project to improve financial reporting and auditing

PIFRA

Khuram Farooq, PMP

Director PIFRA khuramf@pifra.gov.pk

August 27, 2007

1

PIFRA

Vision of the Future

80%

Vision

" Hockeystick "

classical Extrapolation of Trend 20% Drift

today

future

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM/FAM Technology Progress Outcomes Next Challenges BER,MTBF,PRSP, Debt, Receipt, PSDP Risks Summary

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain OWNERSHIP

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

PIFRA

Good Governance-A new Paradigm Governance-A

Civil Services Reforms Professionalism Pay and remuneration Executive Development Financial Management Reforms Accurate,Timely reporting, Improved
audit systems, Strengthened controls MTBF Devolution Support Program

Good Governance
Legal,Judicial Order Action for Justice Judicial Independence Judicial Strengthening
5

Economic Policy Deregulation Tax Admn Reforms Liberalization

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

PIFRA

International Public Sector Accounting Standard (IPSAS II) Compliance

CASH BASED ACCOUNTING

IPSAS II CASH BASIS ACCOUNTING

MODIFIED CASH BASIS ACCOUNTING

ACCRUAL ACCOUNTING
7

PIFRA

PIFRA

Vision- Risk based audit and IT Tools VisionShift towards risk based auditing Systems based IT Audit Centralized Planning and Coordination Of audit Use of Modern Audit Tools, methodologies

District Audit

Federal Audit
Auditor General Of Pakistan

WAN
Pre-defined verifications by audit

Expenditures, Salaries, vendor data available on line 9

Auditee 2

Auditee 1

PIFRA

Objectives
-Efficient resource management/Timely input for policy makers -Improved fiscal space -Increased international credibility -Improved Investor Confidence

Financial information-Accurate,Timely

International Standards Compliance IPSAS II and GAAP Strengthened internal controls - Increased trust and confidence IAS GFS
Audit: risk-based approach, better quality - Compliance to international Improved support for legislative oversight through PAC - standards reduces corruptionframework Strengthened accountability - Increased confidence in audit process R/3

John Hopkins University Research other 2007 10

PIFRA

PIFRA II: Design

AGP/CGA/MOF

PIFRA II $ 94 m

FABS (Financial Accounting and Budgeting System) NAM

Capacity Building Of OAG (Office of the Auditor General) FAM

Capacity Building of CGA

Project Management Support

11

PIFRA

PIFRA II

PM, 6.446 CGA, 18.471 FABS, 48.742 OAG, 19.345

12

Total $ 94 m (WB $ 84; GOP $ 10 m)

PIFRA

Basic Concept
Restructuring
Separation of Audit and Accounts CGA and AGP Ordinance 2001

Process- New Accounting/Auditing Model/Internal Audit Implementation- Technology and Capacity Building

13

PIFRA

Financial Accountability Cycle and PIFRA

Process Technology People Policies

Funds authorization

Line Departments

MOF/Legislature AGP

Audit Report

Execution

CGA
Financial Reporting
14

PIFRA

Vision- Financial Reporting by CGA VisionFederal

Integrated, On-line, Real-Time, Govt-wide, multi-tiered On-line, Real-Time, Govt-wide, multi-tiered

CGA

AGPR

Provincial

Ro ag ll u gr p eg an at d ion

AG

110
District/Sub district
15

DAOs

DAOs

DAOs

DAO/

DAO/ TMAs

400

TMAs

DAO/ TMAs

PIFRA

Vision and System LandscapeLandscapeFinancial Reporting

AG Punjab

Finance Department, Punjab Ministry of Finance Islamabad CGA

D A O s

16

PIFRA

Vision- Online reports (PSDP) Vision140 120

KPP

. I n M

80 60 40 20 0
17

130

127 94

28 6 Exp OB

PIFRA

R s 100

Tax Reforms Project

15 Release

4 OB

18

9 Exp

PIFRA

Vision Govt. wide IFMIS

140 Line Ministries

EAD
Education

Public Broadcasting Public Administration

Justice Interior Health

CBR

PIFRA FABS System

SAE

Public Utilities

18 BANK

Public Security

PC

PIFRA

Scope and Context

District Finance Offices Defense EAD District Government Accounts Self Accounting Entities

