Proposed IFMCA Report Outline - World Bank · Web viewThe Audit Bureau is the external auditor for all government entities. It is a mature Supreme Audit Institution (SAI), established

Hashemite Kingdom of Jordan

Institutional Financial Management Capacity Assessment (IFMCA):

Education and Social Development Sectors

June 28, 2006

Document of the World Bank

CURRENCY

Currency Unit = Jordanian Dinar (JD)US$ 1 = JD 0.7089 (as of June 2006)

ACRONYMS AND SPECIAL TERMS

ATM Automated Teller MachineCFAA Country Financial Accountability

AssessmentCPAR Country Procurement Assessment

ReportDiwan HeadquartersEDDS Education management softwareEduwave Education management SoftwareEFT Electronic Funds TransferEGRP Enterprise Government

Resource Planning ERfKE Education Reform for Knowledge

Economy FMIS Financial Management

Information SystemFMS Financial Management SystemGBD General Budget DirectorateGFMIS Government Financial

Management Information SystemGFS-2001 Government Financial Statistics,

version 2001GL General LedgerHR Human ResourcesIFMCA Institutional Financial Capacity

AssessmentIIA Institute of Internal AuditorsIMF International Monetary FundINTOSAI International Organization of

Supreme Audit Organizations

IT Information TechnologyJD Jordanian DinarLAN Local Area NetworkMAD Ministry of Administrative

DevelopmentMadressa SchoolMOE Ministry of EducationMOF Ministry of FinanceMOHE Ministry of Higher EducationMOPIC Ministry of Planning (and

International Cooperation)MOSD Ministry of Social DevelopmentMTEF Medium Term Expenditure

FrameworkMTTF Medium term Fiscal

FrameworkMuderiyya ProvinceNAF National Aid FundPER Public Expenditure ReviewPFM Public Financial ManagementPSRP Public Sector Reform ProgramRFP Request for ProposalSAI Supreme Audit InstitutionTSA Treasury Single AccountVFM Value for MoneyWAN Wide Area NetworkWB World Bank

Regional Vice-President:Country Director

Director:Manager, Financial Management:Task Mission Leader

Christiaan PoortmanJoseph SabaHasan TuluySamia MsadekPierre Messali

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Table of Contents

Table of Contents..........................................................................................................................iiiList of Tables and Figures................................................................................................................vExecutive Summary........................................................................................................................vi

I Government - Wide Factors..........................................................................................................11. Background.............................................................................................................................1

The National Agenda...............................................................................................................1The Public Sector Reform Program........................................................................................2

2. Institutional Structures............................................................................................................2Ministry of Finance..................................................................................................................2Ministry of Planning and International Cooperation..............................................................4Ministry of Administrative Development.................................................................................4Civil Service Bureau................................................................................................................4Human Resources Policy Environment...................................................................................5

3. Financial Management............................................................................................................5Budget Planning......................................................................................................................5Budget Execution.....................................................................................................................6Accounting & Reporting..........................................................................................................7GFMIS.....................................................................................................................................7Internal Controls.....................................................................................................................8Electronic Transactions.........................................................................................................10Internal Audit.........................................................................................................................10External Auditing...................................................................................................................12

4. Capacity Building..................................................................................................................13 5. Recommendations for Government – Wide factors..............................................................15

II The Education Sector Capacity Assessment..............................................................................171. Background...........................................................................................................................17

MOE’s Ten year Strategy for Education...............................................................................18National Agenda....................................................................................................................18

2. Institutional Structures..........................................................................................................19Ministry of Education............................................................................................................19

3. Financial Management..........................................................................................................21MOE Financial Organization................................................................................................21Budget Formulation...............................................................................................................23Budget Execution...................................................................................................................27Accounting & Reporting.......................................................................................................27Reporting...............................................................................................................................29Internal Controls...................................................................................................................29Internal Audit........................................................................................................................30

4. Capacity Building..................................................................................................................325. Performance Indicators..........................................................................................................346. Recommendations for the Ministry of Education..................................................................35

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III. A The Social Development Sector Capacity Assessment.....................................................361. Background...........................................................................................................................36

The Multi-Year Strategy........................................................................................................362. Institutional Structures...........................................................................................................37

Ministry of Social Development.............................................................................................373. Financial Management..........................................................................................................40

Budget Formulation and Execution.......................................................................................40Accounting & Reporting........................................................................................................43Internal Controls...................................................................................................................44Internal and External Audit...................................................................................................45

4. Performance Indicators..........................................................................................................465. Capacity Building..................................................................................................................466. Recommendations for the Ministry of Social development.................................................47

III. B National Aid Fund.............................................................................................................491. Background...........................................................................................................................492. Institutional Structure............................................................................................................493. Financial Management..........................................................................................................51

NAF Program........................................................................................................................51Budget Formulation and Execution.......................................................................................51Accounting & Reporting........................................................................................................53Internal Controls...................................................................................................................55Internal and External Audit...................................................................................................56

4. Capacity Building.................................................................................................................565. Recommendations for the National Aid Fund......................................................................57

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List of Tables and Figures

Table 1. Selected Fiscal Parameters 2003-2010 (million JD)Table 2 Status of IMF/WB Reform Recommendations Affecting IFMCA AnalysisTable 3 The Expenditure Control ProcessTable 4 Summary of MOF Financial Training Activities in 2005Table 5 Key Data on Public Education in 2003/2004 Academic YearTable 6 Potential Sample Performance Measures and IndicatorsTable 7 Education Budget Performance 2003-2005 (JD Million)Table 8 Proposed New Program StructureTable 9 Ministry of Education: PEFA Performance IndicatorsTable 10 Social Development Budget Performance (JD Million)Table 11 Ministry of Social development: PEFA Performance IndicatorsTable 12 NAF 2006 Budget Request vs. Approved

Figure 1 Ministry of Education OrganizationFigure 2 MOE Directorate of Financial Affairs Figure 3 MOE Audit, Inspection and Quality AssuranceFigure 4 Organization of the Ministry for Social DevelopmentFigure 5 MOSD Financial Directorate OrganizationFigure 6. NAF Organization Structure

Box A Procurement control procedures Box B Steps to Implement Modern Internal AuditBox C Education Highlights Box D MOE Objectives to Support its Ten-Year StrategyBox E Social Security Fund Box F Housing FundBox G Potential Financial Courses

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Jordan IFMCA Executive Summary

Executive Summary

The Government of Jordan has been actively engaged in improving its fiscal and public financial management framework for over a decade. It has been assisted in this work by both the World Bank and the IMF. The 1999 Public Sector Reform initiative had four components, two of which directly affected financial management.1 The financial management reforms were aimed at, inter alia, moving to a medium term expenditure framework, adopting a GFS-2001-compliant chart of accounts for budgeting, accounting and reporting, adopting a Treasury Single Account, eliminating the external auditor from the ex ante control process and implementing a Government Financial Management Information System (GFMIS). Implementation remains a challenge and the 2004 action plan issued by a joint WB-IMF team2 did not move as planned as the readiness of the line ministries to move with the modernization reforms as well as their capacity to introduce and manage the change are different.

The current Institutional Financial Management Capacity Assessment (IFMCA) selected two sectors the Education and Social Development3 which are of importance to the Government of Jordan. Both sectors feature prominently in the government’s recent National Agenda and the Country Assistance Strategy (CAS). Both are being supported through a number of World Bank-supported projects and Economic Sector Works (ESWs).

The IFMCA examined the ability of the MOE and MOSD4 to implement maintain and operate an effective financial management system. The review gave special attention to the sector’s financial staff, its processes of financial control and its supporting information as well as the sector’s ability to successfully deliver its strategy and annual work programs. The review identified gaps in the financial management system at the central and sector levels and assessed the associated risks on the use of public funds and planned modernization reforms.

At the central level the report explains in Chapter I that, while the planned changes are laudable, the government needs to put greater emphasis on their implementation. The Ministry of Finance needs to be more proactive in its dealings with the ministries with respect to accelerating and coordinating the implementation of such initiatives as: the new chart of accounts; the introduction of performance budgeting; and the government-wide GFMIS. For these initiatives, there are no identifiable, senior MOF managers who are driving the implementation process to completion. Financial management capacity is low for financial officers and the budget managers. This is even more important as the financial management reforms are progressively implemented. Finally, there is a need for a modern internal audit function across the government.

The Ministry of Education is a leader in financial management reforms at the line ministry level. It is pursuing automation of the education information and performance measurement systems at the district and school level, assisted by donors. As well, it is a pilot ministry for the

1 These were The Financial Management reform and the e-Government initiatives.2 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 20043 The mission did not analyze those NGOs operating in the Social sectors, and focused only on their financial relations with the Ministry of Social Development or the National Aid Fund. 4 The IFMCA team examined the degree of coordination within the ministries and between the ministries and the Ministries of Finance and Planning in their financial management processes, as well as their effectiveness

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Jordan IFMCA Executive Summary

government’s performance budgeting reform initiative. The ministry is well ahead of the complementary reforms that must take place within the General Budget Directorate for the effective implementation of performance budgeting to begin. There are serious problems in coordination of the design and the implementation of the ministry’s FMIS. There is no ministry owner for the FMIS project, and the acquisition process does not appear to be following the government’s own procurement rules. A number of significant problems in financial management systems of the Ministry of Social Development and the National Aid Fund5 were found which eroded accountability for performance and sound internal control. The MOSD and NAF share regional offices, with some ministry staff working full time on NAF administration. All regional directors are ministry staff, whose costs are not apportioned to the NAF budget. This understates NAF field operating costs. Regional management do not receive an approved budget, and must submit all requests for commitment or payment directly to their respective headquarters financial units. This removes any sense of their personal accountability for effective budget management. Financial processes are weak; there are no initiatives to implement the GFS-2001-compliant charts of account; no work is being done on preparing for a new FMIS; performance budgeting is non-existent; a modern internal audit function is not in place and, as a result, major weaknesses in the distribution of the NAF cash payments to eligible recipients have been undetected. The NAF operations should be made more transparent to Parliament and the public by the publication of its approved budget and its final budget report at year-end.

Recognizing the challenges that the different institutions are facing to move with the implementation of the planned modernization reforms, the recommendations proposed in the report, took into account the Government overall priorities and distinguished the reforms that can be implemented in the short team and those that will take more time. The team however would like to stress the importance of the following two recommendations:

1. The top three Government PFM reforms: (i) the budget management (results-oriented budget, MTEF), (ii) the accounting-reporting system (new chart of accounts, reporting of commitments), and (iii) the Government integrated financial management system (GFMIS); need a stronger leadership of the Ministry of Finance and a greater collaboration with the MOPIC and the line-ministries. It also requires a strategic approach to capacity strengthening of the financial staff in the line-ministries or audit bodies with special attention to middle management team.

2. The government should approve a program of implementation of modern internal audit across the government. The program would follow a multistage process. The Government should assign formal responsibility to MOF for the functional direction, including professional training, of all financial staff in government entities.

To respond to the skills upgrade needs the MOF’s should increase significantly its training capacity, either in-house or through contracting out a portion of the program.

5 The operations of the Pension Fund were out of scope

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Jordan IFMCA Government-Wide Factors

I Government - Wide Factors

1. BackgroundDuring the past decade, the Government of Jordan implemented a full-fledged adjustment program with continuous support from the IMF and the World Bank. Economic growth during the last few years of the 1990s was over 4 percent, despite adverse external political factors. GDP growth reached almost 5 percent in 2002, and was around 7 percent in 2004. Jordan graduated from the IMF program of support in July 2004. A World Bank report6 described Jordan as a star performer among emerging countries in terms of its structural reform achievements.

The National AgendaIn 2005, the Government issued a ten-year strategic plan, the National Agenda, which aimed to “... improve the quality of life of Jordanians through the creation of income-generating opportunities, the improvement of standards of living, and the guarantee of social welfare.” The plan set ambitious macroeconomic performance targets, to be achieved during the coming decade and clearly articulated performance measures to be used to monitor progress towards their achievement. Table 1 displays the targets in the context of the country’s recent economic performance.7

Table1. Selected Fiscal Parameters 2003-2010 (million JD)

Actual Est. Target 2003 2004 2005 2010GDP 7,204 8,164 9,118 14,498

Total Revenue and Grants 2,613 2,959 3,062 3,929 Current Revenue 1,632 2,088 2,522 3,793 Tax Revenue 1,083 1,429 1,766 2,590 Non-tax revenue 548 659 756 1,203 Capital Revenue 44 60 40 0

Total Expenditure and Net Lending 2,710 3,113 3,479 4,235Total Expenditure 2,710 3,113 3,479 4,235 Current Expenditure 2,064 2,310 2,848 3,065

Capital Expenditure 646 803 631 1,170 Lending minus Repayments 0 0 0 0Primary surplus 73 7 -210 -82

Deficit / Surplus (excluding Grants) -1,035 -965 -917 -442Debt 6,891 7,193 7,136 8,371National Savings Rate (percent) 32% 24% 6% 19%Unemployment Rate (percent) 14.5% 12.6% 14.7% n.aSource: National Agenda,

6 World Bank, PAD for a Public Sector Reform Building Project, February 24,2005, page 17 Government of Jordan, National Agenda 2006-2015, p7.

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The first and third dimensions of the National Agenda are of greatest relevance to the Education and Social Development Sectors. Specific measures directly supporting the two sectors identified in these dimensions include8: increased and higher quality vocational training; employment support; significant improvement in the quality of the education provided by the sector; higher student participation rates; the establishment of a steady and predictable source of financing; rationalization and simplification in administrative development; improvement in the accountability of government; and increased transparency in government operations.9

The Public Sector Reform ProgramJordan launched a Public Sector Reform Initiative in 1999, with support from the World Bank and bilateral donors. Phases I and II of the program had four tracks: public sector administrative reform; an e-government initiative; judicial reform; and financial management reform. The financial management and budget reforms involve restructuring the expenditure budget, moving to a medium-term budgetary framework and modernizing financial management. The Bank-financed Public Sector Reform Capacity Building Project continued prior donor support for the reform by ensuring strategic staffing within administrative agencies and by providing them with training and other capacity building support to implement the reform process. The project also financed goods, equipment and technical assistance for central government agencies executing the program

2. Institutional StructuresThe IFMCA focuses on the ministries of Finance, Planning & International Cooperation, and Administrative Development as well as the Civil Service Bureau.

