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					               Republic of Moldova




       Public Finance Management Project


 Technical Assistance for the Integrated Financial
Management Information System Concept Definition

                   Final Report



                 September 2005
                                                                    Moldova FMIS Final Report


                            EXECUTIVE SUMMARY
The objective of this assignment is to create an agreed Conceptual Design for the Financial
Management Information System (FMIS) for the Government of Moldova (GOM) at both
national and sub-national levels. This Final Report is produced at the end of the third input
phase of the assignment.

The report describes a high level conceptual model of the Government FMIS which will be
established in Moldova. It recommends that the core of the system (including budget
preparation, budget execution, cash management, accounting and reporting) is provided by
an „off-the-shelf‟ Financial Management Software Package. Processes that are not covered
by this core package (such as payroll or debt management) will be electronically interfaced
with it, enabling speedy transfer of information.

The key to the system‟s effectiveness is to ensure that all components (both package and
interfaced) use the same budget classification and chart of accounts, and that this chart of
accounts collects data in sufficient detail that it can be arranged into information in any
reporting format that may be required. This requirement applies to all State and ATU
government institutions, and to the State Social Insurance Budget (SSIB) and the Mandatory
Health Insurance Budget (MHIB).

The package system will operate in the Ministry of Finance (MoF): the General Division of
Budget Synthesis, the Sectoral Finance Divisions, State Treasury (Central Treasury and all
Territorial Treasuries), and the State Enterprise Fintehinform (formerly IT department). Line
ministries, ATU governments and general finance departments will be linked to the system
using locally developed software, enabling transmission of input data and receipt of reports.
The network connections in Chisinau (referred to as the Metropolitan Area Network – MAN)
will be made using the government fibre-optic network being developed by the special
Telecommunications Centre (STC), which will be completed in 2006. A decision will be
made during the next two years on which network connections should be used to link
Territorial Treasuries to the centre (the Wide Area Network – WAN). At the moment the
Moldtelecom fibre-optic network extends to 20 rayons (though not to Territorial Treasuries)
and may be extended to most rayons by 2009. STC also has plans to extend the
government fibre-optic network.

The FMIS package will process detailed transactions for State and ATU budget institutions
but not for SSIB or MHIB. Analysed summaries of income and expenditure of the SSIB and
MHIB should be transmitted electronically to MoF with the frequency and timeliness that
MoF requires.

The new FMIS will bring substantial benefits to its stakeholders: improved access to
information; better quality information; improved transaction efficiency; and improved control
and auditability. This will enable improved fiscal control, resource allocation, management of
resources, cash management, and control of expenditure.

Although the FMIS could simply be used to make the existing financial management
processes in Moldova more efficient, the opportunity has been taken to examine these
processes and to identify gaps and differences from what may be called „best practice‟ or
„best experience‟ in government financial management. Some of these gaps represent
faults where improvements must be made. Others indicate that modern systems may offer a
more convenient, more efficient, or simply more „user-friendly‟ way of achieving objectives.
Changes in processes that need to be made include:



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                                                                      Moldova FMIS Final Report

      Requiring all government organisations (except state owned business
         enterprises) to use the same budget classification and chart of accounts.
      Budget format to be improved to co-ordinate directly with MTEF.
      The revenue from special funds and special means income will be paid into the
         same bank account as other revenue, but these will continue to be accounted
         for as separate funds with designated expenditure purposes. However, the
         number and value of these funds is high and, over time, it is accepted that
         they will be reduced.
      Introduction of a warranting system. This is a system whereby Ministry of
          Finance authorises the maximum sums of money that budget executors may
          spend in agreed time periods (e.g. two-weekly or one-monthly periods). It
          modifies the original budget appropriation limits in the light of available cash
          flow.
      A new set of rules developed by MoF showing the conditions in which spending
         agencies and line ministries have some delegated authority in determining
         changes to their financial plans (budget reallocation – in English this is
         „virements‟ but the term has a different meaning in Romanian).
      Registering of commitments for all expenditure at (or before) the time that the
         order is placed.
      Improved cash forecasting procedures.
      Electronic authorisation of procedures and documentation, and reduced paper
         flow.

To maintain the timetable or implementation of FMIS, changes to laws and regulations
should be in place by 2007 enabling adoption of the new budget classification and chart of
accounts, changes in procedures allowing warranting, the ability of budget executors to
make budget reallocations within agreed limits and rules, and registering of commitments for
all expenditure.

As a general principle, government expenditure should be transacted through as few bank
accounts as possible. However, since the National Bank of Moldova will not provide branch
offices, the Territorial Treasuries (TTs) will continue to make use of commercial banks until a
better alternative is found. A decision needs to be made about the nature of the contracts
with the commercial banks, with the probable need for TTs to change locations and to be
connected to the FMIS wide area network.

A single responsibility contract should be awarded to a vendor for the supply, development
and installation of all new FMIS software and hardware. This prevents ambiguity of
responsibility in the event problems developing during or after installation. The software
package chosen will dictate the hardware requirements, and the hardware will be
progressively supplied as the system is rolled out.

The FMIS procurement should be initiated by pre-qualification of vendors. This can be
started when this Conceptual Design is agreed. Meanwhile the detailed functional
specifications of the system can be prepared. The procurement will then be a two-stage
international tender process. In the first stage the vendors submit their proposals and, in the
second stage, those vendors who are chosen as compliant come to Moldova to demonstrate
their system‟s functionality against „test scripts‟ (examples of functionality) prepared during
the detailed functional specifications.



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                                                                       Moldova FMIS Final Report

An implementation management specialist (international) and a change management
specialist (local) should be chosen to support the Project Task force during the whole period
of the implementation of FMIS.

The chosen contractor will work with the Task Force to organise a pilot implementation and
testing of the software, firstly at a test site and then at pilot sites. The pilot should involve
MoF (including Budget Synthesis, Central Treasury, Sectoral Finance Divisions, and
Chisinau Territorial Treasury for the state budget), a line ministry, another selected territorial
treasury, and one Finance Directorate of the Local Public Administration Authority, in the
same location as the TT.

Following a successful pilot, remaining line ministry offices in Chisinau will be connected by
the MAN, the software will be replicated across the remaining territorial treasury sites on the
WAN, and Finance Directorates Of Local Public Administration Authorities will be
connected.

The report gives an outline target timetable for implementation, in which the contractor is
selected in 2006, the system is piloted in 2007, rolled out to the ministries and territories in
2008 and runs live in 2009.

The final sections of the report examine the human and organisational implications of the
new system, the training requirement, the security requirements, and the risks involved, both
for the project itself and for the sustainability of the system. Clearly this is a major project
and demands full commitment from all stakeholders.




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                                                                                           Moldova FMIS Final Report

SUMMARY OF RECOMMENDATIONS
Recommendation 1:   The Financial Management Software Package used as the basis for
     FMIS should include the following modules: Budget preparation (including a facility
     for MTEF figures), Budget Management, Budget Execution (purchasing), General
     Ledger, Accounts Payable, Accounts Receivable, Cash Management, Financial
     Reports and Management Information System. ....................................................... 13
Recommendation 2:     The baseline plan for the use of the Financial Management Software
     Package should assume that it is initially used in Ministry of Finance and Territorial
     treasuries only, with central government and ATU government budget executors
     gaining access to the system by a locally developed software programme which
     interfaces with the FM Software Package. This baseline plan should not, however,
     be used to restrict suppliers from offering superior functionality where it is cost
     effective.       13
Recommendation 3:      Specialist systems which form part of the FMIS are payroll, debt
     management, revenue administration; social and medical funds. These systems may
     be modules of the FM software package or, where they are separate systems they
     must interface with it. The systems in use at the SSIB and MHIB should be improved
     sufficiently to be able to provide more frequent information to MoF. Systems used by
     auditors are no part of the FMIS but must interface with it in order to examine FMIS
     data. 7.          13
Recommendation 4:     For systems that interface with the FM Software Package it is
     required that that they are able to import or export data organised by any relevant
     grouping of budget codes in the chart of accounts, and in standard data interchange
     formats.         13
Recommendation 5:    FMIS Databases for central government and ATU governments
     should be kept centrally at the State Enterprise Fintehinform. ................................. 13
Recommendation 6:      Alternative infrastructures for the Wide Area Network connecting
     Territorial Treasuries to MoF in Chisinau should be considered during the detailed
     systems design stage of the project. ........................................................................ 14
Recommendation 7:    As part of this project a new payroll package will be piloted in MoF.
     GoM should consider the acquisition of a central HRM/payroll package to replace the
     various systems used at present. ............................................................................ 14
Recommendation 8:    The budget classification structure is adopted, developed into a
     chart of accounts, and prescribed by law for all central government and ATU
     government institutions and funds (other than state-owned companies). ................. 24
Recommendation 9:   A revised budget format is adopted and prescribed by law for all
     central government and ATU government institutions and funds (other than state-
     owned companies). ................................................................................................. 24
Recommendation 10:       The FMIS will continue to record transactions on a modified cash
     basis until further notice. .......................................................................................... 24
Recommendation 11:    The FM Software Package to be acquired must be capable of
     recording transactions on an accrual basis (recording invoices when received or
     issued, debtors and creditors, and assets and liabilities). ........................................ 24
Recommendation 12:   There should be as few bank accounts as feasible. Special funds
     and special means income should be paid into the main receipts accounts. ............ 25
Recommendation 13:     Territorial treasuries will continue to use commercial banks for the
     foreseeable future, but plans should be made for the longer term to move them to
     permanent premises, and connect them to the Wide Area Network of FMIS. .......... 26


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                                                                                             Moldova FMIS Final Report

Recommendation 14:     A system of warranting is introduced for line Ministries and the
     FMIS is specified to include warranting controls. ..................................................... 28
Recommendation 15:       The FMIS should permit budget reallocation under specified
     authorisation: (i) within spending units; and (ii) between spending units. ................. 28
Recommendation 16:                That the FMIS be specified to properly record and account for all
     commitments.                 29
Recommendation 17:    A cash management system is implemented as part of the FMIS.
     Training on improved cash management procedures is given. ................................ 31
Recommendation 18:   A data warehouse is set up to receive data summaries from FMIS
     and other systems. A Management Information module (either part of the main FM
     Software Package or a separate add-on package) is acquired to interrogate the data
     warehouse and produce summary reports for managers. ........................................ 33
Recommendation 19:      By the end of 2007, required changes to laws and regulations
     should be in place, to enable the following changes in procedures: warranting, ability
     of budget executors to make budget reallocations (virements) within agreed limits
     and rules, registering of commitments for all expenditure, inclusion of special funds
     into budget classification.......................................................................................... 33
Recommendation 20:       A training plan should be designed and implemented to provide for
     training of senior managers in using information; training of supervisors in managing
     IT functions; training of IT staff in managing and supporting new networks and FMIS;
     and training operational staff in using the FMIS……………… .................................. 36
Recommendation 21:      The training plan should provide for the creation of a sustainable
     training capacity in all of the above areas. ............................................................... 36
Recommendation 22: A single responsibility contract will be awarded for the supply,
     development and installation of all new software and hardware for the FMIS.
Recommendation 23:    The FMIS procurement will be initiated by a pre-qualification
     process started once the Conceptual Design is agreed ........................................... 38
Recommendation 24:      The FMIS procurement will be two-stage. The first stage will
     involve evaluation of vendors‟ submitted proposals. The second stage will include
     selected vendors coming to Moldova and demonstrating their systems functionality
     against test scripts. .................................................................................................. 38
Recommendation 25:    An implementation management specialist (international) should be
     chosen to support the implementation of FMIS. ....................................................... 41
Recommendation 26:     As part of the FMIS acquisition, adequate security procedures
     should be established to control access to and security over information and
     applications, backup and disaster recovery arrangements....................................... 42
Recommendation 27:      The acquisition and implementation strategy must be designed to
     specifically recognise and minimise risk .................................................................. 43




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                                                                                                 Moldova FMIS Final Report

                                        TABLE OF CONTENTS

EXECUTIVE SUMMARY ....................................................................................................... i
A        Overview .................................................................................................................. 1
         A.1       Assignment objective ..................................................................................... 1
         A.2       Outline of this report ....................................................................................... 1
         A.3       Benefits of the new FMIS ............................................................................... 1
B        High level conceptual model of the FMIS .............................................................. 3
         B.1       Scope of the FMIS ......................................................................................... 3
         B.2       Processes and component systems ............................................................... 4
         B.3       Choice between package modules and specialist systems ............................ 6
         B.4       Description of component systems of FMIS ................................................... 7
         B.5       Decision on FM package and interfaced systems ........................................ 10
         B.6       Geographical coverage of FMIS................................................................... 11
         B.7       Recommendations ....................................................................................... 13
C        Issues and gaps in the Moldovan procedures and system ................................ 15
         C.1       Incompatibility of underlying data and fragmentation of databases ............... 15
         C.2       Weaknesses in the underlying processes .................................................... 16
         C.3       Unnecessary duplication of effort ................................................................. 18
         C.4       Opportunity to reduce paperwork / manual controls ..................................... 19
         C.5       Non-availability or difficulty of obtaining timely information ........................... 19
         C.6       Key actions and policy reforms before upgrading FMIS ............................... 20
         C.7       Full benefit of computerization ..................................................................... 21
D        Functionality .......................................................................................................... 22
         D.1       Summary of changes to business processes ............................................... 22
         D.2       Budget classification and budget format ....................................................... 22
         D.3       Structure of the accounting and reporting system......................................... 24
         D.4       Warranting ................................................................................................... 26
         D.5       Budget reallocation (virement) ..................................................................... 28
         D.6       Commitment Accounting .............................................................................. 29
         D.7       Improved cash management ........................................................................ 29
         D.8       Reporting ..................................................................................................... 31
         D.9       Legislative changes ..................................................................................... 33
E        Impact of changed business processes .............................................................. 34
         E.1       Impact on processes and organisations ....................................................... 34
         E.2       Human resource and training impact............................................................ 35



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                                                                                                   Moldova FMIS Final Report

F         Acquisition and implementation........................................................................... 37
          F.1       Overview of acquisition and implementation ................................................ 37
          F.2       Managing the acquisition ............................................................................. 41
          F.3       Security........................................................................................................ 41
          F.4       Risks ............................................................................................................ 42
          F.5       Sustainability risks ....................................................................................... 42
ANNEX 1: Conceptual models of financial management systems ................................ 44
ANNEX 2: Existing system of public financial management in Moldova ...................... 52
ANNEX 3: Laws and regulations affecting public financial management in Moldova.. 62
ANNEX 4: Key actions and policy reforms needed before upgrading an FMIS ............ 63
ANNEX 5: Functions and Data Entities in the Treasury Reference Model .................... 64
ANNEX 6: Example of test script ..................................................................................... 77
ANNEX 7: Reports specified by the TRM......................................................................... 81
ANNEX 8: Definition of an integrated system ................................................................. 86


                                           TABLE OF FIGURES

Figure 1: Overview diagram of FMIS and related systems .................................................... 5
Figure 2: Integration or interface ........................................................................................... 6
Figure 3: Coverage of FMIS computer systems in initial implementation up to
2009. 12
Figure 4: Implementation overview...................................................................................... 40


                                               LIST OF TABLES

Table 1: FMIS systems architecture ...................................................................................... 7
Table 2: FM package and interfaced systems..................................................................... 10
Table 3: Comparison against institutional and policy reforms .............................................. 20
Table 4: Implementation of budget classification, chart of accounts and FMIS .................... 37
Table 5: Goals of public financial management ................................................................... 44
Table 6: TRM high level conceptual model ......................................................................... 50
Table 7: Laws regulating government financial management .............................................. 62



                                    LIST OF ABBREVIATIONS

ADSL                               Asymmetric Digital Subscriber Line (provides fast network access)
ATU                                Administrative-Territorial Unit


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                                                               Moldova FMIS Final Report

CD                    Customs Department
ESA                   European System of Accounts
Fintehinform          (New name for the IT Department of the MoF)
FMIS                  Financial Management Information System
GOM                   Government of Moldova
HRM                   Human Resource Management
IFAC                  International Federation of Accountants
IPSAS                 International Public Sector Accounting Standards
IT                    Information Technology
MHIB                  Mandatory Health Insurance Budget
MIS                   Management Information System
MoF                   Ministry of Finance
MTEF                  Medium Term Expenditure Framework
PFMP                  Public Finance Management Project
SSIB                  State Social Insurance Budget
STC                   Special Telecommunications Center
STS                   State Tax Service
SU                    Spending Unit
TOR                   Terms of Reference
TT                    Territorial Treasury




This report has been prepared by:

International Management Consultants Limited)                                    (IMCL)
Sheridan House                                                      Tel: 44 1264 364661
23/25 London Street                                                Fax: 44 1264 360233
Andover                                                            E-mail: imcl@imcl.biz
Hampshire SP10 2NU
United Kingdom                                                   Web site: www.imcl.biz




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                                                                    Moldova FMIS Interim Report

                                     A OVERVIEW

A.1 Assignment objective
(1) The objective of this assignment is to create an agreed Conceptual Design for the
Financial Management Information System (FMIS) for the Government of Moldova (GOM) at
both national and sub-national levels.

(2) This Final Report is produced at the end of the third input phase of the assignment. It
takes into account discussions, clarifications and decisions that have been made since the
Interim Report was produced at the end of the second input.


A.2 Outline of this report
(3) We open this report with a high level conceptual model of the Government FMIS which
will be established in Moldova. This model describes the processes and component
systems involved, and recommends that the core of the system is provided by an „off-the-
shelf‟ Financial Management Software Package. Processes that are not covered by this core
package will be interfaced with it. The key to the system‟s effectiveness is ensuring that all
components use the same budget classification and chart of accounts, and that this chart of
accounts collects data in sufficient detail that it can be arranged into information in any
reporting format that may be required.

Following this, we examine the processes in Moldova‟s existing government financial
management systems, and identify gaps and differences from what may be called „best
practice‟ or „best experience‟ in government financial management. Some of these gaps
represent faults where improvements must be made. Others indicate that modern systems
may offer a more convenient, more efficient, or simply more „user-friendly‟ way of achieving
objectives.

(4) The report continues by making recommendations on the functionality for the new
FMIS, summarising changes in processes that need to be made and the implications for law
and regulations. Options that were provided by our previous progress report have now been
substantially clarified and decisions made. In the final sections of the report we examine
how the system will be acquired and implemented, look at the human and organisational
implications, and highlight the risks involved, both for the project itself and for the
sustainability of the system.


A.3 Benefits of the new FMIS
(5)   The new FMIS will bring substantial benefits to its stakeholders.
       Improved access to information: The fragmented systems currently existing will
          be integrated into a single system covering all government financial
          information, accessible by all managers who need to make decisions.
       Better quality information for management at all levels, resulting in improved
          fiscal control, resource allocation, management of resources, cash
          management, and control of expenditure.
       Improved transaction efficiency, with reduced paperwork and less duplication of
          activities and reports.



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                                                               Moldova FMIS Final Report

 Improved control: The new FMIS will have improved built-in controls over
    expenditure and will be more accessible to internal and external auditors.




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                                                                     Moldova FMIS Final Report


           B HIGH LEVEL CONCEPTUAL MODEL OF THE FMIS

B.1 Scope of the FMIS
(6)   The FMIS will record detailed budgets and financial transactions for:
       State Budget institutions (i.e. Central Government); and
       Administrative Territorial Units (ATUs - i.e. Regional and Local Government) –
          both at Level 2 (rayons, etc.) and at Level 1 (towns, etc.).

      The extent to which the electronic systems described in this report will be used in Level
      1 ATUs will increase as the system develops. Until then, the new systems will be
      operated manually.

(7) The FMIS will interface with the systems of the State Social Insurance Budget (SSIB)
and Mandatory Health Insurance Budget (MHIB), which must use the same budget
classification and chart of accounts as the State and ATU budgets. These insurance funds
need to be brought into the general government budgeting process because they will need
to be supported by government expenditure if contributions are insufficient to cover their
expenditures. The funds have their own accounting systems and detailed results for
analysed income and expenditure should be electronically transmitted to MoF so that a
statement of financial results for the National Public Budget (State Budget, ATU budgets
plus SSIB and MHIB) can be produced when required by MoF. At present, reports for the
income and expenditure of SSIB and MHIB are sent to MoF only monthly. For the new
system, reports will be needed much more frequently.

 (8) At any point in time, the FMIS will be capable of reporting on and consolidating the
budgets and financial results for:
       each State Budget institution;
       the total of State Budget institutions;
       each Level 1 ATU, including the results of Level 2 ATUs in its region;
       the total of ATUs.
      Consolidated statements of the financial results for the National Public Budget
      (State Budget, ATU budgets plus the SSIB and MHIB) can be produced at
      intervals depending on the frequency with which information is received from SSIB
      and MHIB.

(9) For the above to be possible a necessary pre-requisite is that all State and ATU
institutions and the SSIB and MHIB record budgets and transactions using the new budget
classification / chart of accounts (see section D2).

(10) The FMIS will not record detailed transactions for State-owned companies and they
will not use the same chart of accounts. The Department of Statistics will prepare the
National Accounts, consolidating the results of the National Public Budget and State-owned
companies.