NBP/SBP
Finance (Budget) DAO/AG/CGA

District Government Accounts CBR

Planning

19

Line Ministries

Railways

PIFRA

The Challenge
140 Line Ministries 29000 DDOs Rs. 1.8 trillion To track 110 DAO 110 EDO Finance

IT Support Centers- 5SAP CC

5000 SAP users

4 Interfaces (SBP, CBR, PC, EAD)

600 plus Banks

20

15000 workforce

2.5 Million Payroll

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM/FAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

21

PIFRA

Business Process-Financial Process-Financial

1 2 3 4 5 6 7 8 9
Commitments and Payments Receipts General Ledger Adjustments Budgeting Aggregation and Reporting Fixed Assets Banking Cash Forecasting Development Projects 22

PIFRA

Business Process-HR Process-HR

10 11 12 13
Payroll General Provident Fund Pension Staff Expenses

23

PIFRA

Five Dimensional Chart of Accounts

Entity

Constitution

Fund (Grant)

DG Health
Purchase of Medicine 100,000
Function Object

GFS Compliant

GFS Compliant Reports through mapping

Program

24

PIFRA

NEW AUDIT APPROACH

LEGACY SYSTEM

Audit Approach

System/ Risk Based

Transaction Based

Planning

Greater emphasis on detailed audit planning for effective and efficient conduct of audit Standardized docu mentation for all audits with pr edefin ed file structure and formats of audit working papers Planning, risk assessment, aud it procedures and audit samples are determined at cen tral locations which are executed by field auditors

Planning only limited to defining timelin es and staff allocation Lack of standardized documentation

Documentation

Centrally Led

Field auditors have the discretion to perform aud it procedures

Quality Assurance

25

Increased emphasis to ensure effective and efficient audit in compliance with applicab le standards and guidelines

Lesser emphasis on quality assurance

PIFRA

New Accounting Model

New Accounting Model Old System (Legacy) Single Entry System No Commitments No fixed Asset No liabilities Old Chart of Account Isolated Systems

1 2 3 4 5 6

Double Entry System Commitments Fixed Asset Liabilities New Chart of Account Integrated System
26

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

27

PIFRA

Technology to Support the NAM

ERP Technology
SAP R/3
Procured through ICB in 2001: Technically compliant, lowest $ 11 M; Second lowest Oracle: $ 16 M

ERP- What
Enterprise Resource Planning Integrated Functional Environment

28

PIFRA

Integrated Information System- SAP R/3 SystemManagement-relevant Information

Payments Accounts

Mangement Information

HR/Pay Roll Special and Technical Information (incl. Data Fusion)

29
Fiscal Reporting

Finance

PIFRA

PIFRA Pilot Sites

D AB E C B A B A

CGA MoF AGPR

A C

B C

AG Peshawar FD Peshawar AGPR-SO Peshawar DAO Abbottabad AAO Ghalanai DAO Swat DAO Gilgit AG Punjab FD Punjab DAO Faisalabad AG Balochistan FD Balochistan

D B A C

30

PIFRA

AG Sindh FD Sindh DAO Hyderabad DAO Uthal

Pilot, Rollout and Replication Sites

D E E E D D E E E CD E D E D D C A BC C B E C CD A B C D A B C B C E C CB D E D D D C B C D D B B D E C D

Missing:
B B B B D D A B C C C

D D D C E

D Bunair / Daggar E Tank

D E EE D E E E E D E D D D D E D D B A C E D B C C E ED E E E D B C C E D E DE

E E

D C D E D

BE D D

31

PIFRA

Progress
80%

Vision

" Hockeystick "

classical Extrapolation of Trend 20% Drift

32

today

future

PIFRA

Rapid Implementation to cover delays

470 . .. 70

Number of Productive Sites

30

**

0
Jan 33 02 Jul 03
May 05

Aug 07

PIFRA

Productive Sites- Province Wise Sites40 35 30 S 25 i t 20 e 15 s 10 5 0 NWFP 34 Punjab Sindh Baluchistan