Ministry of Finance The Ministry of Finance is the main player in the budget reform process. A 2004 joint IMF/World Bank report noted that the MOF faced institutional fragmentation and capacity limitations in the budget management process.10 The MOF shares responsibility for the budget process with a semi-autonomous General Budget Directorate (GBD) that is outside the MOF organization but that reports directly to the Minister of Finance. In addition, the Ministry of Planning and International Cooperation manages the donor-financed investment budgets in a parallel process. The IMF/WB report made a number of recommendations that affect the IFMCA; this report is the main assessment of the Jordan Public Financial management and the IFMCA builds on its conclusions. Its recommendations are presented in Table 2.

8 Government of Jordan, op cit, p 4.9 Ibid.10 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 10-21.

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Table 2: Status of IMF/WB Reform Recommendations Affecting IFMCA Analysis

Recommendation ImplementationTimeframe

Status as of Q1/2006

Establish 3-year, rolling MTTF and MTEF 2005 There are six task forces working on the completion planned for the 2007 budget. Risk of delay

MOF/ General Budget Directorate to adopt a Performance Framework for budget management monitoring

Q3/2005 No progress; no plans in General Budget Directorate to implement

Pilots to establish performance information expanded by GBD to new sectors 2005 Ministry of Education selected as a pilot is

now developing a framework

General Budget Directorate to streamline and redefine budget programs to ensure clear and measurable links between program inputs, activities, outputs and outcomes

Continuous No obvious progress

2005 Budget based on an updated functional and economic classification consistent with international practice

Q3/2004 GFS2001-compliant chart of accounts to be completed by June 2006 for implementation in the 2007 budget. Includes functional and geographic coding

Implement a Treasury Single Account 2005 The reform is almost completed. Most of Ministries accounts are in the TSA. At present, the treasury is centralized within a system of zero-balance accounts. The final stage will be the extension of the method to all other public entities holding public funds.

Explore feasibility - simplified General Ledger Q3/2004 There is no treasury system to capture transactions for GL. It can only be compiled manually from monthly ministry reports; awaiting the GFMIS for the system

Introduce Simplified Commitment Controls 2005 A manual commitment report is prepared monthly by all budget entities and sent to MOF, which compiles a monthly report manually. Its reliability is uncertain.

Complete GFMIS conceptual design and functional specifications 2006 Consultants’ RFP for GFMIS completed in

August 2005. Project stalled over short list of consultants; agreement recently reached and Cabinet RFP decision imminent. Target date will slip by 1-2 years

Phase out Audit Bureau’s ex ante control role 2005 Audit Bureau agrees with recommendation. Implementation to be phased in as internal audit capacity is established in MOF

Establish new regulations for Internal Audit 2006 Cabinet has approved the creation of a centralized internal audit group in MOF; necessary regulations in preparation.

Source: MOF Interviews

Accountability for the implementation of this package of reforms is diffuse and unclear. There are multiple areas of responsibility, with no overall direction from the most senior levels of the ministry.

MOF has a major role in the implementation of these financial reforms. Changes required include the use of functional and program classifications that permit the linking of costs (inputs)

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with program outputs (performance information) and ultimately, measures of outcomes (the achievement of the program objectives). This will require revisions to the expenditure classification system and, over time, a move towards accrual accounting. It will also require the implementation of a fully functioning GFMIS within MOF and ultimately in all ministries. Finally, it will require major changes in the resource allocation processes to utilize program-specific performance information as the basis for decision-making.

Ministry of Planning and International Cooperation The government of Jordan has a unified budget insofar as the budget funding of current and capital budgets is concerned. Both budgets are managed by the MOF. However, the Ministry of Planning and International Cooperation manages a separate foreign-financed investment budget and the government’s matching contributions to each project in accordance with the respective project agreements.

The Bank-financed Education Reform for Knowledge Economy (ERfKE) project is a key project of relevance to this analysis that is not managed by the MOPIC but has been delegated to the Ministry of Education (MOE)11.

Ministry of Administrative DevelopmentThe Ministry of Administrative Development administers the Cabinet-approved public sector reform policy. This includes civil service reforms and financial reforms, among others. The IFMCA mission was advised that the bulk of the reforms relating to financial administration were the responsibility of MOF. Of particular importance are the steps necessary to implement a results-based system of budgeting, with agreed indicators for specified outputs and outcomes. The ministry has been allocated funds to start establishing reform units to support the public sector reform agenda and act as agents of change in the larger ministries.12

Civil Service Bureau The Civil Service Bureau is responsible for monitoring the implementation of the Civil Service law and related regulations in government entities; establishing competitions for job vacancies in close cooperation with entities requiring staff; managing the pool of surplus staff and making recommendations to the Public Service Development Committee on transfers. It does not play a role in the development of capacity of existing civil servants, although new requirements may be reflected in job profiles for recruitment.

11 The MOPIC has delegated his signing authority to the MOE for the payment of the government’s matching contributions from the MOP’s budget account for that purpose. This simplifies the previous process, in which the payment and supporting documents were processed by MOE and then sent to the MOP, where they were again submitted to the same review and approval process as MOE’s. A check then was issued payable to the Minister of Education for an amount equal to the matching contribution, which was deposited with the central bank in the appropriate account for the project. 12 Smaller ministries would follow; the team was also advised that there are no plans at present, for such reform units in Governorates.

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Human Resources Policy EnvironmentThe strategic Human Resources policy function does not have a single locus within the government of Jordan. New policies can be proposed from a variety of sources for review and approval by the newly created Public Service Development Committee, chaired by the deputy Prime Minster. The mission was advised that, to date, no changes have been proposed for the committee’s consideration. The mission considers that a single, accountable policy centre should be established to provide a focal point for the considerable work necessary in developing future HR policies and related processes and procedures.

The present HR policy environment makes it difficult to discharge employees for poor performance. Additionally, there appear to be no formal policies or provisions for workforce adjustments that could facilitate the reorganization of administrative entities. The mission encountered regular comments by senior management about their inability to control levels of employment and the resulting salary costs as part of the overall cost of the policies implemented. This adversely affects the effectiveness of financial management of the current operating budgets. However, of equal importance is the future impact of this policy on the implementation of government-wide and ministry financial management information systems and the resulting simplification of the associated work processes.

The mission believes that the government should consider establishing a policy group to develop new policies for the government workforce of the future as described in its National Agenda. Specifically, and within the terms of the mission’s mandate, the mission believes that the impact of technology has the potential to significantly affect the existing processes for financial management, including budgeting, accounting, asset management, auditing and reporting as well as human resource and payroll management. As the government moves to implement its GFMIS, major efficiency gains will become possible through the redesign of the financial and other processes to take advantage of the more efficient GFMIS processes. Major training will be necessary to ensure that staff can perform well in their new duties. As well, the training plan should be complemented by a fair and transparent workforce adjustment policy for those unable to retrain or whose positions are no longer required in the revised work processes.

3. Financial Management

Budget Planning The National Agenda is taking advantage of the budget reforms already underway within MOF. Amendments to the Financial management law have been recently adopted (2005). There is a newly installed macro-fiscal unit within MOF that is entitled to produce its first multi-year fiscal framework for the 2007-2009 budget periods, in time for the 2007 budget cycle. This will also include a multi-year expenditure framework (for investment budgets only) for the same period.

The IMF/World Bank had recommended that the budget cycle be advanced by two months to permit more time for budget preparation13. This was not implemented in 2005, due to political changes. If it were to be done for the 2007 budget, it would assist ministries to reflect their new National Agenda-related initiatives in their 2007 budget submission. To support the National

13 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, p36

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Agenda, all proposed new initiatives are being required to be fully costed over a three-year period and to be part of the Budget submission from each ministry. The General Budget Director stated that his directorate will be examining the 2007 budget submissions to ensure that they respond to the priorities established for their sector by the government’s National Agenda.

Results-oriented budgeting is a future objective of the government14. The incorporation of output-oriented budget planning would increase resource allocation efficiency and improve targeting of budget resources. The Ministry of Education is a pilot ministry that is initiating results-oriented (performance) budgeting in its 2007 submission (details are presented in Chapter II). While this is a major undertaking within the ministry, the mission saw little evidence that the General Budget Directorate was prepared to handle a pilot budget submission prepared on a performance-based approach. Nor was there evidence of sustained communication between the two budgeting organizations that one would expect during the early stages of pilot implementation. It did not appear to the mission that the General Budget Division Director considered himself to be the owner of this important budget reform.

In the first year of piloting of performance budgeting, the MOE’s plan is to use performance information to prepare the budget, but to submit its budget to the General Budget Directorate in the standard format. This will represent good progress in the pilot ministries. But if the General Budget Directorate is not trained or prepared to assess the pilot budget performance justifications, they will not be acquiring the knowledge to operate in a performance-based budgeting environment when the pilot phase is over. The government cannot expect results when a performance-based budgeting system is developed in the ministries and not in the General Budget Directorate.

Budget ExecutionBudget execution in the government reflects the weak macroeconomic framework15 and the resulting uncertain budget ceiling for expenditures.

Discussions with line ministries confirmed the weak budgeting situation. Ministries noted that MOF practices cash rationing16, generally beginning in late November and continuing until the new budget has been approved in late February or early March. For the current budgets, only the non-salary component is frozen, a minor percentage of the total. However for the investment budgets, a three-month suspension in project spending represents a major loss in efficiency in the management of the project. Consistent cash rationing is symptomatic of poor fiscal forecasting of revenues and expenditures. If the government wishes to improve resource allocation efficiency and effectiveness, cash rationing should be discontinued as far as possible. This can be achieved by improved accuracy in the fiscal framework, with better forecasts of next year revenues and the budget expenditure ceilings. This should contribute to the elimination of cash rationing as a result of unexpected fiscal “surprises” near year end.

14 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 34-35, parag.C15 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 21-2616 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 44-45

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Central controls exist at a highly disaggregated level. Ministry programs are appropriated in three main groups of line items – salaries (16 line items), operating and maintenance (14 line items), and transfers (8 items). There is also a special category, Social and Economic Transformation for financing specific government priorities. Transfers between salaries and other groups are only permissible by Parliamentary approval. Transfers between line items within a category are allowed, subject to the approval of the General Budget Directorate. There is little flexibility afforded to line management to adjust their budgets to respond to changes in budget execution circumstances.

Accounting & Reporting

AccountingThe government practices cash-based accounting and reporting for its budget operations. With the implementation of a new chart of accounts, the capacity to progressively migrate towards accrual accounting will be possible. The mission was informed that the GFMIS will be completed in 2006, with full implementation across government to follow in time for the 2007 budget. The mission is of the view that this deadline cannot be met, and that a more realistic target date for completion of implementation in the MOF would be in 2007, in time for the 2008 budget17. The mission was advised that the MOF and MOE have met to agree the necessary functional codes for education in the MOF chart of accounts; these serve as the basis for the MOE’s development of the more detailed functional levels for use within the ministry.

GFMISThe IMF-WB report has thoroughly analyzed the project of GFMIS in 2004 and assessed its high related risk18.

The MOF has recently established its requirements for a full-function Government Financial Management Information System and is awaiting Cabinet approval before proceeding. The intention is for this system, once installed in MOF, to be replicated in all 24 ministries and 60 – 70 major other entities. The mission was advised that, three years ago, the Minister of Finance sent a letter to all ministries advising them that they must seek approval from the MOF before initiating any work on an FMIS for their ministry.19 This was reinforced by a subsequent MOF letter to all their Financial Controllers advising them not to approve any commitments for new FMIS systems in their entities.

Despite this, the MOE and other ministries are in various stages of implementation of their own FMIS. The mission was advised that one firm, ITG20, has already installed its own Enterprise Government Resource Planning (EGRP) system in at least two entities (Ministry of Tourism, Ministry of Communications and Information Technology) and is currently working in the

17 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 51-5518 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 50-5519 This instruction was issued pursuant to Articles 46 and 48 of the Financial By-Law No 3,1994, as amended 1995 and 2005. 20 Information Technology Group (Jordanian IT firm)

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Ministry of Education21. The MOF staff is aware of this work, and is participating in assessments of the Ministry of Tourism’s system. Discussions with one of these entities that have already implemented the system indicated that serious shortcomings exist and are, to date, unresolved.

The mission is concerned about the lack of close and ongoing coordination on this important part of the reform agenda22. There has been a serious lack of communication among MOF, the ministries that have already installed the ITG system, the MOE and other potential ministries considering “going it alone” with their own financial management information systems. The lack of knowledge on the part of MOF on the status of the EGRP system that is in place and being marketed as meeting MOF requirements is not consistent with their role related to common FMIS standards across the government. The mission did not assess how compatible these different systems were but only noticed that no initiative to ensure such a crucial compliance was ever taken. The present situation should be addressed rapidly.

Internal Controls

Budget execution controls are exercised by 74 MOF controllers present in all budget entities. They follow a conventional pattern of rigid, centralized controls, with overlapping responsibilities23 discharged by multiple agencies (Table 3 refers). Automation of the expenditure control process is an excellent opportunity to change the budget control system. Internal and external audit units should be phased out of this control process and assigned to more sophisticated tasks of audit, each of them focused on the real objective of its type of audit24.

21 ITG has promised to install the network for free.22 The cost of an IFMIS system is generally high and could reach several million of dollars depending on the system’s architecture.23 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 55-6124 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 57-61

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Table 3 The Expenditure Control Process

No. Control Description Form used Performed By

Comment

1 The Finance manager forwards the directorate’s request to spend on a certain item to the disbursement controller who checks that sufficient budget is available and commits the amount.

Commitment sheet (from MOF)

Disbursement controller

Relevant

2 Once the item/service is received/delivered, the Supplies directorate checks the item/service against the offer and prepares delivery forms.

Delivery Forms

Supplies Directorate

Relevant

3 The invoice and all supporting documents are forwarded to the Finance directorate which checks the commitment against the expenditure, ensures the adequacy and completeness of the delivery forms, prepares and signs the payment voucher (signature according to defined authority limits)

Payment voucher

Finance Directorate (payment section)

Relevant

4 The payment voucher is forwarded to the Disbursement controller who checks it against the commitment made and signs the voucher.

Signed payment voucher

Disbursement Controller

Same that step 3

5 The internal auditor in the Finance Directorate performs an ex-ante compliance check regarding the availability of budget and the compliance with the financial by laws and the budget law. Then the auditor gives the voucher a number, posts it in the system, signs it and forwards it to the Internal Audit Unit.


Internal auditor in Finance Directorate

Should be performed by the MOF controller (step 7).

6 The Internal Audit Unit performs an ex-ante compliance check regarding the availability of budget and the compliance with the financial by laws and the budget law. The Internal Audit unit stamps and signs the payment voucher and forwards it to the MOF controller.


