PFM Reform in Nepal: Towards Better Financial Governance

8/2/2019 PFM Reform in Nepal: Towards Better Financial Governance

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Welcome and Namaskar !

26th Annual ICGFM International Conference

PFM In the 21st Century

The PFM Architecture, Institutions, and Tools to

Meet the Challenges of the ModernWorld

April 29 - May 4, 2012

Miami, Florida, USA


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PFM Reform in Nepal:

Towards Better Financial Governance

Mahesh P. DahalJoint Financial Comptroller General

Financial Comptroller General Office (FCGO)and

Coordinator , PEFA SecretariatMinistry of Finance

Government of Nepal


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Outline of the Presentation

1. Understanding PFM

2. PFM Performance Dimensions and Nepals Position

3. PFM Reform Program

4. PFM Implementation Structures

5. Financial Control General Office (FCGO)

6. Budgeting, Accounting and Financial Reporting7. Key PFM Reform Initiatives

Public Expenditure and Financial Accountability (PEFA)

Treasury Single Account (TSA)

Nepal Public Sector Accounting Standards (NPSAS) and IFRS

Other Reforms Initiatives

8. Nepal Portfolio Performance Review (NPPR)

9. Issues and Challenges

10. The Way Forward


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1. Understanding PFM

PFM is understood as the management of financial spheres of any Government. Itincludes the following:

Planning and Budgeting

Management of Revenues

Budget Execution and Expenditure Management

Debt Management

Reimbursement

Public Procurement

Accounting, Recording and Financial Reporting

Internal Audit and Control

Final Audit and External Scrutiny.

The broad objectives of PFM are to achieve overall fiscal discipline, allocation of resources

to priority needs, efficient and effective management of public services.

The specific objective of PFM is to develop a predictable, transparent and accountable

system of financial governance.

A strong PFM system is fundamental to the Good Governance.


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2. PFM Performance Dimensions

andNepals Position

(Based on PEFA Report 2008)


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1. Credibility of the Budget

The budget is credible at the aggregate level,

PFM-related implementation weaknesses (e.g.

lack of or delays in preparing annual work plans

along with procurement plans),

Non-PFM implementation constraints (e.g.

conflict and security issues, technical capacity),

Uncertainties related to the donor funds.


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2. Comprehensiveness and Transparency

The budget is based on a good classification system,

Government of Nepal has made good efforts to improve

the budget coverage with reports on a "consolidated

fund"and monitoring of some fiscal risks (notably, thesituation of public enterprises),

However, a significant-and possibly growing-gap has

resulted from fiscal activities of: many development funds and boards, and

local governments.


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3. Policy based Budgeting

Significant progress has been made towards a sound policy-based budget with the adoption of the Medium Term

Expenditure Framework (MTEF) and the creation of

"business plans" for several sectors.

Gaps include:

Lack of engagement of the political leadership on the MTEF

and budget preparation,

Inadequate engagement or understanding of the MTEFamong middle and lower-level government officials,

Uneven linkages between annual budgets and MTEFs, and

Incomplete sectoral "business plans" (in need of stronger

monitoring of outputs).


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4. Predictability and Control in

Budget Execution

Guaranteed cash releases for high priority ("P1") projects (provided

implementation is satisfactory).

Payroll controls are also well developed.

The Public Procurement Act (2007) is aligned with best international

practice but its implementation remains to be tested.

A basic control framework for non-salary expenditures, which includes

physical verification, is in place but is unevenly implemented.

There is nocommitment control.

Internal audit is not effective and does not comply with international

standards. It focuses narrowly on pre-audit of transactions (with no

system reviews).


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5. Accounting, Recording

and Reporting

Current cash-based accounting practices are generally well-establishedand accounts are frequently reconciled (with the exception of revenue

accounts).

However, incomplete computerization has weakened the timeliness

and quality of accounting.

Annual reporting and financial statements are timely and of acceptable

quality(although there are some gaps in content). Within-year

reporting is weakand is not publicized.

There is nonational Public Sector Accounting Standard (Now NPSAS

developed).

The audited consolidated financial statements and annual revenues

and expenditure statementsdo not include accounting policies and

explanatory notesas required by International Public Sector Accounting

Standard (IPSAS).


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Accounting, Recording

However, the consolidated financial statements issuedby Financial Comptroller General Office(FCGO) for

government useinclude basic accounting principles and

assumptions.