NWFP Punjab

39 28 28 23

Sindh

27

30

Baluchistan

PIFRA

Progress Review- FABS Review70 Sites productive on SAP R/3 system

All NWFP online Punjab 60 %, Sindh 30 % Remote areas like Ghallanai and Uthal using SAP

GFS Compliant reports produced from the system Comprehensive Pension and GPF system developed On-line access to CBR and PC given 1.2 million employee payroll: salaries on Ist GFS Compliant financial reporting Integrated solution for Federal, Provincial, District PIFRA
35

Financial Audit Manual Reflecting International Auditing Best Practices Specific Guidelines for a set of supervision instruments to facilitate monitoring and oversight of the field audit work Computer Assisted Audit Techniques (CAATs) Purchased Audit Command Language a world renowned CAATs software Procured ADM Plus software for Audit Planning and Monitoring Procurement and distribution of 167 Laptops and 750 PIFRA
36

Training
Consultants Bearing Point working with AATI Audit & Accounts Training Infrastructure-AATI Over 80 Master Trainers Sustainability of momentum through incentives Over 20,000 DDOs Trained Training NAM/SAP for Sites-3000 SAP Users 148 Auditors Trained on CAATs 100 Auditors Trained on FAM Roll Out Training continuing through master trainers
37

PIFRA

Sustainability

End Users Site 1

PIFRA/ Consultants

Resource Person/Cou nterpart

End Users Site 2.n

Knowledge transfer of consultants through our own qualified personnel to field offices
38

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

39

PIFRA

Outcome Indicators FABS-Roadmap FABS-Roadmap

Baluchistan. All Punjab/ Sindh All NWFP + 30 % Punjab) 25 sites

30 Sites

May 200540 PIFRA I

Aug 06

Nov 06

Dec 07

Dec 08?

PIFRA

Intermediate Outcomes
Pillar I NAM COA Federal, Provincial and District govts using NAM COA.

Pillar II

Automated Aggregation

For the NWFP, the system used for automated aggregation For Productive sites, the System generated aggregation used. For Federal and Civil Accounts, interim solution use in process

Pillar III

NAM Consensus

The Federal, Provincial and District govts have agreed to NAM TMA agreed to follow NAM extension specifically designed for TMA

Pillar III

Audit 41

The Federal Audit done within 12 months- historical landmark Relevant staff trained on new tools and techniques

PIFRA

Timeliness
25
NWFP

20

15 25 10 15 5
42

Legacy

Target

PIFRA

CBR, Planning Commission and HRMIS:Spin Offs

CBR-On-Line access: Payroll Tax Deduction- Done On-Line with AGPR for CBR Financial Reports Done Sales Tax Deduction Report- Done On line access to PC on Projects reports of AGPR HRMIS for CBR, Punjab and NWFP CBR- Withholding agents- Next challenge
43

PIFRA

Bill Tracking

44

PIFRA

Key Performance Indicators have been agreed with World Bank to define Audit Component benchmarks Use of Modern Auditing Practices to audit accounts of Federal Government FY 2005-06 Provincial Government FY 2006-07 Districts FY 2007-08 Self Accounting Entities FY 2007-08

45

PIFRA

Special Audit of NHA and NADRA Grant Audit on New Audit Methodology Financial Audit Federal Government on New Audit Methodology Training & Technical Assistance Audit House and Up gradation of Field Audit Offices Hardware & Logistical Support
46

Audit Management Information System (AMIS)PIFRA

47

PIFRA

Challenges
80%

Vision

" Hockeystick "

classical Extrapolation of Trend 20% Drift

48

today

future

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

49

PIFRA

Goal: Creative Usage via constant Change Management

Results / Success / Performance SAP Introduction
e sag eU ativ Cre

Old Systems

Conservative Usage

Organizational Structure Workflow Cooperation / Communication Qualification / Competencies

