FYR-Macedonia (Country Fiduciary Assessment 2007)

FYR-Macedonia (Country Fiduciary Assessment 2007)

Dissemination Workshop at SkopjeSeptember 20, 2007

Basis of Report

• Scoping mission in December 1-5, 2006• Main Mission in Feb 12-23, 2007• Grateful for support from Ministry of

Finance( including Department of Budget, Treasury, Internal Audit, International Finance, Public Procurement Bureau), Complaints Committee, Ministry of Education and Science, Health Insurance Fund, Economic Chambers and others

• Grateful for input from SIGMA and comments from European Commission

Objectives of CFA

• Provide updated assessment of Fiduciary Progress since 2002/2003

• Assist the government in its commitment to Public Financial Management (PFM) reforms to secure more efficient and effective use of public sector resources

• Help government measure progress in procurement reform by comparing operations with international standards including EU Acquis Communautarie

• Assess fiduciary risk • Assist government prioritize action on PFM

reforms

Procurement- Progress since CPAR 2002

• In March 2004, New Public Procurement Law enacted- substantially in line with the then best practices;

• In 2005 government adopted comprehensive implementing regulation and promulgated Standard Bidding Documents;

• Government established a state administrative body for public procurement within Ministry of Finance;

• Procurement training through EC CARDS Project

Public Procurement- Findings

• PPL of 2004 lacks key features of EU procurement( now taken care of by the proposed PPL)

• Lack of clarity on features like defense procurement, method of procurement, prequalification ( the new law is expected to bring clarity)

• Absence of Independent Complaint Review Body • Several Administrative Barriers in PPL of

2004( improvements expected in the new law)- created problem in efficient procurement in HIF

• Implementation is the key- the new legislation may bring in marginal improvements in overall public procurement system , but serious deficiencies in implementation needs to be handled on priority

• Implementation capacity is weak in ministries like MOES

Public Procurement Findings

• A national public procurement information system is required to monitor performance indicators and to identify trends

• Need to carry forward recent Electronic Government procurement initiatives- required to raise standards of transparency in government, reduce the opportunities and incentives for fraud and corruption, and improve equity and distributional efficiency

• Need to enlist support from private sector representatives of suppliers and contractors and civil society to enable an open and competitive market place

• Need to reduce instances of complaint by following procurement rules

Framework of Current Assessment of National Procurement System

• Use of a Base Line Indicator (BLI) tool for Assessment of Procurement Systems based on OECD/DAC / World Bank( Version July 17, 2006)

• BLIs present a “snapshot” comparison of the actual system against the international standards.

• BLI focus is on national system covering four

pillars ( comprising 12 indicators and 54 sub-indicators)

• Compliance/Performance Indicators (CPIs) deal with how the system operates by examining samples of procurement transactions– This report does not cover CPIs due to lack of data

Procurement – Base-Line Indicators

• Pillar I: Legislative Framework; Pillar II: Institutional and Management Capacity; Pillar III: Procurement Operations and Market Practices; and Pillar IV: Integrity and transparency of Public Procurement System

• Scores under each sub-indicator ranges between 0 to 3. A score 3 means full compliance

• For the purpose of presentation scores averaged and the figure in the next slides conveys Macedonian Public Procurement System in terms of 4 pillars and 12 indicators

• Scores on four pillars are: Pillar I( 2.0); Pillar II(1.7); Pillar III(1.4); and Pillar IV(1.5)

• Pillar I is elaborated and explained on 2 indicators and 12 sub-indicators

Procurement Performance by Pillars

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Legislative Framework

Institutional &

Mngmt Capacity

Proc Operations & Markets

Integrity &

Transparency

[Country Score]Maximum

Procurement Performance by Indicators

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Legislative Framework

Regulations

Mainstreamed

Regulatory Body

Institutional

Capacity

Efficiency

Functional Market

Dispute Resolution

Audit Systems

Appeals

Mechanism

Info Access

Anticorrution

Measures

[Country Score] Max

Methodology for legal assessment of procurement

• Area of study: procurement law, secondary regulation;

• Use of the OECD/DAC methodology;• Pillar 1: Regulatory framework• 2 legal indicators• 14 sub-indicators

• References: international standards (UNCITRAL model law)

Indicator 1: compliance of Procurement Law with agreed standards

Scope of the law

Procurement methods

Advertisement and time limits

Rules for participation

Tender specifications

Evaluation and award method

Bid submission

8

sub-indicators

Complaints

Indicator 2: Implementing regulations and documentation

Implementing regulations

6

sub-indicators

Model tender documents

Procedures for prequalification

Regulation on consultants

User guide or manual

General conditions of contract

Indicator 1: Procurement Law

PUBLIC PROCUREMENT LAW

of March 2004

(Official Gazette of the Republic of Macedonia, N°19/2004)

New draft public procurement law prepared by PPB in July 2007 not the subject to CFA

Indicator 1: Legislative and Regulatory Framework

Scope of the lawMain procuring entities & types of contracts covered by the law

questions raised on defense items* and positive list adopted by PM

*addressed in the new draft procurement law

Procurement methodsOpen competitive method is the standard procurement method;