The financial statements prepared by the line ministries,

FCGO and Office of the Auditor General (OAG) do not

reconcile since the accounting system does not allow

recording non-cash transactions (direct payments andcommodity grant or aid or turnkey projects) due to

which FCGO faces difficulties in providing true and fair

picture of such transactions.


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6. External Scrutiny and Audit

Annual financial statements are audited by an independent Auditor

General in a timely manner and the report is discussed by a PublicAccounts Committee (PAC), although this was weak in the recent pastowing to the political situation.

There is, however, little evidence of follow-up for clearing

"irregularities" identified by the Auditor General. The annual auditreports, follow-up activities and external scrutiny focus more on

"irregularities" as opposed to correcting systemic issues.

External scrutiny was also weakened by:

long political uncertainty,

lack of public access to information (including accounts of local

governments; contracts) and ,

weak process to engage the legislature in discussing the MTEF and

in scrutinizing the budget.


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7. Donor Practices

Despite progress in recent years (toward general andsector-specific budget-support),much remains to bedone to meet the principles of Nepal's 2002 Foreign Aid

Policy (and the Paris Declaration and ), In particular,the quality of financial information

provided by donors is weak and,

The proportion of aid that uses national proceduresismuch below 50 percent.


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NEPAL

PFM High Level Performance Indicators Set(PEFA Report 2008)

S


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Performance

High Level

Indicators

Performance

Indicators (PI)

28+3Thematic Groups and Indicators Score

A.PFM

OUTTURNS

I. CREDIBILITY OF THE BUDGET

PI-1 Aggregate expenditure outturn compared to original approved budget B

PI-2 Composition of expenditure outturn compared to original approved budget C

PI-3 Aggregate revenue outturn compared to original approved budget A

PI-4 Stock and monitoring of expenditure payment arrears D+

B.KEYC

ROSS-

CUTTING

ISSUES

II. COMPREHENSIVENESS AND TRANSPARENCY

PI-5 Classification of the budget C

PI-6 Comprehensiveness of information included in budget documentation B

PI-7 Extent of unreported government operations C

PI-8 Transparency of inter-governmental fiscal relations C

PI-9 Oversight of aggregate fiscal risk from other public sector entities D+

PI-10 Public access to key fiscal information B

C.

BUDGET

CY

CLE

III. POLICY- BASED BUDGETING

PI-11 Orderliness and participation in the annual budget process C+

PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting C+

NEPAL: PFM High Level Performance Indicators Set

(PEFA 2008)

Performance Performance


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PerformanceHigh LevelIndicators

PerformanceIndicators (PI)

28+3Thematic Groups and Indicators Score

C.BUDGE

TCYCLE

IV. PREDICTABILITY AND CONTROL IN BUDGET EXECUTION

PI-13 Transparency of taxpayer obligations and liabilities C+

PI-14 Effectiveness of measures for taxpayer registration and tax assessment C

PI-15 Effectiveness in collection of tax payments D+

PI-16 Predictability in the availability of funds for commitment of expenditures C+

PI-17 Recording and management of cash balances, debt and guarantees C+

PI-18 Effectiveness of payroll controls C

PI-19 Competition, value for money and controls in procurement C

PI-20 Effectiveness of internal controls for non-salary expenditure C

PI-21 Effectiveness of internal audit D+

V. ACCOUNTING, RECORDING and REPORTING

PI-22 Timeliness and regularity of accounts reconciliation C+

PI-23 Availability of information on resources received by service delivery units C

PI-24 Quality and timeliness of in-year budget reports C+

PI-25 Quality and timeliness of annual financial statements C+

VI. EXTERNAL SCRUTINY AND AUDIT

PI-26 Scope, nature and follow-up of external audit D+

PI-27 Legislative scrutiny of the annual budget law D+

PI-28 Legislative scrutiny of external audit reports D+

D.DONO

R

PRACTIC

ES

DONOR PRACTICES

PI-29 Predictability of Direct Budget Support D

PI-30 Financial information provided by donors for budgeting and reporting on project and program aid D

PI-31 Proportion of aid that is managed by use of national procedures D

Recipient Side:A= 1, B= 3, C+= 8, C= 9, D+= 7, Total = 28 Donor Practice:D = 3


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3. PFM Reform Program


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PFM ReformDriving Factors

Structural Adjustment Programme - 1987

Paradigm shift from state intervention to economic liberalization during 90s

Public Expenditure Review Commission (PERC) 2000 and 2011

Country Financial Accountability Assessment (CFAA) - 2002 updated in 2005

Country Procurement Assessment Report (CPAR) - 2005

Nepals WTO Accession - 2005

Paris Declaration on Aid Harmonization - 2005

Public Procurement Act - 2007

Public Expenditure and Financial Accountability (PEFA) Report - 2008

Fiscal Transparency Assessment (IMF ) - 2008

Public Financial Management Project (PFMP) - 2009/10 &2011/12

Government commitments in Budget and other policy pronouncements.