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                                                                      Moldova FMIS Final Report

B.2 Processes and component systems

Processes

(11) The key processes of Government Financial Management considered in this report
are: macroeconomic forecasting; medium term planning, including medium term expenditure
framework (MTEF); budget preparation and approval by Parliament; budget management
(including controlling the authority to spend); budget execution (income and expenditure,
including payroll); cash management; debt management; accounting; and fiscal reporting.

Component systems of the FMIS

(12) The component systems of a Government FMIS are designed to support these
processes and are organised into the following main groups:
      1. Planning: Macroeconomic forecasting, medium term planning, and budget
          preparation.
      2. Execution:
          (a) The Treasury system: Cash management, budget management, budget
              execution, accounting and fiscal reporting.
          (b) Other specialist systems: Payroll, revenue administration, debt
              management.

(13) In addition to the central fiscal reporting facility, individual systems are also capable of
reporting, in order to assist planning, decision making and control. The goals, concepts and
benefits of these system components are described in Annex 1 to this report.

(14) Specialist systems are in use and under development to control transactions for the
Social Insurance and Health Insurance budgets. These must interface with FMIS to provide
the necessary summary data when required, as described in Section B.1. They must also
produce this information far more promptly than at present. The present delays of receiving
information only once per month and subject to delays of up to six weeks is regarded as
unacceptable by MoF, given the large amounts of money involved. Information is required by
MoF on a daily basis.

FMIS overview system diagram

(15) Figure 1 below gives an overview of how the components combine to form the FMIS.
It shows the system components for planning and executing the State Budget (i.e. the
Central Government budget) of Moldova. A similar configuration applies to the ATU budget
financial management systems. In the diagram, the financial management processes are
listed down the left hand side and the various ministries, agencies and departments involved
are shown along the top. The Treasury System (described in the World Bank‟s publication
„The Treasury Reference Model‟ is the shaded area at the centre of the FMIS.




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                               Figure 1: Overview diagram of FMIS and related systems

                                          Ministry of Finance
                                                                Treasury
                                                                                                                Revenue          Paying/
                          Debt        Budget            Cash       Central    Territorial         Ministries/
                                                                                                                collection      receiving
                       Management    synthesis       management     office    treasuries          agencies
                                                                                                                agencies          banks
  Macroeconomic                       Macro-
    forecasting                      economic
                                    forecasting
                                       MTEF
       MTEF                         preparation                                                   Budget
                                      system                                                    preparation
                                                                                                  system

  Budget Preparation                  Budget
                                    preparation                                                  Approved
                                      system                                                      agency
                                                                                                  budget


     Budget                                                     Treasury System
                                     Approved
  management                           State                                           Ministry/agency budget
 and accounting                       budget                                            execution systems -
                                                                                         through Territorial                   Tax
                                                                                                                                            Vendors
                                                                                              Treasuries                      payers


                                      Budget
                                    management
                                      system                           GENERAL LEDGER                                           National Bank
                                                                     + accs receivable and                                      + commercial
                                                                            payable                                             bank systems
                                       Fiscal
 Fiscal reporting
                                     reporting
                                                           Cash
  Cash management                                       management
                                                          system




 Debt management          Debt
                       Management                                                                                    Revenue
     Revenue                                                                                                       Administration
   administration
                                                                                               HRM + Payroll
  Human Resource
Management / payroll




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                                                                      Moldova FMIS Interim Report



B.3 Choice between package modules and specialist systems

FMIS packages

(16) A growing number of vendors now produce software packages that are suitable for
handling core government financial management systems. To do this they have taken
commercial applications and tailored them to include the processes that are specific to
governments, such as warranting and commitments (see Section D). Reputable packages
have well-documented advantages over the development of self-written software: they are
speedier to implement, have been tested in use in other governments, contain
comprehensive controls and are robust.

(17) It is therefore taken as an assumption of this report that a package solution will form
the heart of the FMIS. This package should be specifically designed for government
financial management. Although packages for commercial organisations can be tailored
using self-written modules for government processes, this is not recommended, as upgrades
to the package system often cause the need for the self-written modules to be re-written.
The package system chosen should therefore require minimal tailoring.

Package modules or interfaced specialist software?

(18) Package systems contain a number of modules. Core modules such as the ledgers
are compulsory, whereas other modules are optional (e.g. budget preparation, payroll, cash
management). For some of these optional modules there are alternative specialist software
applications. The choice of a package solution therefore involves decisions on which
systems will be served by modules within the package and which will be served by specialist
applications.

(19) If specialist software is chosen (e.g. for payroll) the requirements are that:
      the system must use the agreed government chart of accounts to analyse data;
         and
      the system must interface electronically with the core package, so that data can
         be transferred electronically between them (see Figure 2 below).

(20) For more information on integrated versus interfacing systems, see Annex 8.

                               Figure 2: Integration or interface

                    INTEGRATED PACKAGE                INTERFACING SYSTEMS


                                                                 Payroll
                                                                Package
                               Payroll
                               Module

                   FMIS
                  package
                                                     FMIS
                            General Ledger          package   General Ledger




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                                                                     Moldova FMIS Final Report

B.4 Description of component systems of FMIS
(21) Table 1 below describes the component systems of the FMIS and indicates whether
they are generally available as part of a core package FMIS or are better served by
specialist systems. It is assumed throughout that the new budget classification system /
chart of accounts is in use throughout government, enabling information transmitted between
core and specialist systems to be meaningfully linked.

                           Table 1: FMIS systems architecture

Systems           Description                                    Core or specialist?
Systems to        These systems assist the MOF with              These are normally specialist
support Macro     macro fiscal forecasting and development       systems outside the core
Economic          of the macroeconomic framework which is        FMIS.
Forecasting       used by the MOF to advise the cabinet
                  on aggregate budget parameters and
                  guidelines for budget agencies to submit
                  budget estimates.
System to         A medium-term expenditure framework            From the FMIS viewpoint,
support           (MTEF) consists of a top-down estimate of      the end result of the MTEF
Medium Term       aggregate resources available for public       process is three years of
Expenditure       expenditure; bottom-up estimates of the        budget figures, produced in
Framework         cost of carrying out policies, both existing   the same budget
(MTEF)            and new; and a framework that reconciles       classification and format as
                  these costs with aggregate resources. It is    the annual budget.
                  called “medium-term” because it provides
                                                                 It is therefore highly
                  data on a prospective basis, for the
                                                                 desirable that these figures
                  budget year (n+1) and for following years
                                                                 are recorded on the same
                  (n+2 and n+3). MTEF is a rolling process
                                                                 system as the annual budget
                  repeated every year. The system is used
                                                                 preparation system, below.
                  in line ministries and by the MoF.
                                                                 Lack of a good link would
                                                                 make it difficult to update the
                                                                 budget for changes in MTEF
                                                                 or vice versa and would
                                                                 result in much re-keying of
                                                                 data).
                                                                 As with budget preparation,
                                                                 suitable systems for holding
                                                                 MTEF data are found in
                                                                 some core packages but not
                                                                 others (see below).




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                                                                 Moldova FMIS Final Report

Systems        Description                                   Core or specialist?
Systems to     The Budget preparation system is also         Budget preparation systems
assist in      used in line ministries and by the MoF.       are found as modules in
Budget         Line ministries receive details of            most core FMIS packages.
Preparation    programmes and projects from executing        However, it is essential that
and Approval   agencies, cross-check them against the        the module is able to
               MTEF, consolidate them, and produce           properly record government
               the budget drafts for negotiations with the   budgets, (including MTEF
               MoF. The MoF receives these budget            figures (see above) and can
               drafts, consolidates them and negotiates      keep records of budget
               changes. Further changes will be made         versions and budget
               when the budget is presented to               changes. Government
               Parliament. After finalization of the         budgets have a legal status,
               budget, the system produces the               unlike those of private sector
               approved budget and these figures are         organisations.
               transferred to the systems for budget
                                                             An alternative would be to
               execution, accounting and fiscal
                                                             choose a specialist budget /
               reporting.
                                                             MTEF package.
Systems for    These integrated systems are used in          These systems are the
Budget         MoF, central treasury, territorial            centrepiece of the GFM
Management,    treasuries, line ministries and major         systems network, the primary
Budget         executing agencies. They do the               repository of financial data,
Execution,     following:                                    and serve as the basis of the
Accounting                                                   FMIS. It is highly desirable
                  receive approved budget data from
and Fiscal                                                   that these systems are fully
                   the budget preparation system;
Reporting                                                    integrated together. A
                  maintain data on approved budget          package system which
                   appropriations spending authority,        handles all the requirements
                   sources of financing of programs and      is a preferred solution.
                   projects, budget                          It is essential that the
                   reallocations, supplementary              package can handle of
                   allocations, and warrants.                government budget
                  record commitments and actual             execution, which has
                   expenditures against budget               functions not found in
                   allocations receive commitment and        commercial organisations,
                   payment transactions from the             such as warranting and
                   spending unit systems, or in hard copy    commitments (see section
                   format, as they occur during the          D).
                   course of the year.                       It is also advantageous if line
                  record tax and non tax revenues,          ministries and agencies can
                   receiving information on receipts from    input their data directly into
                   the banks responsible.                    the system rather than taking
                                                             or sending paper documents
                  assist the Government in the budget       to territorial treasuries.
                   monitoring, accounting and
                   fiscal reporting processes, allowing      Electronic authorization of
                   enquiries from authorised users           transactions can replace
                                                             many of the signatures in
                                                             use on paper systems.
                                                             Agency budget execution
                                                             systems also include
                                                             procurement and contracts.

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                                                                    Moldova FMIS Final Report

Systems          Description                                    Core or specialist?
Cash             This system assists Government to              It is recommended that this
Management       maintain an up-to-date picture of              system is integrated with
System           the government's liquidity position and        treasury and agency budget
                 cash requirements. They receive the            execution systems and this
                 information on cash requirements from          should form part of the core
                 the ministries/ spending units and the data    FMIS package.
                 on cash balances from the Banks where
                 government accounts are held.
Debt             This system maintains information on           As with many governments,
Management       public domestic and foreign                    debt management in
System           borrowings. Payments related to                Moldova is handled by a
                 government borrowings are carried out by       separate specialist system
                 the central accounting system based on         (DFMAS). Until 2005 this
                 the data in the debt management system.        system has not handled
                 Loan receipts recorded in government           domestic debt, but is now
                 accounts are processed by the central          able to do so, and it is
                 accounting system and then used to             anticipated that this ability
                 update the debt database maintained by         will replace the current
                 the debt management system.                    domestic debt systems in
                                                                Treasury when the new
                                                                FMIS is implemented. The
                                                                system will interface with
                                                                FMIS.
Revenue          This group of systems assist the               These are specialist systems
Administration   government in the processes associated         outside the core FMIS, which
Systems          with formulating tax and tariff policies and   hold records of taxpayers‟
                 the subsequent collection of tax and non       assessments and payments.
                 tax revenue. A number of                       The systems provide inputs
                 separate systems are involved in this          to the budgeting and cash
                 group: for example, those supporting the       forecasting processes, for
                 administration and collection of income        which they need to interface
                 taxes, customs duties or VAT, and those        with FMIS.
                 supporting the collection of various types
                 of non- tax revenues, such as
                 stamp duties.
Human            From a financial management                    Although core FMIS
resource         perspective, these systems modules             packages often contain
management       assist with                                    payroll modules, these
and payroll                                                     systems are more often
                    management of staff numbers and
systems                                                         linked with specialist Human
                     positions;
                                                                Resource management
                    payroll and deductions.                    systems. At present, each
                                                                Ministry uses its own payroll
                 Similar systems apply to
                                                                system and there is a need
                 pension payments.
                                                                to develop a central
                                                                specialist payroll system.




                                            -9-
                                                                  Moldova FMIS Final Report

Systems           Description                                 Core or specialist?
Systems to        These systems assist the internal and       To maintain auditor
Support           external auditors in their functions.       independence the audit
Auditing          To perform the audit function, they need    systems must be separate
                  access to the data bases maintained by      from the FMIS, but can make
                  the other systems modules.                  use of information within the
                                                              FMIS.


B.5 Decision on FM package and interfaced systems

MoF decision

(22) After considering the above factors, the Ministry of Finance has decided that treasury
core financials, budget preparation and reporting should be handled by means of a Financial
Management Software Package, while other functions should serviced by specialist
interfaced software, as shown in Table 2 below.

                      Table 2: FM package and interfaced systems

Component system                                       Provided by
Core Financials (Treasury System: General Ledger,      Financial management software
Accounts Payable, Accounts Receivable, Budget          package
Management, Budget Execution (purchasing) in
central and territorial treasuries, Cash Management)
Budget preparation (including facility for MTEF        Financial management software
figures)                                               package
Financial Reports and Management Information           Financial management software
System                                                 package
Communication by agencies with the Financial           Locally developed software
Management Package
Macroeconomic forecasting                              Locally developed software
Debt and aid management                                DMFAS (the specialist debt
                                                       management system which is
                                                       currently in use)
Human Resource Management and Payroll                  Specialist system, locally developed
Organisation / workflow management                     Locally developed software

(23) In addition the Financial Management Software Package will also interface with the
banking systems currently in use (National Bank of Moldova and commercial banks), and
with the specialist systems for social and health insurance and revenue management.
Auditors will be able to interrogate the package, using audit software.

How spending units will communicate with the Financial Management Package

(24) MoF have decided that budget executors (line ministries, agencies and their ATU
government equivalents) should not be users of the Financial Management Software
Package, on the grounds that this will cause annual user license fees to be too high. For
further discussion of the numbers of users involved see Section B.6.

                                            - 10 -
                                                                     Moldova FMIS Final Report

(25) The Financial Management Software Package will be used in the Ministry of Finance
and the territorial treasuries, and key controls over budget execution will be operated in
those locations. Budget executors will communicate with the FM package using locally
developed software which will not carry a license fee and which will eventually enable all
spending units to be interfaced with the FM package. This software will enable budget
executors to transmit batches of data and to receive information.

(26) Whereas this is clearly a sensible decision when user licensing costs are high, it is less
efficient than having the FM software package (and its built-in functional controls) actually
present at the offices of the spending units. This is because software controls present in the
FM package (e.g. to prevent over-commitment of expenditure) will not take effect until the
data is presented to the territorial treasury, which is one of the weaknesses of the present
system.

(27) We therefore recommend that when suppliers are invited to tender for the FM software
package they are asked provide costs for extending it to major spending units. GoM may
then accept or reject this approach based on the tendered costs.

HRM/Payroll package

(28) At present, government ministries and spending units use a variety of separate manual
and computerised systems to prepare their payroll data. We agree with the MoF‟s decision
that there should be a central HRM/payroll package which will compute payroll for all central
government employees. This will play a major role in improving information and control in
the FMIS. In due course the system could also be extended to ATU governments. As an
initial step, a new payroll package will be piloted in MoF as part of this project.


B.6 Geographical coverage of FMIS
(29) The FMIS is the basis of Moldova‟s central government and ATU government financial
management systems. When considering geographical coverage, a distinction needs to be
made between:
  (i) the FMIS as a set of functions and processes; and
  (ii) the computer systems on which the FMIS runs.

Coverage of revised FMIS functions and processes

(30) Section D of this report describes improvements to functionality that will take place in
preparation for the implementation of the new FMIS (e.g. revised chart of accounts,
processes of warranting, commitments, etc). It is recommended that these changes in
functionality are implemented throughout central government and ATU governments. Where
the new computer systems have not yet been installed the revised processes can be carried
out manually.

Coverage of new computerised systems

(31) Ultimately the computerised FMIS will extend throughout central and local
governments. There are approximately 1,000 municipalities and 2,500 spending units.
However, because of limited resources and technical capacity the expansion will be carried
out in phases.




                                             - 11 -
                                                                               Moldova FMIS Final Report

(32) It is planned that for the first stage of the project, which should be running live for the
2009 budget year, the new FM Software Package will be installed for 177 users, as follows:
      MoF Central Treasury:                                      10
      MoF Budget Synthesis Department:                            5
      MoF sectoral finance divisions                              5
      Fintehinform (formerly MoF IT Department)                  10
      39 Territorial Treasury Offices                           147
      Total                                                     177 users

(33) The line ministries and agencies in Chisinau will communicate with the FMIS using
locally developed software. This communication will be across a high speed fibre-optic
metropolitan area network in Chisinau that is currently being developed by the Special
Telecommunications Centre (STC) and which will be completed by 2006.

(34) Territorial Treasuries will be users of the FM software package and will need to
communicate with the central systems in Chisinau. At present they use the commercial
banks‟ network systems to communicate and will do so until the current leases expire, but
these networks (as they stand at present) are not regarded as fast enough or secure enough
for a long term solution. During the detailed systems design stage of this project,
infrastructure alternatives will be considered for the Wide Area Network, including the
extension of the STC‟s fibre-optic government network to the territories. Currently the
Ministry of Information Technology (which is the governing ministry of MoldTelecom and the
government‟s registers of people, companies, passports, etc.) has a fibre optic network that
communicates with 20 rayons, though extensions would be needed to reach the Territorial
Treasuries. Estimates of when MoldTelecom‟s network will be extended to all the rayons
vary, but a most likely year is 2009. For the extension of the STC network, funding is the
main constraint.

(35) ATU government offices (36) and finance directorates (35) will communicate with
Territorial Treasury offices by means of locally developed software over dial-up or ADSL
connections. In the initial implementation there will be therefore be 177 users of the FM
Software Package and approximately 100 users of locally developed software, though this
latter number can be rapidly extended in the next phase of implementation beyond 2009.

  Figure 3: Coverage of FMIS computer systems in initial implementation up to 2009


                   Ministry of
                Finance, Chisinau          FM package software
                    30 users                                                    Local
                                                   Territorial               governments
                                  Wide Area        Treasuries                 36 offices
                                    Network        39 offices,
                                                   147 users
                                                                               Finance
                                                                             directorates
               Metropolitan Area Network
                                                                              35 offices

               Ministries / Agencies
                     Chisinau
                    28 offices


                                                   - 12 -
                                                                   Moldova FMIS Final Report

(36) The Metropolitan and Wide Area Networks will be set up as a Virtual Private Network
(VPN) across which public financial management data can be transmitted in encrypted
format. This network will also be used to provide internet access , e-mail, and Voice over IP
(to reduce internal telecommunication costs).

(37) It is recommended that the databases for the Financial Management Software
Package, for both central government and for ATU governments, are held centrally with the
State enterprise Fintehinform (formerly MoF IT Department). It will be necessary to take
proper security and back-up precautions, including the setting up of Disaster Recovery and
Business continuity Plans. Security is discussed in Section F of this report.


B.7 Recommendations
(38) Based on the descriptions in this section of the report, our recommendations are set
out below.

Recommendation 1:        The Financial Management Software Package used as the
                         basis for FMIS should include the following modules: Budget
                         preparation (including a facility for MTEF figures), Budget
                         Management, Budget Execution (purchasing), General Ledger,
                         Accounts Payable, Accounts Receivable, Cash Management,
                         Financial Reports and Management Information System.

Recommendation 2:         The baseline plan for the use of the Financial Management
                          Software Package should assume that it is initially used in
                          Ministry of Finance and Territorial treasuries only, with
                          central government and ATU government budget executors
                          gaining access to the system by a locally developed software
                          programme which interfaces with the FM Software Package.
                          This baseline plan should not, however, be used to restrict
                          suppliers from offering superior functionality where it is cost
                          effective.

Recommendation 3:         Specialist systems which form part of the FMIS are payroll,
                          debt management; revenue administration; social and
                          medical funds. These systems may be modules of the FM
                          software package or, where they are separate systems they
                          must interface with it. The systems in use at the SSIB and
                          MHIB should be improved sufficiently to be able to provide
                          more frequent information to MoF. Systems used by auditors
                          are not part of the FMIS but must interface with it in order to
                          examine FMIS data.

Recommendation 4:         For systems that interface with the FM Software Package it is
                          required that that they are able to import or export data
                          organised by any relevant grouping of budget codes in the
                          chart of accounts, and in standard data interchange formats.

Recommendation 5:         FMIS Databases for central government and ATU
                          governments should be kept centrally at the State Enterprise
                          Fintehinform.




                                            - 13 -
                                                           Moldova FMIS Final Report

Recommendation 6:   Alternative infrastructures for the Wide Area Network
                    connecting Territorial Treasuries to MoF in Chisinau should
                    be considered during the detailed systems design stage of
                    the project.

Recommendation 7:   As part of this project a new payroll package will be piloted in
                    MoF. GoM should consider the acquisition of a central
                    HRM/payroll package to replace the various systems used at
                    present.




                                     - 14 -
                                                                             Moldova FMIS Final Report

 C ISSUES AND GAPS IN THE MOLDOVAN PROCEDURES
                    AND SYSTEM
(39) A concise description of the present system of government financial management in
Moldova is given in Annex 2 to this report.

(40) This section, on issues and gaps, compares the Moldovan system against best
practice as defined in the Treasury Reference Model in Annex 1. Much progress has been
made in government financial management in Moldova over the last 12 years, but there is
now an opportunity to make a „quantum leap‟ by combining reforms to processes with the
installation of an improved computer system.

(41) Gaps or issues in the current system can be grouped into the following areas:
      Incompatibility of underlying data and fragmentation of databases
      Weaknesses in underlying processes
      Unnecessary duplication of effort
      Opportunity to reduce paperwork / manual controls
      Non-availability of information, or difficulty of obtaining timely information

(42) In some cases a number of problems flow from a single cause. For each gap or issue,
a suggested remedy is given and, where necessary, these solutions are discussed further in
later sections of this report. At this stage, purely technical IT issues are not considered.