Non competitive methods under listed conditions

Conditions associated with non competitive methods are sometimes too loose*

Advertisement & time limits

Adequate advertising, sufficient time limits for bid submission, & publication of contract awards


Rules for participation

Tender & specifications

Administrative barriers to participation (licenses, proof of solvency) may limit participation of potential bidders, restrict competition and raise government contract prices*


Tender documentation is described in the law and conditions for technical specifications indicated

General Conditions of contract not apparently included; equivalence for reference to technical standards not clearly stated*


Evaluation and award method

Award to the lowest price or the most economically bids

Award criteria expressed in points or in monetary terms

Award method should depend on the nature of the contract procured; award based on points should refer to a mechanism (secondary regulation) ensuring

an objective and transparent award process

Bid submission

Public bid opening, rejection of bids with incomplete doc., proceeding is pursued when at least 2 valid bids submitted

Upfront rejection of bids for incompleteness should be avoided and proceeding should be continued even when only 1 valid bid has been submitted


Complaint mechanism

Independent Panel reviewing bidder complaints on the procurement process

Complaints open to all participants and bidders of a bidding process

Complaints not limited only to award decisions & apparent suspension when complaint filed

The Independent Panel is not a permanent institution lacking resources and means to properly handle complaints*


Indicator 2: Implementing regulations &

documentation

Implementing regulations

Model tender documents

Procedures for prequalification

Existence of implementing regulations defining processes and procedures not described in higher legislation

Existing standard tender documentation for the procurement of goods, services, and works

Procedures for clarification need more clarity and certainty to ensure a level playing field for all*


Consultant services

User guide or manual

General conditions of contract

Indicator 2: Implementing regulations &

documentation

No specific procedures and evaluation method for consultant services

A guide for public procurement as well as a web site are available to the public and the private sector

General Conditions of Contract are available for the most common types of contract and are posted on the Web

Public Procurement- Key Recommendations

• Change the legal framework to comply with EU Requirement

• Strengthen the framework for procurement planning

• Improved Delegation in Ministries• Establish an Effective and Independent

Complaints Review Body • Improve Compliance with procurement Laws

and Regulations- Ex post Review by Internal Audit

Public Procurement- Key recommendation

• Implement a continuous and rigorous program on training

• Establish and maintain a system of national procurement statistics to monitor performance

• Publish complete and timely information on website of PPB on contract awards consistent with EU model

• Design special measures to prevent fraud and corruption in procurement

Progress since CFAA of 2003

• Several studies conducted by IMF and EC since the latest Bank-led analysis of the PFM in 2003

• Ministry of Finance has exerted considerable effort to improve its core budgeting, reporting, internal control, and internal auditing

• Donor assistance to the external audit office helped to implement far-reaching changes, bringing its practice more in line with accepted international practice

• EC has assumed the major responsibility for further upgrading of the public internal financial control systems

• Previous issues with EBFs solved and HIF FM practices improved considerably

Education Issues

• Significant shortcomings in the compliance and proper utilization of the core PFM systems and procedures

• Problems in the budgeting process, internal financial controls, and audit follow-up

• Key financial control processes are not followed – as documented in SAO and internal audit reports

HIF Issues

• Ensure more consistent compliance with rules and regulations

• Ensure further improvements in the efficient utilization of public resources, for example in the procurement of drugs

• Positive trend with management team committed to improved accountability

• Full assessment of the results of reforms on budgeting and internal control systems to be planned in 2009

Main FM Recommendations

• MOES to address major internal control weaknesses (diagnosis by external audit, written procedures, delegation, approval)- immediate

• HIF to consolidate its progress on FM (review 2009, immediate ICB improvements, improved prequalification process, supported by IA) - medium-term

• Plan a long-term transition to Internationally agreed financial reporting standards - long-term

• Continue the speedy development of the internal audit (develop IA community and continue aggressive training, focus on large value procurement audits) - immediate

• SAO to improve reporting and work with ACC and others in the fight against corruption - immediate

PEFA: Public Expenditure and Financial; Accountability

• Measure PFM performance over time using agreed indicators while comparing with best practice

• Assist a fiduciary risk analysis and support decisions from donors on budget support

• Score A to D

• Methodology available on www.pefa.org

Macedonia- PFM System at a Glance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Budget Credibility

Expenditure Arrears

Cash Management

Procurement Controls &Effectiveness

Internal ControlsAccounting & Reporting

Internal Audit

External Audit

Legislative Oversight

Macedonia

Max

MMacedonia

Credibility of Budget: Scores

A

AStock and monitoring of expenditure payment arrears

4

AAggregate revenue outturn compared to approved budget

3

Composition of expend. outturn compared to approved budget

2

AAggregate Expenditure Outturn compared to approved budget

1

Budget Credibility

SCOREINDICATOR

Predictability and control in budget execution: scores

16 Effectiveness of cash flow planning, mgt. & monitoring

B+

17 Recording & management of cash balances, debt and guarantees

A

18 Effectiveness of payroll controls C+

19 Competition, value for money and controls in procurement

D+

20 Effectiveness of internal controls B

21 Effectiveness of internal audit C

Accounting, recording and reportingExternal scrutiny and audit: scores

Next Steps / Q&A/Websites

• MOF to form a steering committee to monitor the implementation of the recommendations

• Q&A• Websites