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PFM Reform...Rationale

A sound PFM System is fundamental inharmonizing/mobilizing development assistance and

creating conducive environment for FDI,

An effective PFM system is essential in channelizing all

resources through the national system,

A good PFM system is instrumental in enhancing

governments credibility and trustworthiness,

A functional PFM mechanism improves confidence

among the Tax Payers,

A sound PFM practices integrates and standardizes

national system with the global system.

f


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PFM ReformStrategy & Action Plan

Based on PEFA Report and PFM strategy, PFM Reform Program(2009/10-2011/12) has been prepared and approved by the

Government.

The PFMRP has identified 6 outcome and 18 output areas

including institutional capacity improvement for PFMimplementation.

147 immediate and intermediate actions has been identified.

Government has initiated separate budget head (Public Financial

Management Reform Program (3051153/54) from FY 2009/10 tosupport PFMRP.

Each year more than NRs. 10 Millions of being allocated to

support Program.

Many donor supported activities also complement to the PFMRPimplementation.

f


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PFM Reform Outputs & Outcomes

Outcome I: Improved Tax Collection

1. Simplified and more understandable tax system for

taxpayers,2. Improved access of taxpayers to their personal data,

3. Provide quality data and statistics to stakeholders,

4. Strengthening Revenue Tribunal,

5. Strengthening of valuation system in line with WTO

valuation principle in order to maximize the revenue

collection.

PFM R f


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PFM ReformOutputs & Outcomes

Outcome II: Improved Policy basedBudget Formulation

1. More orderly budget formulation process which followsthe budget calendar,

2. Improved linkages between fiscal planning, expenditure

policy and budgeting,3. Institutionalization and Internationalization of medium

term expenditure framework (MTEF).

PFM R f


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Outcome III: Improved Budget Execution

1. Improved internal financial controls over expenditures,

2. Improved debt and cash management,

3. Improved system for the measurement of procurement system.

Outcome IV: Improved Accounting andReporting for Financial Information

1. Improved quality and timeliness of government financial

reporting,

2. Improved accounting and reporting system.

PFM R f


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Outcome V: Improved External Scrutinyand Audit

1.Improved quality and timeliness of audit,

2.Improved monitoring and implementation of PAC

recommendations and directives,

3.Constitute a Government Budget Management

and Expenditure Review Commission under the

chairmanship of the Member of the Public

Accounts Committee (PAC).

PFM R f


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Outcome VI: Sustained Reform Efforts toImprove Public Financial Management

1.Improved PEFA Secretariat capacity toinstitutionalize the PFM reform process,

2.Improved Institutional Capacity of FCGO to

institutionalize PFM reform process.


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5. Financial Control General Office (FCGO)

Goals and Mandates

Established in 1975

Goals:

Improving Financial Transparency and Accountability

Reducing Fiduciary Risks

Standardizing Accounting and Financial Reporting

Enhancing PFM efficiency.

Mandates:

Treasury Management

Accounting and Recording and Financial Reporting

Internal Audit.


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Financial Control General Office (FCGO)Structure

President

Council ofMinisters

District TreasuryControl Offices

(DTCOs)

(75)

MOF

FCGO

PensionManagement

Office

Central

Arrears RecoveryOffice

Total Pesonnel Strength : 4900

1. Officer - 1350

2. Others - 3550


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Financial Control General Office (FCGO)

Treasury Functions

Cash Management of Government

Management of inflows

Management of outflows and

Management of cash balances

Budget execution, Accounting, Recording and

Financial Reporting Internal Audit of all Public Expenditures.