C.1 Incompatibility of underlying data and fragmentation of
    databases
(43) Data which should be closely linked is being produced in different formats. In most
cases the remedy for this will the new budget classification, and the development of a new
chart of accounts (see section D.2). This will facilitate a system whereby databases can be
linked, and in some cases, where processes can use the same database.

Planning and budgeting

Gap / issue                                            Remedy
The MTEF, budgets and financial plans are held         In the new FMIS these will need to be closely
in different databases, requiring re-keying of data.   linked so that data can pass smoothly and
                                                       transparently from one stage to the next.
                                                       Once the new budget classification is introduced,
                                                       this should form the basis for all plans and
                                                       budgets, to cover State Budget, ATU budgets
                                                       and the budgets for SSIB and MHIB.
                                                       MTEF and budget figures can be held in the
                                                       same database.
The Ministry of Finance and National Social            Sharing of data and development of common
Insurance House are using different databases          database.
for policy analysis.




                                                  - 15 -
                                                                               Moldova FMIS Final Report

Budget execution and accounting

Gap / issue                                             Remedy
There are currently four different charts of            After introduction of the new budget classification,
accounts in use, for treasury, state budget             a single chart of accounts to cover all budget
institutions, regional (Level 2 ATU) budgets, and       institutions will be developed. This will also affect
local (level 1 ATU) budgets.                            payroll programs and the debt management
                                                        system and the SSIB and MHIB.
There are several different bases of accounting.        The new FMIS will work on the modified cash
                                                        basis of accounting, as in the present Treasury
Treasury uses a modified cash basis, recording
                                                        system. Reconciliation will still be needed with
transactions after they have been paid by the
                                                        the accrual accounts produced by budget
banks, but budget institutions follow the
                                                        institutions, but this will be much easier, as there
Accounting Law and also produce records of
                                                        will be a unified chart of accounts.
debtors and creditors. Reconciliations between
the two different systems are carried out
quarterly.
National Social Insurance House uses accrual
accounting.
Information received from SSIB and MHIB is              These systems must be improved, as well as
infrequent and subject to large delays.                 changed to conform with the new chart of
                                                        accounts.


C.2 Weaknesses in the underlying processes

Release of funds by MoF to budget executors

(44) The existing budget execution processes allow efficient control by MoF over total
expenditure on a day-to-day basis by ensuring that (1) rapid information is obtained on cash
receipts; (2) all payments pass through territorial treasuries; (3) total expenditure
requirements are signalled to central treasury daily; and (4) the Minister of Finance
prioritises expenditure where necessary. However, this comes at a cost to budget
executors.

Gap / issue                                             Remedy
Although authority to spend is in theory given to       Warranting: As the year progresses, sector
budget executors when their financial plans are         agencies prepare periodic requests for funds by
approved, in practice, cash is only released to         economic category.
them by MoF on a day-to-day basis after they
                                                        The MoF then issues warrants to ministries for
have entered into contracts / commitments. This
                                                        each category of spending. From these amounts
affects their ability to plan execution, can cause
                                                        the ministries issue sub-warrants for their
arrears of payments and causes some suppliers
                                                        spending units and advise the appropriate
to require payment in advance.
                                                        spending units. These processes take place
There is no warranting process, a gap when              periodically through out the year. The warrant
compared against the TRM.                               and sub warrant amounts need to be within the
                                                        amounts specified in the spending limits for these
                                                        organizational units. Warrant amounts are
                                                        determined in the light of the results of periodic
                                                        budget reviews, revised revenue forecasts and
                                                        cash balances.
                                                        See Annex 5 and Annex 6.




                                                    - 16 -
                                                                                Moldova FMIS Final Report

Budget reallocations / virements

Gap / issue                                              Remedy
All changes to the financial plans of budget             Normally the Budget Law permits the MoF, the
executors must be approved by MoF. This is a             spending ministries and the spending units to
lengthy process which follows the same                   shift the approved budget between organizational
procedure as the approval of the original plan. It       and object classifications within restrictions set by
is time-consuming for MoF sector divisions.              the relevant laws. Shortfalls identified by
                                                         spending units in one or more economic
The Law on Budgetary system and budgetary
                                                         categories may be met from excesses in other
Process Article 35 (3) says: Expenditures
                                                         economic categories in their budget.
included in the monthly allotment for specific uses
may not be transferred to other destinations             For this, a budget reallocation request needs to
without the notification and approval of the             be processed.
Minister of Finance.
                                                         For some items and within certain thresholds,
When compared with the TRM, the budget                   spending units may have the financial powers to
reallocation („virement‟) procedures are missing.        make the reallocation themselves. For these
                                                         cases, they will update the budget data base in
                                                         the system.
                                                         For cases which are beyond their financial
                                                         powers, they will request the parent ministry or
                                                         MOF to process the reallocation, depending on
                                                         the type of reallocation. If approved, the Ministry /
                                                         MOF will process the reallocation and update the
                                                         data base. The spending unit will be informed of
                                                         the decision on the request.
                                                         See Annex 5.


Commitments

(45) In Moldova, territorial treasuries run an effective contract management system which
ensures that (i) the total value of contracts in an expenditure category for a spending unit
cannot exceed the allowed amount in the financial plan; (ii) payment cannot be made unless
the contract is registered; (iii) payment cannot exceed the contract amount; (iv) the supplier
must be registered. This needs to be extended into a system whereby spending units
register commitments for all expenditure.

Gap / issue                                              Remedy
All expenditure should be committed by the               In response to a request for a purchase, the
spending unit before payment by the territorial          spending unit will register a commitment in the
treasury.                                                system and block the corresponding amount from
                                                         the available budget and spending limit. The
                                                         commitment transaction is forwarded to the
                                                         parent ministry and to the territorial treasury that
                                                         will process the payment against this
                                                         commitment.
                                                         Procedures for changes to payroll commitments
                                                         also need to be in place.
                                                         See Annex 5.




                                                     - 17 -
                                                                               Moldova FMIS Final Report

Cash management

(46) In an upgraded FMIS the role of the cash management unit in Central Treasury
Central grows in importance. At present, information on cash receipts, requests for payment
and balances is available daily, but effective cash flow forecasting over longer periods is
important if MoF wishes to move from the current position of daily cash releases to monthly
(or quarterly) releases.

Gap / issue                                             Remedy
Availability of funds and budget executors              Spending ministries prepare expenditure
financial requirements need to be forecast and          forecasts, revised periodically specifying the
planned more effectively. There are sometimes           amount of money required at specific times of the
timing differences which cause arrears in               year for each major category of economic
payments of contracted expenditure.                     expenditure) and from the debt management
                                                        department on debt servicing expenditures.
Line ministries and spending units should be
playing a greater role in this, not just at the start   The revenue collection agencies prepare revenue
of the year but throughout the year, and revenue        forecasts, revised periodically on the basis of
collection agencies should play a greater role in       actual out turns.
revenue forecasting.
                                                        The cash management department examines this
                                                        data together with the accounting data in the
                                                        TGL, the debt management database and the
                                                        cash balances in the bank accounts.
                                                        This enables it to determine the liquidity position
                                                        of the government and shortfalls/ surpluses. This
                                                        information forms the basis of the MoF
                                                        determining the borrowing requirements and the
                                                        spending limits and warrants for spending
                                                        ministries and units.
                                                        See Annex 5.
Commercial bank accounts are used for budget            The TRM main model envisages consolidation of
execution by territorial treasuries. They do not        government bank accounts to a Treasury Single
clear their balances to the Treasury‟s main             Account (with sub-accounts) held at the National
account daily (but they pay commercial interest         Bank of Moldova and branches. Use of
rates on balances).                                     commercial banks is recognised as a valid
                                                        alternative. There are options for how to
                                                        organise banking in the future – see section D.3.
Receipts of fees and charges by spending units          These receipts should be paid into the main
are treated as special means, put to separate           revenue accounts, as discussed in sections D.3
bank accounts and used to offset expenses by            and D.9 .
those spending units. This makes overall cash
management more difficult.


C.3 Unnecessary duplication of effort
Gap / issue                                             Remedy
Data prepared in one location, either on paper or       So far as possible data prepared for input in the
a spreadsheet, is re-keyed into the main system         FMIS should be keyed in by the originator, who is
by somebody else. This is a duplication of effort       online to the FMIS.
that can be eliminated.




                                                    - 18 -
                                                                              Moldova FMIS Final Report

Gap / issue                                            Remedy
Re-keying of data also allows the possibility of       Elimination of re-keying automatically eliminates
transposition errors. A transposition error in re-     transposition errors. Other computer based
keying a debt payment into the payment system,         controls and monitoring checks can also help
for example, could be expensive.                       assure data integrity.
Most of the present systems are affected by this       The elimination of re-keying, and reduction of
problem. MTEF figures are re-keyed to provide          associated transposition errors, is one of the
spending limits. Budgets are re-keyed to provide       most far-reaching improvements that a new FMIS
financial plans. Changes to financial plans are        can make, provided that a consistent budget
prepared by spending units and re-keyed in             classification and chart of accounts are adopted.
budget department. Payment details are typed in
                                                       The decisions needed here are on which and
spending units and re-keyed in territorial
                                                       how many users are put on-line to the FMIS. See
treasuries. Quarterly results in spending units
                                                       section D.3.
are re-keyed for consolidation by IT department.
                                                       This is a cost problem rather than a security
                                                       problem, because the FMIS will allow access
                                                       controls that only allow users to see the
                                                       applications they need.


C.4 Opportunity to reduce paperwork / manual controls

Gap / issue                                            Remedy
Even where computer files and controls are in          The new FMIS should take greater advantage of
use there is tendency for the existing system to       the facilities of computer systems to organise files
be based on the production of hard copies of           and to allow on-line authorisation controls.
documents, which are officially stamped and
                                                       For example access controls restrict who can use
signed. As such, the computer system is limited
                                                       a particular application, computer logs keep a
to being a calculating machine which operates a
                                                       check of who is creating data, or making
few „limit‟ controls.
                                                       changes, different versions of key documents
                                                       such as the budget could be „locked‟ in the
                                                       system to prevent unauthorised changes,
                                                       electronic signatures could be used. External
                                                       paper documents could stay at the point where
                                                       they are received and the information be passed
                                                       on electronically from there.


C.5 Non-availability or difficulty of obtaining timely information

Gap / issue                                            Remedy
The existing system is capable of generating any       The new budget classification and chart of
information required by users except in cases          accounts will allow the theoretical possibility of
where the coding of the underlying data does not       producing all information that is required.
allow sufficient analysis or if there is an
incompatibility in the coding systems used.




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                                                                           Moldova FMIS Final Report

Gap / issue                                         Remedy
All reports are currently programmed by IT          Given that the underlying data is held in the new
department, in response to designs from MoF, or     classification, and that databases are linked or
in direct response to user needs.                   integrated, the problem with the new system will
                                                    not be lack of information, but the ability to
Most reports are paper based, though on-screen
                                                    produce too much information.
data can be seen by some users.
                                                    A set of key reports must be decided and
Senior and middle managers do not have on-line
                                                    designed, and included in the specifications for
access to relevant current financial information,
                                                    the new computer system. A list of reports (for
e.g. on commitments as against budget,
                                                    management information and control)
predicted financial balances, etc
                                                    recommended by the Treasury Reference Model
                                                    is shown at Annex 7.
                                                     In addition users will need the ability to generate
                                                    their own reports by on-screen access.


C.6 Key actions and policy reforms before upgrading FMIS
(47) Some of the key actions and policy reforms that are strongly recommended before
upgrading the FMIS are listed in the Treasury Reference Model and are reproduced in
Annex 3. All of these issues have been already addressed in Moldova, but in each case
further improvements would be beneficial. Table 3 below summarises the position.

               Table 3: Comparison against institutional and policy reforms
Recommended                   Moldova
Comprehensive Budget          The Law on the Budgetary System and Budgetary Process covers all
Management Law                the required areas for the State Budget as they stand at the moment.
                              However, it would need to be updated to allow for some of the changes
                              proposed in this report. The same applies to the laws governing Local
                              Public Finance and the Social Insurance and Medical Insurance funds.
                              There is a need to link these two funds more closely into the main
                              government financial management system.
Budget classification         The classification in use at the moment is based on the old GFS
system consistent with        system, but a new budget classification system, compatible with GFS
IMFGFS 2001, and              2001, is being designed which will form the foundation of a greatly
treasury chart of accounts    improved capacity for generating information and which will allow
embodying this                effective budgeting for programs and projects. A new chart of
classification system         accounts, based on this budget classification, will be designed as part
                              of the Public Financial Management Project.
Consolidation of              There is a Treasury Single Account for revenue received, but most
government bank accounts      execution of government expenditure is carried out through territorial
to a Treasury Single          treasuries which use commercial bank accounts, and these do not clear
Account                       their balances to the central account. Government must decide how it
                              wishes bank accounts to operate in future.




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                                                                        Moldova FMIS Final Report

Recommended                Moldova
Systems for budget         The existing budget execution processes achieve rapid information
execution processes and    about cash receipts and allow efficient control by MoF over total
manuals documenting        expenditure on a day-to-day basis by ensuring that all payments must
these                      pass through territorial treasuries.
                           However budget executors suffer some difficulties: (i) they must operate
                           with very little flexibility - all changes to plans must be approved by
                           MoF, which is a lengthy process; and (ii) cash to pay contracts which
                           they have entered into is released on a daily basis, sometimes causing
                           uncertainty over when payments will be made.
                           There is a detailed set of regulations governing budget execution, but
                           these will need to be substantially revised to allow for proposed
                           changes in the new FMIS.
Cash management unit in    Central treasury has a cash management unit which must assume a
the Treasury and           role of growing importance in the future. Cash flow forecasting and
procedures for its         monitoring is vital if MoF wishes to move from the current position of
operations                 daily cash releases to monthly (or quarterly) releases.


C.7 Full benefit of computerization
(48) Computer-based information systems provide Government finance managers with:
     (a) a set of tools to consolidate, compile, and access reliable and timely
         information for decision making. Data in the system databases can be
         presented in a variety of formats in accordance with management
         requirements; and,
     (b) unique opportunities to process business transactions efficiently, apply
         necessary controls, and simultaneously gather timely and accurate information
         required for decision-making. Two aspects of this enhanced efficiency are
         particularly important:
      First, these systems make it possible to integrate transaction classification and
          posting with transaction processing. This means that as a transaction is
          processed (e.g. as a payment is made) it can be simultaneously classified and
          posted to the appropriate account. This ensures that all transaction data are
          promptly and correctly included in system databases.
      Second, use of computer-based systems facilitates automation of many controls
         and procedures. As a transaction is processed, the system can apply the
         necessary controls (e.g. ensure that a proper budget allocation exists prior to
         making a commitment or approving a payment). Manual intervention is
         required only in cases which require an exception to the procedures. In these
         cases the system would keep an appropriate audit trail that would include
         details regarding the authorization for the exception.




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                               D FUNCTIONALITY

D.1 Summary of changes to business processes
(49) Annex 5 describes functions and data entities in a comprehensive government
financial management system. Based on the gaps in the Moldovan systems described in
Section C of this report, this section discusses changes to functionality which are
recommended before implementation of the new FMIS. These include:
      Requiring all government organisations (except state owned business
         enterprises) to use the same budget classification and chart of accounts.
      Budget format to be improved to co-ordinate directly with MTEF
      Special funds and „Special means income‟ accounts: The revenue on these
         accounts will be paid into the same bank account as other revenue, but they
         will continue to be accounted for as separate funds with designated
         expenditure purposes. However, the number and value of these funds is high
         and, over time, it is accepted that they will be reduced and accounted for as
         non-tax income.
      Introduction of a warranting system
      A new set of rules developed by MoF showing the conditions in which spending
         agencies and line ministries have some delegated authority in determining
         changes to their financial plans (budget reallocation – virements).
      Registering of commitments for all expenditure
      Improved cash forecasting procedures
      Electronic authorisation of procedures and documentation, and reduced paper
         flow.

(50) This section of the report discusses some of recommended changes to functionality in
more detail and then summarises required amendments to the State and Local Government
budget law and to regulations before the FMIS can go live.


D.2 Budget classification and budget format

Budget classification (and chart of accounts)

(51) One of the most important changes is occurring now: the development of a new
universal budget classification, that will be used to develop a new chart of accounts for the
FMIS. The new classification will allow data to be traced by fund, organisation and
spending unit, economic classification, programme, project, and functional classification, and
will allow consistency with the IMF Government Financial Statistics (GFS) 2001
methodology.

(52) The main budget classification will be based on budget institutions, programmes and
economic codes. These will be developed to the “lowest common denominator” which will
allow the system to develop any report required. There will be no need to worry about
whether financial statements need to be produced according to International Public Sector
Accounting Standards (IPSAS) or the European System of Accounts (ESA) because the new
classification will enable both to be done.


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(53) Special funds (e.g. text books) are already analysed according to the present
economic and functional classifications and can therefore easily be brought into the new
classification system. The „fund‟ section of the budget classification can be used to
distinguish expenditures on each special fund.

(54) The State Social Insurance Budget and Mandatory Health Insurance Budget will be
subject to the same budget preparation disciplines as other state entities and will be brought
into the overall budget planning process, having access to the FMIS budget planning module
for this purpose. However, for execution and accounting purposes, they will utilise their own
accounting systems to record results. Nevertheless, they, too, should follow the new budget
classification and chart of accounts to enable effective budgeting and consolidation into the
Public Accounts.

(55) In designing the chart of accounts that follows from the budget classification, it is
important that the structure is capable of being developed for accrual basis accounting.
Even though accrual accounting is not used by the Treasury system at present, that
possibility must not be excluded for the foreseeable future. The chart of accounts will also
allow budget institutions to use accrual accounting if that is required.

(56) The new FMIS cannot be implemented until the new chart of accounts is complete and
agreed.

Budget format

(57) The format for the legal budget should be presented by budget institution and
programme (as this becomes possible). Information schedules attached can include
summaries by function or economic code, and listings of capital projects.

(58) The new format must provide for multi-year budgeting.         Ideally, the budget should
comprise eight columns of figures:
      Previous Year’s Actual: this is hard data. Last year‟s actual figures as certified
        by the external auditor;
      This Year’s Original Budget: the original budget figures passed by Parliament;
      This Years Budget as Revised by reallocations between budget heads and any
         supplementary budgets;
      Estimated Out-turn: this is the current “best-guess” at to what the year end
         totals will be. It comprises eight or nine months actual hard data with three or
         four months of estimates for the remainder of the year;
      Next Year’s Estimate: this is THE budget figures;
      Following Year’s Estimate (Budget Year Plus One): this is an indicative
         budget for the year after next. Initially, is should just be an indication.
         However, as budgeting skills develop it should become an irreducible base
         figure to enable spending programme managers to develop longer term
         horizons;
      Budget Year Plus Two: an indicative budget for two years time. Again, this
         could become a firm budgetary commitment in future years; and
      Budget Year Plus Three: for the year after that.




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(59) Note that this budget format will comply with the exposure draft of a Budget Reporting
Standard soon to be issued by the International Federation of Accountants (IFAC) Public
Sector Committee. This will require (i) the original budget; (ii) the revised budget; and (iii)
the actual out-turn.

(60) Budget documents which only show last year‟s budget figures and this year‟s budget
figures are a dangerously simplistic method of budgeting. It is essential that hard data for
previous year‟s actual expenditure and this year‟s expenditure to date figures are
incorporated into the budget documentation.

(61) In this way, the MTEF can also link to the budget, be very informative, and show the
cost of current programmes in the next and following years. MTEF can then be used as a
baseline budgeting tool which is what it is intended to be.

(62) The new classification will need to be described in the Law on the Budgetary System
and the Budgetary Process (i.e. article 7 will need to be amended as appropriate).

 Recommendation 8:            The budget classification structure is adopted, developed
                              into a chart of accounts, and prescribed by law for all
                              central government and ATU government institutions and
                              funds (other than state-owned companies).

 Recommendation 9:            A revised budget format is adopted and prescribed by law
                              for all central government and ATU government
                              institutions and funds (other than state-owned companies).


D.3 Structure of the accounting and reporting system

Basis of accounting

(63) Treasury (including territorial treasuries) will retain a modified cash basis of accounting
during the implementation of FMIS. However, at some future time, accrual accounting may
be required, so the FM software Package must be specified as capable of recording
transactions on an accrual accounting basis. It must also be capable of recording warrants,
budget reallocations (virements) and commitments, on which recommendations are made
later in this section.

 Recommendation 10:           The FMIS will continue to record transactions on a
                              modified cash basis until further notice.

 Recommendation 11:           The FM Software Package to be acquired must be capable
                              of recording transactions on an accrual basis (recording
                              invoices when received or issued, debtors and creditors,
                              and assets and liabilities).


Financial responsibility of state budget and ATU government organisations

(64) State budget institutions and Level 2 ATU governments are responsible for producing
quarterly financial statements according to MoF accounting regulations based on the
Accounting Law. These responsibilities include holding accrual accounting records of
amounts receivable and payable. These financial statements are currently reconciled with
treasury accounts quarterly.

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                                                                     Moldova FMIS Final Report

(65) The new FMIS, combined with a unified chart of accounts, should eventually be able to
meet all financial management information needs of government. The new chart of accounts
will have codes that allow for accrual accounting by budget institutions.

