance, and user control Telecommunications links and manual data transfer mechanisms based on scale –Summary or detailed data roll-ups

24. PIFRA II Components – ($87m)

25. Devolution Impacts Systems impacts: –S ervers, communications, database administration, configuration, operations, synchronization, upgrades, recovery, maintenance, documentation, IT staff A&A, audit tools and manuals, reports –Internal controls, processes, procedures Communication & Change Management Staffing, #s and location, training, HR issues