Internal Audit Unit at the ministry

Should be performed by the MOF controller (step 7). The internal auditor should be assigned to real tasks of internal audit.

7 The MOF controller25 checks the accuracy of the payment voucher against the Financial By laws, signs and stamps the payment voucher.


MOF controller

Relevant

8 If necessary, the Audit Bureau also performs an ex-ante compliance check and stamps the payment voucher.


Audit Bureau Not necessary. Already done at step 7 by the MOF controller. The AB should be phased out of these tasks.

9 The signed and stamped payment voucher is sent to the Disbursement section in the Financial Directorate which prepares a check, records its number on the payment voucher and posts the checks in the system.


Disbursement Section

Relevant

10 Another employee in the disbursement section reviews the daily print out of all the posted checks

Daily print out of checks

Disbursement Section

Could be merged with step 9

Source: Ministry of Education

As one component of the implementation of the new GFMIS, the existing financial control system should be simplified on a high priority basis by the Ministry of Finance. Several redundancies can be identified, at least five in the above table 3. The new processes should be

25 The MOF controller is currently a MOF’s agent. In the long run, he could become a Ministry’s agent and entitled to play a more important internal control role.

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designed in cooperation with pilot and other ministries and the Audit Bureau26. Because this simplification may require changes to laws, regulations, practices and procedures, it should be initiated at an early stage of the GFMIS process, before implementation begins in pilot ministries. The changes should cover a full spending cycle including procurement controls. Failure to do so could result in legal impediments to changes and a loss of the resulting significant efficiencies that normally accompany the implementation of a fully computerized financial management information system.

Box AProcurement control procedures

Much of ministries procurement is conducted on their behalf by centralized procurement authorities. For general supplies valued at less than 20,000 JD, the General Department of Supply in MOF acquires the necessary supplies from its inventory of supplies or through external procurement. For goods in excess of 20,000 JD, the MOF uses a special procurement committee to oversee a tender on behalf of the government. Order fulfillment is well-structured. Large quantities are sent directly from the supplier to ministry directorates according to a distribution list provided by the ministry. A committee in each directorate examines the received goods and certifies the quantity and quality of the order. After the individual entities have received the orders that were distributed from the directorate facilities, then the ministry financial directorate makes the appropriate payment.

Procurement of equipment and works is also done by tender, again centralized by the Ministry of Public Works on behalf of the ministry. Public tenders for purchase more than 20,000 JD are managed by this ministry. For procurements below the threshold, the process is managed by the individual ministry concerned. Regular audits are conducted by the ministry, by the MOF and the auditors of the Audit Bureau.

Electronic TransactionsThe government currently permits the use of electronic funds transfer (EFT) and credit card payments. However, these procedures are not integrated into the overall revenue collection process. For example, the EFT procedures require the accountant to prepare a transaction receipt for each electronic deposit advice form.27 The e-Government initiative is the responsibility of a unit in the Ministry of Administrative reform. However, work is at the initial study and legal drafting stages and little direct output is expected over the next two years. The Public Sector Reform Administration unit responsible for e-government should nevertheless consult with MOF as they develop their legal framework to ensure that MOF can assess its impact on simplification of its internal control systems.

Internal Audit Internal inspection units exist in all government entities. Generally, they exercise the ex ante controls over the expenditure process with a lot of redundancies with the MOF controllers. In limited instances, they have begun to extend their recommendations to cover the performance of internal controls, a function performed by internal auditors.

26 The Audit bureau is in the process of phasing out these tasks related to internal audit (see below)27 MOF, Application Instructions for Financial Affairs for Collection of Revenues by Means of Electronic Funds Transfer No. 10 for the Year 2003, as Amended, article 5.

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There are no modern internal audit functions in the government of Jordan28. As part of the process of establishing the reallocation of audit functions between the Audit Bureau and the government, the MOF should consider establishing a more formal internal audit process that complies fully with international standards. The Institute of Internal Auditors, an independent international organization, provides a full range of audit standards and processes.

Previous studies29 have identified an overlap in the functions performed by the external auditor (Audit Bureau) and those of the government. In particular, the Audit Bureau has been sitting on procurement committees for purchases of supplies, public works and engineering services. Performing executive tasks is an inappropriate role for an external auditor as it violates the principle of independence of any Supreme Audit institution. The government has agreed to remedy the situation by implementing a new segregation of duties for the Audit Bureau. The Bureau’s current internal audit function and the auditors will be gradually shifted to the MOF and the remaining auditors will discharge external audit functions. Implementation will take place over a number of years. When completed, the Audit Bureau will meet the INTOSAI requirements relating to not performing functions belonging to the government30.

A modern and effective internal audit function is a prerequisite for an effective functioning of a public financial management system. It requires an underlying legislative base; clear responsibilities vested in the Minister of Finance for the establishment of the policies, guidelines, regulations and procedures governing internal audit; the use of international audit standards; and the establishment of an internal audit function in all major budget entities. The need for such a function will become urgent as the government implements its computerized budgeting and financial control systems, as line budget managers will have to be advised of their compliance with significantly revised financial processes that accompany the new financial system. Introducing the function is a lengthy process, requiring technical assistance from experienced internal auditing consultants to train auditors, to advise senior management on issues relating to internal audit, and to assist in internal audit implementation in MOF and across all ministries. The redeployment of Audit Bureau staff will be an opportunity to create a modern internal audit function, first in MOF and ultimately in all budget entities. The Institute of Internal Auditors has established internal audit standards for aspects such as planning audit assignments, audit techniques, audit reporting, qualifications of internal auditors, and code of conduct for internal auditors, etc. Their standards should be endorsed by the government and used in the implementation of modern internal audit function across the government.

A suggested plan of implementation of internal audit is presented in Box B below. It is a multi-year, progressive implementation plan for internal audit across all significant government entities.

28 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 56-57.29 Ibid. , pp 57-59.30 See INTOSAI standards. Convention of Lima. www.intosai.org

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http://www.intosai.org/


Box BSteps to Implement Modern Internal Audit

Amend financial law to assign responsibility for internal audit to the Minister of Finance and that requires internal audit units to be established in all first line budget entities as specified by MOF in a phased implementation process.

The law would also empower the Minister of Finance to issue internal audit standards, guidelines, and manuals that conform to international standards for auditing to govern the planning, conduct, training, and reporting of all Government internal auditors and their professional development.

MOF would be given responsibility for developing auditor qualification and certification standards for providing training to international standards to be made available to all new and existing staff.

MOF would establish an internal audit quality assurance process and report to Cabinet annually on the implementation progress of internal audit and on overall conclusions of internal audits conducted across the system.

Engage a technical assistance mission for a period of at least 18 months to assist the MOF in the drafting of the legislative amendments to the financial law and to assist in the setting up and training of an internal audit unit within MOF with an audit operations and an audit policy mandate.

Use the TA to help in the preparation of internal audit courses and train the new MOF internal audit staff on internal audit standards, practices and procedures.

Progressively develop and issue internal audit guidelines, standards and auditing manuals for use by internal auditors from international standards and best practices

Undertake internal audits within the MOF to gain experience in internal auditing work. This activity should be overseen by an experienced internal auditor consultant who could provide on-the-job advice and assistance to the new auditors.

Develop a multi-year plan to implement internal audit units in all major budget entities, according to an implementation plan that considers the financial risk in each ministry, the degree of maturity of its existing inspector unit and the degree of management support for modern internal audit.

External Auditing

The Audit Bureau is the external auditor for all government entities. It is a mature Supreme Audit Institution (SAI), established in 1928 and operating under the Law on Accounts Auditing (1931) as amended in 1952. Its audit universe includes all budget entities, municipalities and public enterprises. The Audit Bureau has audit offices in all ministries and major entities to conduct ongoing audits of their operations. The audits conducted are compliance audits for the financial regulations and attestation audits on the financial reports of the respective entities. While there are some elements of performance auditing in these audits, performance audits are not yet part of the mainstream activities of the Bureau31.

The near term priorities of the Audit Bureau include: aligning the audit processes to support the expression of a formal audit opinion on the government’s financial statements; enhanced training and exposure to best practices through twinning arrangements with the UK National Audit Organization and the German Court of Accounts32; and auditing of the government’s implementation of the National Agenda and the Public Sector Reform Program (PSRP). There are also previously identified issues of independence (involvement in the internal processes of government) which are being resolved.31 IMF/World Bank, Jordan: Consolidating Budget Management Reforms, July 2004, pp 57-6132 The program of twinning has been implemented in 2006, financed by the EU.

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The Audit Bureau identified a number of recurring problems in financial management encountered during their audits of government entities. They include the following:

Budget development and execution: there is a lack of priorities in budget development, the general budget is incomplete, the budget is unrelated to results, and contain no detailed information on capital budgets;

Human Resource management: there is a shortage of qualified personnel due to difficulties in attracting highly qualified staff and a lack of sound training of existing staff; the human resource management framework is rigid;

Information technology: there is limited exchange of information across vertical, stovepipe systems, and a lack of integrated financial management information systems; and

Transparency: published government data is not in compliance with international standards (such as the IMF Special Data Dissemination Standards).

4. Capacity Building

The government does not have a formal training program designed to establish and maintain the professional competence of its existing employees. This was identified by the Audit Bureau as well as the Civil Service Bureau. There are notable exceptions; MOE provided external training for 852 of its teachers in 2004, 87 percent of the total external training provided across government.33

But the situation as regard to financial staffs of the technical ministries is different. Financial training is very limited. The MOF advised the mission that they have training capacity available to train ministry financial staff in specialized financial management subjects. They regularly run training courses for their staff and for a limited number of ministry financial staff, at no cost to the ministries. They are outfitting part of a building for use as a financial training facility, with French government assistance. Table 4 provides details of recent training activities by MOF; note the limited participation of the two sector ministries under study by the IFMCA team. In 2005, the training was mainly (93 percent) used by MOF staff.

33 Civil Service Bureau, 2004 Annual Report, P 55.

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Table 4 Summary of MOF Financial Training Activities in 2005

Number of TrainingClasses

Number of Students Sessions

MOF staff training Sessions

MOE staff Training Sessions

MOSD & NAF Staff Training Sessions

Other Training Sessions

87 1121 1040 0 034 81

Source: MOF

There is an urgent need for a major training initiative for the financial officers in ministries and agencies. With the number of significant changes currently being implemented (Chart of Accounts, TSA, MTEF, GFMIS, performance budgeting), all aspects of the work of the financial officers across government will be significantly changed in the long run. Notably:

budget preparation will be affected by the new budget preparation module in the FMIS, as well as the use of performance information in cost justification for new budget initiatives;

budget execution processes will be radically simplified, eliminating the multiple, duplicative ex ante approval processes, eliminating the flow of documentation and permitting electronic authorizations.

the closing of the final accounts will be automated and management reports will be available at any time in any desired format.

internal auditors will require significant training in order to adopt the modern, international auditing standards of internal audit in their audit activities.

management will have to accept responsibility for their organization’s financial and program performance and learn to manage in a results-based environment of increased transparency and accountability.

The Ministry of Finance is normally entitled to establish and administer a formal training program for all financial officers in government. It should include: the inventorying of the existing qualifications of all financial officers in government; the establishment of the future requirements of each financial job in the light of current and planned reforms; the identification of the courses required to provide the necessary expertise to meet the requirements of the new financial jobs; the scheduling of training courses; and the ongoing administration and the delivery of the training. The Ministry of planning should also consider facilitating the process in improving the coordination between the MOF and the line-ministries, in particular the ministries, pilots of the reforms in the area of capital expenditures.

34 NAF staffs are trained through other training institutions than MOF (see chapter 3).

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5. Recommendations for Government – Wide factors

Short-term1. The MOF should designate a senior executive within the ministry with responsibility for ensuring the

implementation of the agreed IMF/WB reforms, and grant this person the necessary authority to discharge his responsibilities

2. The Minister of Finance should revise the budget process to start two months earlier.

3. MOF should designate a senior executive within the Ministry with responsibility and accountability for resolving the current situation regarding FMIS and for ensuring a common set of standards to govern the implementation of these key components of the financial management system.

4. The MOF should decide whether or not it wishes to enforce its previous ban on all ministry-level FMIS development.

If so, it should re-issue the Minister’s previous prohibition on all new FMIS development and closely monitor to ensure compliance.

If it decides not to enforce its earlier position, then it should actively engage other ministries that are proceeding with their own FMIS development to ensure that these systems meet MOF architectural and functional requirements. In particular, it should closely examine the ITG system already in place in two ministries and ensure that it meets the MOF functional requirements.

If these architectural and functional requirements have not been prepared, the MOF should compile them and issue them on a high priority basis.

5. The MOF should ensure that meetings are held with all ministries that are implementing changes to the charts of account to ensure their compatibility with the central chart of accounts as they develop detailed functional sub categories.

Medium term 6. A single, accountable policy centre should be established to provide a focal point for the considerable

work necessary in developing the government’s human resource policies, processes and procedures and in ensuring with their implementation across the government.

7. The government should establish now a general policy on workforce adjustment that would enable realization of the future benefits of automation while protecting the interests of its workforce.

8. The General Budget Director should be clearly designated by the Minister of Finance as the “owner” of the performance-based budgeting reform initiative and should be held accountable for its successful piloting and subsequent implementation across all budget entities.

9. The General Budget Directorate should make greater efforts to prepare itself for receiving and analyzing the pilot performance-based budgets by ensuring that its relevant staff are trained in the principles of performance budgets and by initiating and maintaining a continuous dialogue with the pilot ministries on their progress. The creation of a sectoral team of experts at the GBD, in order to improve the pilot-performance based budget should be established to complement the work underway in MOE.

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10. The MOF should eliminate as far as possible the practice of year end cash rationing through improvements to the revenue and expenditure forecasting in its 2007 – 2009 fiscal and expenditure frameworks.

11. The Ministry of Finance should begin to simplifying the budget control processes by identifying and changing the legal basis for these controls to take advantage of the efficiency gains possible from implementation of the GFMIS government-wide.

12. The Government should prepare and implement a plan to create modern internal audit units, based on international standards, across all ministries and other major entities in the government.

13. The Ministry of Finance should finance, establish and administer a formal, comprehensive training program for all financial officers in government as computerization of financial management processes continues. The Ministry of Planning should support the MOF in training relating to the preparation and the management of the capital budget.

Long-term 14. The Ministry of Administrative Development should consult quarterly with MOF as it develops its e-

government legal framework, in order that MOF may anticipate future simplification of its control processes for greater control efficiency.