(66) However, in the period to 2009, the emphasis will be on developing the FMIS for
budget execution and budgetary accounting through territorial treasuries. The financial
statements of budget institutions will therefore continue to be prepared as at present, but
according to the revised chart of accounts, and these statements will continue to be
reconciled on a quarterly basis with the treasury accounts. The reconciliation will be easier
than at present because of the new chart of accounts.

Consolidation

(67) Treasury will consolidate results of state, ATU governments, SSIB and MHIB.
Information needed on a daily basis will be:
      cash balances and balances for financial assets and liabilities;
      aggregate income and expenditure for each budget executor, together with the
         balances of funds warranted but not yet committed or spent, and funds
         committed but not yet spent,

 (68) Treasury should be able to consolidate the detailed analysis of income and
expenditure, assets and liabilities at least monthly. The FMIS should be able to automate
this process and this should be a functional requirement. As mentioned before, information
will be needed from SSIB and MHIB more frequently than provided at present. Reporting
requirements are covered in section D.8 of this report and in Annex 7.

Bank accounts

(69) At present central and territorial treasuries use a number of different bank accounts. In
addition to the accounts of state budget and Level 1 and 2 ATU budgets there are foreign
currency accounts and accounts for „special means‟, that is income of budget institutions
which is set aside for their use. Leaving foreign currency accounts aside, there is a strong
case for rationalisation to a single, or small number of treasury accounts.

(70) We recommend that special means income should be paid into the main Treasury
receipts account. This income can be separately identified by the accounting system and
taken into account when setting revenue sharing rules. This will require a change to the
state budget and local budget laws and will be strongly resisted because at present
organisations receiving special means do not have to return unspent amounts to Treasury at
the end of the year. Whilst the FMIS can work with special means, their existence
undermines the detailed controls which are used for regular funds.

 Recommendation 12: There should be as few bank accounts as feasible. Special
                    funds and special means income should be paid into the
                    main receipts accounts.

(71) At the moment territorial treasuries are making use of commercial banks, acting as
agents of the National Bank of Moldova, to process their transactions. These banks offer
their communication networks and, in some cases, space in their premises as part of the
service. They are on 3 year contracts, which expire at the end of 2006. This system has the
advantages that:



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                                                                    Moldova FMIS Final Report

     reliable communications are available, and there is no need to develop IT
         communications maintenance skills in the IT department: such skills can be
         difficult to retain in the government sector;
     the commercial banks‟ office design and customer service has had a beneficial
        influence on the territorial treasuries.
     commercial rates of interest are paid on cash balances.

(72) The disadvantages are:
     when the contracts expire, they must be put up for tender: if the supplier
        changes, the premises may need to change as well.
     the accounts are not cleared to the Central Treasury account at the end of each
        day: this reduces flexibility in how cash is used for payments.

(73) National Bank of Moldova will not set up branches in the Rayons. A reduction in the
number of territorial treasuries is eventually likely but will not happen during the
implementation of FMIS. The best solution seems to be to continue the banking
arrangements of TTs with commercial banks but to free them from dependence on premises
and network communication facilities.

 Recommendation 13: Territorial treasuries will continue to use commercial banks
                    for the foreseeable future, but plans should be made for the
                    longer term to move them to permanent premises, and
                    connect them to the Wide Area Network of FMIS.


D.4 Warranting
(74) Warranting is a system whereby after the budget is enacted into law, the Ministry of
Finance has a second stage process of authorising (“warranting”) Ministries and other
agencies to spend money. Warrants can be used to control cash flow to Ministries, and
within Ministries a system of sub-warranting can be used for controlling subsidiary
organisations.

(75) Warrants should always copied to the Head of the Budget Office, the Head of Treasury
and the Head of the Supreme Audit Institution (Court of Accounts).

(76) Warranting systems vary, but in a comprehensive system there are several different
types of warrant:
     Appropriation Warrant;
     Allocation Warrant;
     Reservation Warrant;
     De-reservation Warrant
     Budget reallocation (Virement) Warrant;
     Contingency Warrant;
     Investment Project Warrant; and
     Investment Project Allocation Warrant.




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(77) The Appropriation Warrant is issued under the annual budget law by the Minister of
Finance to all spending units specifying the level of expenditure approved by Parliament for
each spending unit or sub-unit under specific budget classifications for recurrent
expenditure. The Treasury uses its copy to enter the maximum amounts which can be
spent by code number into the general ledger. However, this warrant does not give
permission for any expenditure to be made.

(78) The Allocation Warrant is the method by which the Minister of Finance authorises
spending units to spend money up to the amount detailed in the warrant. It is likely that
these warrants will be issued on a weekly, fortnightly, monthly or bi-monthly basis,
depending on funds available for spending. The power to issue these is usually delegated
to the Head of Treasury.

(79) A Reservation Warrant is a reversal of an amount previously warranted. If it becomes
apparent that an issued Allocation Warrant was too generous, a Reservation Warrant can be
issued to remove some of the authorised amount. This is an effective way of freezing
expenditure. Again, these warrants are likely to be issued by the Head of Treasury under
powers delegated by the Minister of Finance.

(80) A De-reservation Warrant reverses, in full or in part, a Reservation Warrant.



(81) A Budget Reallocation (Virement) Warrant is the mechanism by which the Minister of
Finance allows a spending unit to move funds from one expenditure item to another. This
Warrant can also be used by the Minister of Finance to move funds from one ministry or
programme to another or to reallocation money from reserves to spending units.

(82) The Minister of Finance may have the right to increase the amount available to a
spending unit by way of a Contingency Warrant. Any amounts provided by way of
Contingency Warrant must be taken to the next session of Parliament by way of the Annual
Budget Law or Supplementary Budget Law.

(83) The Investment Project Warrant is similar to the Appropriation Warrant but for
capital/investment expenditure. The Minister of Finance issues this to spending units
executing investment projects notifying them of a project‟s approval and the total expenditure
that can be made under that project, usually for the life of the project.

(84) The Investment Project Allocation Warrant is also similar to the normal Allocation
Warrant as the Minister of Finance issue it to spending units responsible for the progress,
control and monitoring of an investment project notifying them of the funds that are currently
available and which can be spent up to the amount detailed in the warrant.

(85) Upon receipt of a Funds Warrant from the Minister of Finance, a spending unit may
issue Sub-Allocation Warrants to any sub-organisational unit under its jurisdiction not
previously issued with a Funds Warrant directly from the Minister of Finance. The Sub-
Allocation Warrant authorises the sub-organisational units to spend money to meet the cost
of services covered by appropriation as approved in the Annual Budget Law.

(86) A Sub-Allocation Warrant may, where necessary, be limited in its authority to spend
money to meet the cost of the services of a sub-unit by:
      the exclusion of part of any item over which the spending unit wishes to maintain
         control by reservation; and



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        any restriction contained in any Warrant issued to the spending unit by the
           Minister of Finance.

(87) All Funds Warrants, including Sub-Allocation Warrants issued by spending units, but
excluding Development Project Warrants, shall cease on the last day of the fiscal year to
which they relate or upon such earlier date notified to spending units by the Minister of
Finance in writing.



(88) No Officer has the right to deliberately incur or commit any unjustifiable expenditure
under the authority of any funds warrant issued to him in anticipation of the cessation of the
authority in such warrant.

(89) When warrants are entered into the computerised FMIS by Treasury Department, a
built-in control prevents any expenditure in excess of that authorised by the warrant.

Recommendation 14:         A system of warranting is introduced for line Ministries and
                           the FMIS is specified to include warranting controls.


D.5 Budget reallocation (virement)
(90)  It is essential that budget funds can be re-allocated between expenditure areas. This
process is called Virement. (Note: In Romanian the term virement has a different meaning,
and therefore in this report it is translated as „budget reallocation‟.

(91) Where the proposed Virement is within a programme or ministry, there should be
considerable flexibility. Parliament should not be voting, say €1,000 for telephone expenses
and €5,000 for publications but an overall total amount to produce a given output from the
programme or ministry.

(92)  Thus, a programme manager should, with the Minister of Finance‟s approval, be able
to vire, say 15% of his total budget between expenditure areas without increasing total
expenditure. The exception to this is that money may never be vired into personal
emoluments (salaries, wages and other payment to individuals) from other expense areas.

(93)  Where there is a need to vire funds from one programme to another or from one
ministry to another, Cabinet should seek Parliamentary approval. For example, neither the
Minister of Finance nor the Cabinet should have the absolute power to vire funds from
Education to the Ministry of Defence without Parliamentary approval for the new use.
However, the Cabinet may be able to give approval in advance, if the exigencies of the
service so require, pending Parliamentary approval.        The proposal would be taken to
Parliament as a Supplementary Budget Law, together with any other changes recommended
at that time. Such virement should be limited to, say, 5% of the original approved budget.

(94)  The above virements have no effect on the total of government spending. However,
the virement process could also be used to reallocation money from Reserves to the
spending units. In this case the total amount of government spending would be increased by
the same amount as the reserves are reduced.

Recommendation 15:          The FMIS should permit budget reallocation under specified
                            authorisation: (i) within spending units; and (ii) between
                            spending units.


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D.6 Commitment Accounting
(95) A commitment is defined as:

       “any action or binding agreement (this includes hiring a new employee, signing a
       contract for the receipt of goods or services) that, at the time the action is taken, is
       reasonably expected to result in a cash outlay (payment), immediately or in the
       future, by the Government.”

(96) The commitment reduces the amount left to spend on each budget code number by
the amount committed. Thus, if the original budget was €20,000 and €5,000 has been spent
and €5,000 has been committed, there is only €10,000 left to spend. It is an essential system
which, if applied properly, prevents overspending by the spending units.

(97) Payroll expenses will be automatically committed every month. Other expenses
should be automatically committed every time a Purchase Order is placed. If there are
insufficient unapplied (not spent or committed) funds, the system should not allow that order
to be placed.

(98) If a warrant system is in place, the commitment system will also ensure that the
spending unit has an unspent cash allocation before permitting the order to be placed.

(99) When the invoice relating to the commitment is paid, the system will replace the
estimated commitment figure with the actual expense figure and cancel the commitment.

(100) Under a cash based accounting system, any outstanding commitments at the year end
must be paid for from the following year‟s budget. Under modified accrual or full accrual
accounting, the expenditure will be placed in the year to which it relates – not when the
payment was made.

Recommendation 16:        That the FMIS be specified to properly record and account for
                          all commitments.


D.7 Improved cash management
(101) The Governments is accountable for the efficient, effective and ethical use and
management of public resources. Good cash management is an important component of this
accountability function and is an established business practice in all successful, high
performance organisations. The sheer size of the Government‟s cash flow, as well as the
need to match in-flow to out-flow, makes good cash management a necessity. However,
given that the primary objective of the Government is efficient programme delivery, cash
management should not be seen as an end in itself, but as an important support function.

(102) The underlying objectives of cash management in government are to:
      ensure that sufficient cash is available when needed to meet commitments to
         make payments;
      minimize the cost of borrowing, particularly short-term borrowings, net of the
         returns on any surplus funds;
      control aggregate cash flows within fiscal, monetary and legal limits.

 (103) Efficient cash management requires the following key principles to be implemented at
all levels of the government:

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                                                                    Moldova FMIS Final Report

     timely collection, banking and accounting of all revenues, grants and loans;
     better timing of decisions involving major expenditures;
     establishing favourable banking arrangements and rationalizing the number of
        bank accounts; and
     managing cash proactively and having cash “just in time” through accurate
       forecasting and monitoring of needs by coordinating the activities of all entities
       that collect revenue and expend funds.

(104) The primary objective of governments is efficient programme delivery or
implementation resulting in the advancement of desired outcomes. From this perspective,
cash management is an important support function, but not an end in itself.

(105) Thus, a key function of the FMIS will be to implement improved cash management.
There are various elements of the new system which must contribute to this, including:
     Regular bank and loan balance reconciliation: sound cash flow management
        requires up to date knowledge of how much cash there is in the government‟s
        bank account(s). Before this can be relied upon completely, the bank account
        balances must be reconciled with the general ledger accounts. Accordingly,
        the new system must ensure that bank statements can be entered into the
        system and reconciled to the general ledger accounts.
     Budgets must be realistically „profiled‟ for monthly revenue and expenditure
        patterns. Inflows to government are usually cyclical in nature. For effective
        cash flow management, it is essential that an accurate profile of these inflows
        is developed. Some expenditure (e.g. salaries) will be even throughout the
        year, whereas other expenses maybe cyclical (e.g. electricity usage might be
        higher in winter and summer; grass cutting will be a summer expenses; snow
        clearing a winter one). It may be cost-effective to buy, say, computer
        stationery in one bulk order than a series of small ones. The system must
        permit profiling of both inflows and outflows.
     Warrants system: the warrant system ensures that cash is only released to
       spending units when it is available. It ensures that payment of any contract
       (in its broadest sense) entered into by spending units can be met in a timely
       fashion.
     Budget reallocation (Virement): the virement system enables budget allocations
        (and their associated cash) to be re-allocated in accordance with government
        programme priorities.
     Commitment accounting system: the commitment accounting system should
        prevent spending units placing orders unless they have sufficient uncommitted
        funds and unallocated cash balances.
     Link to cash receipts and payments: the cash management unit must know
         exactly how much has been paid and collected on a regular (at least daily)
         basis in order to produce their cash flow forecasts.
     Link to debt management system: this will provide a schedule of payments to be
         made. The dates and amounts of medium and long term debt are known
         precisely. The balance on the cash management system will interface directly
         with the short term borrowing system. If there is a predicted surplus, the debt
         management unit can plan to place the surplus or buy back debt. If a deficit is
         predicted, it will have to ensure that it can raise the necessary amounts in a
         timely manner so as not to compromise the flow of government expenditure.

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                                                                    Moldova FMIS Final Report

(106) The group which co-ordinates cash management includes representatives from the
budget synthesis, treasury, revenue forecast and analysis, and debt management
departments of MoF. This group should meet on a regular monthly basis and should be
given training in improved cash management methodology.

 Recommendation 17: A cash management system is implemented as part of the
                    FMIS. Training on improved cash management procedures is
                    given.


D.8 Reporting
(107) The FMIS will produce reports for the following purposes:
      fiscal control;
      periodic financial statements;
      management information.

Reporting for fiscal control

(108) In general terms, for control purposes, the FMIS must be capable of reporting revenue
and expenditure for State and ATU budgets (both levels) and for the SSIB and MHIB, as
follows:
      actual results between any two dates;
      actual results against budget for defined budget periods (annual, quarterly,
         monthly); and
      comparison with previous years for various periods.

 (109) It must be possible to organise these reports by any dimension of the budget
classification: organisation, spending unit, economic code, function, fund, etc. It must also
be possible to aggregate the results (ensuring that transfers are eliminated) to produce
reports for:
      consolidated results for state budget;
      consolidated results for any ATU Level 2 (including its Level 1 components);
      the total of ATUs.

(110) Consolidated statements of the financial results for the National Public Budget (State
Budget, ATU budgets plus the SSIB and MHIB) can be produced at intervals depending on
the frequency with which information is received from SSIB and MHIB. As indicated before,
this should be much more frequently than at present.

(111) At the start of each day there must be the ability to display all cash balances, and
balances for financial assets and liabilities. There must also be the ability to display
expenditure-related balances in aggregate and for any budget executor as follows:
      funds warranted but not yet committed or spent;
      funds committed but not yet spent.




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                                                                         Moldova FMIS Final Report

(112) The system will also produce standard exception reports, control totals and audit logs
for control purposes, which will not only improve management control but will enable
auditors to examine unusual events and to form an opinion on the level of management
control.

(113) Auditors will also be able to examine trends of data, which will assist them with
carrying out management reviews and focusing on evaluating audit risk of budget executors.

(114) For specifying the FMIS, the list of fiscal reports (suggested by the Treasury Reference
Model) in Annex 7 should be used.

Reporting periodic financial statements

(115) Financial statements will be required quarterly for:
      each State Budget ministry/agency, and in aggregate.
      each Level 2 ATU (incorporating the results for Level 1 ATUs);
      social insurance fund and health insurance fund.
      aggregate of all of the above („whole of public sector, excluding government
         owed companies‟).

(116) The format of these statements needs to be designed after the new budget
classification / chart of accounts has been designed. As previously noted, the new chart of
accounts will hold information in sufficient detail to allow the production of financial
statements according to IPSAS, ECA or any other financial standards.

Reporting management information

(117) Using the new system, it will be possible to organise and report financial data real
time to budget executors in ways which have not previously been possible, enabling them to
improve the management of their resources, for example by:
      analysing costs of their activities;
      combining this cost information with output and other non-financial information,
         and tracking performance against targets;
      evaluating costs of different decision alternatives;
      evaluating budget scenarios.

(118) In this way, the government will have access to better data for planning sectoral
allocations and analysing effectiveness of expenditure.

Reporting capabilities of the system

(119) Reporting capabilities of FMIS are likely to be at three levels:
      1. Individual modules will produce their own control reports. Specialised software
         (e.g. DMFAS) will have its own report function.
      2. The Financial Management Software Package will have a fiscal reporting
         module, which will produce most of the control reports described above. Some
         will be produced automatically, others will need designing on that module.


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                                                                  Moldova FMIS Final Report

     3. Monthly data totals from FMIS systems, both the core system and others
        systems such as HR/payroll, should be put into a data warehouse (i.e. a
        separate database) from which it can be drawn and analysed without fear of
        damaging the main systems. A Management Information module (either part
        of the main FM Software Package or a separate add-on package) can be used
        to interrogate the data warehouse and to produce summary reports in any
        formats required by managers.

(120) Ministry of Finance has agreed to the acquisition of a Management Information tool, as
described in 3 above, but the present assumption is that the only users will be in
Fintehinform, in order to make use of existing IT skills and to reduce license fees. This
implies that new management reports will need to be manually designed by line mangers
and given to Fintehinform for report production. Whereas this is a sensible solution in the
medium term, the ultimate objective is to allow managers in line ministries and agencies to
have access to the data warehouse.

(121) Whilst data warehousing is an established approach to allowing users to interrogate
information without risking corruption to the FMIS data, software vendors may propose
alternative approaches. Therefore, the user requirements should specify the requirement
not the technical method by which it is achieved.

 Recommendation 18: A data warehouse is set up to receive data summaries from
                    FMIS and other systems. A Management Information module
                    (either part of the main FM Software Package or a separate
                    add-on package) is acquired to interrogate the data
                    warehouse and produce summary reports for managers.


D.9 Legislative changes
(122) Some of the above changes to business processes will require amendments to the
State and Local Government budget law and to regulations before the FMIS goes live.

(123) On the basis of the timetable in Section F.1 on page 37, new business processes and
any attendant legal changes would need to be in place by 2007 so that they can be tested
during the FMIS pilot testing period.

 Recommendation 19: By the end of 2007, required changes to laws and regulations
                    should be in place, to enable the following changes in
                    procedures: warranting, ability of budget executors to make
                    budget reallocations (virements) within agreed limits and
                    rules, registering of commitments for all expenditure,
                    inclusion of special funds into budget classification.




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                                                                        Moldova FMIS Final Report

       E IMPACT OF CHANGED BUSINESS PROCESSES
(124) The changed business processes introduced in conjunction with the new FMIS will
have far-reaching effects on work methods across the system.


E.1 Impact on processes and organisations

MTEF and Budget preparation

(125) There will be improvements to the way in which the MTEF and budget preparation
processes interact. The MTEF numerical amounts will be stored on the same database as is
used to prepare the annual budget. Budget executors and ministry of Finance will be
interactively linked and will be able to provide their inputs to the database electronically, and
there will be no need for unnecessary re-keying of figures between MTEF, budget and
financial plans. There will be enhanced opportunities for modelling of alternative scenarios.

Budget executors

(126) The greatest impact of the proposed changes in operating methods will be on
management and staff in ministries and spending units. When the warranting system is
introduced, line management will eventually find that they can operate in an environment
where expenditure can be contracted without fear of payment being delayed by cash
rationing. But in return they will need to take over significant responsibilities which are
currently born by MoF staff, including:
      forecasting their cash requirements more regularly to MoF;
      planning their execution in a realistic fashion in response to warrants granted by
          MoF, and issuing sub-warrants to spending units;
      authorising reallocations (virement) between budget codes within the agreed
         limits.

(127) Operational staff in ministries will take over responsibility from territorial treasuries and
IT department for entering data into the system, carrying out tasks on the computer which
they currently perform manually. They will also be able to receive reports from the system.

Territorial treasuries

(128) Staff in territorial treasuries will be extremely busy during the changeover period in
2008. They will start by operating the existing system and will convert to the new system.
These staff will need to be thoroughly trained on the pilot system before systems in their own
offices are changed.

(129) Following system changeover, TT staff will need to be able to perform most input,
control, enquiry and reporting tasks on the new system. Eventually, in the longer term future,
duties of territorial treasury staff will be progressively reduced as more budget executors
come online, gain competence and enter data directly into the FMIS. Skills of these TT staff
will need to be redirected towards running help-desks and on-site assistance for budget
executors.




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                                                                        Moldova FMIS Final Report

Budget synthesis and line departments

(130) In the Ministry of Finance budget synthesis and line departments, there will be a
significant reduction of duties away from tasks associated with changes to financial plans,
which will allow more time on the budget process. This should enable more meaningful and
realistic budgets in the first place. Again, there can be a redirecting of skills towards helping
ministry staff to produce effective budgets.