Res ista Boy nce cott

Stagnation

Change Management

Integration

PIFRA

Domains of Change
Technology Re-structuring

Business Process

uma h The A II PIFR

n nsio e dim n

Change (adopt new processes)

Capacity Building Coverage

51

PIFRA

Next Challenges: Leverage IT Investments

Data Adopt New Processes Use the system Continuous Training

52

PIFRA

Next Challenges: Data

Budgeting data at spending level Project wise data to report PSDP GP Fund Records 2.5 million

Pensioner Data: actuarial analysis: 1 million Debt wise detailed data for liabilities reporting

53

PIFRA

Next Challenges: Adoption of new processess

Project Accounting Debt Accounting Rs. 520 B (520+250?) Rs. 1186 un-reconciled!

CBR Treasuries and receipt accounting Rs. 1 trillion Commitment Accounting MTBF Bank reconciliation
54 BER (Budget Execution Report)

PIFRA

Executive Sponsorship ? : Adoption of new processess

Project Accounting Debt Accounting 13 salaries CBR Treasuries: Commitment Accounting Budgeting at spending level MTBF
55

Aug 30, 2006 Aug 30, 2006 Dec 6, 2003 Oct 19, 2005 2005 2002 2005

PIFRA

Transition: Aggregation of Financial Reports (monthly civil accounts)

8 Aggregation Sites 4 Provincial AGs 4 AGPR sub offices

Financial Reports PRSC BER

AG (Aggregation)

AG Data + DAO Data

55 plus

DAO-SAP Manual DAO

56

PIFRA

BER- Monthly Account from DAOs BERBudget

YTD Original Budget Revised Budget Monthly Exp Progressive

Education Salary Allowance Purchase of goods Purchase of services Others

2400

11000 210 410 250 350 300

Object level reports

550 550 500 550 470 550 550 500

700

700

32 70 40 68 80

57

PIFRA

BER
Ag t ga re g ion

AGPR (Lahore)

AG (Punjab)

District s account

CO Ac A co un s

DAO Multan

District Account 58

CO ac A co un ts

PIFRA

Liabilities- Context LiabilitiesDomestic Debt Floating Permanent Foreign Debt Floating Permanent Deferred liabilities Cash Balance Utilization Employee Entitlements NSC (Savings) GPF STF from SBP to fund deficit Pension liabilities- Actuary T Bills/Notes Bonds ..

Contingent Liabilities
59

Federal Govt Guarantees

PIFRA

Debt Reports PIFRA

Major
Debt 1 Domestic

Minor

Detail

Sub-detail

Floating Permanent

T Bills/Notes

Bonds

2 Foreign

Floating Permanent

abc

xyz
60

PIFRA

Interfaces with EAD- On line Debt Reports EADDebts: Finance accounts1000/EAD 500 Detail Debt Profile and reconciliation CGA/EAD
Minus Balances Fully paid debts (dormant accounts) still showing up ? Complete listing may be reconciled-CGA/EAD ? GFS Compliant report format for Debts recommended to EAD Consistent process of debt recording ?

Currently available debt reports available to EAD 61

PIFRA

Loans through NBP

Loan Amortization Schedule NBP NY Receives Money/transfers to NBP KYC NBP KYC Transfers Funds and Informs

FTO Compiles Monthly Account

PD

NBP of Project Get intimation

EAD

AGPR KYC Aggregates and sends

Civil Accounts

AGPR ISD Compilation

62
Slide 62

PIFRA

(Bottom Up) Ministry

MTBF -Budget Preparation -As is Scenario -Budget

MOF Server Budget DDO Budget DDO 100 DDO Budget 100 DDO Budget

100 100

10

20

10

20

40

63
Spending DDO

PIFRA

MTBF
Program Increase literacy to 50 %
PAO

-Top Down -Top

MOF Server

100

Measure Performance Current Literacy 40 %: Year 1 42 %: Year 2 45%: Year 3 47 % Cost Allocation linkage with performance
Spending DDO