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6. Budgeting, Accountingand Reporting


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Government Budget Cycle

Reporting & Auditing

Integrated Financial

Reporting (FCGO)

External Audit

Parliamentary Oversight

(PAC)

Policy ReviewOutcome/Impact

Evaluation

Annual Review and

Policy Updating

Accounting &Monitoring

Maintenance of Books

of Accounts

Monthly and Trimester

Reports (Financial and

Physical)

Internal Audit

Annual Review.

Budget ExecutionFunds Release

(Authorization,

Annual Program,

Directives)

Program

Implementation

Strategic Planning 3 years Fiscal

Targets

Policy Targets

Resource

Management

Expenditure

Priorities

Budget

Preparation Revenue and

Expenditure Projection Programmatic and

Financial Plan

Ministerial Allocations

Legislative Approval

Constitution

Long Term Plans

Periodic Plan

Dev. Thrust/ Priorities

Govt. Policy & Program

MTEF

Sectoral Business Plan

Special Commitments(MDGs)

Priorities(P1,P2,P3)

Projections

Resource

Committee

(NPC Level)

Budget

Ceilings

Sectoral

Program

ProcurementMaster Plan

Procurement/ User

CommitteeTransfer of Funds/Grants

FCGO/

DTCO/OAG

NPC/MOF

NPC/

MOF/

LMs

NDAC/

MDAC/

DDAC

NPC/NDC


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Accounting and Financial Reporting

Spending Units (4000)Maintains Books of Accounts

DTCOsLine

Departments

Line

MinistriesFCGO

OAGMOF

LM

B

I

M

S

BMIS

F

M

I

S

FI

N

A

N

C

IA

L

R

E

PO

R

T

I

N

G ACCOUNTING


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7. Key PFM Reform Initiatives

Public Expenditure And

Financial Accountability

(PEFA)


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PEFA & Nepal

PEFA Assessment was conducted in 2007-08 and Report published

in 2008 with 31 performance indicators (of which 3 are Donorsrelated) which are recognised globally,

Based on PFM strategy, Development Action Plan (DAP) has been

formulated identifying 147 immediate and intermediate activities

to be performed, PEFA Steering Committee (12 Member Chaired by Finance

Secretary) and Working Committee( 7 Member Chaired by PEFA

Coordinator) formed in 2009,

PEFA Secretariat established in 2009 which is led by a Coordinatorwith 7 professional staff,

PEFA Implementation Units (PIUs) formed both at Centre (15) and

Local Level (48) till mid April 2012,

The Secretariat is accountable to the PEFA Steering Committee.


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PEFA & Nepal...

PEFA Aims at:

Strategic allocation of resources

Efficiency in delivering services

Transparent and accountable management of public resources

PEFA tries to :

Institutionalize the PFM reform processes and build capacity

Establish performances milestones and monitor them

Review PEFA progress periodically, assess the performance indicators and

reports accordingly

Conduct meetings, seminars and workshops on PFM related areas Liaison with development partners to mobilize resources for PFM/PEFA

PEFA Core Objective is to :

Reduce Fiduciary Risk through strengthening systems, processes and

institutions.


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PEFA & Nepal...

PEFAis considered as an Integrated Public FinancialManagement Reform agenda of Government of Nepal.

PEFA is perceived as a framework to improve financial

transparency and accountability of public expenditures.

Itis understood as a tool to reduce fiduciary risk and to

improve fiscal discipline by way of strengthening PFM

institutions, systems and processes.

It is also accepted as a means to improving PFMefficiency in the country.

Nepal is the only country to establish the separate PEFA

Secretariat !


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PEFA & Nepal...Key Initiatives

PEFA Orientation Programs, Seminars, Workshops and PFM related Trainings,

PEFA Website (www.pefa.gov.np), PEFA Newsletter (Bi-Monthly in local language) and PEFA Journal

( Six Monthly in English)

Small Grant for Internship / Thesis and Mini - Researches on PEFA /PFM Innovations

Software Development for Debt / Grant / Reimbursement / Fund Management

Establishment of National PEFA Resource Center

Preparation of Sectoral PFM Manuals/PFM Strategy (Education, Health and Local Government)

Preparation of PEFA IEC Strategy and Production IEC Materials

Establishment of Local PFM Donors Forum (Meeting every two month)

Debt Sustainability Analysis (DSA) study

Study on establishment of Debt Management Office (DMO)

Repeater PEFA Assessment in 2012
http://www.pefa.gov.np/http://www.pefa.gov.np/


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Key PFM Reform Initiatives...