Central treasury

(131) The key role of central treasury department will move to cash management, with
improved forecasting abilities. This will enables it to better predict the liquidity position of the
government and shortfalls/surpluses, enabling MoF to determine borrowing requirements
and the spending limits and warrants for spending ministries and units.

The State Enterprise Fintehinform (formerly MoF IT department)

(132) As noted above for TTs, IT department will progressively lose the need to re-key user
data into the system, which will allow more time to run a help desk to assist users. IT
department will concentrate more on its roles of managing the network and databases, and
assume an increased role in security management. The new system will be more at risk that
its present equivalent from security lapses or disasters in IT department.

(133) After implementation, IT Department will need to be able to react quickly to demands
from users for management information. They will have a powerful MIS tool to generate
reports from the proposed data warehouse.

General

(134) All users of the new system will need to learn to work in an environment of electronic
documents and authorisation, and a significant reduction in paperwork. This will also require
development of a new set of information security policies.


E.2 Human resource and training impact
(135) The new system will create a significant need for retraining at all levels: senior
manager, supervisor, IT specialist and operational.

(136) Senior managers, e.g. heads of Ministries, will require training in how to utilise the
enhanced financial information that will become available from the FMIS. This will include
making use of the information for budgeting, budget management, expenditure control and
optimal use of resources.

(137) Supervisors will need training on the management and supervision of IT functions for
which they will become responsible. This will include procedures to enforce internal
controls, document management, data processing and backups. Many staff who have not
previously thought of themselves as „managers‟ will gain new responsibilities and need this
type of training.




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                                                                     Moldova FMIS Final Report

(138) IT staff will need training on many levels. On the technical side the appropriate staff
will need to be proficient in database management, network management, help desk
management, information security management, internet and intranet development
techniques, for example, as well as in the FMIS application software. There will also be a
need to ensure efficient management of suppliers‟ support contracts and ability of IT staff to
carry out routine support functions.

(139) At the operational level, there will be a large increase in staff using computers, some of
whom will need basic training before they learn the new requirements of their new roles and
responsibilities. This will be an ongoing training requirement as staff leave and are replaced
and it should be approached in a sustainable fashion, by creating a set of help desk
personnel who are able to carry out on-the-job training. As suggested above, these help
desk personnel could be drawn from territorial treasuries and from IT department and
supplemented with accounting graduates if necessary.

(140) On a strategic level, all these training initiatives need to be co-ordinated with the
system implementation and set within a framework of change management. In the short
term, staff will be very busy learning new skills, but in the longer term the FMIS will enable
staff reductions in areas which have become automated.

(141) In view of the fact that ongoing training will be required as staff are promoted,
transferred and recruited, a sustainable training capacity must be developed. A training plan
must be developed to provide both for the initial training and for the creation of th ongoing
training capacity.

Recommendation 20:        A training plan should be designed and implemented to
                          provide for training of senior managers in using information;
                          training of supervisors in managing IT functions; training of IT
                          staff in managing and supporting new networks and FMIS;
                          and training operational staff in using the FMIS.

Recommendation 21:        The training plan should provide for the creation of a
                          sustainable training capacity in all of the above areas.




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                                                                          Moldova FMIS Final Report

              F ACQUISITION AND IMPLEMENTATION

F.1 Overview of acquisition and implementation
(142) MoF has decided that a single responsibility contract will be awarded for the supply,
development and installation of all new software and hardware. The hardware will be
progressively supplied as the system is rolled out. We agree with this decision, on the basis
that splitting the supply of software and hardware would lead to ambiguity in responsibility in
the event of system malfunction, and this should be avoided.

Recommendation 22:           A single responsibility contract will be awarded for the supply,
                             development and installation of all new software and
                             hardware for the FMIS.

(143) As indicated previously, the metropolitan area network will be provided by the Special
Telecommunications Center, and a decision on the wide area network will be made during
the detailed systems design stage. The chosen contractor will need to manage the
implementation of the FMIS networks using these facilities.

 (144) The chosen contractor will organise a pilot implementation and testing of the
software, firstly at a test site and then at pilot sites. The pilot should involve MoF (including
Budget, Treasury, Line Departments, and Chisinau TT for the state budget), a line ministry,
another selected territorial treasury, and ATU government offices.

(145) Following a successful pilot, remaining line ministry offices in Chisinau will be
connected by the MAN, the software will be replicated across the remaining territorial
treasury sites on the WAN, and ATU government offices will be connected, as shown in
Figure 3 on page 5.

Timescale of implementation

(146) An outline target timetable for implementation of the budget classification and new
FMIS is given in Table 4 below.

     Table 4: Implementation of budget classification, chart of accounts and FMIS
    Year        Activities
    2006        New budget classification and new chart of accounts completed and agreed
                Acquisition of core FMIS in progress.
                Specification of user requirements of FMIS, development of test scripts, pre-
                qualification of suppliers
                MAN is completed by Special Telecommunications Center
                Decision on network provider for the WAN
                Tendering, selection and contracting of FMIS supplier
    2007        FMIS servers acquired
                Implementation and testing of FMIS systems at test site and pilot sites.
                Pilot budget prepared on new classification for 2008.




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                                                                        Moldova FMIS Final Report

    Year       Activities
    2008       Phased implementation of FMIS in territories (remaining sites).
               FMIS used for accounting and reporting.
               Budget prepared on new classification for 2009.
    2009       2009 budget executed through new FMIS treasury system.
               Extension of FMIS coverage.


Selection of the contractor and acquisition of the software and hardware

(147) An overview of the acquisition process is provided in Figure 4 below. Some activities
can be undertaken in parallel and others in sequence. In drawing up this diagram we have
made a number of assumptions on recommended actions as set out in the paragraphs that
follow.

(148) The World Bank has acquisition procedures specifically designed for software
procurement. These allow options of open tender or pre-qualification and then single stage
or two stage procurement.

(149) Under either approach there maybe be either an open invitation to tender, or a pre-
qualification phase where potential bidders are invited to submit EOIs and pre-qualify.
Proposals are only requested from suppliers who pre-qualify. This avoids wasting time with
bids that have no prospect of success. It would be feasible to immediately commence the
pre-qualification process based on the Conceptual Design.

Recommendation 23:          The FMIS procurement will be initiated by a pre-qualification
                            process started once the Conceptual Design is agreed

(150) Thereafter the two approaches differ. Under a two stage process, the first stage is a
paper exercise based on technical submissions used to narrow the number of bidders down
to a few (normally 2 or 3) preferred bidders who will then make a site visit to demonstrate
their systems functionality against prepared “test scripts”. Test scripts are examples of each
key required functionality (see Annex 6). Final evaluation is then made and negotiations
entered with the preferred bidder.

(151) The single stage process is similar to the above except that all pre-qualified vendors
who submit compliant bids are invited to Moldova to demonstrate their systems against test
scripts. A single stage process can sometimes lead to many vendors making
demonstrations.

Recommendation 24:          The FMIS procurement will be two-stage. The first stage will
                            involve evaluation of vendors’ submitted proposals. The
                            second stage will include selected vendors coming to
                            Moldova and demonstrating their systems functionality
                            against test scripts.




                                              - 38 -
         Moldova FMIS Final Report




- 39 -
                                                     Moldova FMIS Interim Report


               Figure 4: Implementation overview
               Conceptual
                 Design

 Budget                                 Request
classific-       Agreed
                                         EOIs
  ation


               Functional
Chart of                                 Request
              specification
accounts                                 for bids
                  etc


              Evaluation &              Contract
               selection                supplier


                                         Test and            MAN and
             Management of                 pilot              WAN
             implementation             implemen-           operational
                                         tation by
                                         supplier



                                         Roll out
                                          to all
                                        locations



             Systems go live




                               - 40 -
F.2 Managing the acquisition
(152) It is clear that the FMIS and surrounding systems will be a major acquisition for
government. It will also impact significantly on the operations and structure of government
across all Ministries. This is a major project and requires professional project management.

(153) Overall supervision of PFMP is carried out by the Project Supervisory Committee and
executive management is carried out by the Project Task Force, under the leadership of the
Director of Treasury. It has been decided that an implementation management specialist
(international) will be appointed to work to work closely with the Task Force during the
whole period of the FMIS implementation. This person will act as a management and
technical advisor and will work closely with the supplier (contractor) but will not have the
responsibility of project manager. The project manager will be the Director Treasury or
whichever person she delegates for this position. The PFMP project office will provide
detailed day-to-day assistance with this project management.

(154) MoF‟s PFMP Project Office is responsible for coordinating change management
activities across the whole of PFMP, including keeping all stakeholders informed, promoting
awareness and understanding amongst them of the organisational, legal and operational
changes taking place, encouraging positive attitudes to the changes, and organising training,
study tours and events.

Recommendation 25:        An implementation management specialist (international)
                          should be chosen to support the implementation of FMIS.


F.3 Security
(155) After the new FMIS is installed, it will progressively become the central store for
financial information for government and the means by which most transactions are
executed. The government will therefore become critically dependent on the system and
vulnerable to any systems failures. Information security issues must therefore be addressed
from the start. There is nothing new about the security strategies that need to be followed –
they are already in existence - it is simply that the consequences of failure would be that
much higher using the new system, and more likely to happen because the system will be so
widespread.

(156) There are a number of aspects to information security, including the following:
     1. Physical security: proper construction and set-up of the server room,
        protection against environmental damage, theft, attack, unauthorised physical
        access to the system.
     2. Confidentiality: control over authorised access to processes and information;
        passwords; security classification of information.
     3. Backup: the need to ensure that regular copies of files are taken and
        protected, and that there is as means to restore the files in the event of loss or
        damage.
     4. Disaster recovery and business continuity: means by which the system can
        recover and business can continue in the event of a major disaster to
        information stores (e.g. a separate disaster recovery centre).
     5. Protection against software problems, viruses, cyber crime, etc.


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                                                                       Moldova FMIS Final Report

(157) To follow best practice in information security (e.g. ISO 17799), an Information Security
Officer for the FMIS needs to be appointed at a high level because security procedures will
need to cover all of government and some aspects will need to written into staff contracts of
employment.

Recommendation 26:        As part of the FMIS acquisition, adequate security procedures
                          should be established to control access to and security over
                          information and applications, backup and disaster recovery
                          arrangements.


F.4 Risks
(158) There are significant risks in acquiring an FMIS. These are summarised below and the
strategies to address the risks identified.

Acquisition and implementation risks

(159) There are significant risks of acquisition and implementation. A number of factors can
increase risk:
      Lack of senior management commitment
      Failure to recognise that an FMIS acquisition is a systemic change to the whole
         of government, not just a new IT application
      Too long an acquisition process loses focus, costs money, causes delay and
         rarely leads to a better decision
      Delays in acceptance that detailed processes must and should change

Technical risks
      Promised functionality may not work
      Delays due to contractors staff not being available or sufficiently skilled
      Must be managed by staff who understand PFM

Actions to mitigate technical risk

These include:
      Use of adequately skilled and experienced project management and project
         management methodologies
      Use of packaged software from established vendor with no customisation and
         minimal parameterisation
      Ensuring hardware and networks available on time and appropriate for new
         systems
      Ensuring adequate funding for acquisition, implementation, training and ongoing
         support


F.5 Sustainability risks
      Inadequate skills to manage implementation or software after implementation

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                                                                   Moldova FMIS Final Report

      Lack of funding for maintaining systems and updates (ongoing license costs)
      Inability to train new or transferred staff in systems and processes
      FMIS vendor unable to provide ongoing support or updates (e.g. vendor goes
       out of business)

Actions to mitigate sustainability risk

These include:
     Ensuring commitment and support at the highest level of government
     Use of adequately skilled and experienced project management and project
        management methodologies
     Use of change management approaches, especially communication and building
        support for reforms across all stakeholders
     Extensive programme of training for all levels of users
     Ensuring that systems maintenance contract(s) are available from specialist
        contractor(s) and that government staff can carry out routine systems
        maintenance tasks
     Ensuring system realises real benefits for stakeholders
     Designing sustainability from the start
     Ensuring adequate funding for acquisition, implementation, training and ongoing
        support

Recommendation 27:       The acquisition and implementation strategy must be
                         designed to specifically recognise and minimise risk




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                                                                                Moldova FMIS Final Report

   ANNEX 1: Conceptual models of financial management
                       systems
Goals of public financial management
(160) An FMIS exists to serve the needs of public financial management. These goals are
summarised in Table 5 below.

                           Table 5: Goals of public financial management

                                                FINANCIAL
  FISCAL MANAGEMENT                                                            ACCOUNTABILITY
                                               MANAGEMENT
   1 Fiscal balance, e.g. keeping                                                1 Compliance - with
                                          1 Resource mobilisation, e.g.
       within public borrowing                                                 constitutional, legal and
                                            maximising tax revenues
             requirement                                                       regulatory requirements

     2 Liquidity management, e.g.          2 Resource allocation - using    2 Transparency - information to
  control of revenue & expenditure       scarce resources to best achieve    stakeholders that is relevant,
   flows, cash and short term debt            government objectives            reliable, useful and timely

  3 Fiscal risk (contingent liability)          3 Value for money -
                                                                            3 Accountability - of individuals
       management, e.g. loan                 effectiveness, efficiency,
                                                                            for the use of public resources
              guarantees                     economy in expenditure


(161) A good FMIS can contribute to these goals as follows:

FISCAL MANAGEMENT
      Fiscal balance – FMIS provides the opportunity to make available online current
         and predictive information on financial balances, i.e. bank balances and
         borrowings
      Liquidity management – as above, better historic and predictive information on
         aggregated and disaggregated financial flows provides the opportunity for
         enhanced fiscal management
      Fiscal risk – an FMIS cannot directly contribute to managing fiscal risk.
         Contingent liabilities should be disclosed.

FINANCIAL MANAGEMENT
      Resource mobilisation – no direct link, but more up to date and reliable
         financial statements can increase borrowing capacity
      Resource allocation – better historic information can be used to improve
         allocative decisions for the future
      Value for money – up-to-date and predictive information on funds spent and
         available linked to performance indicators provides the opportunity for
         managers ability to make good use of available resources to achieve value for
         money

ACCOUNTABILITY
      Compliance – modern package FMIS should enforce rule compliance.


                                                      - 44 -
                                                                      Moldova FMIS Final Report

      Transparency – an FMIS provides the opportunity to improve transparency
         through more reliable and up to date information.
      Accountability – electronic authorisation enhances accountability by making it
         easier to identify who was responsible for decisions

(162) Note that in many cases an FMIS only provides the opportunity to achieve the benefits.
An FMIS is the technological infrastructure – other processes or actions must often be
undertaken to achieve the full benefits.

(163) The objective of the Conceptual Design is to maximise the benefits of installing a new
FMIS in terms of the above analysis.

Regulatory framework for government financial management
(164) In order to help achieve the goals of public financial management, the Financial
Management Information System must operate within a clear regulatory framework. There
must be:
      an effective control structure, including laws, regulations and detailed rules
      a consistent effective method of classifying data, operating across government;
         and
      a reporting structure that delivers timely relevant information to managers and
          stakeholders.

Control structure

(165) The original aim of the control structure was to ensure that the government uses public
funds for the purposes and within the limits authorised by parliament. The control structure
is also influenced by the need to meet macroeconomic fiscal management objectives, such
as currency stability, control over inflation, and keeping within a defined borrowing
requirement.

(166) Financial laws tend to emphasise these objectives, and exist at several levels: articles
in the constitution and civil code, generic budget laws, and annual budget laws. Below this
are treasury regulations and accounting rules, containing standard procedures and controls,
many of which are nowadays built into computer applications. These include:
      document and transaction level controls to ensure proper authorisation, correct
         processing, full and correct recording, and audit trails
      access controls to ensure that only authorized personnel can record, change,
         or report information
      overall system controls to ensure that the system embodies
         established processing standards.

Accounts classification

(167) A modern FMIS should be as effective in assisting the efficient allocation of resources
as in achieving the traditional goal of expenditure control. For this purpose one of the main
requirements is a standard government-wide budget/accounts classification code structure,
which provides a consistent basis for:
      integrating planning, budgeting and accounting;


                                             - 45 -
                                                                      Moldova FMIS Final Report

      compiling budget allocations and program and project costs within and
         across government agencies;
      capturing data at the point of entry throughout the government; and
      consolidating government-wide financial information.

(168) The design of the coding structure is determined by the information requirements of
the above objectives. It should accommodate the following elements: fund, organisation and
spending unit, economic classification, program, project, and functional classification, and
should allow consistency with the IMF Government Financial Statistics (GFS) methodology.
This design is currently being implemented in Moldova.

Reporting specifications

(169) The FMIS should generate or contribute to reports in two areas:
      External reports: to parliament, the general public, international organisations,
         overseas investors, financial markets and other observers.
      Internal management reports: for government policy makers and managers.

(170) In general, the broad requirements for much external reporting is specified in the
budget legislation and detailed requirements are given in regulations, instructions,
and administrative practice.

(171) The purpose of internal management reports is to help managers plan and control the
activities for which they are responsible. Production of these reports is driven by managers'
needs.      The development of an integrated FMIS with a government-wide budget
classification system will enable a vast increase in available information, ranging from
strategic analysis down to day-to-day controls of actual results against targets. The only
requirement of these reports is that they are useful in helping managers carry out their
duties. Hence it is important that:
      reports can be adapted to changing management needs; preferably by the
         managers themselves;
      the FMIS is capable of generating reports that are not used now but which are
         likely to be required in future; for example, it should be capable of generating
         accrual-based reports and of linking financial information to performance
         indicators.

Processes of public financial management
(172) The functional processes of public financial management cover two interrelated areas:
        macro fiscal forecasting, medium term planning, budget preparation and
         approval; and
        budget execution, cash management; and accounting.

     The first set of processes supports the objectives of setting fiscal policy and
     strategic priorities. The second set of processes supports the objective of optimising the
     use of budgeted resources and ensuring accountability.




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                                                                             Moldova FMIS Final Report

(173) The following sections describe in outline how these processes work in a well-
functioning system of central government financial management. Similar processes should
apply for ATU government. The systems in Moldova are discussed in section 0 that follows
on page 44.

Macroeconomic Forecasting, Medium Term Planning, Budget Preparation, and
Approval

 The MTEF consists of a top-down resource envelope, a bottom-up estimation of the current
and medium-term costs of existing policy and, ultimately, the matching of these costs with
available resources…in the context of the annual budget process.”1 The “top-down resource
envelope” is fundamentally a macroeconomic model that indicates fiscal targets and
estimates revenues and expenditures, including government financial obligations and high
cost government-wide programs such as civil service reform. To complement the
macroeconomic model, the sectors engage in “bottom-up” reviews that begin by scrutinizing
sector policies and activities (similar to the zero-based budgeting approach), with an eye
toward optimising intra-sectoral allocations.2

(174) At the start of the budget cycle, the Ministry of Finance sends the line agencies a
budget circular indicating economic prospects and broad policy objectives (in some cases,
based on a formal macroeconomic framework paper), and giving the parameters within
which the budget for each ministry is to be prepared. The circular may give specific ceilings
for expenditure by each agency and program. The line agencies then respond with their
budget proposals.

(175) Because budget requests usually exceed available resources, there are negotiations
between MoF and line agencies to review costings for existing programs and projects and
new proposals. Cabinet level discussions are often required to set intersectoral priorities and
priorities among the program and project proposals to ensure that the selected proposals
can be funded within the macroeconomic framework. The framework is updated
frequently, particularly during budget initiation and finalisation, as well as for subsequent
reviews during the year. As a result of these discussions, a draft budget document is
prepared by MoF.

(176) Parliament then reviews the estimates and approves the budget, after any required
changes have been made. This approved budget becomes the legal basis of the work to be
carried out by ministries and agencies.

Cash Management, Budget Execution, and Accounting

Consolidated cash flow forecast

(177) At the start of the year, line agencies prepare forecasts of cash requirements for
the year based on known and anticipated commitments for both recurrent and
capital expenditures. The cash requirements and revenue projections obtained from the
agencies responsible for revenue collection are developed into a consolidated cash flow
forecast by MoF.



1 For more on the MTEF concept see World Bank (1998a), Asian Development Bank (1999), and Dean (1997).


2 Note that this type of sector review presupposes either program-based budgeting or, at the very least, a
functional and organizational budget classification system.

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Warrants to grant spending permission

(178) Once the budget is approved, the MoF controls the release of funds, monitors
progress on budget execution, and manages the cash resources of the government. From
the start of the financial year, the MoF gives the line agencies permission to spend by
granting them warrants (e.g. every month or every quarter), taking into account the approved
budget, the line agency cash requirements, and overall resource availability. This warrant
control is often used by the MoF/Treasury to ensure that expenditures do not exceed actual
resources (which may be less than estimated in the budget). The warranting process works
as follows:
      As the fiscal year progresses, the line agencies prepare monthly/quarterly
         requests for funds and submit actual expenditure (and revenue) statements for
         the previous month/quarter.
      Warrants authorized by MoF are sent to the Treasury. The warrant authorizes
        the Treasury to make payments on behalf of line ministries.
      Upon receipt of the warrant authority from the MoF and access to funds from
         the treasury, line agencies begin implementing the approved programs and
         projects.

