Gert van der Linde

World Bank 7th Annual CABRI Seminar, Rwanda, 17-18 August 2011

1

Overview

International experiences

Key conceptual issues

• Accountability

• Budgeting

• Budget execution

• Accounting

• Reporting

A few examples

Incentives and enforcement

Conclusion

2

Selected International Experience

United States - accrual-based financial reports, but has not announced any plans to adopt accrual budgeting

United Kingdom - implemented accrual accounting and reporting in executive agencies and subsequently adopted accrual accounting and budgeting for the central government

France - adopting accrual accounting, but has not yet announced an intention to adopt accrual budgeting

Australia - introduced annual accrual reporting, and a few years later adopted accrual budgeting

New Zealand - introduced accrual reporting and budgeting simultaneously

3

Key conceptual issues

Accountability

Budgeting

Budget execution

Accounting

Reporting

4

Accountability Relationship

= ? R

Answer

Evaluation

Trust

Responsibility R

Monitoring and evaluation The main purpose of evaluation is:

to assess results against original expectations

to learn form experience

to verify that anticipated results occurred

to determine why it did or did not occur as planned

Evaluation establishes accountability for results obtained

“Information is the currency of accountability…”

Results?

What should be evaluated?

Private Sector, e.g.:

Turnover

Profit

EPS

ROI

Liquidity

Interest Cover

Dividend Cover

Gearing

There is a “bottom line”

Public Sector:

What is our “bottom line”?

Information Requirement

Compliance

Stewardship State of Finances

Performance Economic Impact

Where many countries are coming from

Vote 26 - Transport

Appropriation account for the year ended 31 March 1993

Original Adjustments Saving

Estimate Vote 25 Estimate Voted Expenditure (Excess)

1992-93 1992-93 1992-93 1992-93 1992-93 1992-93

Main Divisions R'000 R'000 R'000 R'000 R'000 R'000 %

1 Administration 23 430 154 ( 210) 23 374 20 821 2 553 11

2 Civil Aviation 122 148 1 264 11 978 135 390 142 189 (6 799) ( 5)

Information – one of the problems

Compliance

Stewardship State of Finances

Performance Economic Impact

?

? ?

?

Where countries are coming from

Weak information

Realities: Cash utilisation is the key measure of performance

Focus on inputs and not on results

Fragmented and unclear accountabilities and legal frameworks

Poor quality and late information

Poor compliance with existing legislation

Weak financial management

Wastefulness & inefficiency, fraud & theft

In summary, Poor Accountability

Key conceptual issues

Accountability

• Who is accountable for what?

• How will this be monitored and evaluated?

Budgeting

• Coverage

• Appropriation law

• Link to accountability framework

• Support for and link to cash management

• Classification system requirements, including GFS, COFOG, IPSAS, management information requirements

• Level of control, and links to the accounting and reporting system

12

Key conceptual issues Budget execution

• Compliance to appropriation law

• Control over votes / programs / cost centres / type of expense

• Risk management coverage – Revenue / Expenses / Liabilities / Assets

Accounting

• Information and reporting requirements, including in-year and annual financial statements

• Accounting standards

• Standard chart of accounts

• Good basic accounting disciplines, including control over bank accounts, commitment controls, reconciliations

13

Key conceptual issues

Reporting

• Against budget – per vote / program / cost centre / objective / funding source / type of expense / recurrent / capital

• Financial performance

• Financial position

• Definition of reporting entity – existence of ownership control as a basis for the accountability framework

• Consolidation –

• Who is in or out and why

• Information needs

• Accounting standards

• Inter-entity transactions

14

Overview International experiences

Key conceptual issues

Accountability

Budgeting

Budget execution

Accounting

Reporting

A few examples

Conclusion

15

A framework pursued…

16

A performance orientation in the budget

Outcomes Outputs Programs

Type of expense:

Salaries

Supplies & admin

Capital

Vote structure -

• Ministries

• Departments

• Agencies

How much? Quality? When? Cost?

Economy

Efficiency

Effectiveness

= Budget

“REAL”

Performance Agreements

17

A few examples -

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

Other improvements to the control, information and audit architectures Established control over the bank account configuration

Established monthly reconciliation and reporting procedures, supported by good audit trails

Introduced requirement for internal audit, under oversight of an audit committee, for all departments

Introduced sanctions for financial misconduct

Introduced concept of “ownership control” into legal framework and requirement to produce annual consolidated financial statements

Legal recognition for accounting standards – established Accounting Standards Board

Introduced requirement for annual reports, reporting on performance

Established Minister’s responsibility for tabling of annual report and audited financial statements in Parliament

Changed the external audit cycle – now to be completed 5 months after year-end 33

Incentives and enforcement

Incentives

• Spirit of Ubuntu: "I am what I am because of who we all are."

• Political leadership

• Let managers manage….

• Link with public service reform

Enforcement

• Walk the talk…

• …..hold managers accountable

• Sensible and practical legal sanctions

34

Conclusions Get the basics right first

Be clear on the reporting entity

Align the legislative framework, the standards, the processes, the systems and data requirements with reporting needs and capacity

Always maintain / protect the fundamentals

Stake holder buy in, including Auditor-general

Change management

Show results

35

Questions?

36