Treasury Single Account(TSA)


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TSA...Conceptual Understanding

Treasury Single Account (TSA) is a changed operating

system in Nepal Government's Treasury function and

cash management.

In this system, governments transaction done throughsingle or limited set of (linked) bank accounts operated

by District Treasury Control Offices (DTCOs).

Unified structure of bank account gives a consolidatedview of government cash resources at any given time

and government monitors all its receipts and payments

for cash management.

TSA


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TSA...Objectives

Improve cash management, introduce cash planning andforecasting system,

Ensure effective control over aggregate government cash

balances,

Establish transparent and efficient payment and receiptmechanism,

Improve financial reporting system with qualitative data,

Enhance efficiency and effectiveness in the use of public

resources,

Optimize the cost of financing by minimizing the volume and cost

of government borrowing,

Gainful placement of surplus treasury balance,

Reduction on time taken to prepare consolidated financial

statement.

TSA


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TSA...Benefits

Complete and real time information on government cash resources,

Accurate and reliable cash flow forecasting,

Improved operational and appropriation control,

Day to day information about government treasury and timely information on

Integrated Treasury. Short-term forward estimates of cash flow imbalances (after full functionality

TSA),

Harmonization of forward cash planning with government borrowing (after full

functionality TSA ),

Zero-balance Single Account for payment and receipts in place of multipleaccounts,

Single check issuing agency in place of multiple check issuing agencies.

TSA


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TSA...Rationale

More than 4000 spending units

More than 14000 bank accounts

Idle cash balance in various government accounts

Weak cash management

Virtually no cash planning and forecasting system

Non-harmonization of public debt management with

cash management of government Delays in financial reporting

No accurate information about Treasury Balance on

time.

TSA


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TSAInitiation and Coverage

Recommended by IMF (Study Report) in December 2009,

Government of Nepal decided to implement TSA system in January

2010,

Piloted in two districts (Lalitpur and Bhaktapur) in 2009/10,

Rolled out in 20 more districts in 2010/11,

Revenue TSA also piloted in one district in January 2010,

Further rolled out in 16 districts in July 2011,

Implemented in 38 districts till now

Revenue, Expenditure and Deposits (Retention money) captured

22 additional districts will be expanded by mid July 2012,

Remaining 15 districts will be covered by mid 2013,

TSA with Full functionality is expected by 2014.

TSA


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TSAImplementation Modality

Each DTCO opens zero-balance accounts at a bank forexpenditure, revenue, and deposit transactions

Existing Accounts of Spending Units (SUs) are closed

SUs send payment requests to DTCOs

DTCOs prepare checks and handover to the SUs.

Checks are prepared and handed over within 2 hours.

DTCOs do not handover the checks directly to suppliers unless SUsrequest for payment through the Bank A/C.

Banks daily report the expenditure and revenue transaction toDTCOs for daily settlement of net dues.

DTCOs send verified bank statement to the NRB (Central Bank)same day.

The NRB settles net cash position with commercial banks sameday.


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System of ReceiptsWithout TSA

DTCO

NRB

(Central Bank)Commercial

Bank

Remittance to NRB- Lagbetween receipt from the

payer and onward

remittance not verifiable

Daily / Monthly accountof aggregate revenue

collection

Revenue

Collectors

Intimation to DTCOon aggregate

revenue receipts

Revenue tendered

Revenue Payer

S t f R i t


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System of ReceiptsWith TSA

DTCO

NRBCommercial

Bank

Revenue tenderer

Head Office

End-of-day report for

settlement with TSA at NRBDaily

Settlement

FCGO

Daily Reports

Revenue

Collector

System of Disbursements


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System of DisbursementsWithout TSA

SUDTCO

NRB(Central Bank)

Commercial

Bank

Supplier

Request to NRBto credit

commercialbank from

governmentaccount

Checks to suppliers for goods and services

Monthlyaccountseeking

replenishment

System of Disbursements


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System of DisbursementsWith TSA

SU

DTCO

NRBCommercial

Bank

Supplier

Disbursement to supplier

PaymentRequests

Head Office

End-of-day report forsettlement with TSA at NRB

Daily

Settlement

FCGO

Daily Reports


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LEGEND:TSA DECS (38 Districts)Non - TSA DECS (20 Districts)

Data Sharing Through Internet / Phone line (17 Districts)

Web based Data Management System


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Nepal Public Sector Accounting Standards

(NPSAS)

andInternational Financial Reporting Standards

(IFRS)

NPSAS d IFRS


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NPSAS and IFRS

Nepal Public Sector Accounting Standards (NPSAS) have beenprepared based on cash based IPSAS in 2009.

