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Fiduciary Risk Assessment
Public Financial Management
Performance Measurement
Framework
PEFA Public Financial Management
Performance Measurement
Framework and its Precursors
ICGFM May 08 2006
David Joseph Ormandy MA CGA CIM FCSI
Advisor to the Financial Secretary
Government of Montserrat
Why Perform FRA/PEFA/PEM ?
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Link governance and development
Build capacity to govern to reduce poverty
Provide environment to
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Encourage development
– Resolve conflict
– Root out corruption
Focus of FRA/PMF
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The goal of the exercise are gradual
improvements in financial governance
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Non-hectoring
– Focus on constraining potential abuses of power
– Making long term commitment to institutional reform
What is new about these processes ?
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These incentives reduce the focus on
individual aid projects (“enclave” projects) to
reduce poverty which were in many cases
unsuccessful as aid is fungible. And to
increase the emphasis on poverty reduction
by promoting sound public administration
and efficient delivery of public services
Role of PEFA in Good Governance
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encourage macroeconomic stability
Promote investment
Account for public sector resources
Promote honest and accountable
government
Economic Stability/Investment
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Support markets and liberalization of markets
Government involvement is between
centralizing and disaggregating
Promote state institutions to administer
financial policy
Regulate financial activities including private
property rights
Account for public sector
resources/budgetary outcomes
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Encourage effective government spending by
fiscal discipline including debt management
Establish strategic prioritization of spending
Assure efficiency and effectiveness to
minimize corruption by transparency in
procurement systems (value for money)
Promote honest and accountable
government
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Failure here will compromise other objectives
Minimize “grand” corruption”
Independent audit of government financial
systems and independent parliamentary
oversight of spending (via “Public Accounts
Committee)
“Transparency in Accountability”
Components of PEM System
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The Budget Process
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Links between expenditure and public policy
(such as links between recurrent spending
and national development priorities)
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The political legal and institutional context
The Budget Process
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Policy Review
Strategic Planning
Budget Preparation
Budget Execution
Accounting and monitoring
Reporting and audit
Links between expenditure and public
policy
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In developing countries, in the absence of a
MTEF or Strategic Plan, recurrent spending
may not be prioritized.
The political legal and institutional
context
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The institutional structure is the framework of rules,
customs and incentives which influence how
expenditures are made and how people behave. A
good public sector will have well defined rules for
authority for delegation.
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All systems will operate on the basis of informal and
formal rules which determine to what extent “official”
policy is acted on or ignored.
When does DFID perform a FRA?
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Mandatory when providing Poverty
Reduction Budget Support (PRBS either
general or earmarked support) and where
government systems are the primary
channels for financial aid
FRA should be undertaken every three years
if there are no material changes in
circumstances or deterioration in public
financial management otherwise, annually.
Why does DFID perform a FRA?
Audit discharge requirements to UK
government
1 Accounting/Financial discharge-evidence
that funds have been paid
2 Fiduciary Discharge evidence for effective
use of the funds The FRA is undertaken
because of the limited reliance which may be
available from the financial statements and
SAI reports
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What documentation may be examined
in the FRA
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ISO/Audit reports
Public Accounts Committee reports
National Public Accounts
Service Delivery Surveys
Budget Execution Reports
Public Expenditure Tracking Surveys
Poverty reduction Strategy Progress Reports
Additional examination for anti-corruption,
institutional context and procurement
PEM Diagnostic tools
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Formerly
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PER WB Public Expenditure Review
CFAA WB Country Financial Accountability
Assessment
CPAR WB Country Procurement Assessment
ROSC IMF Report on Fiscal Transparency
HIPC AAP WB/IMF public expenditure tracking in
HIPC
EC audits
From 2005 “PEFA” PFM Performance
Management Framework
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The PEFA PFM Performance Measurement
Framework and Report provides a common
pool of information for measurement and
monitoring of PFM progress and common
platform for dialogue
June 2005 further revision pending
www.pefa.org
PEFA Goals
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Reduces the transaction costs to countries.
Enhances donor harmonization.
Allows monitoring of progress of country PFM
performance over time.
Better addresses developmental and fiduciary
concerns.
Leads to improved impact of reforms.
Encourages country ownership.