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Jordan IFMCA Education Sector

II. The Education Sector Capacity Assessment1. Background

The responsibilities of the Minister of Education and Higher education and Scientific research include public education, universities and scientific research and development, but these two latter sectors are actually under the responsibility of a dedicated Ministry35. All play important roles in supporting the government’s objective of transforming Jordan into a knowledge-based economy. This report is about the Ministry of Education and refers exclusively to the primary and secondary public education system; it excludes universities, given the specificities of this sector36, and private and donor funded primary and secondary educational facilities, that follow a different financial management system.

The education system in Jordan is a major component of government activity. Table 5 provides a summary of the students and schools in the Jordanian education system. The MOE and the Government realized that a longer term strategy would be necessary to ensure that the system was as efficient and effective as possible. This resulted in the ten-year strategy for education.

Source: MOE

Table 5 Key Data on Public Education in 2004/2005 Academic Year

Level Students Teachers Full time

Schools

Pre-school(based on 2004/2005 data)

1,347,919 62,711 4,119

Secondary (all, grades 10-11-12)(based on 2004/2005 data)

183,412 15,587 1,229

Source: MOF Budget Law; and other data from MOE

35 Ministry of Higher education and Scientific research. 36 The drafting of a Bank’s report on this sector is on-going in 2006.

Box CEducation Highlights

by 2012, the school-age population will increase from 1.5 million to nearly 2.0 million;

approximately 91 percent of the population over age 15 is able to read and write;

12 years of basic and high school education are free; the 10-year basic cycle is mandatory;

MOE basic cycle schools serve 74 percent of students; private sector covers 15 percent and the balance is managed by UNRWA or others;

85 percent of secondary schools are MOE provided; MOE’s budget accounted for 13.5 percent of total

government expenditures in 2003.

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MOE’s Ten year Strategy for Education The MOE has developed a 10-year strategy for education.37 It recognizes that improvement in the quality of education must be financially sustainable. New investments are also required in schools, classrooms and equipment. This will require improved efficiency in resource allocations and greater effectiveness of these expenditures. This means, inter alia, the minimization of administrative overhead to ensure maximum funds for classroom instruction. Reforms will occur through internal improvements and potential partnerships with NGOs, communities and the private sector and school restructuring. Box C illustrates how the MOE will achieve these objectives.

Source: MOE

For the purposes of the IFMCA, the objectives for the reduction of current expenditures, increasing the efficiency of spending and the use of performance information to improve effectiveness are the most relevant areas.

National AgendaThese activities link well with the education components of the National Agenda. It recognized that decentralization of administration and curriculum reforms were important to the system. Increased enrollment in selected areas, improvements in teaching quality and more attention to vocational education are also addressed. For the purposes of the IFMCA, the relevant components are the decentralization of decision-making authority, improved sector monitoring and evaluation and enhancing expenditure efficiency. Taken together, the strategic plan and the National agenda set the road ahead for MOE and its reform plans.

2. Institutional Structures

Ministry of Education

37 PriceWaterhouseCoopers, Strategic Outcomes and Impact , Final Draft Report, March 2005

Box DMOE Objectives to Support its Ten-Year Strategy

Focus on reducing current expenditures. Set priorities for expenditures that contribute most to achieving the reform goals and objectives. Compute total costs of operation* of all existing and proposed reforms and apply them to

decisions on selection of projects. Use agreed performance indicators to formally track and review project progress and use in future

resource allocation decisions. Focus on educational delivery, support, and management systems that are high quality, cost

efficient, sustainable, and effective, using technology where it provides these gains Explore sharing educational system costs with other beneficiaries._____________________________________________________* Total Cost of Operations includes purchase, maintenance, depreciation, operating and support costs

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The MOE organization chart is shown in Figure 1. The operational directorates reporting to the Secretary General for Educational and Technical Affairs represent all of the headquarters policy and procedural functions associated in particular with the development of the education curriculum, teacher certification, research and development, examinations, education and student affairs, and IT. The administrative and financial directorates reporting to the Secretary General of Administrative & Finance Affairs represent all of the support functions for the ministry. The 36 district directorates and their schools deliver education services to the students.

For financial management aspects, the directorates of greatest interest include: Planning, Finance affairs, Information technology, Buildings & international projects, and Audit, inspection & quality assurance.

The Directorate of education planning is responsible for the process of preparation of the annual budget of the MOE and the preparation of the current and the budget-financed components of the investment budget. It is also responsible for the major budget reforms in the area of performance measurement and performance-based budgeting that are being implemented by the ministry in its role as a pilot ministry for these reforms.

The Directorate of financial affairs is composed of three units. The accounts department is responsible for all payments made by the ministry and manages the ministry’s budget execution through a manual control process. The Housing Fund department manages an optional fund for housing assistance to teachers after retirement; and the Social Security Fund department administers a mandatory contributory pension fund for all teaching staff.

The Directorate of information technology is responsible for the rapid computerization of the schools and the curriculum through a dedicated software named Eduwave, the provision of timely and accurate education management information through the Education Management Information System (now Education Decision Support System, EDDS) and the automation of the financial, human and other resources through an integrated resource management system.

The Directorate of building and international projects is responsible for the management and administration of all donor-financed ERfKE project in the educational sector. It is a ring-fenced operation, which extends to the independent processing and approval of all invoices related to these projects.

The Directorate of Audit, Inspection and Quality Assurance performs two major functions – internal audit and quality assurance. Audits of financial transactions, supplies, administrative compliance, engineering works and audit of complaints are part of the audit responsibilities. The quality assurance activities look at the quality of items procured or constructed for compliance with the original suppliers’ specifications in headquarters and the districts and formulates remedial action plans where deficiencies are detected.

Figure 1 Ministry of Education Organization

MinisterOffice of the Minister

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Planning Committee

Education Council

National EducationScience & CultureSecretariat

Audit, InspectionAnd Quality Assurance

SG Education & Technical Affairs SG Administration & Finance

Directorate of education activities

Directorate of general education & student affairs

Directorate of Vocational Education & Production

Directorate of research and development

Directorate of curriculum

Directorate of information technology

Directorate of training and education supervision

Examinations directorate

Secretary General Office

Directorate of employee affairs

Directorate of supplies

Directorate of education planning

Directorate of financial affairs

Directorate of legal affairs

Directorate of building and international projects

Directorate of education and international relations

Head of general division

Secretary General Office

Head of media and public relations

36District

Directorates

20



Jordan faces several financial-related challenges in improving the learning environment: the scarcity of available sites and high cost of land in urban areas; the large budget cuts over the past several years in civil works for general education; the need to use a greater share of the capital budget for equipment; past decisions regarding school construction that have resulted in close to 70 percent of MOE small schools enrolling only 400 students (or less); and an ad hoc and under-funded school maintenance program. Financial planning for the future facilities will also have to take into account the natural population growth, which will cause an increase of approximately 30 percent in the number of students by 2012. 38

MOE Financial Organization

MOE’s financial responsibilities are shared by a number of directorates, mainly three of them. The Directorate of education planning is responsible for the budget preparation function, as well as the reforms currently underway to pilot a performance-based budgeting process. The Directorate of building and International Projects includes financial affairs unit that performs the accounting and payment authorization functions for the ERfKE project. Finally, the Directorate of financial affairs, which includes 44 persons, performs all budget accounting functions, including payment authorization within the Accounts department. This Directorate also has two other departments responsible for the Housing Fund and the Social Security Fund for teachers. Figure 2 refers.

Figure 2 MOE Directorate of Financial Affairs

38 Source: National Education Strategy, op cit, p. 11.

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Accounts department

Housing fund department

Social security fund

department

Disbursements division

Internal audit Division

Vouchers & fund division Prepayment &

deposits division

Loans & subscriptions

sivision

Engineering Division

Compensation & subscriptions

division

Investment division

Disbursement control division


There are two teacher funds that are administered separately from ministry operations. These include the Teachers’ Social Security Fund and the Teachers’ Housing fund. Both administer contributions from teachers and keep the contribution in commercial bank accounts, outside of the TSA. The Social Security Fund also administers MOE contributions. Boxes D and E describe the principal characteristics of each of these funds.

Directorate of Financial affairs

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Source: MOE Source: MOE

In the 36 districts a 5-6 person financial unit in the education muderiyya provides a range of financial services to the schools and the district. There is approximately 200 staff in all these financial units in the 36 districts. The district receives a financial advance that is drawn down for small expenditures. An accountant prepares all documents and comes to MOE headquarters to a designated authorizing officer where all transactions are entered into the system and payment vouchers are signed.

Budget Formulation Traditional Budget ProcessThe budget preparation cycle as promulgated by the MOF has not changed. MOF continues to send out the budget circular in late June, without priorities. It sets annual global ceilings for the ministry’s current and investment budgets. The Directorate of education planning at the MOE forwards the budget circular to all directorates and the 36 districts, without target ceilings or ministry priorities. Salaries, wages and benefits account for the vast majority (90 percent) of the current budget total and are managed centrally by the HR department. Individual directorates and districts prepare their (primarily investment) budget proposals, which are then referred to the appropriate technical directorate for review and challenge. The resulting budgets are

Box ESocial Security Fund

Contributions: Mandatory 51/2 % from all staff; 11 % from MOE budget

Eligibility Staff working before 1995 covered by MOF budgetary payment; Since 1995, all staff covered by

Social Security

Payment lump sum, tax free 1 month of salary for 1-15 years

+150 JD / additional year

Governance Board of Directors 7 members – no

independent board members External audited financial statements

Sent to Director General and Minister Statements not sent to members

Box FHousing Fund

Contributions: Voluntary 18% participation rate 5% monthly contribution

Eligibility Contributors wait about 25 years to

get housing loan, based on: - # years of contribution (60%)

- # years in MOE (40%)

Payment Loans up to 20K JD, 18 years

interest free Contributions + interest returned;

teachers can borrow the difference between the 20,000 JD and contributions

Governance Board of Directors 7 members – no

independent board members; Board approves each payment

External audited financial statementsSent to Director General and Minister

Statements not sent to members

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consolidated and reviewed by a high-level budget committee consisting of the Secretaries-General and the Minister before the budgets are sent to MOF. Both budgets are negotiated with MOF and MOE staff to obtain an agreed final budget proposal. There is little discretion at the district of Governorate level for the current budgets.

The Performance-based Budget PilotThe MOE is a pilot ministry for the implementation of results-based budgeting. Good progress is being made in the design of this process and in implementation. The Directorate of education planning, assisted by consultants, has:

revised the ministry program structure to focus on the outputs of the budget. displayed both governorates and districts in the program activity structure. This supports

decentralization when the government decides to proceed with the education sector. revised its chart of accounts to include the functional and geographic classifications for the

operations of the ministry and its districts and schools.39 MOE has confirmed with MOF the level of functional classification for education that will be in the revised GFS 2001-compliant chart of accounts.

The ministry is in the process of developing a set of strategic program objectives and specific objectives, coupled with quantified performance indicators for all directorates. The intention is to use the information internally to analyze next year’s budget requirements and prepare the budget within the ministry on this program results basis. Table 6 refers. The intent is to track these key performance indicators and set annual or multi-year targets for each (e.g. reduce repetition rates from X% to Y% in 2007)

39 The consultants, Pricewaterhousecoopers, noted that there was a reasonable alignment between the programs and the functions, although the programs did not always have budget responsibility for all spending in the function. Proper alignment is required.

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Table 6 Potential Sample Performance Measures and Indicators

Measure Description of Key Performance Indicator

Education Effectiveness Measurable increases in learning outcomes for students

Reductions in repetition rates

Higher proportion of students going on to higher education

Reduced adult illiteracy

Equity in Education Limited variations in achievement between genders, ethnic, social groups and districts

Program Efficiency Outcomes achieved and increased efficiency in sustainable future operations

Management Efficiency MOE to keep educations share of public spending at just under 14 %.

Increasing the proportion of education funds being spent on direct education

School management decisions are to be delegated to the lowest possible level, including hiring of staff and reallocations of budgetary funds

Source: MOE

To accompany this results-based budget structure, an enhanced process has been recommended.40 The recommendation consists of a multi-year budget planning process, beginning with an examination of the existing strategic priorities and the preparation of a strategic outlook paper. The paper would contain the proposed budget priorities, levels of expenditures and relevant targets for all programs for the upcoming budget year (FY07) and the two out-years. The MOE would finalize the priorities when the MOF annual budget circular has been received with the budget targets. MOE would then send their budget circular that would contain details of expenditure ceilings and performance indicator targets for the upcoming budget year to all budget entities. This recommendation is being reviewed by senior management. This program is supported by the Bank since 2005 as part of the PER follow-up.

This represents a major cultural change for all MOE staff. It will require a significant amount of training in all aspects of the new budget process and its performance-based foundations. The transition will take several years to be completed, initially in MOE and subsequently in MOF, although this is the opposite of what one would expect from a central agency that is supporting budgetary reform. Ironically, unless the present level of commitment by the GBD to support results-based budgeting is significantly increased, the MOE will have no one with whom to negotiate its new performance-based budgets and the entire initiative may not be sustainable in the future unless the GBD gets more involved in this new procedure. In such a case, the ministry

40 Pricewaterhousecoopers, Budget and Planning Systems, July 2004

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of Planning may consider playing a more active role in facilitating the dialogue between the GBD and the MOE. Budget Preparation PerformanceOne measure of budget preparation system effectiveness is the ability of ministries to obtain the funds requested for their current and investment budgets. Because MOP separately manages the donor-financed component of the investment budget, this measure is less comprehensive. However, it still is indicative of how well the process functions. Table 7 refers.