Government has Approved the standards in 2009, and decided

to implement it gradually.

Orientation, Seminars, Workshops, Training on NPSAS/IPSAS/IFRS being conducted at national level.

NPSAS will be piloted in two ministries by 2013 and rolled out in

others gradually,

PEFA has entered into a MoU with Accounting Standard Board(ASB) to prepare a IFRS convergence strategy and plan,

Policies and strategies for implementing Commitment

Accounting are initiated,

Additional efforts needed to institutionalize the system.


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Other Reform Initiatives

New Economic Classification


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New Economic Classification

and Charts of Accounts

Government has adopted New Economic Classification and

Charts of Accounts based on GFS 2001 (IMF) from 16 July 2011.

This also includes Functional Codes based on COFOG and

Donors Codes as well. Previous code was based on GFS 1986.

The new system is expected to:

globalize the Nepals accounting and reporting system

bring clarity and avoid confusions

improve financial reporting, transparency, accountability and

efficiency of overall public financial management.


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IT based Reform Initiatives

District Expenditure Control System (DECS)

Computerized Government Accounting System (CGAS)

Budget Management Information System ( BMIS)

Line Ministry Budget Management Information System (LMBMIS)

Revenue Accounting System (RAS) Public Expenditure Tracking Survey( PETS)- Education, Road, Local government

Integrated Financial Management Information System (IFMIS)

Sub-Regional Hubs (12) for IT Strengthening at local level

Software Development (Debt, Investment, Treasury Management, Budget

Execution, Reimbursement etc.)

FCGO Website (www.fcgo.gov.np) updated

PEFA Website (www. pefa.gov.np) launched

Mandatory e-tendering above NRs. 20 million of procurement.
http://www.fcgo.gov.np/http://www.fcgo.gov.np/http://www.fcgo.gov.np/http://www.fcgo.gov.np/


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Other Policy Reforms

MTEF/MTBF initiated to fund multi-year contracting and ensure funding forpriority projects (P1),

OD study to review structure of FCGO and DTCOs in the context of

federalism,

Strengthening Internal Audit system (through Restructuring, Training,

Retraining, IA Resource Book, Training Manual, ToT etc.), Government Budget Management and Expenditure Review Commission

Report ,

High Level Public Enterprises Management Board constituted to review the

management of SOEs.

Local PFM Donors Forum (Meeting every two month) being initiated.

Aid Management Platform (AMP) for transparency and Aid Predictability is

functional

Online web-based Aid information system has been set up in the MoF and

given access to development partners and key Line Ministries.

WB/MDTF S t d SPFMP


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WB/MDTF Supported SPFMP

Strengthening PFM System -Treasury System, Financial Reporting and PFM

Capacity Development Project (2011-1014) has been signed on 31st October

2011 with the World Bank led Multi-Donor Trust Fund .

PEFA Secretariat has been designated as the implementation agency of the

project.

US $ 6.7 million (US $ 4.3 millions by the MDTF/World Bank and US $ 1.7

millions by the government) grant Project has three components- TSA,

NPSAS/IFRS and Capacity Development of PEFA Secretariat to implement the

PFM reform programs.

A separate Office of Auditor General Strengthening Project focusing on Risk

based Audit is also signed with the World Bank/ MDTF.

SPFM project is considered as a model project to initiate PFMRP Phase I activities.


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PEFA &PFM IEC Materials


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8. Nepal Portfolio Performance Review 2011

(Approved by the Cabinet)

Issues / Challenges and Agreed Actions


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1. Public Financial Management

Issues and Challenges Agreed Actions Poor understanding of PFM

reform process and not fully

owned and acknowledged by

the concerned stakeholders

Weak Internal Audit and

inadequate Internal Control

Mechanism

Weak Quality External Audit

Formulate Communication

Strategy to raise awareness

and Orientation Trainings on

PFM/PEFA Support Research and Analysis

on high priority PFM areas

Capacity development of

Internal Auditors

Revision of Internal Audit

Manual

Develop Risk-based Audit

Manual

2 Public Procurement


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2. Public Procurement

Issues and Challenges

Agreed Actions

Inadequate capacity on Public

Procurement

Lack of fairness in competitive

biddings

Lack of trained staffs in PPMO

and PEs

Low compliance with Public

Procurement Law

Stakeholder Capacity

Development on Public

Procurement

Development of e-GP System

Initiation of accreditation

program Undertake Compliance

Performance Indicator (CPI)

and Agency Performance

Indicator (API)