10

20

10

20

40

64

PIFRA

MTBF and PIFRA

Current SAP configuration supports MTBF PIFRA and MTBF consensus Functional Specs (programs, process, reports) Acceptance Criteria- OAT Plan Drive through MOF-Training and CM Transition and cut over Strategy Discontinue plans to extend current SW to ministries PIFRA system to be used for MTBF at Ministries
65

PIFRA

Project AccountingAccountingConsolidated Fund

Release Recorded as Expense

Releases
Public Account

66

PIFRA

Project Accounting
Exp overstated in CF and Public Account overstated Reconciliation between PD and Treasury office ? Outstanding Balances not reversed at year close Non-operative PLA/AA are not closed Pre-audit checks are not applied irregularities ?

Releases into PLA/AA without accounting of previous releases. Parallel accounts by withdrawing the money from PLA/AA.
67

PIFRA

PRSP
Mapping of PRSC related expenditure done Reports configured and validated PRSC Secretariat using reports from the AGs AG to prepared PRSC reports using SAP interim solution PIFRA support (configuration, training, data mapping, HW)

68

PIFRA

PRSP Report

69

PIFRA

CBR Treasuries: Receipt Accounting

Monthly Civil Accounts

AGPR S/O

AGPR S/O

CBR Treasury

DAO Treasury/ AGPR

x e Ta eci R

pt

NBP/S BP HQ

N Ta on Re x ci ep t

70

NBP

PIFRA

TMA Roadmap
As is Accounting PracticesModeling Done Current Accounting - review completed To be Accounting Modeling Done Draft Chart of Accounts prepared, under validation Detail project charter prepared and under approval Workshop on to be process validation held Functional Specs Validation of functional specifications 71

Evaluation Criteria, bidding doc

PIFRA

Monitoring and Evaluation:Business Benefits

Defined strategic objectives Defined Benefits Target- Benchmarks Benchmarks linked to specific strategic objectives Measured baseline in key PFM areas Assigned Benefits owner to major benefit area M & E Framework: Consistent Framework Tracking benefits through constant updates 72

PIFRA

Todays Meeting
Meeting Objectives
Share Vision Review Progress Get directions Obtain Sponsorship

Agenda
Context Vision NAM Technology Progress Outcomes Next Challenges BER,MTBF,PSDP, Debt, Receipt Risks Lessons Learned

73

PIFRA

Risk

Risks
IT investments not leveraged: adopt change

Proposed Mitigation action

Executive sponsorship and advocacy Measure and monitor progress : M & E Governance Structure Accountability for benefits realization

Manual Data (pensioners, GPF, PSDP, etc) Current structure does not sustain new system

Rigorous persuasion Re-structuring, professionalism Communication Strategy Accelerate progress Use interim solutions Sustain executive support

CGA

Misperceptions about delayed outcomes

74

PIFRA

Lessons Learnt
Project Culture Governance Structure to monitor business benefits Change Management- Executive Led/Executive Sponsor Buy-in of power users and stakeholders- involvement Measure Baseline Project Management team-Professional, PM mindset Align HRM policies (career, rewards) with Project Continuous support without getting into political debate 75

PIFRA

Summary
Audit within 12 months achieved Risk based successfully implemented:Federal Govt 67 FABS sites productive through ERP solution 29000 DDOs trained on New Chart of Accounts 2000 End Users trained on SAP R/3 On-line access to CBR, PC done All NWFP on-line Plan for on-line reporting of all Punjab, Sindh Dec 07 PIFRA
76

Thank You
77

PIFRA

Break Up PIFRA II

Unallocated 7% Training 15%

O&M 10%

Civil Works 15%

TA 17%

Goods 36%

78

PIFRA

PIFRA II

PM, 6.446 CGA, 18.471 FABS, 48.742 OAG, 19.345

79

Total $ 94 m (WB $ 84; GOP $ 10 m)

PIFRA