(179) For more on warranting see Annex

Procurement, commitment control and payments

(180) The line agencies start using the appropriated funds by requisitioning, procuring, and
paying for goods and services. To ensure proper expenditure control, line agencies are
required to institute a system of commitment planning and control to ensure that expenditure
does not exceed the sum approved by parliament for specific purposes and expenditure is
within the warrant amounts.

(181) When a receipt shortfall occurs, it is essential that the Treasury be aware of the
commitments (e.g., statutory payments such as public debt, staff salaries and allowances,
unpaid bills and existing contractual obligations) for which cash is needed during the year.

Revenues received

(182) Tax revenue from income, VAT, customs duties, excise, and land taxes is managed by
the revenue collection agencies. These revenues are deposited in local commercial banks
and remitted to the government's central account in the National Bank. The National Bank
then sends a daily report to the treasury on inflows to this central account.

(183) Non-tax revenue from fees, administrative charges, and product sales (e.g.,
products made in prisons) are also managed by the collection agencies and transferred to
the Consolidated Fund (CF).

Accounting

(184) The accounting function entails:
        maintaining records of spending authorizations at the appropriation and
         warrant levels;
        processing expenditure and receipt transactions: recording the transactions
         as they occur, applying the requisite controls, posting to the appropriate
         account, and listing transactions and associated data for control and audit;


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       maintaining ledger accounts to monitor and control actual spending and
        receipts against budget and warrant controls;
       reporting.

The Treasury Ledger System
(185) In the context of the processes described above, the term Treasury Ledger System
(TLS) is used to refer collectively to the systems modules that provide support for:
       budget and warrant control
       accounts payable
       accounts receivable
       the general ledger
       fiscal reporting.

    Budget and warrant control: This maintains data on spending authority. Data on
    approved budgeted appropriations (both capital and recurrent), sources of financing for
    programs and projects, is transferred to the system from the budget preparation system
    after the budget has been finalised. During the course of the year budget reallocations,
    supplementary budgets and fund releases (warrants) are also recorded.

    Accounts payable: This system processes commitments and expenditure transactions
    as they occur during the course of the year and maintain a record of commitments
    against budgeted allocations.

    Accounts receivable: Processes receipt transactions as they occur during the year.

    General Ledger: This is used for compilation of summary records for control and
    analysis.

(186) Together these modules provide the Government the capability to monitor the
budget execution process and generate fiscal reports. The Treasury Ledger System can be
used by:
       the Treasury and its territorial offices to perform the basic accounting
        functions and to undertake budget execution;
       the Budget department of the MOF to obtain the status of actual
        expenditures against budget and to input into other fiscal reports and analysis;
       the Treasury cash management department to provide the information
        it requires for cash management and implementation of cash limits;
       line agencies to cater to their accounting and financial information needs
        (the spending agencies also use this information to reconcile their internal
        records with the information provided by the Treasury system);
       auditors, to access financial transaction data for auditing purposes.




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(187) The treasury ledger is a core system. It represents the minimum set of functions
needed to maintain a comprehensive, integrated accounting and financial management
database for government. It sets the data standards for all of the other systems in a fully
integrated financial management system. The Treasury Ledger System is the central
database element of the core treasury system. All other components of the government
fiscal management system (e.g. debt management etc.) either provide data or make use of
data from the treasury ledger.

The TRM high level conceptual model
(188) The Treasury Reference Model (TRM) incorporates standard design features and best
practices drawn from a range of international experience, and aims to improve the quality of
treasury specifications. It offers the following brief description of the functional processes
and information flows associated with the Treasury System, which will be used as a
benchmark against which to compare the systems in Moldova.

Table 6: TRM high level conceptual model
Process           Description
Record budget     After approval of the annual budget by Parliament, it is loaded into the system by
appropriations,   the Budget Department of the MoF.
apportionments
                  The approved budget for spending ministries is then broken down to the detailed
and allotments
                  level of economic classifications and is apportioned over time (quarters and
                  months) and registered in the system by the MoF and communicated to the
                  spending ministries.
                  The spending ministries, in turn, register the detailed budget for their subordinate
                  spending units and communicate the allotments to the spending units.
                  These are the spending limits for the spending ministries and spending units by
                  quarter/ month for the fiscal year.
Determine cash    Each year, financial plans detailing projected outlays and receipts are developed
requirements      by spending units and ministries.
and warrant
                  As the year progresses, sector agencies prepare periodic requests for funds by
amounts
                  economic category, which are also captured.
                  The MOF then issues warrants to ministries for each category of spending.
                  From these amounts the ministries issue sub-warrants for their spending units
                  and advise the appropriate spending units.
                  These processes take place periodically throughout the year. The warrant and
                  sub warrant amounts need to be within the amounts specified in the spending
                  limits for these organizational units.
                  The level of detail in budget releases need to be broken down is related to the
                  authority delegated to the spending units to shift funds between items.
Record            Throughout the year, sectoral ministries process requests for expenditure.
Commitment
                  After verifying the appropriateness of the expenditure and availability of budget
Transactions
                  appropriation and funds, Treasury registers the actual commitments in the
                  system.
                  If spending agencies have access to the system, they record the transactions
                  themselves.
                  In the case of spending units located outside the centre, the transactions are
                  recorded through a Territorial Treasury (TT).




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Process            Description
Verify Goods       Following verification of a given expenditure, ministries directly linked to the
Receipt and        system record the corresponding payment orders. The system then checks
Record Payment     against the funds allocation limit.
Orders
                   Outlying spending agencies process payment orders through the TT which also
                   records all transactions on their behalf. Once all requirements for an obligation
                   have been met, spending agencies should confirm that the commitment is ready
                   for payment.
Process            The banking system must be advised at the time that payment orders are
Payment            registered in the TLS to effect payment. This can be done automatically in a fully
                   developed system. Daily batches of the TLS transactions - which capture
                   complete information on all payments - are sent to the National Bank or by TTs to
                   regional National Bank branches.
                   The applicable bank then transmits the relevant funds and information to each
                   commercial bank to credit the appropriate supplier‟s account and debit the
                   government account. The receiving bank confirms debits to the Government
                   account to the TLS.
                   Alternatively, the applicable accounting office could forward to the appropriate
                   bank a consolidated listing of the registered payment orders requiring payment;
                   many times the confirmation to the accounting office are manual.
Record Receipts    Government receipts such as taxes and customs duties are paid into a set of
                   sub-accounts set up by the Treasury in the Central Bank. Taxpayers can direct
                   their own Banks to make transfers from their accounts into these special sub
                   accounts of the TSA set up for tax receipt purposes, or can make direct
                   payments into these accounts.
                   Periodic reports showing all details are sent by the Central Bank to Treasury and
                   the state tax authorities for recording and reconciliation.

A further description of functions and data entities in the TRM is given in Annex 4.




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ANNEX 2: Existing system of public financial management
                      in Moldova
1.      Components of the budgetary system
(189) As described in the Law on the Budgetary System and the Budgetary Process, 2005
there are four components to the budgetary system:

        “The Budgetary System is a unitary system of budgets and funds that constitutes the
        national public budget, including:
               State Budget
               State Social Insurance Budget
               Administrative Territorial Units‟ Budgets
               Compulsory Insurance Funds for Medical Insurance.”

        The budget year is January 1 to December 31.

State Budget: central government budget executors

(190) The State Budget covers central government ministries, including their offices in the
territories, and transfers to ATU governments and the SSIB and MHIB.

(191) Following a restructuring in central government there are now 15 central government
ministries and 13 agencies. Assuming that these have representations in all the 35 regions
(rayons) this implies 980 spending units throughout the country. The budgets of these
ministries and agencies together form the State Budget.

(192) The State Budget has a consolidated fund and number of special funds. In the 2005
State Budget Law (i.e. the annual law for 2005) there are 13 special funds approved under
the State Budget.

Local government budget executors

(193) Local governments units are politically independent of central government. The
generic term for a local government unit is „administrative-territorial unit‟ (ATU). These units
are defined at two levels:

Level           Number      Description                     Notes
Level 2         35          Rayons, and Chisinau            The budget administered by a Level 2
                            Municipality and Gagauzia       ATU is its own budget and the budgets of
                            autonomous region               the Level 1 ATUs in its region.
Level 1         Approx.     Towns, villages,                There are no transfers between central
                900         communities, etc                government and Level 1 ATUs. All
                                                            communication is via Level 2 ATUs.

(194) There are also special funds for ATU budgets.

(195) Although their budgets are approved independently, ATUs use similar systems to state
budget units for executing their budgets, and use the same network of territorial treasuries
(see page 54).

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Social insurance and health insurance systems

(196) These systems are administered independently of the State Budget, and their funds
are legally separate, as follows:

Budget                                           Administered by
Public System of Social Insurance                National Social Insurance House, part of the new
                                                 Ministry of Health and Social Protection
Mandatory Health Insurance System                National Health Insurance House, part of the
                                                 new Ministry of Health and Social Protection

(197) However the Law on the Budgetary System and Budgetary Process does state that the
budgets for these funds:
      are developed together with the State Budget;
      are developed by the Ministry of Health and Social Protection together with the
         Ministry of Finance;
      and that the cash execution of revenues of the funds are made through State
         Treasury.

2.    Ministry of Finance

Ministry of Finance departments

(198) The MoF includes the following departments which play key roles in the financial
management system:
       Budget Synthesis Department oversees the preparation of the State budget
        ATU budgets and the financial plans of budget executors, and the changes to
        these. It also covers revenue forecasting and budgetary and macroeconomic
        policies.
       The „Sectoral Divisions’ (four general finance divisions for education, health,
        security, etc) are involved in the approval process for line ministries‟ budgets
        and also for their financial plans, and all changes to these plans.
       Treasury Department (see below).
       Public Debt Department covers internal and external financing and
        development of debt policies.
       IT General division is at the centre of the FM systems; budget divisions,
        treasury (central and territorial) and general financial divisions of rayons all
        send data in to IT General division for processing.

Treasury Department

(199) Treasury Department is divided into Central Treasury and 39 Territorial Treasuries
(TTs) located in the rayons. Central Treasury contains the following divisions:
      Accounts management division: this has three divisions that deal with (1)
         expenditures accounting; (2) cash management; (3) and revenue
         management.



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      Reports of the consolidated budget division: this has two divisions which
         reconcile the cash execution records of territorial treasuries against the
         records of budget executors: (1) for state budget (i.e. ministries) and the
         consolidated budget; (2) for ATU budgets.
      Accounting methodology and budget systems division: organises changes
         to methods, designs new forms and reports, and provides assistance for
         users.

(200) Central Treasury does not deal directly with execution of the budgets of line ministry
head offices in Chisinau (see Territorial Treasuries below), but it deals with debt and various
other transactions.

Territorial Treasuries

(201) Budget execution in the Moldovan system centres round the work of the Territorial
Treasuries, which handle transactions for executing agencies both of the state budget and
the local budget (first and second level). There are 39 Territorial Treasuries, mainly located
in ATUs, but in Chisinau there are two territorial treasuries:
      Chisinau Territorial Treasury for the State Budget, which makes payments for
         ministries and executing agencies of the State Budget. In effect this is a
         branch of Central Treasury, but uses the same systems as the other TTs.
       Chisinau Territorial Treasury for the Municipal Budget, which handles
        Chisinau municipality (2nd level) and the 18 communities in it (1st level).

3.    Regulatory framework

Laws and regulations

(202) The main laws regulating government financial management are shown in Table 7 in
Annex 1 to this report. The Law on the Budgetary System and the Budgetary Process is a
general law which describes preparation, approval and execution of the State Budget and
refers to the other budget laws. It was updated this year to include a section on MTEF.
Other laws cover Local Public Finance (which includes a section on rules for sharing
revenue between State and local government), Social Insurance and Health Insurance.

(203) Each year there are separate laws on the state budget, social insurance and health
insurance, containing the budget appropriations for the year approved by Parliament. Local
decrees approve local budgets (regional councils and village councils). At present, estimates
of all the budgets together are only seen in the MTEF, the format of which is not yet covered
by law.

(204) The Accounting Law applies to public and private sector. MoF has issued detailed
accounting instructions for institutions financed by the State Budget.

Budget classification

(205) The Law on the Budgetary System and the Budgetary Process describes budget
classification as including „classification of budget revenues, organizational classification,
functional classification, economic classification‟. It does not refer to program classification.




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(206) The law requires that State and ATU budgets prepared and executed in accordance
with the agreed classification but does not say the same for the social insurance budget or
the health insurance budget.

(207) Currently the Moldovan national budget is presented in a functional classification
order. The functional classification in use is based on the USSR system (which was like
COFOG as it was in 1986) but definitional changes and additions have been made since
then by the Ministry of Finance.

(208) Although there is a single classification system, for recording actual transactions there
are at present four different charts of accounts: local budgets, regional budgets, state budget
institutions and treasury.

(209) This classification system is now being radically changed, to bring it into line with the
needs of government financial management as described on page 45 above (Accounts
Classification).

Reporting

(210) The legal reporting requirements are:
      The annual report on state budget execution must be presented to government
         for approval by May 1 following the end of the budget year (December 31) and
         presented to Parliament by June 1. The structure of this report is determined
         by the MoF.
      ATU general financial divisions must report to their local councils quarterly and
         annually and must send their quarterly reports to MoF (where Treasury
         reconcile the figures with those from the TT – see page 54).
      The National Social Insurance House must submit management reports and
         publish an annual report.

4.   Processes: MTEF, budget preparation and approval

Medium Term Expenditure Framework

(211) Work on MTEF starts in December, 13 months before the start of the budget year,
which runs from January 1 to December 31. The Ministry of Economy analyses the
macroeconomic framework and, based on this, MoF produces the resources framework
(revenue estimates, external funding, loans etc) and expenditure framework (debt payments,
priorities in allocating resources, wage policy etc). All these documents are currently
produced manually in Excel and form the basis of medium term policies.

(212) The National Social Insurance House carries out its own medium term policy analysis
using its own database, which is not co-ordinated with MoF, but these must be coordinated
to produce the MTEF.

(213) The MTEF is prepared and submitted to the government for approval in April. It is then
submitted to Parliament (for information only) and published.




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State budget

(214) The MTEF shows expenditure ceilings for line ministries and MoF budget synthesis
department issues guidelines for development of their budgets. These guidelines are based
on two years historical expenditure data provided by IT department (Fintehinform), to which
additional guidelines are added. Ministries‟ proposals must be completed by July 4, a
timescale of 4 to 6 weeks.

(215) Line ministries send their proposals on paper to the MoF „sector divisions‟ (i.e. the four
general finance divisions responsible for the relevant sectors) who check them and pass
them to budget synthesis department. IT department key these figures into the draft state
budget (expenditures) database which aggregates them. (The MoF sector divisions and
public debt department are able to access this database from workstations, but do not key in
the data themselves).

(216) Program budgets are not integrated into the budget functional classification, but are
provided on paper by ministries and entered as separate summaries on the draft state
budget (expenditures) database.

(217) MoF revenue forecasting division (part of budget synthesis department) is responsible
for forecasting State Budget Revenue. For this it relies greatly on estimates of taxes to be
collected in the regions and shared with State Budget, which are forecasted by local
governments. The tax enforcement agencies (Customs Department and State Tax Service)
do not have a big input into revenue forecasting. When complete, revenue estimates are
entered into the draft state budget (revenues) database by IT department.

(218) To assist with analysis of the ministry budgets, budget synthesis department produces
spreadsheet-based reports for MoF management (e.g. historic trends and forecasts, analysis
by economic classification by ministry). Meanwhile, Ministry of Economy updates
macroeconomic indicators. There is a period of negotiation between MoF and ministries.

(219) Following these negotiations, the Consolidated State Budget is prepared and
submitted to government in the approved format by August 16 (latest September 1) together
with the Social Insurance Budget and the Health Insurance Budget. After a one month
appeal process with line ministries, the government submits the budget to Parliament by
October 1 at the latest. The budget is given three readings by Parliament. Modifications
during the whole of this negotiation and approval process are tracked in the Budget
databases and communicated to budget executors.

Special funds and means

(220) Special funds (there are currently 13) are managed in the same way as the budget.
They are held in a separate database and shown as attachment to the annual budget law.
Some budget executors also have „special means‟ (income from charges and fees). These
are shown as an annex to the State Budget and are used to finance the budget of the budget
executor which collected them.

Budgets of ATUs

(221) Budgets of ATUs are prepared by the local public administration authorities. MoF
sends guidelines, but the ATUs are autonomous and do not always follow the guidelines.
Within 15 days of approval of the annual State Budget Law, these budgets are revised to
take account of resources provided from central government.


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Changes in the annual budget law

(222) Changes to the budget law approved by parliament are tracked in the budget
databases. There is always at least one major change per year. In some years there have
been several.

5.    Processes: Budget execution and accounting

Recording budget appropriations, apportionments and allotments

(223) After the budget is approved by Parliament, MoF establishes monthly allocation limits
to line ministries, based on forecast revenues and sources of financing. Each line ministry
uses these allocation limits to develop its (paper) Financial Plan, which shows the monthly
distribution of budgeted expenditure for the year, analysed by expenditure category. A
Separate schedule for each budget executor of the ministry is attached.

(224) This financial plan (4 paper copies) is sent to the MoF and passes through the
appropriate sector division and budget synthesis department before being approved by the
Minister and keyed into the Financial Plan Database by IT Department. Following this,
approved copies of the financial plan are sent to Treasury, which distributes to the
appropriate territorial treasuries, to the reports and analysis division (see page 60) and back
to the line ministry.

(225) In the same way, General Finance Divisions of ATUs send their plans, approved by
the local governing body, to MoF IT department, which consolidates them on the ATUs
Budgets Financial Plan database.

(226) Timing differences between the availability of cash and the required expenditure
pattern should be settled at the time of agreeing the financial plans, but in practice there may
be differences, which are not covered by planned short term borrowing.

Changes to financial plans

(227) Financial plans of budget executors are changed frequently during the year. All
changes have to be approved by the Minister of Finance and budget executors have no
authority to make substitutions between expense categories (virements).

(228) The authorisation for changes is a lengthy procedure, which follows the same
sequence of departments as the approval of the original plan. In practice the MoF sector
divisions and IT division are overloaded with these requests.




Determining monthly cash requirements

(229) Monthly cash requirements by budget executors are signalled by their financial plans.
There is no warranting system (whereby MoF would grant authority to ministries to spend up
to a given cash limit for a month). Consequently, ministries may make commitments and
request the processing of payment documentation when insufficient cash is available. In this
situation, payments are prioritised by the Minister of Finance and arrears of unpaid claims
are accumulated.




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Recording commitments

(230) Payments on behalf of all state budget and local budget executors are controlled by
the Territorial Treasuries. Any purchase transaction over 1000 Lei must be registered as a
contract before payment is allowed (Civil Code). Above 45,000 Lei the procedures of public
procurement must be applied. Below this level the budget executor can apply internal
bidding.

(231) The budget executor must bring the agreed contract and all authorisation documents
(e.g. from the agency for public procurement) to the territorial treasury (TT) contracts officer
for registration on the TT computer system. Each budget executor‟s financial plan states the
maximum amount that can be used for contracts under each budget code. The system will
prevent registration if the funds under that expenditure code are insufficient.

(232) If everything is correct, the contract is registered on the contracts program, details of
the contract supplier are registered, and a treasury contract number is given. This number
goes on the Treasury Payment Order (TPO) and a copy of the contract is attached to the
TPO. This is stamped and sent back to the budget executor.

(233) The contract software will handle contracts with multiple payments (e.g. monthly
payment of utility bills, or instalment payments) but operator intervention is required. Unpaid
balances on contracts are not registered automatically based on data from the previous
year.

(234) Some contracts are to be paid in advance, in which case the contracts officer signs the
TPO to indicate that it may be paid without evidence of receipt of goods/services.

(235) All other commitments (e.g. payroll) are effectively registered by being in the financial
plan.

Processing Treasury Payment Orders

1. Territorial Treasury

(236) Budget executors bring their payment packages to the appropriate TT operator. For
each expense item the payment package consists of a cheque (coded and authorised), a
justification note with attached invoice and evidence of receipt of goods/service, and three
copies of a Treasury Payment Order (TPO).

(237) The payment packages are checked and the TPOs are entered into the computer.
MoF IT department has designed a program that allows entry of the data into a screen that is
an exact replica of the TPO. In some cases, the budget executors have already entered the
data and bring it on a floppy disc. For the remainder the TT operator enters the data
manually.

(238) Two types of payment are processed through the same system: (i) cash payments and
(ii) transfers between two budget executors for work done.

(239) As the data is entered, sector officers verify the correctness of the document package,
including date, type of TPO (cash payment or transfer), coding, etc. The computer program
checks (i) that the supplier is registered with the tax authorities; (ii) that that there is sufficient
balance to allow the payment, and rejects for non-compliance. If the payment package
passes all the checks, the TT operator signs the TPO and passes batches to the chief of
operations section who checks them.


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                                                                    Moldova FMIS Final Report

(240) The TPO data entered by operators is accumulated on the database and, at the end of
the operational day (day 1), a summary of payment orders for all budget executors is printed
out, analysed by budget executor and economic code. The total cash funding need for the
TT is found by excluding transfers from the total. This funding need is communicated
electronically to Central Treasury.