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3. Improving Human Resources Management

Issues and Challenges Agreed Actions Incomplete Personnel Database

System and lack of networking

Frequent transfer of project staff

Low motivation and incentive

not linked with results and

performance

Incoherent capacity

development programs

Complete PIS Data entry covering (i)

transfer, (ii) vacancy, (iii)

scholarship/trainings and (iv) disciplinary

actions related information of all levels of

staff.

Prepare data analysis framework

Management audit of development

projects (focusing transfer of project staffs.)

Prepare Transfer Guidelines of five more

ministries

Performance- based incentive plan will be

rolled over, maintaining it in DOCPR, tomore government agencies/projects

including PPMO and districts with TSA

system

Prepare and approve Human Resource Plan

by MOGA

Develop Need assessment framework for

"Training for All " policy


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4. Managing for Development Results

Issues and Challenges Agreed Actions Weak linkage of planning

and budgeting

Weak M&E system

Continue implementation of Business

Plan already prepared for 13 agencies

and replicate and expand it to 5 more

agencies

Strengthen implementation of Resultbased budgeting in existing two

agencies Department of Transport

Management and Traffic Management

Office

Develop results framework in one

GON agency

Continue M&E system strengthening

measures

Assess the implementation progress of

RBME Guidelines in P1 and donor-

funded projects.


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5. Mutual Accountability

Issues and Challenges Agreed Actions Aid Transparency: Aid Management

Platform (AMP) reporting requirements

about transparency are not met.

(Baseline: October 2011: 35% of DPs

fully meet AMP reportingrequirements.)

Aid Predictability: Aid is less

predictable (Baseline: 25 % gap

between planned and actual

disbursements.)

Use of National Budget System: Lack ofCompliance of national budget system

(Baseline: 45% of total external aid

through treasury)

Prevalence of Parallel PIUs : (Baseline:

68)

70 % of DPs report planned disbursements for next 3

Fiscal Years. (April 2012 status: Only 10% of DPs fully

meet these requirements. On average 46% of projects

meet the requirements.)

70 % of DPs report actual disbursements trimester and

for the mid-term budget review. (April 2012 status:

60% of DPs fully meet the reporting requirements. Onaverage 78% of projects meet the requirements.)

Maximum 20% gap between planned and actual DP

disbursement by end of FY. (April 2012 status: Actual

disbursements represent 68% of planned

disbursements (all donors), and 62% (core NPPR donors

only). However planned disbursements are under-

reported (see above). Improvement in the use of national system- total

external aid using the treasury, national procurement

and audit system increase. (April 2012 status: 53% of

disbursements reported between July 2011 and March

2012 go through national treasury (same figure for

NPPR core donors and for all donors).

Reduce parallel PIUs in DP supported projects in

government sector.

10 Issues and Challenges


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10. Issues and Challenges

Poor understanding on PFM/PEFA among the key stakeholders

Weak inter-agency coordination and cooperation to enhancingPFM

Ritual IA, Poor quality Audit Reports (Both IA and Final audit)

Commitment Accounting not yet introduced

Large portion of the public expenditure is incurred in the last

month of the fiscal year posing threats to a healthy PFM

system.

Very weak initiation to architect PFM in the context of

proposed Federal structure of the country

Complicated procurement legislation and poor HRD for public

procurement

Procedural rather than result oriented PFM working culture

Issues and Challenges


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Issues and Challenges...

Ascertain overall Treasury position of GoN is difficult (as current FMIS do

not capture many of the transactions required to be disclosed under theIPSAS and NPSAS. Missing data includes Investments in public enterprises,

Debt Management, Domestic Borrowings, Direct payments and

Commodity Grants, Balances of non-freezeable accounts of GoN and local

bodies, Donor Accounts, Government Assets, Pension Management ,

Contingent Liabilities of Government, Advances etc.) Pension Management System has no sophisticated software support.

Hence, hugh amount of government expenditures are out of the real time

reporting.