Table 7 Education Budget Performance 2003-2005 (JD Million)

Current Capital SETP* Total2003 Budget requested (R) 287.7 26.8 24.5 339.0Budget Approved (A) 273.4 12.2 20.2 305.8Budget Utilized (U) 270.4 8.9 18.3 297.6Variance (R-A)/ R 4.9 % 54.4 % 17.5 % 9.7 %Variance (A-U)/ A 1.0 % 27.0 % 9.4 % 2.6 %2004Budget requested (R) 300.2 21.5 13.3 335.0Budget Approved (A) 290.1 14.0 28.5 332.6Budget Utilized (U) 284.0 12.8 17.3 314.1Variance (R-A)/ R 3.3 % 34.8 % -114.2% 0.7 %Variance (A-U)/ A 2.1 % 8.5 % 39.2 % 5.5 %2005Budget requested (R) 312.0 18.0 8.0 338.0Budget Approved (A) 307.0 12.8 22.4 342.2Budget Utilized (U) 317.5 12.1 17.1 346.7Variance (R-A)/ R 1.6 % 28.8 % -180.0 % - 1.2 %Variance (A-U)/ A - 3.4 % 5.4 % 23.6 % - 1.3 %

Source: Ministry of Education*Social and Economic Transformation Project

The ministry has a good track record in preparation of budgets that are acceptable by the General Budget Directorate. Current budget variance has been less than 5 percent in the period 2003-2005. However, this high rate of approval of the current budget also reflects the invariance of the salaries and benefits component, which accounts for approximately 90 percent of the current total. The capital budget success rate was less important and highly variable, ranging from 55 to 29 percent variance. These capital expenditures are the budget-financed component; the ERfKE donor program provides substantial financing in addition to this budget allocation. The capital amounts provided by MOF are consistent with other capital approvals and do not appear to be unreasonable. The temporary budgets relate to financing under the Social and Economic Transformation Project, whose variance was the widest ranging of all categories. The mission concluded that the SETP budget decision-making was made centrally, with little influence from the executing ministry.

As regard to the budget utilized variance, the track record also is acceptable, in particular for the capital expenditures which ranges from 5 to 27 percent variance.

26


Budget ExecutionThe budget execution process follows the same process as described in the government-wide factors chapter (Table 3). The mission noted the duplicative nature of the process, with at least five overlaps between sequential steps in the process. Two comments can be made: the presence of multiple, repetitive steps tends to relieve each individual of his responsibility and accountability for successfully discharging his task; the large number of steps generates delays in the payment processing process, which could affect the suppliers prices for provision of goods and services to the government41

Accounting & Reporting

AccountingAll accounts are now in the TSA except the Social Pension Fund and the Teachers Housing Fund. The ministry is undertaking major changes to its program structures and its chart of accounts. Table 8 provides the details of the proposed program structure currently under development within the ministry. It is a pure, output-based structure that replaces a previous output and input program configuration. This will be reflected in the accounting system when full implementation is approved. Until that time, the Directorate of education planning will prepare the 2006 budget internally on this revised structure and cross-walk the final budget proposal to the old structure for submission to MOF.

Table 8 Proposed New Program Structure

New structure Existing StructureAdministration and Supportive Services AdministrationKindergarten Education General EducationBasic Education Vocational Secondary Education Adult LiteracyVocational Education Sports ActivitiesSpecial Education Rehabilitation/trainingAdult Education and Removal of Illiteracy ExaminationsEducational Activities organized by MOE Media and Textbooks

Special Education Source: MOE and Pricewaterhousecoopers, Project A Report, page 2.

The MOE advised the IFMCA mission that their revisions to its chart of accounts to include the functional and geographical classifications will be compatible with the MOF changes to its chart to bring it into conformance with the GFS 2001 requirements. MOF confirmed this to be the case.

The existing cash-based accounting policy will remain in effect. The mission observed that, as the use of performance information is further developed to include financial costing and the related performance financial ratios, the ministry should plan for a future, multi-year phased migration to accrual-based accounting. This would ensure that the costs used would reflect the full costs, including the costs of physical assets. It is a long-term reform.

Financial Management Information Systems41 That should be confirmed on a sampling analysis.

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The MOE’s information technology is a confusion of 32 multiple, ageing legacy stovepipe systems, combined with manual reporting processes. The financial and resource management systems are partially automated (budget preparation, payroll) and manual (budget execution controls, audit). The ministry is proactively moving to automate all of its core functions, including education planning, delivery and management processes, and to implement a complementary initiative for an integrated resource management system. This latter system was the principal focus of the mission.

There is considerable confusion surrounding the IFMIS. The process appears to be out of sequence. Deadlines are being discussed, in the absence of an implementation plan or an approved supplier. The ministry has not prepared its statement of requirements for such a system, and there does not appear to be a senior management “owner” of the reform. Staff within the ministry considers the IT directorate as the owner of this and other automated systems. The IFMCA team is concerned, as the success of any large computer-based project such as a financial management information system is heavily dependent on user ownership of the project and its implementation.

Additionally, there has been little consultation between the ministry and the MOF on the development of its FMIS. In fact, the Minister of Finance had written two years ago to all of his cabinet colleagues prohibiting the development of any ministry FMIS without his approval; MOF advised the mission that MOE did not seek the Minister of Finance’s approval and no such approval was given. The mission believes that the MOE should resolve this situation before proceeding further with its FMIS project.

If approval to proceed is obtained, the MOE project manager should closely engage the MOF personnel at two levels - managerial and technical. The managerial consultation is necessary to ensure that the functionality of the MOE system is compatible with the one of the MOF system. Technically, the MOE and MOF should ensure that the maximum commonality between the architectures, data designs and hardware/software is achieved to minimize the capital and operating costs of implementing FMIS in all major government entities. This consultation should be formal and regular, with decisions taken communicated to all parties in both ministries.

The IFMCA mission also noted that a supplier was interviewing various ministry directorates in order to acquire their user needs and to develop a statement of requirements.42 This supplier is ITG, the same company that is responsible for the design and implementation of the ministry’s Eduwave and EDDS43 softwares. Given that the supplier could be considered to be a future bidder for the provision of an FMIS for MOE, that will be linked to the system of the MOE, this activity may represent a case of conflict of interest.

Once the situation has been normalized, the MOE should follow the well-established process for preparation of a competitive tender for any system and implement it in a transparent manner according to international procurement standards. Once a successful bidder has been selected, the 42 The team was advised that ITG has promised to install their GRDS system for “free”. The Ministry has paid US$ million 2,3 for EDDS. Quite apart from the procurement concerns, the MOE should negotiate with any systems supplier for the future costs of ongoing maintenance and technical support, upgrades etc and ensure that they are expressed in a legal contract.43 Education decision support system.

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ministry should formally contract with the supplier for the implementation of the system, based on a well-developed and fully costed work plan. The responsible project manager should monitor and manage the implementation to ensure that the project is implemented on time and within budget. The contract should also make explicit the services and costs that would be provided by the supplier for ongoing maintenance of the system, as well as the basis for making upgrades and other client-requested improvements.

ReportingThe overall reporting of the MOE follows the procedure described in chapter one (Government – Wide factors). Thus, the MOE produces monthly reports of the commitments and the payments. The reporting is semi-automated44. Given the means used for this process, the team assesses this reporting as acceptable even though the reliability of the commitments reports is still questionable and the timeliness of the monthly reports could be improved. To this regard, the GFMIS will make possible the full accounting and reporting of the commitments. Nevertheless, the reporting of the MOE is largely above the average of other ministries, in particular for the accuracy of the reporting of the payments.

The mission has concerns about the transparency of the two extra-budgetary teachers’ funds. It was advised that the MOE understates the administration costs of the Social Security or the Pension funds as it does not charge the funds for the operating costs of the two directorates that administer them. As well, the funds do not operate transparently, as the annual financial statements of the funds are not provided to all contributors. The study did not consider the appropriateness of such funds, assuming that their existing legal framework accurately reflects the government’s policy for additional compensation for its teaching staff. However, in terms of governance of the fund, a more complete and accurate disclosure is necessary to meet minimum standards. Also, the financial statements should be distributed regularly to all fund participants to promote greater accountability for and transparency of their performance.

Internal Controls

Budget ControlsRegular budget controls are carried out in the ministry according to the government-wide processes. As in all other ministries, the budget execution system has overlapping and duplicative controls exercised by the Audit Bureau, MOE staff and MOF Controllers. The observations made in the government-wide chapter are equally applicable for the Ministry of Education.

Payroll ControlsThe controls over payroll are in principle sound and complete. The tools utilized should allow a secure set of controls as follows:

Payroll is centralized at MOE headquarters, administered by the payroll department at the Directorate of employees affairs - HR (see chart - figure 1).

All increases in staff levels proposed in the annual budget process are closely reviewed by the technical directorates for validity and by the HR directorate for staffing.

44 In most ministries, the reporting is manual.

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The resulting increases in staff, if approved in the budget process, are used to update the ministry’s manning table.

There are standard salaries for each level of civil servant, set by MOF and augmented by additional allowances for teachers with additional qualifications.

All payroll records are kept in a secure, centralized computerized payroll data base that is updated daily from paper-based reports from the various directorates.

The data base is audited by an internal audit mission within the Directorate of employee affairs to ensure that all changes are supported by appropriate documentation.

Additionally, there is a regular validation of the number of staff under the responsibility of each directorate and district by site visits by MOE internal audit unit that also checks the data quality.

The MOF and the Audit Bureau auditors also audit the data.

The mission believes these tools are sufficient to ensure secure controls but has not performed a sampling exercise to verify this point, in particular the resulting modifications in the situation of the agents in due time (retirement, secondment, …). However, the audit reports recently issued have not reported problems.

Procurement ControlsMOE follows the procurement rules described in the government-wide chapter (Box A). The one difference is the procurement procedures applied by the ERfKE project which follows the World Bank’s procurement guidelines45.

Fee Revenue ControlsThere are no issues with locally-generated revenues. Fee revenues in the education system represent a very small component of total expenditure in the ministry. Individual schools retain local revenues, but spending from these revenues is controlled by MOF in the same fashion as any other expenditure.

Internal Audit

The directorate in headquarters in charge of internal audit and quality assurance is composed of two departments (internal audit and quality) and eight divisions. Figure 3 refers.

Figure 3 - MOE Audit, Inspection and Quality Assurance

45 Tenders are sent by the unit to all embassies and advertised in the media; bids evaluated by a committee are sent to MOF for no objection; and, the results of the tender are publicized. A modern, electronic notice board in the procurement authority provides all suppliers and the interested public with the results of current bids and the accumulated procurement to date. The process is designed to ensure transparency and fairness to all parties.

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Internal Audit Department

Quality Department

Financial Audit

Supplies Audit

Administrative Audit

Engineering Audit

Complaints

Quality Assurance

Specifications

Performance & Follow up

36 Districts have an internal audit unit of up to 5 auditors for audit and quality work


The directorate in charge of internal audit is large and well-developed. A staff of 22 auditors performs five functions within the unit:

-five financial auditors audit all transactions; for transactions greater than 5,000 JD, the Audit Bureau also performs an ex ante audit46 after approval by the directorate of financial affairs and before the MOF Financial Controller. The financial auditors also perform ex post transaction audits on a sample basis, review monthly financial statements from the directorates and coordinate with their district auditor counterparts on the results of their work:

-the supply auditors audit all supplies – furniture and fixtures, computers, vehicles, international project procurement, asset management and quality of goods- and check their compliance with the purchase orders and other characteristics such as schools norms.

-the administrative auditors audit all administrative decisions, such as transfers of teachers. They oversee the execution of the district audit plans and issue corrective action notices. They do not perform payroll or HR audits.

-the engineers auditors conduct their audits through field visits to projects under construction to assess the percentage of completion. They also exercise quality assurance

46 This task is being gradually phased out (see Chapter 1)

Audit, Inspection and Quality Assurance

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on the physical aspects of the project. The work is primarily related to international projects.

-the complaints auditors receive and investigates complaints from all parties, either directly or through an innovative web site.

The auditors do not use international standards in the planning, executing or reporting of their audits; and international standards are not utilized as the basis for their training courses. As a result, while the audit group is active, the ministry is not receiving the full benefits from their activities that would be expected from modern internal audit processes and procedures.

Audit reports are discussed with the auditees and submitted to the Secretary General of education and technical affairs. An annual audit report is prepared and sent to the Audit Steering Committee, chaired by the Secretary General. ISO-certified auditors each received two days of formal training for certification; there is no additional training provided on a regular basis. The audit function in Ministry of Education has a number of the attributes of modern internal audit. It would be a good candidate for a pilot on establishing an internal audit function when the government decides to implement internal audit that follows international audit norms across all ministries.

The Quality Department has three divisions and 70 staff at headquarters, all internationally certified under ISO 2000. District audit staffs also perform the quality functions in their respective districts. The Quality division ensures that staff follow the specified procedures set out in procedural manuals, monitors the implementation of work and its efficiency and makes appropriate recommendations for process improvements. The specification division audits the technical specifications for projects to ensure compliance with MOE standards and for quality. The performance division audits the implementation of all approved action plans for new projects.


MOE financial officers do not receive any sustained, planned and regular training to enable them to maintain their skill levels or acquire additional skills. The general feeling was that the financial officers possessed professional training of a university degree or an accounting designation, and with on-the-job training, they were quite capable of maintaining their skill levels. Given the National Agenda’s emphasis on development of modern skills and continuous learning, the current approach warrants re-examination.

This approach is understandable in a stable financial management environment. But in a period of significant change such as the government is now in the process of implementing, a more proactive approach is required. The mission learned that MOE has not sent any agent to participate in the training sessions offered by MOF47 (see chapter 1).

47 The MOF indicated to the mission that it has both the capacity and the capability to provide financial training courses for other ministries at no cost other than travel and lodging where required. They are also establishing a formal training centre that will provide a permanent training facility for future training of financial officers.

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The MOE should consult with the MOF and develop a formal training program for their financial officers. Training should be designed to refresh current knowledge of budgeting control,

accounting, reporting and auditing and to impart new skills required to accommodate the planned changes to financial management processes. A sample of the type of training that could be offered is provided in Box G. The selection of appropriate courses for the MOE financial officers would be the responsibility of the ministry’s financial affairs and Human Resources directorates. A multi-year training plan should be created, with training coordinated with the expected implementation dates of projects to improve the financial management functions. The

plan should then be discussed with the MOF so that the appropriate courses could be developed and scheduled for future delivery. Here again, the MOPIC should consider playing a role in facilitating the dialogue between both ministries.

Box GPotential Financial Courses

The FMIS and its processes Principles of Accrual Accounting Activity-based costing Performance measurement in government Performance information in budgeting Program based budgeting Results-based budgeting Financial analysis and forecasting

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5. Performance IndicatorsThe Public Expenditure & Financial Accountability program (PEFA)48, adjusted for sector application, has been prepared for the Ministry of Education. The PEFA set contains 28 performance indicators for use in assessing a national government’s performance. Table 9 provides the data for the Ministry of Education which cover a set of 6 indicators as an illustrative set of the overall performance of the system. A more comprehensive analysis is needed for full use of the framework.