2. Central Treasury

(241) Central Treasury accumulates funding needs for all TTs on a daily basis and on day 2
morning requests the Minister of Finance to authorise funds to be transferred from the
National Bank to the TT bank accounts. If funds are insufficient, payments are prioritised by
the Minister (with salaries and external debt payments taking precedence, as stated in the
Budget Law) and TTs are notified by telephone.

3. Territorial Treasury

(242) On day 2, after the funding is approved by MoF, all cheques and TPOs are signed by
the chief accountant and the head of the TT.
      For cash TPOs, operations division send the approved payments list to their
         bank, with cheques and two copies of the TPO. All TTs use commercial
         banks to execute payments and the payments will be in beneficiaries‟ bank
         accounts the following day (day 3).
      Transfer TPOs remain in accounts department.

Accounting

(243) Accounting for expenditure in the TTs is not carried out until payments have been
made by the bank. On day 3 morning, the TT accounts department receives hard copies of
bank statements and bank-stamped copies of the TPOs (which are passed back to the TT
operators and from there back to budget executors). The bank statement soft copies are
available on line at any time.

(244) Accounts department bring up the soft copy of the bank statement into their accounting
program, then enter the transfer TPOs on top. The program produces the following:
       control totals of movements on each bank account
       an account statement for each executor by budget classification.

(245) This accounting information is transmitted by the TTs to Central Treasury monthly,
where it forms the basis of a reconciliation with the ministries‟ own records (see below, page
60).

Payroll

(246) There is no central payroll system. Salaries are computed by each budget executor.
There are a variety of rules and about ten different software packages in use. Payroll
expenses are put through same system as other payments in Territorial Treasuries, using
TPOs. Deductions are coded on the documentation.




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Receipts

(247) The main types of taxes and the manner in which they are shared between central and
local government is shown in the law on local government (see Annex 3). The peak period
for receipt of taxes is the end of March, when most income tax is received.

(248) Revenues collected by the State Tax Service (STS) and Customs Department (CD)
are transferred to the Central Treasury bank account in the National Bank on the day of
receipt. A program managed by IT department calculates how much needs to be transferred
to local budgets. Information from the National Bank is transmitted to this database
electronically, and the amounts to be transferred to the Territorial Treasury bank accounts on
behalf of local governments are calculated.

(249) At the end of each day, summary information is submitted to the STS and CD, and to
MoF Revenue division. STS and CD also do their own computations of this sharing and
notify any corrections which need making.

Reconciliation of treasury and line ministry records

(250) Whereas the Treasury tracks income and expenditure on a cash basis, accounting
records in the ministries and departments are governed by the Accounting Law (1995).
Their spending units use double entry accounting, recording liabilities when incurred, and
maintaining debtors and creditors in their records. These different bases of accounting are
reconciled at central treasury.

(251) Every three months, ministries need to assemble aggregate reports for the financial
results of their spending units. They do this by giving paper records for each spending unit
to MoF IT department, which keys in the data to a consolidation program. The quarterly
reports for each ministry (showing expenditure against budget, and debtors and creditors)
are then printed out and sent to the ministries and to the Treasury‟s „Division for reports and
analysis of the state and consolidated budgets‟ where they are reconciled with the cash
execution reports from Territorial Treasuries.

(252) The same process is carried out for local budget by Treasury‟s Division for ATU
reports and analysis. ATU General Financial Divisions send quarterly reports, which are
reconciled with the TT reports. These involve revenue as well as expenditure.

(253) Division for reports and analysis of the state and consolidated budgets also produces a
consolidated report of state and local budgets is prepared annually and submitted to
government. The basis of presentation is the modified cash basis, in which records are kept
on a cash basis but books are left open for a period after the year end to catch late
transactions.

6.   Processes: Cash management and Debt Management

Cash management

(254) Cash flow forecasting in the Central Treasury is prepared on the basis of:
       a monthly analysis of revenues and expenditures of the State Budget
        prepared by the Budgetary Synthesis Department, on the basis of past results
        and current budgets;
       projected proceeds from selling State Securities and servicing internal debt,
        submitted by the Department of Public Debt;

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                                                                  Moldova FMIS Final Report

       a schedule of external debt payments, submitted by the Department of Public
        Debt.

(255) Cash releases for expenditures are decided on a daily basis and approved by the
Minister of Finance. There is a need to move to longer budget execution periods (e.g.
monthly releases) and improved cash forecasting would assist this.

Debt and grant management

(256) Recording of loans and calculation of interest rates is done by MoF‟s Department of
Public Debt. Loan receipts are paid into the Central Treasury Account at the National Bank
and recorded on the debt database, Debt Management Financial Analysis System (DFMAS).
The debt database is not interfaced with the Treasury system. For payments, the
Department of Public Debt submits manual TPOs (foreign currency and local) to Central
Treasury to make payments. This increases the chances of transposition error. After
payment, Central Treasury sends accounts statements to Public Debt Department.

(257) Grants to central government are paid into the Central Treasury Account in National
Bank and recorded on the revenue side of the State Budget. Grants offered to ATUs are
paid into their bank accounts and recorded on the revenue side of their budgets. Grants
offered to public institutions are paid into extra-budgetary accounts.




Note: special funds, special means and secret areas

Special funds: State budget money is allocated to these funds for specific purposes (e.g.
Text book fund).

Special means: Revenues (e.g. from rent, or environmental fee paid at customs) are
received from customers and paid into a separate treasury account. They are used to pay
expenses of the budget executor.

Secret areas: These are confidential expenses relating to defence, interior, security, civil
protection. The bank gets only coded information, not written details. Specially chosen
processing staff are sworn to secrecy.

The methods of processing an accounting for all the above is the same as for normal items.




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                                                                           Moldova FMIS Final Report

 ANNEX 3: Laws and regulations affecting public financial
               management in Moldova
The main laws regulating government financial management are shown in Table 7 below.

               Table 7: Laws regulating government financial management
Law                              Date                Description
Law on the Budgetary System      21 April 2005       This has been recently updated. It is a general
and the Budgetary Process                            law on the budget process. It describes
                                                     preparation, approval and execution of the state
                                                     budget and refers to the other budgets.
Law on Local Public Finance      16 Oct 2003         This includes revenue sharing rules
Law on Public System of Social   8 July 1999
Insurance
Law on Mandatory Health          27 Feb 1998
Insurance
Law on the amount, modality      26 Dec 2002
and terms of payment of
mandatory health insurance
premiums
Decision No. 1631 On the         31 Dec 2003
preparation of the Medium Term
Expenditure Framework and of
the draft budget for the
respective year
Accounting Law                   1995                Covers private and public sector institutions

Each year there are separate laws on the state budget, social insurance and health
insurance, containing the approved budgets appropriations for the year.

Local decrees approve local budgets (regional councils and village councils).

At present, estimates of all the budgets together are only seen in the MTEF, the format of
which is not yet covered by law.

Revenue sharing rules contained in the Law on Local Public Finance:

General state revenues come from:
      Income tax on legal entities (businesses) : in Chisinau and Balti divided 50:50
        state: local
      Road taxes: divided 50:50 state: local
      In Gaugazia: VAT and excise

The following taxes are all local budget revenues:
       Real estate tax
       Income tax (personal)
       Land tax
       Local taxes
      Tax/fee or use of natural resources
      Patent fees
      All other taxes collected only in local budget.

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                                                               Moldova FMIS Final Report

  ANNEX 4: Key actions and policy reforms needed before
                   upgrading an FMIS
The following is taken from the Treasury Reference model.

Some of the key actions and policy reforms needed prior to the implementation of new
computer systems for budgeting and accounting are detailed below:
 1. Development of a comprehensive Budget Management Law which will provide a
    framework for the proper management of public funds and property, with specific
    emphasis on:
    (a) the receipt and custody of public funds (including banking arrangements);
    (b) public expenditure management (including control processes and linkages
         with appropriations);
    (c) the accounting system;
    (d) the role and responsibilities of the Treasury, MOF and other departments;
    (e) asset management and control;
    (f) borrowing and investment (specifically management of the public debt); and
    (g) reporting and audit.
    This is often incorporated in an organic budget law that also deals with
    budget preparation.
 2. Adoption of a budget classification system consistent with the IMF Government
    Finance Statistics (GFS) methodology, and final design of a treasury chart of
    accounts embodying this classification system.
 3. Consolidation of Government bank accounts to a Treasury Single Account (TSA)
    at the Central Bank and setting up appropriate institutional arrangements for
    processing payment and receipt transactions against this account.
 4. Implementation of systems for and development of detailed regulations and
    operating manuals covering TSA-based budget execution processes (spending
    limits, cash allocations, commitment and payment control, payment processing,
    accounting and reporting).
 5. Establishment of a cash management unit in the Treasury and formulation of
    procedures for its operations, which will cover cash flow forecasting and
    monitoring, and day to day management of funds distribution among spending
    units and field treasuries. The cash flow forecasting and monitoring function is of
    central importance to the system of monthly spending limits and commitment
    control. The cash management unit will be responsible for making realistic
    forecasts of likely cash inflows and spending requirements based on actual trends.
    This unit should work very closely with the budget department of the MOF to
    advise on the appropriate levels for spending ceilings.




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                                                                          Moldova FMIS Final Report

     ANNEX 5: Functions and Data Entities in the Treasury
                     Reference Model

Functional Process                         Data Entities     Definition
                                           Created

1. Management of Budget Authority:

1. Apportionment and Allotment:

After approval of the annual budget by     Approved budget   Description of approved programs and
Parliament it is loaded into the system                      projects to be executed by line
by the Budget Department of the MOF.                         agencies during the year and amount
                                                             of funds voted.
The approved budget for spending
ministries is then broken down to the
detailed level of economic
classifications and is apportioned over    Apportionments    The approved budget, for ministries,
time (quarters and months) and is                            broken down to the detailed level of
registered in the system by the MOF                          economic classifications and
and communicated to the spending                             apportioned over time, i.e. by quarters
ministries.                                                  or months

The spending ministries, in turn,
register the detailed budget for their
subordinate spending units and
communicate the allotments to the          Allotments –      The approved budget for spending
spending units. These are the spending     spending limits   units, broken down to the detailed level
limits for the spending ministries and                       of economic classifications and by
spending units by quarter/ month for                         quarters or months.
the fiscal year.

Spending limits may be varied during
the course of the year in accordance
with the results of monthly or quarterly
reviews of budget performance. For
example changes may be caused by
variations in the revenue forecasts,
commitment and expenditure patterns,
etc.




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                                                                       Moldova FMIS Final Report

Functional Process                        Data Entities   Definition
                                          Created

1. Management of Budget Authority:

2. Warrant allocation:

Each year, financial plans detailing      Financial       Line agencies' and spending units
projected outlays and receipts are        plans/cash      projections of expenditure and
developed by spending units and           requirements    requirements of cash, based on known
ministries.                                               and anticipated commitments for both
                                                          recurrent and capital expenditures for
                                                          planned programs and projects.

As the year progresses, sector
agencies prepare periodic requests        Periodic cash   Line agencies' and spending units
for funds by economic category, which     Requirements    periodic (monthly) requests for cash
are also captured.                                        projections based on approved
                                                          financial plans.


The MOF then issues warrants to           Warrant/ sub-   Periodic release of funds by the MOF
ministries for each category of           warrant         through the Treasury to Line Ministries
spending. From these amounts the          allocations     and by the Line Ministries to
ministries issue sub-warrants for their                   subordinate spending units by type of
spending units and advise the                             expenditure. Warrants and sub-
appropriate spending units. These                         warrants give the spending agency and
processes take place periodically                         the Treasury the authority to process
through out the year. The warrant and                     payment requests up to this amount.
sub warrant amounts need to be within
the amounts specified in the spending
limits for these organizational units.
Warrant amounts are determined in the
light of the results of periodic budget
reviews, revised revenue forecasts and
cash balances.




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                                                                           Moldova FMIS Final Report

Functional Process                           Data Entities    Definition
                                             Created

1. Management of Budget Authority:

3. Budget reallocations/virements:

Normally the Budget Law permits the
MOF, the spending ministries and the
spending units to shift the approved
budget between organizational and
object classifications within restrictions
set by the relevant laws. Shortfalls
identified by spending units in one or
more economic categories may be met
from excesses in other economic
categories in their budget.

For this, a budget reallocation
request needs to be processed.               Budget           Permission to the spending ministries/
                                             reallocations/   spending units issued by the competent
For some items and within certain            virements        authority to shift the approved budget
thresholds, spending units may have                           between organizational and object
the financial powers to make the                              classifications within restrictions set by
reallocation themselves. For these                            the relevant laws.
cases, they will update the budget data
base in the system.

For cases which are beyond their
financial powers, they will request the
parent ministry or MOF to process the
reallocation, depending on the type of
reallocation. If approved, the Ministry /
MOF will process the reallocation and
update the data base. The spending
unit will be informed of the decision on
the request.

1. Management of Budget Authority:

4. Supplementary budgets:

During the course of the year revisions      Supplementary    Revisions to the approved budget
to the approved budget may be carried        budget           normally carried out by the Parliament
out by the Parliament. These revisions       authorizations   at mid year, to meet shortfalls in budget
are carried out in accordance with the                        allocations.
procedures for finalizing the original
budgets. The process of preparing
supplementary budgets covers the
preparation, routing and approvals of
requests for a supplementary budget.
Supplementary budgets are normally
presented to the Parliament for
approval at mid year.




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                                                                         Moldova FMIS Final Report

Functional Process                        Data Entities     Definition
                                          Created

2. Commitment of Funds:

1. Procurement of goods and
services.

(Spending units process transactions
directly through regional treasury
offices.)

As the year progresses, spending units    Procurement       Request for procurement of goods and
process requests for goods and            requests          services made by staff in line agencies.
services, verifying the appropriateness                     The request needs to be authorized by
of the expenditure and availability of                      line agency managers after determining
budget and spending limit and                               validity of request and availability of
processing according the procurement                        budget allocations and spending limits.
request according to prescribed
procedures.

The spending unit will then place a       Purchase orders   Order for the purchase of goods and
purchase order on a vendor for the                          services issued by line agency or
procurement of goods and services.                          central supply organization specifying
The vendor should be registered in the                      goods and services required and time
database of vendors.                                        of delivery.

The spending unit will then register a    Commitment        Transaction setting aside funds as a
commitment in the system and block        transactions      result of approval of specific requests
the corresponding amount from the                           for procurement of goods and services
available budget and spending limit.                        and issuance of corresponding
The commitment transaction is                               purchase order
forwarded to the parent ministry and
the MOF-Treasury regional office that
will process the payment against this
commitment.




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                                                                          Moldova FMIS Final Report

Functional Process                          Data Entities    Definition
                                            Created

2. Commitment of Funds:

2. Creation of a new staff position
and recruitment to this position.

The Spending agency prepares the            Staff position   Specifications of an appointment in
position description and requests the                        government. Positions are specified in
Line ministry for approval.                                  terms of position titles, job descriptions,
                                                             grade level for the position, giving the
The Line ministry reviews from a                             range of starting and ending salaries
requirements standpoint and forwards                         that an incumbent will receive.
the request to the MOF.

The MOF approves after reviewing
against budget availability.

After the position has been created, the
spending unit may carry out recruitment
to this position in consultation with the
parent ministry.

After recruitment, the personnel data
base and the commitment amount
relating to monthly salary and benefits
for the spending unit need to be
updated.

2. Commitment of Funds:

3. Payroll commitments.

The Spending Unit calculates the            Payroll          Estimated monthly payroll costs for a
payroll commitments on the basis of         commitments      spending unit based on the numbers
staff on board and the authorized pay                        and grade levels of staff on board, and
and allowances for staff.                                    the financial allowances and benefits
                                                             allowed to them.
These are checked against budget
availability and then advised to the
spending agency and the MOF.

Salary commitments may be advised
only once a year on an estimated basis
and adjusted as necessary during the
year.

Changes would be necessary if the pay
and allowance structures change, staff
on board are promoted, new staff are
added or staff reductions occur.




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                                                                              Moldova FMIS Final Report

Functional Process                          Data Entities        Definition
                                            Created

3. Payments and Receipts
Management:

1. Verifications of receipt of goods
and services; payments.

(Case 1: Spending units route their
transactions through the relevant
Treasury office which, after
examination, sends a payment order to
the bank where the TSA is held.)

The process starts with the receipt of      Goods receiving      Certificate of receipt of goods/delivery
goods and services. These need to be        report/certificate   of services required prior to release of
validated against the purchase order        of completion of     payment
and a verification of receipts report       services
is generated and entered into the
system.

On receipt, the invoice from the vendor     Bills/ invoices      Request for payment made by vendor
is checked against the receipts report                           to line agency for goods and services
and the purchase order, and the                                  procured by that agency against a
payment approval process                                         purchase order
commences.

The requests for payment are
examined with reference to the
available budget (spending limits,
warrants) and the existence of a prior
commitment.

After approval, the request is sent to      Payment order        Authorization for payment against a bill
the cash management section and                                  or invoice made by line agency finance
scheduled for payment.                                           officials or treasury/MOF officials after
                                                                 determining availability of funds

                                            Payments             Amounts of funds written off to
                                                                 expenditure for accepted commitments
                                                                 on the basis of approved payment
                                                                 documents.

                                            Check                Financial instrument authorizing
                                                                 recipient to draw money from line
                                                                 agency account with the treasury or
                                                                 authorized servicing bank.

The list of completed payments
received from the TSA Bank ( normally       Accounts             Record of payment and payable
the Central Bank) is used for               payable ledgers      transactions carried out over the fiscal
reconciliation of records at the Treasury                        year.
and the Spending Unit.




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                                                                             Moldova FMIS Final Report

Functional Process                         Data Entities        Definition
                                           Created

3. Payments and Receipts
Management:

2. Payroll payments.

The Spending Unit computes the salary
of the employees on its rolls. This        Personnel data       Master data for each employee in a
involves, updating the data base for       base                 government agency
three types of change:

(a) Changes to the employee's data
that would impact the salary. This
includes changes such as promotions,
addition of new allowances etc..           Payments             Payroll payments made to civil service
                                           related to payroll   employees
(b) Changes to the employee‟s general
data such as transfers, change of
address, account number etc.; and
                                           Payroll and          Payroll and benefits data for each
(c) Changes that would impact the          benefits             employee. These figures are computed
employee salary only in the current                             by the payroll and benefits processing
month.                                                          program.

After these updates, the spending unit     Pension data         Pension details for amounts paid out to
computes the payroll.                                           pensioners.

This is validated against the authorized   Payments             Pension payments made to
position list for the spending unit.       related to           government pensioners
                                           pension
The request for payment is then
forwarded to the Treasury for approval
and payment.

The Treasury approves this request
after checking the available budget
(spending limits, warrants) and the
authorized position list.

The request is then sent to the cash
management section and a payment
order is sent to the TSA Bank to
deposit the appropriate amount in the
employee's Bank account.

In case employees do not have bank
accounts, the TSA bank may make the
cash available to the spending unit for
the payment of salaries.




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                                                                        Moldova FMIS Final Report

Functional Process                       Data Entities     Definition
                                         Created

3. Payments and Receipts
Management:

3. Receipts.

Government receipts are paid through     Tax revenue       Receipts of government tax revenues
payment orders issued by the payee on    receipts          paid into the treasury
his Bank.
                                         Non-tax revenue   Receipts of government non-tax
The Bank transfers the payment to the    receipts          revenues paid into the treasury
Treasury Single Account at the Central
Bank.

The Treasury monitors the deposits of
Government receipts through daily
statements received from the Bank.

The Treasury implements any revenue      Revenue sharing   Rules for sharing revenues between
sharing arrangements that are in place   rules             the center and sub- national levels of
between the central government and                         government
the sub-national governments etc. and
posts the detailed revenue category
wise figures in the General Ledger and   Accounts          Record of receipts/receivable
informs the relevant SU or revenue       receivable        transactions carried out over the year
collection department of the receipts.   ledgers




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                                                                          Moldova FMIS Final Report

Functional Process                           Data Entities   Definition
                                             Created

4. Cash Management:

1. Expenditure and revenue
forecasting
2. Cash monitoring
3. Borrowing strategy

The cash management department
receives expenditure and revenue             Expenditure     Estimates of cash requirements made
forecasts from the spending ministries       Forecasts       by spending units at the start of the
and from the debt management                                 year and revised periodically specifying
department on debt servicing                                 the amount of money required at
expenditures.                                                specific times of the year for each
                                                             major category of economic
The revenue collection agencies                              expenditure such as salaries, goods &
prepare revenue forecasts.                                   services procurements, etc.

                                             Revenue         Estimates of inflow of tax and non tax
                                             Forecasts       receipts for year made by the revenue
                                                             collection departments. Revenue
                                                             forecasts are made at the start of the
                                                             year and revised periodically on the
                                                             basis of actual out turns.

The Cash management department               Cash balances   Balances in the Treasury single
examines this data with respect to the                       account and or designated bank
accounting data booked in the TGL, the                       accounts. Cash balances are affected
Debt management database and the                             by expenditure / receipt transactions
cash balances in the TSA and its                             that would impact the TSA/designated
component sub-accounts.                                      account.

This enables it to determine the liquidity
position of the government and
shortfalls/ surpluses. This information
forms the basis of the MOF determining
the borrowing requirements and the
spending limits and warrants for
spending ministries and units.