Access to Aid information and other financial reports is weak.

Disbursement from donors is much less than commitment. Reimbursement is frequently delayed.

Long time taking to prepare Consolidated Financial Report of GoN.

11. The Way Forward


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11. The Way ForwardGeneral Recommendations

Uniform understanding on PFM/PEFA,

National and Sectoral PFM Strategy

PFM Capacity Development Strategy,

Establish National PFM Training Institute

PEFA/PFM Information Communication and Education (IEC) Strategy and Action Plan

Strong government's commitment towards PFM Reform

Establish National/Regional PFM/PEFA Resource Centre in Kathmandu

Sectoral Integration of PEFA as an opportunity to improve transparency and

accountability of PFM spheres,

Institutionalization of the NPSAS/IFRS initiations,

Roll out of TSA in all districts with Core Treasury System by 2013,

Pension System based Software

Expenditure control (capping over expenditures) mechanism,

Strengthening the Institutional capacity of PAC, OAG, FCGO, CIAA and NVC to

scrutinize the PFM performances.

Convert informal economy (40 percent) into formal one to broaden the revenue

base.

The Way Forward


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The Way ForwardGeneral Recommendations

Study on Structure and processes of PFM within the Federal

System

Reliable network connectivity to enhance IFMIS,

Implementation of the PERC Recommendations,

Institute of PFM Risk Management System, Develop sectoral fiduciary risk reduction Plan of Education,

Health, Local Government, Road etc.

Revitalisation of PEFA Steering Committee, Working

Committees and PEFA Implantation Units, Repeater PEFA Assessment

Provide Tax Payers access to personal data through electronic

means

PPP for PFM Reform.

The Way Forward.....


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The Way Forward.....Specific Recommendations

Planning/ Budgeting Institutionalise MTEF/BMTF

Link medium/periodic plan with MTEF/BMTF

Strengthen Sectoral Business Plans

Strengthen budget release and monitor its execution

Develop and implement Budget Surrender Strategy and processes.

Procurement

Simplify procurement legislation/procedures

Strengthen procurement units

Make procurement plan mandatory

Conduct procurement assessment periodically

Institutionalize System of e-Procurement



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Debt Management

National Debt Management Strategy

Operationalize CSDRMS Software

Establishment of Debt Management Office

Debt Sustainability Study

Institutionalize Debt Management System of global standards.

Aid Harmonization

Promote Joint Funding Arrangement (JFA)

Strengthening Sectoral SWAps

Make Aid information available to Public through web. Make arrangement for submitting foreign aid statement received by

NGOs to the Parliament

Encourage external Development Partners to follow National System.



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Audit and Public Scrutiny Establish Ministerial Internal Audit Committee at the Cabinet

Activate PAC on PFM reform activities

Mainstreaming CSOs in the PFM processes

Monitor implementation of OAG, PERC and PAC recommendations

Easy access to the people to the PFM related information

Develop capacity to implement risk based audit.

Reimbursement

Strengthen timely reimbursement of Foreign Added Projects particularly

the claim, submission of the expenditures details and audits reports.IFMIS

Timely submission of Government Consolidated Financial and Audit Report

Full integration of all financial transactions into the proposed IFMIS

The Way Forward...


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The Way Forward...Proposed IFMIS

Macro-Economicforecasting

MTEF/MTBF

HumanResource

Management

RevenueAdministration

(Tax, Customs etc.)

BankingSystems and

TSA

DebtManagement

FMIS Comprises

Genera Ledger

Procurement;

Accounts Payable;

Banking and Cash Management;

Budget Preparation; Budget Execution and Control;

Financial and Management Reporting

Payroll

Foreign Exchange

AssetManagement

Internal Audit

External Audit

Web Publishingand E-governance

Macro EconomicForecasting

The Way Forward...


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PFM Efficiencyleading to GoodFinancialGovernance

Outcome

GlobalStandards andNorms

Systematic

Harmonizationand VirtualCollaboration

StructuralIntegration/

Response

Ownership,Internalization

andMainstreaming

InternationalDevelopmentPartners

CrossCuttingArea

Systems,Processes and

Institutions

ySustainability of PFM Reforms

PoliticalCommitment andBureaucraticsupport


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Any Queries?

Thank You Very Much ForYour Attention !

Documents

PFM Reform in Nepal: Towards Better Financial Governance