Table 9 Ministry of Education: PEFA Performance IndicatorsIndicatorDescription Measure Rating CommentsVariance: Budget expenditures vs. actual expenditures over 3 years

Variance from Budget (%) A - B Three years of data

Effectiveness of payroll controls integration or payroll & personnel records

timeliness of updating internal controls on

changes to records regular payroll audits

A - BHR is entitled to administer all payroll processes and payments

Effectiveness of internal controls for non-salary expenditure

Effectiveness, comprehensiveness of controls with high compliance rates

B - C Overlapping functions in ex ante control purposes

Effectiveness of internal audit Coverage, quality and management response to internal audits; frequency & distribution of audit reports

C Modern internal audit not present but some aspects are positive

Availability of information on resources received by service delivery units

Information on resources actually received by service delivery units

A Financial data routinely available; performance data now being developed and supporting systems under construction

Quality and timeliness of in-year budget reports for sector

Scope and coverage of reports; timeliness of reports and quality of data

C Teachers Housing and Pension Fund reports not transparent

48 PEFA is a recent donor’s agreed tool that regroups a set of indicators about the level of performance of a Public Financial management system. Each indicator is rated from A (highest level) to D (lowest).

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6. Recommendations for the Ministry of Education

Short-term 1. The MOE should designate a senior ministry executive as the owner of the ministry’s new financial

management information system project, with full responsibility for the successful implementation of the project. This person generally is not the IT Director. The MOE should also appoint a full-time, qualified project manager to oversee project implementation.

2. The MOE should consult with the MOF to get his approval for the development of the MOE- FMIS before proceeding further with any competitive arrangements for its provision.

3. The MOE should initiate formal and regular meeting with key MOF staff to coordinate on the management and technical issues arising from the MOE- FMIS project implementation.

4. The MOE should seek explicit guidance from MOF and, if necessary, Cabinet before proceeding further in his ministry’s dealings with ITG on an FMIS. Until direction is provided consistent with its present relationship with ITG, it should suspend all of ITG’s activities relating to the FMIS.

5. The successful FMIS supplier should be selected using the Procurement Authority’s competitive tender process.

6. The MOE should develop and implement now a long term training program for its financial staff in close coordination with the MOF and its Training Institute. This should be implemented on a priority basis to support the effective implementation of MOE’s significant budget reforms. The MOPIC should also facilitate the dialogue between the MOF and the MOE.

Medium-term

7. The implementation of the FMIS should be covered by a contract between MOE and the supplier. The contract should be for a fixed term and should specify the implementation milestones and costs as well as the future costs of provision of system maintenance and support, and the basis for determining the cost of client-requested changes and upgrades.

8. The MOE should be an early pilot for a modern internal audit function when the government decides to implement an international standards-based audit function.

9. The MOE should disclose its direct costs for supporting the teachers’ Social Security Fund and the Housing Fund in their annual financial statements. These statements should be accompanied by the auditor’s opinion on the fairness of the financial statement presentation, in accordance with international auditing standards. The MOE should distribute annually the audited financial reports of the two funds to all participating staff, on a timely basis after Board approval.

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III. A The Social Development Sector Capacity Assessment

1. Background

Jordan has always placed the provision of social services and the alleviation of poverty at the top of its priority list. The government has recognized the right of all citizens of access to health services and is committed to fighting poverty. As such, in 2004, Jordan’s social services spending amounted to 17 percent of GDP, a percentage that is among the highest in developing countries. This anti-poverty theme directly supports the National Agenda goals relating to public assistance and the well being of Jordanians. A National Agenda Committee on Social Welfare has been created with a mandate to address issues relating to poverty, social security and healthcare.

The Social Development sector consumes around 17 percent of total expenditures in 2003 and 8.2% of GDP. Pensions account for 6.7 percent of GDP; the balance of 1.5% is accounted for by the government’s the anti-poverty programs and social safety nets. At present there are around 1000 local voluntary organizations and 41 foreign NGOs registered with the Ministry of Social Development.

The Multi-Year StrategyThe MOSD prepared a three year strategy covering the years 2004 to 2006. This strategy was developed to support the vision of HRH the King and the government of Jordan to achieve overall sustainable development for all members of society. The main objectives of the strategy are to: reinforce the national Jordanian identity; protect the family; build and develop individuals to achieve social coherence; achieve fairness and social security for all members of society across all geographic locations (with particular emphasis given to the most vulnerable members - orphans, women, elderly, citizens with special needs and juveniles); face social challenges such as poverty and unemployment by involving NGOs in developing local communities and in providing training, rehabilitation and the needed support; invest in human capacities; enhance the capacities available in society; enhance the concept of work and productivity; support individual self-reliance and contribute to the overall development process; deepen society’s understanding of development efforts to help individuals and groups in addressing their needs; reinforce cooperation and coordinating between the public sector, private sectors and NGOs to invest in national efforts to promote sustainable development; and to encourage individuals and local NGOs to reinforce social productivity.

The strategy also identified policies on women’s role and importance in society, the priority of children in development programs, protecting the family, scientific research as a basis for planning and building programs, and continuous training to increase capacity and qualifications of employees. It also proposed specific programs for the three year period by objective, target and supporting groups and specified performance indicators.

Although substantial improvements have been achieved since 1997, poverty in the Kingdom remains pervasive with 14.2 percent of the population living below the poverty line, mainly in rural areas. In order to reduce poverty, the plan identified nine specific initiatives. Of relevance

37


to the IFMCA is the initiative to restructure the National Aid Fund to permit it to deliver a broader range of social and financial support to affected citizens.

2. Institutional Structures

Ministry of Social DevelopmentJordan’s social development ministry’s aims are to contribute to organizing citizens’ efforts, educating them about investing in their personal capacity, improving their life status, providing them with social services, safeguarding and solving society’s social problems and coordinating with parties working in the social field.

MOSD has four technical directorates with responsibility for Projects, Special Needs, Family/Women/Children and Social development49. These are supported by directorates for International Cooperation, Building and Services, Financial Resources, Communication and public awareness, Studies & Planning, Human Resources Development. Figure 4 shows the complete organization structure of the ministry. MOSD operates 30 field directorates, 22 supplementary offices and 47 centers across the Kingdom. The staff complement of the Ministry is approximately 1,800 employees50.

A number of other ministries and agencies support MOSD’s functions: the Ministry of Planning and International Cooperation coordinates donor-related activities and budgets for JD 2 million for housing grants that are administered by MOSD; the Ministry of Public Works and Housing manages all construction bids above JD 20,000 on behalf of MOSD and other ministries; the General Budget Directorate and the Ministry of Finance provide initial budget levels and monthly expenditure reports respectively; NAF provides social subsidies to all citizens in financial need (see section IIIB for a complete analysis of NAF’s operations). MOSD and NAF cooperate in common field directorates; local and foreign NGOs that are registered with MOSD receive support in cash or in kind from the ministry.

Field DirectoratesThe field directorates and offices carry out the work of the MOSD and NAF in their district. Almost half of the ministry’s field employees work on NAF business, even though their salary is covered in the ministry’s budget. All budget, expenditure and payment cycles for all the field directorates, offices and centers are centralized in the MOSD.

Non-Government OrganizationsAt present there are 1,000 local voluntary organizations and 41 foreign NGOs registered with MOSD. Its Directorate for Social Development contracts with NGOs to provide services to geographic areas that MOSD cannot reach or to provide highly demanded services that exceed the ministry’s capacity to deliver. The agreements between the NGOs and the ministry specify the services required and the financial contribution of the ministry as well as other articles relating to aspects of the NGO’s services. The NGOs are required by law to submit annual

49 Also called in this report Directorate for people with special needs.50 22 percent have completed their mandatory education and 5 percent have a higher degree.

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audited financial statements to the Minister of Social Development. Contracts concluded between the NGOs and international donors are effected through the MOSD or MOPIC.

The mission was advised that the MOSD currently has agreements with only 16 out of 41 registered NGOs. The ministry advised that it is facing difficulties in financing them as specified in the agreements due to limited budget resources.51 The Director of Social Development estimated that an additional JD 0.5 million would be required to fulfill the ministry’s obligations under its contracts with the NGOs.

51 Of the JD 1 million requested in the 2006 budget, only JD 370,000 was allocated

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Jordan IFMCA Social Development Sector

Figure 4 Organization of the Ministry for Social Development

Minister

NAF

Office of the minister

Internal Audit Unit

National Council for Special needs

SG

Assistant SG

Diwan

SG Office

Legal unit

International Cooperation directorate

Media division

Int’l & foreign NGO

division

Buildings & Services

directorate

Bldg & maintain. division

Financial resources directorate

Accounting division

Commun.& public awareness

directorate

Commun. & PR division

Studies & planning

directorate

HR development directorate

Special needs directorate

Family, women & Children

directorate

People with special needs

directorate

(Movt) division

Payroll division

Internal audit

division

Budget division

Supplies division

Public awareness division

Public service division

Elec document & archive

Studies division

Planning & follow up division

IT division

Library division

Employees affairs

division

Training division

Promotion division

Design & fundraising

Implementa-tion

Follow up on pov strategy

Hearing & seeing

division

Physical division

Mental division

Diagnosis division

Training & VTE division

Children division

Youth division

Women division

Family protection division

Elderly division

National NGO

division

Enh. Pro. & elimin. Poverty division

Projects directorate

Housing division

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One reason that financial management skills are weak in the ministry is due to the high degree of centralization of the financial function. All major decisions, approvals and check payments are performed in Amman. Although each field directorate has a finance officer, his main role is to act as an intermediary between the Financial affairs Directorate at the field level and the Ministry’s Financial Resources Directorate. This lack of experience on the part of field staff will make it difficult for the ministry to implement a FMIS that enables to adjust the level of decentralization of the financial management function (closer to the point of service delivery) and to develop and implement performance budgeting to support increased managerial accountability and responsibility.

The Financial Resources Directorate at the MOSD has 23 employees in 5 divisions as shown in Figure 5.

Figure 5 MOSD Financial Directorate Organization

* Currently the division does not exist but the 6 employees are performing the work and reporting to the finance director.

Budget Formulation and Execution

Budget FormulationThe Ministry budgeting process is quite weak, with low staff capacities to support planned budgeting improvements. Projects such as performance budgeting or the implementation of a modern FMIS will require considerable professional development and training for both financial staff and managers who are responsible for budget planning and execution. At present, fragmented and often manual systems are employed, with all decisions centralized in Amman.

The budget formulation process at MOSD is a bottom up data collection process that transmits MOSD needs, but not in a medium or long term perspective. The budget preparation is not guided by ceilings or priorities set at the Minister’s level or the Technical Directorates; instead it is a fragmented approach where the plans are cut down at every level of review. The absence of ceilings or priorities reduces the ministry Budget Office’s role to an aggregator of all

Financial Resources Directorate

Budget division

(1)

Supplies division

(6)

Accounting division

(4)

Payroll division

(4)

Internal Audit division

(2)

Deposits *(6)

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submissions into one Budget plan52. As a result, the annual budget is unconstrained in its preparation and does not ensure a continuation of ministry programs or provide a basis to move forward in the ministry’s strategy and vision. Given that the MOF is implementing a MTEF for the 2007 budget cycle, the timing is excellent for the ministry to match its strategic planning process with a complementary three-year expenditure plan. The Bank supports this program since 2005 as part of the follow-up of the PER process.

The Ministry should develop and implement a three-year expenditure framework that will allow it to plan and prepare its budget based on defined priorities. The absence of expenditure ceilings for the ministry and its directorates results in a budget without adequate justification for its contents. This disempowers the ministry, as it permits the General Budget Directorate to make arbitrary budget decisions on its content53.

An effective internal “budget challenge” process within the MOSD would significantly improve the effectiveness of the budgeting process and enhance the transparency of the district capital budgets. This would require financial training for the budget staff on modern budgeting techniques, the ministry’s major programs and its budget priorities.

The field directorates’ role in the budget formulation process would also be enhanced if their yearly budgets were based on agreed priorities and fixed budget ceilings. They should also be responsible for preparing their current budget in two parts for MOSD and NAF operations, with MOSD costs incurred for NAF operations charged to the NAF budget. This will increase the transparency of NAF’s actual costs and permit a more accurate picture of the total costs of MOSD and of NAF.

In fact, the field Directorates prepare a yearly plan of all proposed investment projects, based on their local needs. Once these plans have been sent to the ministry headquarters, the field directors’ involvement in the budget process finishes as the MOSD does not communicate the approved budget to the field directorates or send them a monthly budget report.54 Once the Field Directorates’ plans are received, the heads of the technical Directorates select the most appropriate projects, based on ministry needs and ministerial priorities. These projects are costed and converted into a capital budget proposal. As a result, there can be no financial accountability of the field directors for the effective management of their financial resources.

The current budget is prepared using historic data, adjusted for changes in the number of staff, operating expenses and other related expenses. Even though the field Directors work for both MOSD and NAF, and at least one half of the ministry’s staff are essentially 100% working on NAF business, the MOSD budget includes all field staff salaries and operating expenses. Each NGO submits to the MOSD its proposed budget containing an unconstrained “wish list” of all requests. The Social Development Directorate reviews these proposals, giving priority to the 16 NGOs with whom they currently have formal contracts. The Directorate also estimates resources

52 The budget process is bottom up driven. Based on a MOF’s circular, the MOSD requests its various technical and field directorates to prepare a yearly plan of all proposed projects to be included in the capital budget. The current budget is prepared by the budget division using historic data.53 This year, the MOSD’s budget included an amount allocated to the National agenda which was prepared by the Prime Minister’s Office and submitted to GBD for approval with no involvement from the ministry. 54 This is done to maintain the maximum budget flexibility for global operations.

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required for multi-purpose NGOs that are used to respond to an urgent demand for a particular service on a non-contractual basis.

The current and capital budget plan is presented to the Secretary-General and the Minister for their feedback. The Minister and/or Secretary General may at this point add or delete projects before submitting the plan to the General Budget Directorate. The Minister, Secretary General, Technical Directors, Financial Director and Budget Officer meet with the Director of the General Budget Directorate to negotiate the final budget levels.

Budget ExecutionThe mission assessed the budget performance of the social development sector, using the percentage of the budget requested to the budget actually approved by Parliament as a measure of budget formulation efficiency. This approval ratio measures the ability of the sector to formulate a realistic and feasible budget. Details are provided in Table 10. The two main lessons learned form this table are the absence of availability of the data related to the budget requested, which indicates the low ownership by the Financial resources directorate of the budget procedure, and the erratic and poor performance of the budget execution vs budget approved, that also confirms the low ownership of the budget process by the Ministry, in particular at the field office level (see below).