Why is PEFA a “strengthened
approach” to PEM/PFM
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Country led “non-hectoring”/non-admonitory
International donor harmonization
Result focused on improvements
Based on dialogue
Achieves objectives of
Account for public sector
resources/budgetary outcomes
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Encourage effective government spending by
fiscal discipline including debt management
Establish strategic prioritization of spending
Assure efficiency and effectiveness to
minimize corruption by transparency in
procurement systems (value for money)
6 Critical Dimensions for an open and
orderly PFM system which are
measured by PEFA
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Credibility of the budget
Comprehensiveness and Transparency
Policy based budgeting
Predictability and control in budget process
Accounting recording and reporting
External scrutiny an audit
Concern with Country specific issues ( e.g.
“persistent volcanism”)
These 6 dimensions are measured by
28 indicators of 3 types
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PFM system outturns expenditures and revenues
actual compared with planned
Cross cutting features of the PFM system
comprehensiveness of the PFM system across the
budget cycle
Budget cycle performance of key systems
processes and institutions within budget practices
+ donor practices which impinge on PFM
performance
PFM Performance Report
5 Sections approx 35 pages
1
Summary assessment 3-4 pages Contains
assessment of PFM along 6 dimensions, assessment
of weakness in PFM and prospects for reform planning
2 Introduction to preparation of report 1 page
3 Country related Information 4-5 pages
4 Body 60 indicators in total + country specific issues
18-20 pages
5 Section on ongoing government reform activities
No recommendations for reform or action plans are
included in the Performance Report
PFM High Level Performance indicator Set
A.
PFM Out-Turns Credibility of Budget
PI-1 Aggregate expenditure outturn compared to original
approved budget
PI-2 Composition of expenditure outturn compared to original
budget
PI-3 Aggregate revenue out-turn compared to original approved
budget
PI-4 Stock and monitoring of expenditure payment arrears
PFM High Level Performance indicator Set
B.
Key Cross Cutting Issues (Comprehensiveness
and Transparency)
PI-5 Classification of Budget
PI-6 Comprehensiveness of budget documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-government fiscal relations
PI-9 Oversight of fiscal risk from other public sector entities
PI-10 Public access to key fiscal information
PFM High Level Performance indicator Set
C.
Budget Cycle
C(i) Policy Based Budgeting
PI-11Orderliness and participation in the annual budget process
PI-12Multi-year perspective in fiscal planning expenditure and
other public sectors
PFM High Level Performance indicator Set
C. Budget Cycle
C(ii)
Predictability and Control in Budget Execution
PI-13
PI-14
PI-15
PI-16
Transparency of Taxpayer obligations and liabilities
Effectiveness of taxpayer registration and assessment
Effectiveness in collection of tax payments
Predictability in availability of funds for commitment of
expenditures.
Recording and management of cash balances debt and
guarantees.
Effectiveness of payroll controls
Competition value for money and controls in procurement
Effectiveness of internal controls for non-salary expense
Effectiveness in Internal Audit
PI-17
PI-18
PI-19
PI-20
PI-21
PFM High Level Performance indicator Set
C. Budget Cycle
C(iii)
Accounting Recording and Reporting
PI-22
PI-23
Timeliness and regularity in account reconciliation
Availability of information on resources received by
service delivery units
Quality and timeliness of in-year budget reports
Quality and timeliness of annual financial statement
PI-24
PI-25
PFM High Level Performance indicator Set
C. Budget Cycle
C(iv)
External Scrutiny and Audit
PI-26
PI-27
PI-28
Scope nature and follow up of external audit
Legislative scrutiny of the annual budget law
Legislative scrutiny of the external audit reports
PFM High Level Performance indicator Set
D. Donor Practices
D-1
D-2
D-3
Predictability of Direct Budget Support
Financial information provided by donors for budgeting
and reporting
Proportion of aid that is managed by use of national
procedures.
Scoring-PFM High indicators
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Each of the 28+3 indicators has one to four
individual “dimensions” (sub-indicators)
which are graded on the basis of specific
benchmark grades A to D.
Where there is more than one dimension the
individual grades are averaged to determine
an overall core for that indicator
Scoring is described in a narrative and
tabulated
PFM Performance Report
Indicators
+Country Specific Issues
+ Description of Reform Activities
= Basis for Report Summary
Performance Measurement Framework
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Wrap up
Because the sponsors of the Performance
Measurement Framework, who are the PEFA
secretariat, include many development
agencies if your country is dependant of
external aid you may well be faced with a
PFM evaluation in the future.
PS: Don’t get “hectored” !
PEFA Partners
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The PEFA Partners
World Bank (WB)
European Commission (EC)
U.K. Department for International Development (DFID)
Swiss State Secretariat for Economic Affairs (SECO)
Norwegian Ministry of Foreign Affairs
French Ministry of Foreign Affairs
International Monetary Fund (IMF)
Strategic Partnership with Africa (SPA)