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                                                                            Moldova FMIS Final Report

Functional Process                          Data Entities      Definition
                                            Created

5. Debt & Aid Management:

1. Debt recording and servicing:

The debt management department              Debt portfolio     Details pertaining to each debt
receives the loan agreements from the                          instrument held by the Government
donor / lending agencies and registers
the loan details in the system, including   Debt service       Debt service payments made for
the disbursement and debt servicing         payments           government borrowings
schedules.

The debt management department also
records commitments related to debt         Grants and other   Payments related to grants, subsidies,
servicing.                                  payments           etc.

On receipt of debt service bills, the
department verifies receipts and
payments due against the debt portfolio
and forwards the bills to the Treasury
for payment.

The Treasury processes these
payment requests in a similar manner
to that for other payment requests.

On conclusion of the transaction the
paying bank sends a list of payments to
the Treasury which in turn sends the
list of debt related payments to the debt
management department. These are
used for re-conciliation purposes.




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                                                                        Moldova FMIS Final Report

Functional Process                        Data Entities    Definition
                                          Created

5. Debt and Aid Management:

2. Loan receipts                          Loan Receipts    Receipts of government loan proceeds/
                                                           grants paid into the treasury
The Debt management department
and/or the spending ministry receives
information from donor agencies about
loans given to government.

The Debt Management Department
registers the loan agreement and the
schedule of tranche releases for the
loan.

The money is deposited by the donor in
the TSA Bank.

Receipts are recorded by the Treasury
in the general ledger.

Information on receipts is passed on by
Treasury to the Debt management
department, which in turn passes it on
to the concerned ministry/ spending
unit.

5. Debt and Aid Management:               Grant receipts   Receipts of government loan proceeds/
                                                           grants paid into the treasury
3. Grant receipts

The Debt management department
and/or the spending ministry receives
information from donor agencies about
grants given to government.

The ministry forward the grant
agreement to the Debt management
department.

The DMD registers the grant
agreement and the schedule of tranche
releases for the grant.

The money is deposited by the donor in
the TSA Bank.

Receipts are recorded by the treasury
in the general ledger.

Information on receipts is passed on by
Treasury to the Debt management
department which in turn passes it on
to the concerned ministry/ spending
unit.



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                                                                        Moldova FMIS Final Report

Functional Process                         Data Entities   Definition
                                           Created

5. Debt and Aid Management:

4. Issue securities

If the Cash management department          Securities      Financial instruments, like Treasury
finds that the cash requirements for a                     bills etc., issued by the government to
given period are more than the             Securities      raise financial resources to finance
available cash balances in the TSA and     Portfolio       temporary or longer term deficits.
associated accounts, it asks the Debt
management department to issue                             Portfolio of all securities held by
securities.                                                government

The debt management department
decides on the nature of securities to
be issued and instructs the Central
Bank to issue the required securities.

Receipts on account of the sale of the
securities are deposited in the TSA and
the Central bank advises the MOF
accordingly.

5. Debt and Aid Management:

5. Recording guarantees as
contingent liabilities and processing
payments against guarantees

The debt management department will        Guarantee       Instrument that defines the amount,
register guarantees given by                               date and conditions related to the
government.                                                contingent liability created by the
                                                           guarantee.
These will be treated as contingent
liabilities.

The DMD will receive information from
the beneficiary of the guarantee at the
time the guarantee is initiated.

At end of the guarantee period, the
beneficiary will inform the DMD about
liquidating the contingent liability.

In the case of a call for payment
against the guarantee, the beneficiary
will send a payment request to the
DMD which, after verifying the
existence of the liability, will request
Treasury to make the payment.




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                                                                           Moldova FMIS Final Report

Functional Process                          Data Entities     Definition
                                            Created

6. Budget review and fiscal
reporting:

The Treasury System is used to              Expenditure       Periodic reviews of actual
produce periodic fiscal reports that give   reviews           expenditures, analysis of variations
a consolidated picture of all receipts                        with budgetary estimates, and
and expenditures and progress against                         comparison of financial and physical
budget targets. For these reports to be                       progress; consisting of overall budget
comprehensive, all items of receipts                          reviews and agency reviews of
and expenditure need to be captured.                          programs and projects

The Government Chart of Accounts is         Fiscal reports    Periodic reports to monitor overall flow
the basis of the fiscal reporting                             of appropriations and inflows of
process. These include the Fund,                              revenues over the course of the year,
organizational, functional and economic                       highlighting major deviations from
classifications structure of the budget                       planned budget program and
and the classification of account                             suggesting corrective measures
groups, assets and liabilities.
                                            Budget ledgers    Record of transactions showing amount
As line ministries and spending                               of budget authorizations and funds
agencies carry out their work programs,                       allocated for programs and / projects
expenses and receipts are posted to                           and all changes to authorizations/funds
the GL by the Treasury system by                              allocations as a result of budget
budget object.                                                reallocations or additional fund
                                                              allocations via supplementary
Ministry systems record physical                              authorizations, with the authority and
progress on programs and projects.                            dates of various changes and totals of
This information is forwarded to the                          expense and commitment transactions
MOF.                                                          against budget categories.

The Treasury General ledger records
receipts of various types of tax
revenues, loan aid receipts, and debt       General ledgers   Record of financial transactions
servicing expenses.                                           classified according to chart of
                                                              accounts
On the basis of this data the MOF can
prepare overall fiscal reports that
compare actual expenses and receipts
with the budget estimates. These
reports provide a status report and
recommendations and action plans for
corrective action during the course of
the year. These could include revisions
to spending limits, warrants, etc.




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                                                                         Moldova FMIS Final Report

                      ANNEX 6: Example of test script


Note: This is merely an example of the type of tests vendors should be able to demonstrate
compliance for.


                             FMIS Scenario Test Script
 Scenario              1.7.77.1: Set and modify monthly, quarterly and annual cash
 No./Description:      ceilings


 Test No:
 Vendor Ref. and Name:                                       Phase:        Bidding
                                                                           Evaluation
 Requirement          The system shall allow authorised users to set and modify monthly,
 No./Description:     quarterly and annual cash ceilings.
                      The system shall provide an audit trail of each modification to the cash
                      ceilings.
                      The system shall have warrant schedules for groups of items such as
                      personnel emoluments and goods and services as per cash ceilings
                      so that warrants are cross referenced and do not exceed warrant
                      schedules.
 Business             1. At the beginning of the year, MoF sets projected aggregate high
 Process:                level cash ceilings for each month. The projections are updated
                         each month and the Director, Treasury, issues these as warrant
                         ceilings.
                      CONTROL: Must not exceed the Revised Appropriation for each
                      high level category
                      2. Each month, xxx Division disaggregates the monthly high-level
                         ceilings into agency totals for goods and services and personal
                         emoluments and issues these ceilings to the agencies.
                      CONTROL: Must not exceed High Level Cash Ceilings for
                      Personnel and Goods/Services and agencies’ Revised
                      Appropriation
                      NB: Cash votes are all those that do not have a donor funding.
 Priority:                          Frequency of use:

                                Document Control Record
 Produced by:                                                Approved by:
 Designation:                                                Configuration No.:

 Signature/Date:                                             Signature/Date:

1. Purpose

The purpose of this Scenario Test Script is to document the test conditions, expected results and
actual results that will be used to ensure that the technical specifications have been met and to
evaluate the ease of use of the package. The required input data for the test should also be
documented.


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                                                                             Moldova FMIS Final Report

2. Preparation of Test Script

The scenario will be analysed over a number of test conditions with the expected results for each test
conditions being defined.

The source of the input data requirements must be identified. This may be from an external source or
data already stored in the system. Where from an external source, a sample source document
containing the data to be used for the test should be attached.

If the expected results include the production of reports, there should be a cross-reference to the
schedule of reports and a format attached.

3. Testing

The actual test results should be recorded, including a sample of any required reports actually
produced.

The pass/fail column should be completed using the following codes:


  Code         Definition

      P1       Pass where actual results satisfactorily meet the expected results in an
               acceptable fashion

      P2       Pass where actual results satisfactorily meet the expected results but in a
               complicated or unfriendly manner

      F1       Fail where actual results do not fully meet the expected results but an
               alternative is available from Vendor

      F2       Fail where actual results cannot fully meet the expected results


4. Input Data Requirements

 No.       Source      (incl.   Description
           Report no. if
           applicable)

  1        Warrant Ceiling      Contains high level warrant ceilings (generally monthly) based
           issued by                upon MoF projections
           Secretary
           Treasury

  2        Agency Cash          Before the beginning of the financial year, Agencies prepare
           Flow Forecasts       cash flow forecasts for each month of the year showing revenue
                                and expenditure for each vote (e.g. for each item under an
                                Activity or Project). These are updated each month to match the
                                cash ceilings covered by this test script but these monthly
                                forecasts will also be used to inform the disaggregation of the
                                high level ceilings to Agencies.




                                                   - 78 -
                                                                           Moldova FMIS Final Report

5. Test Conditions


 Num.   Test Condition        Expected Results           Actual Results/      Pass/Fail
                                                         Comments

   1.   Enter the annual      Monthly warrant
        high level warrant    ceiling projections
        ceiling projections   displayed and
        broken down by        capable of being
        month                 printed in format of
                              report number xxx.


   2.   Enter high level      Display warrant
        warrant ceilings      ceiling projections for
        for a particular      month selected and
        month from the        allow actual ceilings
        warrant ceiling       to be entered.
        authorisation         Warrant ceiling
        issued by the         figures entered
        Secretary             displayed and
        Treasury              capable of being
                              printed in format of
                              report number xxx.

   3.   Enter high level      Entry rejected and
        budget ceiling that   error message
        would exceed the      indicating:
        Minister‟s Warrant
        amounts                  where ceiling
                                  exceeds
                                  Minister‟s
                                  Warrant and
                                 action to be taken
                                  to correct the
                                  position

   4.   Modify ceiling        Selected expenditure
        already entered       category displayed
                              and modification
                              recorded. Print report
                              of all modifications to
                              original cash ceilings
                              in format of report
                              number xx.




                                                - 79 -
                                                                         Moldova FMIS Final Report

Num.   Test Condition        Expected Results          Actual Results/      Pass/Fail
                                                       Comments

 5.    Analyse high level    Total ceiling for
       ceiling for a         month for each
       particular month      agency that in total
       over goods and        equal the high level
       services and          ceiling
       personal
       emoluments for        Entry rejected and
       each agency and       error message if
       print report of       attempt made to
       results (see          exceed:
       sample 1
       attached)                total high-level
                                 ceiling for month
       The system
       should provide           total revised
       facilities to model       Appropriation for
       the high level            an agency
       ceilings over         Print report in format
       agencies taking       of report number ??
       into account, inter
       alia:

          approved
           Appropriations
          warrants
           issued
          agency cash
           flow forecasts

       and to amend the
       modelled figures
       by direct entry of
       absolute amounts




                                              - 80 -
                                                                                   Moldova FMIS Final Report

ANNEX 7: Reports specified by the TRM
A. Overall Fiscal Reports

The system must be capable of producing reports of the type given below as a minimum:

1. Financial status of the central government's budget-year-to-date

Section 1: Progressive Revenue and Expenditure movement: year to date totals and difference.

Section 2: Selected revenues and expenditures that require continuous monitoring

Section 3: Receipts that are directly deposited into treasury single account: long term, medium, and
short term loans.

Section 4: Availability of government's financial resources: cash balances at start of year and now,
year to date total warrants, unspent warrants, cash balance minus unspent warrants.

Statistical information: Averages for week and forecast for remainder of month: tax revenues, all
revenues, expenditure.

2. Financial status of the budget - progressive within present five working day period

Report should be produced at the end of each five working day period and should show movement of
revenues, expenditure and cash resources during the reporting period. Sections as above and by
region.

3. Monthly expenditure summary

Year-to-date expenditure information aggregated by budget classification codes and grouped in the
order of spending unit, functional group, program, sub-program and specific of economic
classification.

The following financial data for each budget classification code shall be shown on the report with
relevant group totals:
        Current plan for the year
        Year-to-date current financial plan
        Progressive total of treasury (financial) warrants:
              Year-to-date authorization
              Authorization for the current month
              Year-to-date recovery
              Year-to-date offset
              Year-to-date total
        Expenditure
              Year-to-date payments
              Payments for the current month
        Outstanding commitments
        Balance of unspent limits

"Year-to-date payments" of this report includes payments for the current month and offset totals.



                                                      - 81 -
                                                                             Moldova FMIS Final Report

"Outstanding commitments" include the difference between total commitments and paid commitments of
spending units.

4. Monthly summary of state revenues

The monthly collection of the Revenue by each revenue classification code and comparison with the
plans. For state and local budgets and total.

5. Comparison of current year revenues with previous year revenues

As 4 above for a user-specified month compared with same month in previous year.

6. Monthly statement of government financial operations

Based on 3 and 4 above. For the reporting month and year to date.

Part 1: Receipts: Analysis of revenue receipts by category, compared with annual plan. Analysed by:
Tax revenue, non-tax revenue, revenues from capital transactions, received official transfers (grants),
repayment of credits from budget

Part 2. Payments and crediting:

Expenditure: Analysis by economic category, compared with plan. Analysed as: Salaries and wages,
Employer's contribution, Purchase of goods and other services, Utilities, transport and
communication, Other current services, Services provided within state order, Interest payments,
Subsidies and transfers, Acquisition of assets, Construction and renovation, Purchasing of goods,
Purchasing of land, Capital transfers

Lending:Total of lending for reporting period and year-to-date total, compared to annual plan.

shown.

Part 3. Budget surplus/deficit: Difference between the totals for Part 1 and those for Part 2.

Part 4. Financing: Ways of financing the budget deficit. In general total amounts received from sale of
treasury bills, bonds and loans (domestic and foreign), grants received in cash etc. and the movement
of cash resources should be reported.

7.    Monthly budget payments by functional classification

This report shows the functional analysis of Central level aggregates of budget, payments and
commitments information for each functional group, and sub-function with relevant sub-totals.




B. Reports Related to Management of Budget Authority, Commitments &
Payments

The following reports should be available:
      List of expenditure budget classification codes
      Warrant listing
      Sub-warrant listing
      Sub-sub-warrant listing
      Monthly funds movement
      Periodic commitment details

                                                  - 82 -
                                                                     Moldova FMIS Final Report

     Commitment summary year-to-date
     Periodic Commitment Summary
     Outstanding commitments details
     Outstanding commitments summary
     Outstanding accounts payable summary
     Funds position analysis by budget classification
     Funds distribution analysis of sub-warrants
     Funds distribution analysis of treasury warrants
     Commitments and expenditure analysis by spending unit
     Commitments and expenditure analysis by expenditure budget classification codes
     Vendor name and address listing
     Vendor business history details
     Details of contract register
     Details of contracted expenses requiring funds
     Summary of contract execution
     Free balance of financial plan for the year
     Outstanding contractual obligations
     Audit trail




C. Payroll Reports
     Payroll report
     Employee status report
     Payroll rejection report
     Payroll exception report
     Bank deposit details
     Pay sheet
     Statement of employee's earnings
     Employee listing
     Pay and allowance by pay period
     Deductions by pay period
     Employee pay history - summary
     Listing of allowances and bonuses
     Listing of deductions
     Listing of disbursement centers
     Listing of cost codes
     Listing of positions




                                                - 83 -
                                                                             Moldova FMIS Final Report




D. Reports Related to Receipts Management
     Revenue classification listing
     Details of local governments
     Listing of collectors
     Listing of revenue sending banks
     Listing of control accounts
     Listing of districts
     Progressive revenue collection report
     Monthly analysis of revenue
     Monthly allocation of revenue shares
     Monthly comparison of revenue plan and actual receipts
     Daily revenue collection report (analysis by revenue classification)
     Year-to-date revenue collection report (analysis by revenue classification)
     Daily revenue collection report (analysis by district)
     Year-to-date revenue collection report (analysis by district)
     Daily revenue sharing worksheet
     Details of daily revenues collected by banks
     Summary of daily revenues collected by banks
     Collector statement details
     Summary of daily revenues collected by collectors
     Daily revenue collection summary
     Journal listing
     Analysis of daily local budget revenue shares
     Daily local budget revenue sharing report
     List of payment orders
     Daily revenue refunds
     Daily inter-classification transfer of revenues
     Daily transfer of revenues among tax offices
     List of revenue classifications sharable between central and local budgets
     List of local budget revenue classifications
     List of central budget revenue classifications
     List of revenue classifications for which revenues are shared manually
     List of incorrect revenue payment orders
     Revenue receipts summary report
     Revenue receipts detail report




                                                  - 84 -
                                                                         Moldova FMIS Final Report




E. Reports Related to Cash Management
      Monthly revenue forecasts
      Monthly funds requirements summary
      Monthly funds requirement detail
      Monthly cash requirement summary
      Monthly cash requirement detail
      Forecasted financial position for the month
      Forecasted cash availability for the month
      Summary of bank transactions for the month
      Summary of bank transactions for the year
      Bank transaction details for the month
      Unspent expenditure limits summary report
      Unspent expenditure limits detail report
      Daily progressive budget withdrawal reports
      Year-to-date actual receipts of budget withdrawal reports




F. Reports Related to Debt Management

DMS should be able to produce the following reports:
      Comprehensive information about individual loans/ guarantees/ on-lending and
         investments.
      Summaries of debt stock by currencies, lenders and other characteristics.
      Tables showing disbursements, payments due and payments made.
      Calculations of debt service.
      Tables on annual borrowing ceilings for the budget.
      Tables for balance of payment accounts.
      The impact of new borrowing.
      Sensitivity testing for interest and exchange rates.
      Calculation of concessionality and loan present value.
      Calculations of debt indicators and ratios.
      Reserves risk management.
      Summaries of external debt.
      Transaction details. Billing information.
      Short-term and long-term debt forecasting.




                                                   - 85 -
                                                                    Moldova FMIS Final Report

           ANNEX 8: Definition of an integrated system
This definition of an Integrated System identifies characteristics arranged in the broad
categories of Data Issues, Application Issues, Presentation Issues, and Operational Issues.
A brief name of the characteristic is given, followed by a paragraph defining the
characteristic. While the degree of integration is likely to vary from system to system, an
ideal integrated system would have all of the characteristics listed below.

Data Issues
      Common Data Model: A single data model and database support system is
         used by all components of the system.
      Common Definitions: Every data element should have a common definition
         throughout the system.
      Single Collection Point: Input from a single component should be reflected
         throughout the system. Multiple entries of the same piece of information
         should be avoided.
      Universal Availability: Once data is input from a single component, it should
         be available throughout the system.
      Consistent Naming Conventions for Data Elements: Certain information
         about the data element should be intuitively obvious from the name of the
         element, and the name should be used consistently throughout to reference
         the data element. For example, whether an element is a code, a flag, or a
         monetary amount should be obvious from the name.
      Common Data Dictionary: A single data dictionary should contain information
         about the data elements. It should be readily available to users of the system.

Application Issues
      Derived Values Transfer Between Modules: Any information derived from the
         base data should be consistent between application areas. For example, if
         age is derived from birth date, this derivation should be consistent throughout
         the system.
      Minimum Reconciliation Required to Ensure Data Integrity: The need to
         reconcile reports from different components in the system should be
         minimized.
      Consistent Customization Tools and Techniques: The system should
         provide consistent tools for customization in all components.
      Code Shared Among Modules: In order to minimize redundancy, code should
         be shared to the greatest degree possible between components. For
         example, date calculation routines should be common to all components in the
         system. This should facilitate making changes in a single location and
         propagating throughout the system.
      Shared Business Rules: The system should allow us to easily define business
         rules which have an impact throughout the system. As much as possible,
         business rules should be updateable by non-computer professionals.

Presentation Issues
      Consistent Headings on Screens and Reports: Users of the system should
         see the same names consistently on screens and reports.

                                            - 86 -
                                                                  Moldova FMIS Final Report

     Consistent Navigation: All components should use consistent navigation
        features to increase operator efficiency. For example, if one component uses
        menu bars and shortcut icons, all components should use similar menu bars
        and shortcut icons.
     Consistent Look and Feel for Screens and Reports: Screens and reports
        should have similar organization in presentation of the data. For example,
        headings should be consistent in identifying the component producing the
        report and the location of key data within the heading.
     Single Authentication: Components should avoid multiple requests for a user
        id and password combination. Once a session has been authorized, this
        authorization should remain in effect regardless of the component used.

Operational Issues
     Single Security and Rights Administration: User ids should be administered
        from a single point. For example, adding a new user should be performed
        only once, not once per component.
     Consistent Interface to External Environment: The system should provide
        mechanisms to interact with the underlying operating system of the client
        machine. For example, consistent mechanisms to interface with Microsoft
        Excel or other spreadsheet packages should be available from within the
        system.
     Implementation of New Releases of Components Handled Consistently: If
        a component has been customized, the customization should be maintained
        when a new release of the component is obtained from the vendor. Updates
        should be applied to the smallest component possible.
     Common Job Scheduling: A single scheduling mechanism should be available
        for all jobs regardless of components. This would allow an operator to access
        all components of the job scheduling system from a single location.
     Common set of Hardware/Software/Communications Platforms/Protocols:
        Access to platforms and protocols should be from a single common source.
        This would allow us to update hardware platforms of communications
        protocols with a minimum of maintenance effort. All applications should
        operate on the same platform.




                                          - 87 -

				
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