Table 10: Social Development Budget Performance (JD Million)

2003 2004 2006 (*)

Program Current

Capital

Grants

Current

Capital

Grants

Current

Capital

Administrative &supporting servicesBudget requested (R) n.a. n.a. n.a. n.a. 1.84 1.81

Budget Approved (A) 1.66 1.27 1.67 0.72 1.70 0.29

Budget Utilized (U) 1.41 1.18 1.53 0.58 - -

Variance (R-A)/ R n.a. n.a.n.a.

n.a. n.a.n.a.

7.6% 83.9%

Variance (A-U)/ A 15.06% 7.08% 8.3% 19.4% - -Children & family programBudget requested (R) n.a. n.a n.a n.a 0.81 0.67




n.a. n.a.n.a.

13.5% 28.3%

Variance (A-U)/ A 10.2% 7.1% 6.5% 32.5% - -Social protection programBudget requested (R) n.a. n.a n.a n.a 0.65 1.13




n.a n.a.n.a.

7.6% 25.6%

Variance (A-U)/ A 8.3% 13.9% 33.3% 19.2% - -

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2003 2004 2006 (*)

Program Current

Capital

Grants

Current

Capital

Grants

Current

Capital

Special needs programBudget requested (R) n.a. n.a. n.a. n.a. 1.18 2.34




n.a. n.a. n.a.

16.1% -2.1%

Variance (A-U)/ A 21.4% 0.0% 12.0% -1.2% - -Local Community Development programBudget requested (R) n.a. n.a. n.a. n.a. 0.60 1.55



Variance (R-A)/ R n.a. n.a.n.a. n.a.

16.6% 54.8%

Variance (A-U)/ A 11.4% 10.1% 5.1% 2.9% - -Total

Budget requested (R) n.a. n.a. n.a. n.a. 5.08 7.5

Budget Approved (A) 4.86 4.69 9.55 4.64 5.15 9.79 4.4 4.7

Budget Utilized (U) 4.15 4.41 8.55 4.09 4.72 8.81 - -

Variance (R-A)/ R n.a. n.a. n.a. n.a. 13.3% 37.3%

Variance (A-U)/ A 14.6% 5.9% 10.4% 11.8% 8.3% 10.0% - -

* 2005 data not available Source: Jordan, Budget Law for the Fiscal Year 2004.;

As described in the government wide chapter of this report, the budget execution process is centralized in the ministries and is monitored by their financial directorates and MOF on a monthly basis. The budget allocations are strictly controlled, and any variances at the economic or organizational classifications down to the sub-item level are controlled by the General Budget Directorate. Depending on the nature of the transfer, it can be only approved by the General Budget Directorate, Cabinet or Parliament. The Ministry cannot restore to the approved budget any project which was removed by the GBD. The Field Directorates play no role in the management of the execution of the budget. This is due to the fact that the budget is not broken down by field directorate, but is managed centrally. All spending approvals are made in headquarters, far from the point of service delivery.

The expenditure cycle is a lengthy one with various ex-ante and ex-post controls. The budget officer, the disbursement controller, the MOF controller, the internal auditor at the Financial resources directorate, the internal audit unit at the Ministry level, the Audit bureau in some cases review individual transactions to ensure funds availability and proper recording in the budget. This situation was already addressed in the government-wide chapter of this report.

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Accounting & ReportingThe accounting division at the Financial resources Directorate follows the cash basis of accounting for recording expenditures. Each expenditure starts with a committed amount (pre approved to ensure availability of funds) and goes through detailed inspection on an ex-ante basis before being approved and recorded. The MOSD manually records commitments but does not prepare any report that will allow it to follow up on these commitments or to quantify their amount. In other words, the notion of commitment seems to be used as a way to allow the expenditure to be initiated and not as a tool to monitor the spending.

Field expenditures are centrally approved, recorded and maintained with their supporting documents. Even though the field director is required to approve the expenditure requests before sending it to MOSD, the field directorate finance officer is not responsible for recording these expenditures or following up on them.

The ministry’s Financial Directorate prepares monthly financial reports for budget monitoring purposes. They show the amounts allocated, committed, spent and remaining for every line item. These reports are prepared manually and sent to MOF. The accuracy is uncertain. The same format is used to report its final accounts; there is no public dissemination of these accounts. The MOSD should also include in its external reporting of its final accounts, measures of its performance relating to progress in attaining its objectives as included in its strategy and posted on the web. Such moves towards transparency would contribute to increased public discussion and greater understanding of the challenges facing the sector.Currently the MOSD does not have a FMIS, and relies on the ex-ante control over transactions to ensure accuracy and on its manual registers to ensure completeness. The mission believes that the adoption of a computerized financial management information system is a critical component of financial management reform that warrants strong interest and support form senior ministry management. Because NAF is in an identical situation with respect to its FMIS, the two groups should work cooperatively to develop a single FMIS to serve the work of both entities

Internal Controls

NGO ContractingAt present, the ministry has contracts with 16 NGOs for the delivery of a variety of social welfare services. The mission was advised that they had difficulty in meeting their contractual obligations for the services provided under these contracts. The Audit Bureau advised that the NGOs, unions and other not-for-profit entities are all involved in service delivery on behalf of the Ministry of Social Development. They noted that these entities had weak internal controls, complicated by weak accounting systems and poorly trained staff. The Audit Bureau advised the mission that in 2005, they audited the financial performance of the largest NGOs and detected significant levels of fraud (JD 245,000, see below). These are clearly areas of risk for the ministry.

The ministry also advised that they had informal agreements with a number of other NGOs that were generally unfunded. These constitute unfunded liabilities that do not appear under the existing cash-based accounting system, but which constitute liabilities of the ministry.

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Payroll ControlsMOSD’s payroll functions and controls are centralized in the Human Resources Development Directorate with the support of the payroll division in the Financial Resources Directorate. The HR Directorate has an Employees Affairs division that maintains the currency of the manning table, the benefits, social security, promotions and retirement benefits for all employees using a computer-based HR system. The payroll division is made up of 4 employees mainly responsible for posting salaries, related allowances and benefits, calculating taxes and posting this information in a payroll system. Despite the fact that both divisions communicate on a daily basis, their systems are not linked. This requires regular reconciliations between the two systems. Subject to the effectiveness of these reconciliations that the mission could not assess on a sampling basis, payroll controls are complete.

Internal and External AuditInternal AuditThe MOSD has three levels of internal audit implemented by the: (i) internal auditor in the ministry’s Financial Resources Directorate (ii) the ministry independent internal audit unit that reports directly to the minister and (iii) the MOF controller located in the ministry and reporting to MOF. Because all expenditures are centralized in the MOSD, there is no internal audit function in any of the field directorates. All audits focus on ex-ante compliance checks at the individual transaction level. Comments and recommendations resulting from the internal audit are documented on the payment voucher and are dealt with on the spot by the Financial Resources Directorate.

The mission noted that none of the ministry auditors reviewed or evaluated the policies, procedures and operations in place at the MOSD in terms of: support to ministry objectives; identifying, assessing and managing risks to achieving these objectives; and ensuring the reliability of information, accounts and data. This lack of investigation of the internal controls procedures indicates that the Ministry is far from the main modern audit function requirements. In addition, it was observed that the three levels of audit are overlapping and duplicative. The government-wide factors chapter has made recommendations regarding potential changes to internal audit function across government that remain available for the Ministry.

External AuditThe Audit Bureau is responsible for the external auditing of the ministry, using a dedicated audit mission. According to the Audit Bureau, their external audit covers all the ministry activities, including their specific programs, international projects and grants. It also evaluates the ministry’s internal control processes and its financial controls over registered NGOs. The Audit Bureau reported in a recent audit report covering a sample of the 10 main NGOs, an amount of JD 245,00055 missed and that the MOSD does not exercise sufficient financial control over the NGOs. Such a situation facilitates all types of fraud or abuses.

55 It relates to amounts embezzled through cheques in one of the NGOs. The audit bureau together with an anticorruption committee handled this case and almost 80% of this amount has been restored . The MOSD was not involved, and a special committee follows up on corruption.

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NGOs are required to have their accounts audited by private external auditors and to submit a copy of their yearly audited report and financial statements to the ministry. The Field Directorates’ technical staff is responsible for following up on audit observations of the private sector auditors and those of the Audit Bureau. The Social Development Directorate is entitled to review these reports in terms of the NGOs’ objectives and the amounts spent during the year. In the absence of a genuine internal audit function within the Ministry, it is difficult to assess whether this review is done, so that the mission is not able to evaluate the follow-up of the Audit Bureau recommendations.

4. Performance Indicators

The Social Development sector subset of PEFA performance indicators56 presented in Table 11 provides the data for the MOSD57.

Table 11 Ministry of Social development: PEFA Performance Indicators

IndicatorDescription Measure Rating CommentsVariance: Budget expenditures vs. actual expenditures over 3 years

Variance from Budget (%)C

Variances are high and erratic

Effectiveness of payroll controls integration of payroll & personnel recordstimeliness of updatinginternal controls on changes to recordsregular payroll audits

A - BCentralized payroll management

Effectiveness of internal controls for non-salary expenditure

Effectiveness, comprehensiveness of controls with high compliance rates B - C

duplications reduce the efficiency of controls

Effectiveness of internal audit Coverage, quality and management response to internal audits; frequency & distribution of audit reports

DModern internal audit not present

Availability of information on resources received by service delivery units

Information on resources actually received by service delivery units B-C

Some budget information is missing

Quality and timeliness of in-year budget reports for sector

Scope and coverage of reports; timeliness of reports and quality of data B

Budget system produces monthly manual reports

Quality and timeliness of annual financial statements for the sector

Completeness and timeliness of annual reports; accounting standard used to prepare statements

DComprehensive social sector report not prepared


The ministry financial staff performances are not assessed annually to determine their training requirement, nor is there an annual training program. The Directorate of financial resources

56 On PEFA indicators see chapter 257 Because these performance indicators were retrofitted to the study after completion of the field work, the data might be incomplete.

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advised that it was committed to providing each Diwan financial employee with a minimum of one course per year; however this training does not cover the Finance Officers in the Field Directorates. The courses are usually conducted by MOF and the National Training Center.

The MOSD Human Resources Directorate Strategy for 2004 – 2006 envisaged that a total of JD 140,000 would be required for the ministry’s technical and financial training needs for the three years. The proposal of the Human Resources Directorate was to: develop a database with all the names, qualifications, posts and responsibilities of the MOSD staff; divide the staff into three groups according to their academic qualifications; determine the needs of each group; and conduct, with the help of the National training Center and universities, the training required. The budget estimate was designed to provide annual training for all employees with university qualifications and 40 percent of the remainder. However, the training resources have not been made available.

The Ministry of Finance advised the mission that their financial courses are available to all financial officers across the government at no charge to the employee.

6. Recommendations for the Ministry of Social development

Short-term1. The ministry should use budget ceilings for its directorates in order to submit an overall budget that

reflects the ministry priorities and that contains costed items. 2. The Ministry of Social Development should establish an internal budget challenge process to review

its budget proposals to ensure that they are consistent with the ministry’s strategic priorities and its budget ceilings set by the General Budget Directorate

3. The Field Directorates should prepare their budgets for the NAF and MOSD components, with the costs incurred by the ministry on behalf of NAF allocated directly to the NAF budget.

4. MOSD should provide the field directors with a timely, accurate and complete monthly financial statement showing budget utilization against the planned amount

5. MOSD should prepare a manual monthly commitment report for senior management and MOF and assist the ministry in managing its cash requirements and in monitoring its utilization against the approved budget ceilings.

6. The Ministry of Social Development should initiate early consultation with MOF in order to obtain training for its financial staff in the headquarters and the districts in skills needed for the forthcoming changes to the government’s financial systems (GFS 2001 chart of accounts, performance budgeting, and GFMIS).

Medium-term7. In order to enhance the accountability of the field directors, the MOSD should require every district

finance officer to record all field directorate expenditure, maintain an expenditure register and provide quarterly expenditure reports to the MOSD Financial Resources Directorate.

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8. The Ministry should revise the format of its final accounts to provide a comprehensive view of all ministry activities, including its commitments and grants. These final accounts should be made public in a timely manner and posted on the ministry’s web site.

9. The Ministry of Social Development should explore, in cooperation with NAF, the priority of the acquisition of MOF’s computerized FMIS once approved by MOF for use in ministries.

10. The Ministry of Social development should strengthen its financial controls governing the ministry’s contractual relations with its NGOs; the audited annual financial statements of the NGOs should be made public and posted on MOSD’s website.

11. The Ministry should consult with the NAF to see if they can work cooperatively on training of their financial inspectors in modern internal audit standards.

Long-term 12. The Ministry of Social Development should ensure that its payroll and HR systems are linked to

decrease the frequency of errors and increase the efficiency of the payroll administration process.

13. The Ministry should seek to implement modern internal audit when the government agrees to government-wide implementation

14. The Ministry should review its practice of incurring unfunded liabilities for NGO services provided without formal contracts, and disclose fully these liabilities as a note in its annual final budget report.

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Jordan IFMCA National Aid Fund

III. B National Aid Fund

1. BackgroundThe National Aid Fund (NAF) was established in 1986 to provide support to Jordanians in need. It is independent of the Ministry of Social Development, reporting to a Board of Directors, and chaired by the Minister of Social Development. The Board reviews all aspects of NAF operations and is composed of nine government officials and four private sector representatives.

The 80,000 recipients of aid are poor people whose income and ability to work are such that they cannot be employed in their region. Individual assessments of their condition are conducted by social workers located in the field offices. The majority of the cases are also from disadvantaged groups, such as handicapped, divorced women and orphans. Approximately 8 percent of the target families have incomes above the poverty line, but have more than two disabled family members. They continue to receive the family allowance as it is less expensive than lodging the disabled in special facilities.

2. Institutional StructureThe NAF consists of 36 field offices, where needs are assessed and services delivered. In addition, it has a central Aid and Eligibility Directorate that establishes policies governing NAF’s operations. Other headquarters directorates include Finance, Internal Audit, HR, Quality and IT. Figure 6 provides more detail on NAF’s constituent components. The organization has a total of 352 staff, 270 of whom are employed in the field.

