Technology and Corruption: The Case of FMIS by 83xvc88F

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									       Technology and Corruption:
           The Case of FMIS




                 Bill Dorotinsky
                 The World Bank    March 26, 2003
                                   IACC
The World Bank
                                   Seoul, Korea
                     Outline
•   What is an FMIS?
•   What are elements of an FMIS?
•   What is an “integrated” FMIS?
•   What constitutes a “good” IFMIS?
•   Why invest in an IFMIS?
•   IFMIS and Corruption
•   Bank Experience
•   Summary
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    The World Bank
Definitions

                     What is an FMIS?
    • System that:
        – tracks financial events and summarizes information
        – supports adequate management reporting, policy
          decisions, fiduciary responsibilities, and preparation of
          auditable financial statements
        – Should be designed with good relationships between
          software, hardware, personnel, procedures, controls and
          data
    • Generally, FMIS refers to automating financial
      operations


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    The World Bank
Definitions

           What are core and non-core
                FMIS systems?
    • Core systems
        – General ledger, accounts payable and
          receivable. May include financial reporting,
          fund management and cost management.
    • Non-core systems
        – HR/payroll, budget formulation, revenue (tax &
          customs), procurement, inventory, property
          management, performance, management
          information
                                                         4
    The World Bank
Definitions

          What is “integrated” FMIS?
  • Can refer to core and non-core integration
  • But, generally, four characteristics*
     – Standard data classification for recording events
     – Common processes for similar transactions
     – Internal controls over data entry, transaction
       processing, and reporting applied consistently
     – Design that eliminates unnecessary duplication of
       transaction entry
                     *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management   5
    The World Bank   Improvement Program. Washington, D.C., November 2001.
Definitions

     What constitutes a good system?
    • Ability to*
        – Collect accurate, timely, complete, reliable, consistent
          information
        – Provide adequate management reporting
        – Support government-wide and agency policy decisions
        – Support budget preparation and execution
        – Facilitate financial statement preparation
        – Provide information for central agency budgeting,
          analysis and government-wide reporting
        – Provide complete audit trail to facilitate audits

                     *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management   6
    The World Bank   Improvement Program. Washington, D.C., November 2001.
          Why invest in an IFMIS?
•   Reduce errors of multiple data entry
•   Accelerate reporting
•   Enable data-matching, error detection
•   Enable more analysis
•   Accelerate auditing, exception reports
•   Enable better oversight, management

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         An IFMIS and Corruption
 Improved internal      Improved detection
    reporting

   Data-matching        Improved detection
                        Improved trend
 Improved Analysis
                        detection
Automated Audit Trail   Better follow up
 Improved External      Higher probability
    Reporting           of detection
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The World Bank
                 Assumptions
•   comprehensive public finance system
•   accuracy of records
•   integrity of database
•   reconciliation of bank, fiscal records
•   corruption is within FMS domain
•   other soft systems functional

                                             9
The World Bank
      Other soft systems of import
• Internal audit
• External Audit
• Timely, comprehensive reports to
  legislature/public
• Internal controls



                                     10
The World Bank
       What does Bank experience
               suggest?
• Public sector corruption sources not
  captured fully well in public financial
  management
• Soft systems are weak
    – HIPC expenditure tracking results
• FMIS investments often fail


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                      Public corruption
                   Public Assets             Non-public Assets

Political          •Theft of public goods,
Officials          funds                     •Bribery/influence
                   • contract steering       peddling/state capture
                   •Nepotism
Career             •Theft of goods, funds
Officials          •Contract steering        •Bribery
                   •Nepotism
                   •Abuse of office          •Bribery


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  The World Bank
                                                               HIPC Expenditure Tracking
                                                                                                                                              ‘soft systems are weak’
                                                                                                    (Percent of countries not meeting each benchmark)
           100%                                                                                                     Note: Based on 24 countries’ Final Assessments

            90%
            80%




                                                                                                                                                                                                                                                                                                                                                                                                    Timely functional reporting from class system




                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Audited accounts to legislature within 1 year
                         Meets GFS definition of general government




                                                                                                                                                                                                      Projections integrated into budg. formulation
            70%




                                                                                                                                                                                                                                                                             Quality of internal audit (effective or not)




                                                                                                                                                                                                                                                                                                                                                                                                                                                    Accounts closed within two months of y/e
            60%




                                                                                                                                                                                                                                                                                                                                               Fiscal & monetary data reconciled
            50%
                                                                      Extra (off) budget expend.




            40%

                                                                                                                                                                          Pov. Red. Exp. Identified
                                                                                                                    Data on donor financing

                                                                                                                                               Classification of budget




                                                                                                                                                                                                                                                      Low level of arrears
            30%




                                                                                                                                                                                                                                                                                                                            Regular tracking




                                                                                                                                                                                                                                                                                                                                                                                   Month reports
                                                                                                   Outturn close?




            20%
            10%
          0%
     Benchmark
      number: 1                                                         2                           3                4                                5                           6                            7                                          8                          9                                      10                 11                                  12               13                                              14                                         15
                                                                                                   Formulation                                                                                                                                                               Execution                                                                                                             Reporting

Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), W orld Bank and IMF,
March 22, 2002. See http://www.worldbank.org/hipc/hipc-review/tracking.pdf
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               13
The World Bank
Bank experience with FMIS

 • If success is defined as…
     – delivered as-specified ex ante
          • 43 % delivered as specified
     – delivered on-budget
          • 50 % delivered on budget
     – delivered on-time
          • 21 % delivered on-time
 • … then, only 21 % were successful

                                          14
 The World Bank
   More Bank experience with FMIS
• But, these indicators only looks at project, not
  impact on over-all financial management,
  operations
    – Improvements to reporting? Staffing changes?
• Generally,
         • no or weak performance indicators in projects
         • no baseline
         • broader impact assessment difficult.
• However, in self-assessed sustainability
         • 25 % unsustainable
         • 69 % likely sustainable
         • 6 % highly likely to be sustainable

                                                           15
The World Bank
                      Summary
• IFMIS/technology enabling tool for transparency
  and anticorruption
• But not substitute for
    – attention to institutional environment (‘soft systems’)
    – underlying factors (e.g. comprehensiveness)
• May not target prime areas of corruption
• May not be optimal investment for anticorruption


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