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Public Disclosure Authorized

AFRICA OPERATIONS SERVICES SERIES

100509

A Handbook on Financial Management Information Systems for Government

A Practitioners Guide for Setting Reform Priorities, Systems Design and Implementation

(Based on a compilation of experiences in World Bank- nanced projects) Ali Hashim

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M ASPEN THE AFRICA REGION | THE WORLD BANK GROUP

Public Disclosure Authorized

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AFRICA OPERATIONS SERVICES SERIES

A Handbook on Financial Management Information Systems for Government

A Practitioners Guide for Setting Reform Priorities, Systems Design and Implementation

(Based on a compilation of experiences in World Bank-financed projects)

Ali Hashim

? 2014 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202?473?1000 Internet:

This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

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Contents

Forewordix

Acknowledgementsxi

About the Authorxiii

Abbreviationsxv

iii

I.Introduction1

II.Some Basic Concepts7 Rationale for Implementing Integrated Government Fiscal Management Systems 7 Diagnostic Study7 Functional Requirements of Agencies Responsible for Economic Management 8 Considerations in the Design of an IFMIS 9 What is Involved in Setting up these Systems? 11

III.Policy Framework and Institutional Reforms 13 Policy Framework13 Budget Management Law and Associated Regulations 13 Budget Classification Structure and Chart of Accounts 14 Reporting Requirements15 Institutional Arrangements15 Arrangements for Banking Government Funds ? The Treasury Single Account (TSA)15 Arrangements for Processing Payment and Receipt Transactions 15 Alternative Institutional and Banking Arrangements for Setting up a TSA and for Processing Payment Transactions16 Other Legislation and Frameworks that Regulate the Operation of Automated Systems20 Requirement for Setting up an IT Capability 21

IV.Development of an Information Architecture for Government Fiscal Management 23 Functional Processes in Government Fiscal management (GFM) 23 Macro-Economic Forecasting23 Budget Preparation23 Budget Execution, Accounting and Fiscal Reporting 23

A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

Cash Management24 Position, Payroll and Benefits/ Pensions Management for Govt. Retirees 24 Debt Management24 Revenue Administration (Customs, Tax and Excise and Internally Generated

Revenues)24 Auditing24 Information Systems Architecture for Government Fiscal Management 24 Systems for Macro-Economic Forecasting 25

iv

V.Treasury Systems ? Functional Processes, Information Flows and Systems Modules 29

Core Functional Processes 29

Treasury System29

Treasury Systems Functionality 30

Budget Execution using the Treasury System 30

Budget Management (Including Budget Review and Fiscal Reporting) 30

Commitment Management35

Payments Management35

Receipts Management38

Cash Management39

Bank Reconciliation40

Tax and Customs Receipts and Refunds 40

Importance of Commitment Management for Budgetary Control 40

The Commitment Process 41

Commitment Thresholds43

Multi-year Commitments43

Commitment Carry Forward 43

Salary and Payroll Commitments 43

Transition to Commitment Accounting 43

Systems Deployment Options: Treasury-Based or Spending Unit-Based Systems

Deployment44

Primary Treasury System Interfaces 48

Interface with the Budget Preparation System 48

Interface with the Payroll System 48

Interface with the Debt Management System 49

Interface with Tax and Customs Systems 49

Interface with the Banking system 49

Interface with the Audit Systems 49

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VI. Technology Architecture51

Application-Specific Factors51

Systems Topology ? Centralized and Distributed Technology Architectures 52

Centralized Architecture52

Distributed Architecture52

Partially-Distributed Architectures52

Satellite-Based Communications From Remote Sites 54

Application Software Options 55

Commercial Off-the-Shelf (COTS) vs. Custom-developed/Bespoke Application

Software55

v

Customization, Parameterization, and Reports Development 57

VII.Systems Implementation59 Project Management Structures 59 Implementation Phases60 Phase I ? Systems Design 60 Phase II ? Procurement and Contracting for the System 61 Phase III ? Systems Implementation 62 Software Testing and Acceptance63 Unit Testing63 Internal Control and Systems Security 65 Indicative Time Schedule66 Cost Elements of an IFMIS Project 68 Investment Costs68 Recurrent Costs68

VIII.Systems Procurement71 Consultancies and Contracts Involved in Project Implementation. 71 Contracting for Consulting Support Required for IFMIS Projects 71 Options for Procuring the Technology Platform for Systems Implementation 73 Single Responsibility Contract 73 Multi Tranche Procurement73 Systems Procurement using World Bank Procedures 74 Some pointers on Designing the International Competitive Bidding (ICB) Package74 Contract Management77

A HANDBOOK ON FINANCIAL MANAGEMENT INFORMATION SYSTEMS FOR GOVERNMENT

IX.Implementation Experience79

Major Groupings of Projects 79

Transition Economies.79

Post Conflict Economies 79

Implementation of an IFMIS has Resulted in Significant Advantages. 80

Project Completion Times80

Implementation Costs81

Recurrent Costs82

Project Scope82

vi

Technology Choices82

System Architecture82

Implementation at the Sub-National Level 83

Implementation in Low Capacity Settings and in Island Economies 84

Island Economy Settings 84

X.From Core Treasury Systems to a Broader IFMIS: Some Sequencing Considerations 87 Some Considerations for Implementing Advanced Budgeting Methodologies 91 Sequencing Reforms93

XI.Lessons learned95 Hierarchy of Requirements 95 Strong Government and MOF Commitment 95 Continuity in the Bank's Project Team 96 Project Design96 Business Process Engineering 97 Importance of Internal Control Procedures and Information Security 97 Complexity of Charts of Accounts 98 Implementation Prerequisites98 A Good Quality Telecommunications Network 98 Availability of Technical Expertise 98 Training100 Change Management101 Plan for Realistic Time Frames for Project Execution 101 Resist the Temptation to Blame the Technology and Start Afresh in Mid-Stream of an Implementation Effort 101

XII.Concluding Remarks105

References107

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