The 36 field offices in the directorates are joint offices with the Ministry of Social Development. The Head of each district office is a MOSD employee, supervising both MOED and NAF staff and their functions. The mission was advised that up to 50 percent of the field staff is from MOSD, of whom only 70 were officially seconded from MOSD to NAF. National Aid Fund (NAF) was established in 1986 to provide Target

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Figure 6. NAF Organization Structure

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NAF Program

EligibilityIndividuals in need, apply to NAF social workers in the district offices. They are required to fill out a questionnaire, provide documentary evidence and are interviewed. The approval decision is made in the field office. Eligible beneficiaries must meet one or more of the eligibility criteria established in law. Eligible recipients receive a green card that authorizes them to receive cash benefits for six months. Fully employed persons are not eligible for NAF assistance. However the director general of NAF has the flexibility to reduce the amounts paid if a beneficiary is able to find a part time job. This is designed to encourage the beneficiaries to be more transparent about their incomes and to motivate them to search for work.

Validation ProcessThe lists of new beneficiaries are verified at NAF headquarters in Amman. Validation consists of social security registration, client files on the NAF system, civil service employment records, etc. Social workers in the field offices review the case files every six months, conducting home visits where they feel it is warranted. The lists of eligible beneficiaries are revised every six months by NAF field staff. Each beneficiary is interviewed prior to renewing his NAF card. This card must be presented by the recipients in order to receive his cash allocation.

The effectiveness of the control of the green card’s beneficiaries is assessed below (see Internal and external audit) Payment processThe NAF has outsourced its payment process to Jordan Post. Monthly lists of beneficiaries are issued by NAF headquarters to the various post offices across the country, according to the beneficiary addresses. The post offices cash the NAF checks at their local commercial banks and pay all beneficiaries in cash, after presentation of their green card and a second ID. The recipient signs the receipt ledger, as does the disbursement officer.

Budget Formulation and Execution

Budget FormulationThe budget formulation begins with a call letter from NAF to all directorates and districts for their current and investment requests for the next budget year. The call letter has no ceilings and no priorities. The directorates and districts prepare their requests and submit them to NAF headquarters. 58 The current budget may vary due to the district’s estimated changes in mix of the case load. The budget requests are reviewed by the headquarters financial staff and then negotiated between NAF financial staff and the MOF-GBD.

58 These directors are often the same directors who prepare the MOSD budgets as well.

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The macro-economic forecast from which the estimate of the number of poor families requiring assistance can be derived is provided by the MOSD which itself builds on the annual households survey issued by the National Department of statistics, a neutral government agency. The capacity of the MOSD to build on the households survey the statistics on poverty is too weak to ensure the credibility of these data.

As a result, during the annual negotiation of its budget with the General Budget Directorate, the NAF has limited bargaining power to justify increases. The mission was advised that NAF usually gets an increase of approximately 4 million JD, but this amount is insufficient to significantly increase from the current 42 %, the percentage of families in need served. In the absence of valid and reliable third party forecasts of need, it is easy for the General Budget Directorate to arbitrarily set the budget amount with no knowledge of the impact this will have on the percentage of poor actually reached by the NAF subsidies. The lack of justification shields it from the consequences of its funding decision. The mission was advised that there was a waiting list of approximately 10,000 families in need who cannot be accommodated within NAF’s approved budget levels

Given the government’s statements that it intends to use NAF subsidies to protect the poorest citizens from the adverse impacts of eliminating essential commodity subsidies, the need for such a forecasting tool is critical and technical assistance for capacity building at the MOSD is crucial.

Table 12 provides a comparison of the original 2006 budget request vs. the approved 2006 budget.

Table 12: NAF 2006 Budget Request vs. Approved Budget (JD Million)

ProgramBudget

requestedBudget

approved

Variance (requested-

approved/requested)

Recurrent aid 57.00 45.13 21%Special needs aid 4.00 2.45 39%Emergency aid 1.00 0,50 50%Physical rehabilitation aid 0.18 0.18 0%Vocational training for beneficiaries' children

0.05 0.02 70%

Supporting the poor 0.45 0.35 22%Administrative expenses 1.77 0.13 93%Capital expenses 0.56 0.37 34%Total 65.01 48.63 25%

As indicated, there are substantial shortfalls in amounts approved when compared to those requested. In particular, the key aid programs of recurrent aid and special needs aid display large shortfalls. The proposed revisions to the NAF programs would result in better justification of

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budgetary requirements, based on agreed economic and social data on which the budget discussion could occur. In time, this could result in a reduction in the resulting variances.

Budget Execution

Budget execution is totally centralized. Individual budget officers in the districts are not even informed as to what budget levels they have been given. All requests for commitments or payments or expenditure are sent to the NAF headquarters where they are subject to the standard control processes for any expenditure commitment or payment request from a Directorate. The Financial Directorate manages the budget according to the balances in the NAF accounts, practicing cash management by withholding payment of certain requests if funds are already fully committed.

The fact that district managers are MOSD staff, responsible for both MOSD and NAF activities within their districts, explains partially the lack of autonomy of the NAF field offices. This centralized practice may also be required by the necessity for the MOSD to ensure the global view of the poverty and a certain coherence and equity between the different regions in targeting the poor population.

Nevertheless, the analysis led at the broader level of the poverty policy should take into consideration the fact that this practice, that reduces the district manager opportunity to manage its own budget and be accountable for the results achieved, is not the best incitement to modernize the financial management system, in particular the reporting and accounting function that are the basic components of any financial accountability. A reconciliation between these two objectives is desirable.

A fact of relevance, NAF financial staff were unable to provide the mission with the budget vs. actual expenditures for the three most recently completed fiscal years. This fact illustrates the requirement for an improved budget management and reporting system for use in the NAF (see below).

Accounting & ReportingAccountingThe NAF was established originally to be outside of the government budget entity. This was done to preserve its independence and to give it a higher profile among the citizens in need. Subsequent reforms saw its accounts consolidated in the Treasury Single Account in the National Bank. In addition, NAF is subjected to the same accounting, budgeting, financial and HR controls as a budget entity. When this is considered with the commingling of MOSD and NAF staff in all of the 36 districts, it appears that, in substance, the NAF is a budget entity. The government should resolve this confusion regarding the NAF status as part of its planned restructuring of the Fund and its responsibilities.

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The accounting systems in NAF are manual. Updates are processed at headquarters after the funds have been expanded. Although the NAF has WAN59 connectivity and email with all district offices, there is no automation of the financial processes beyond monthly budget reports generated by MOF. NAF advised that, in future, they planned to solicit donations from private sector. However, the mission noted that there were no developed accounting and related budget procedures within NAF to manage donor funds or future contributions from the private sector.60 Should the government decide, in its current review of delivery of services to citizens in need, to include solicitation from non-governmental sources, then the appropriate accounting controls would have to be developed. Current accounting would not establish sufficient transparency for external donor funds.

The mission was advised that in cases where NAF benefits are not collected, these undisbursed amounts are reported to NAF headquarters and deposited at month end in a NAF commercial bank account. This has the potential to provide the Director with an off-budget source of funds for ongoing operations. NAF and MOF should undertake to convert these district bank accounts to zero balance accounts and to have the funds swept daily by the Central Bank for cash management purposes.

The mission was advised that no action had yet been taken to implement the new GFS 2001-compatible chart of accounts. Given that the new system will be implemented this year for use in the preparation of the 2007 budget, NAF should initiate work now on their new chart of accounts with functional classifications determined in consultation with MOSD.

Financial Management Information SystemsManual financial systems operate throughout the NAF. It indicated that it is awaiting MOF’s implementation of its GFMIS, after which it will follow MOF’s directions to implement a compatible version of the same system. While this is a sensible approach, NAF should take steps to ensure that it is scheduled for early implementation of the ministry-level FMIS as soon as MOF certifies their system for ministry implementation. This would avoid delays in implementation of any government commodity subsidy changes that might expand the base of the poor requiring assistance, or require that NAF implement a new subsidy targeted at a larger group of recipients. In addition, it should ensure that the new system has the capability to accommodate future subsidy schemes and new beneficiary groups.

Reporting

NAF generates financial reports for its management and the Board of Directors. These include: monthly reports showing total number of beneficiaries, amounts due and amounts paid; a monthly budget report for internal management use; and an unaudited annual financial report that is presented to the Board and to MOF. These reports are not made public. The Audit Bureau audits the financial reports after the fact, but only for compliance purposes. The manual system is unable to respond to ad hoc requests for prior years financial data, and hence management analysis of financial performance is severely limited.

59 Wide Area network60 To date, there have been no contributions from the private sector.

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Internal Controls

The mission noted serious problems with the financial controls present in the NAF’s cash distribution process (around JD 5 million are monthly distributed) currently provided under contract by the Jordan Post network (350 offices): 1. The local post offices do not have the capacity or the physical layout to handle a monthly

distribution of cash payments to a large number of recipients (80,000) that can effectively consume up to 10 working days per month of its operations.

2. Large amounts of cash (exceeding JD 100,000) are kept on hand in the larger local post offices61, stored in old, inadequate security safes, sometimes in plain public view beside an external window in an office adjacent to the public areas. In smaller offices, the amount of cash is less important, but the problem is also serious.

3. Postal staff is not provided with appropriate security when performing check cashing duties for the NAF payments.

4. The amounts cashed are so large that the bank has insufficient small bills on hand to meet the needs of the post office. In some cases, payment is largely made in large denomination bills, requiring the postal staff to make creative arrangements with recipients because of their inability to pay the exact amount due.

5. The post office staff is not insured against loss by theft or fraud.6. The post office staff does perform appropriate separation of functions in the management and

administration of the cash to be disbursed.

The situation now is serious and demands immediate attention. However, what is even more serious is the fact that the existing post office distribution system is stretched beyond limit at present, and it would not likely be capable of handling any additional workloads without additional investment in physical facilities, new equipment and improved internal controls.

The mission was advised that the Jordan Post contract is expiring in the immediate future. While it may be too early for major changes to this contract, the government may wish to consider whether the private sector banks would not be more suitable (but perhaps reluctant) partners for future outsourcing contracts. 62 This could permit the issuing of an electronic funds transfer of the monthly payment into individual, mandatory commercial bank accounts provided free to all NAF recipients in urban areas. The recipients could then be issued with a commercial bank card, and these banks would be encouraged to provide automated teller machine facilities at convenient public locations nearby in urban areas. Remote areas, notably in rural, could continue to be served by Jordan Post, albeit in vastly reduced numbers.

61 20 % of the offices are in Amman and suburbs. 62 This resistance is not unique to Jordan. The government could require the commercial banks to provide this service, according to a negotiated fee-for-transaction basis that would cover the bank’s costs and return a small profit.

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Internal and External Audit

The internal audit Directorate performs ex ante and ex post audits of the directorates and all district operations through field visits. Four employees audit the Aid and eligibility directorate and six perform the field audits. The mission was advised by the Audit Bureau’s NAF auditors that the NAF internal auditors have been well trained by a local audit firm. Their ex ante audits focus on compliance issues for new beneficiaries, changes in existing beneficiaries and a random sample of beneficiaries. Entities are selected randomly from a grid of the country for special audits by internal audit, the central follow up directorate and the district social workers.

In a recent study of recipients approximately 10 percent were found to be ineligible. Of this 2 percent was due to staff error and 8 percent to unrecorded changes in recipient status. A recent Bank study concluded that poor design of the subsidy program could result in poor targeting of up to 66 percent of beneficiaries. This has been an oft-quoted statistic used to justify a closer look at NAF operations and underlying principles.

Although the audits targeting effectiveness are likely to be beyond the scope of the current internal auditors, it is exactly the kind of audits that would be carried out by a modern internal audit group examining the NAF’s internal spending control systems. Modern internal audit has the prospect of increasing the effectiveness of the targeting of NAF subsidies and making the subsidy delivery processes more efficient.

The Audit Bureau advised the mission that their audits of NAF have resulted in a number of recommendations to management. These included: reviewing the basis of the subsidies against the eligibility of the target groups and reporting to the Minister all incidences of non-compliance; and considering combining all entities administering subsidies to citizens into a single entity to improve efficiency and effectiveness.


NAF is a model when it comes to staff development. It has been continuously involved in the regular training of all staff, using an annual budget of approximately JD 200,000 for its training activities. Of this amount, approximately 10 percent is used for financial officer training in accounting, budgeting and auditing. In 2005, NAF offered 8 training sessions for its internal auditors and 3 sessions for its financial specialists. Every financial officer in the districts has participated in at least one training course. NAF management stated that financial officer training was essential to enable them to keep abreast of the changes in financial management that were just beginning, and would continue at an accelerating rate in the future. Thus it provided course training, seminars and specialist training where required. Their current priority is the training of their Quality personnel. The NAF should review its current program in the light of the MOF statement that their financial courses are available to all financial officers across the government at no charge to the employee.

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5. Recommendations for the National Aid FundShort-term1. NAF should insist on an immediate strengthening of the internal control system in the post offices for dealing with cash management and cash distribution of NAF benefits.

2. NAF and the government should begin to consider further studies for other alternatives for cash distribution to NAF beneficiaries that would provide a more secure, scalable and efficient distribution process that meets internal control standards.

Medium -term3. The government should build capacity at the MOSD to provide timely and relevant statistics to support MOSD’s forecasts of families requiring assistance from the NAF. This forecast should be prepared in time for use in the NAF budget submission for the forthcoming year. 4. NAF and MOSD should agree to seek for more accountability of the NAF field‘s budget officers while the budget management must remain centralized at MOSD.

5. NAF and MOF should agree to convert the NAF district bank accounts to zero balance accounts that would be swept daily by the Central Bank for cash management purposes.

6. NAF should initiate work on its new chart of accounts with functional classifications determined in consultation with MOSD

7. NAF should take steps to ensure that it is scheduled for early implementation of the ministry-level FMIS as soon as MOF certifies that their system is suitable for ministry implementation. It should also ensure that any new FMIS has the capability to accommodate additional future subsidy schemes and new beneficiary groups.

8. For greater transparency, the NAF audited annual report should be made public and posted on a government web site on a permanent basis.

9. NAF should consult with MOF in order to determine the extent to which they could cost-effectively provide financial training for its financial staff in the headquarters and the districts.

10. NAF should consult closely with MOSD for cooperative training for the ministry’s internal inspection function’s use of international standards for internal audit.

Long-term11. NAF should establish appropriate accounting and reporting procedures to manage external contributions or investment financing with appropriate transparency..

12. When the government agrees to implement modern internal audit across all budget entities, NAF should be an early implementer of the initiative.

Youth divisionDiagnosis divisionHousing divisionProjects directorate

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Documents

Proposed IFMCA Report Outline - World Bank · Web viewThe Audit Bureau is the external auditor for all government entities. It is a mature Supreme Audit Institution (SAI), established