Gert van der Linde
World Bank 7th Annual CABRI Seminar, Rwanda, 17-18 August 2011
1
Overview
International experiences
Key conceptual issues
• Accountability
• Budgeting
• Budget execution
• Accounting
• Reporting
A few examples
Incentives and enforcement
Conclusion
2
Selected International Experience
United States - accrual-based financial reports, but has not announced any plans to adopt accrual budgeting
United Kingdom - implemented accrual accounting and reporting in executive agencies and subsequently adopted accrual accounting and budgeting for the central government
France - adopting accrual accounting, but has not yet announced an intention to adopt accrual budgeting
Australia - introduced annual accrual reporting, and a few years later adopted accrual budgeting
New Zealand - introduced accrual reporting and budgeting simultaneously
3
Key conceptual issues
Accountability
Budgeting
Budget execution
Accounting
Reporting
4
Accountability Relationship
= ? R
Answer
Evaluation
Trust
Responsibility R
Monitoring and evaluation The main purpose of evaluation is:
to assess results against original expectations
to learn form experience
to verify that anticipated results occurred
to determine why it did or did not occur as planned
Evaluation establishes accountability for results obtained
“Information is the currency of accountability…”
Results?
What should be evaluated?
Private Sector, e.g.:
Turnover
Profit
EPS
ROI
Liquidity
Interest Cover
Dividend Cover
Gearing
There is a “bottom line”
Public Sector:
What is our “bottom line”?
Information Requirement
Compliance
Stewardship State of Finances
Performance Economic Impact
Where many countries are coming from
Vote 26 - Transport
Appropriation account for the year ended 31 March 1993
Original Adjustments Saving
Estimate Vote 25 Estimate Voted Expenditure (Excess)
1992-93 1992-93 1992-93 1992-93 1992-93 1992-93
Main Divisions R'000 R'000 R'000 R'000 R'000 R'000 %
1 Administration 23 430 154 ( 210) 23 374 20 821 2 553 11
2 Civil Aviation 122 148 1 264 11 978 135 390 142 189 (6 799) ( 5)
Information – one of the problems
Compliance
Stewardship State of Finances
Performance Economic Impact
?
? ?
?
Where countries are coming from
Weak information
Realities: Cash utilisation is the key measure of performance
Focus on inputs and not on results
Fragmented and unclear accountabilities and legal frameworks
Poor quality and late information
Poor compliance with existing legislation
Weak financial management
Wastefulness & inefficiency, fraud & theft
In summary, Poor Accountability
Key conceptual issues
Accountability
• Who is accountable for what?
• How will this be monitored and evaluated?
Budgeting
• Coverage
• Appropriation law
• Link to accountability framework
• Support for and link to cash management
• Classification system requirements, including GFS, COFOG, IPSAS, management information requirements
• Level of control, and links to the accounting and reporting system
12
Key conceptual issues Budget execution
• Compliance to appropriation law
• Control over votes / programs / cost centres / type of expense
• Risk management coverage – Revenue / Expenses / Liabilities / Assets
Accounting
• Information and reporting requirements, including in-year and annual financial statements
• Accounting standards
• Standard chart of accounts
• Good basic accounting disciplines, including control over bank accounts, commitment controls, reconciliations
13
Key conceptual issues
Reporting
• Against budget – per vote / program / cost centre / objective / funding source / type of expense / recurrent / capital
• Financial performance
• Financial position
• Definition of reporting entity – existence of ownership control as a basis for the accountability framework
• Consolidation –
• Who is in or out and why
• Information needs
• Accounting standards
• Inter-entity transactions
14
Overview International experiences
Key conceptual issues
Accountability
Budgeting
Budget execution
Accounting
Reporting
A few examples
Conclusion
15
A framework pursued…
16
A performance orientation in the budget
Outcomes Outputs Programs
Type of expense:
Salaries
Supplies & admin
Capital
Vote structure -
• Ministries
• Departments
• Agencies
How much? Quality? When? Cost?
Economy
Efficiency
Effectiveness
= Budget
“REAL”
Performance Agreements
17
A few examples -
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19
20
21
22
23
24
25
26
27
28
29
30
31
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Other improvements to the control, information and audit architectures Established control over the bank account configuration
Established monthly reconciliation and reporting procedures, supported by good audit trails
Introduced requirement for internal audit, under oversight of an audit committee, for all departments
Introduced sanctions for financial misconduct
Introduced concept of “ownership control” into legal framework and requirement to produce annual consolidated financial statements
Legal recognition for accounting standards – established Accounting Standards Board
Introduced requirement for annual reports, reporting on performance
Established Minister’s responsibility for tabling of annual report and audited financial statements in Parliament
Changed the external audit cycle – now to be completed 5 months after year-end 33
Incentives and enforcement
Incentives
• Spirit of Ubuntu: "I am what I am because of who we all are."
• Political leadership
• Let managers manage….
• Link with public service reform
Enforcement
• Walk the talk…
• …..hold managers accountable
• Sensible and practical legal sanctions
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Conclusions Get the basics right first
Be clear on the reporting entity
Align the legislative framework, the standards, the processes, the systems and data requirements with reporting needs and capacity
Always maintain / protect the fundamentals
Stake holder buy in, including Auditor-general
Change management
Show results
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Questions?
36