Welcome and Namaskar !

26th Annual ICGFM International Conference

PFM In the 21st Century The PFM Architecture, Institutions, and Tools to Meet the Challenges of the Modern World
April 29 - May 4, 2012

Miami, Florida, USA

PFM Reform in Nepal: Towards Better Financial Governance

Mahesh P. Dahal
Joint Financial Comptroller General Financial Comptroller General Office (FCGO) and Coordinator , PEFA Secretariat Ministry of Finance Government of Nepal

Outline of the Presentation

1. 2. 3. 4. 5. 6. 7. Understanding PFM PFM Performance Dimensions and Nepals Position PFM Reform Program PFM Implementation Structures Financial Control General Office (FCGO) Budgeting, Accounting and Financial Reporting Key PFM Reform Initiatives
Public Expenditure and Financial Accountability (PEFA) Treasury Single Account (TSA) Nepal Public Sector Accounting Standards (NPSAS) and IFRS Other Reforms Initiatives

8. Nepal Portfolio Performance Review (NPPR) 9. Issues and Challenges 10. The Way Forward

1. Understanding PFM
PFM is understood as the management of financial spheres of any Government. It includes the following: Planning and Budgeting
Management of Revenues Budget Execution and Expenditure Management Debt Management Reimbursement Public Procurement Accounting, Recording and Financial Reporting Internal Audit and Control Final Audit and External Scrutiny. The broad objectives of PFM are to achieve overall fiscal discipline, allocation of resources to priority needs, efficient and effective management of public services. The specific objective of PFM is to develop a predictable, transparent and accountable system of financial governance. A strong PFM system is fundamental to the Good Governance.

2. PFM Performance Dimensions and Nepals Position

(Based on PEFA Report 2008)

1. Credibility of the Budget

The budget is credible at the aggregate level,
PFM-related implementation weaknesses (e.g.
lack of or delays in preparing annual work plans along with procurement plans),

Non-PFM implementation constraints (e.g.

conflict and security issues, technical capacity),

Uncertainties related to the donor funds.

2. Comprehensiveness and Transparency

The budget is based on a good classification system,
Government of Nepal has made good efforts to improve the budget coverage with reports on a "consolidated

fund" and monitoring of some fiscal risks (notably, the situation of public enterprises),
However, a significant-and possibly growing-gap has

resulted from fiscal activities of:

many development funds and boards, and local governments.

3. Policy based Budgeting

Significant progress has been made towards a sound policy-

based budget with the adoption of the Medium Term Expenditure Framework (MTEF) and the creation of "business plans" for several sectors.
Gaps include:
Lack of engagement of the political leadership on the MTEF

and budget preparation,

Inadequate engagement or understanding of the MTEF

among middle and lower-level government officials,

Uneven linkages between annual budgets and MTEFs, and Incomplete sectoral "business plans" (in need of stronger

monitoring of outputs).

4. Predictability and Control in Budget Execution

Guaranteed cash releases for high priority ("P1") projects (provided implementation is satisfactory).
Payroll controls are also well developed. The Public Procurement Act (2007) is aligned with best international practice but its implementation remains to be tested. A basic control framework for non-salary expenditures, which includes physical verification, is in place but is unevenly implemented.

There is no commitment control.

Internal audit is not effective and does not comply with international standards. It focuses narrowly on pre-audit of transactions (with no system reviews).

5. Accounting, Recording and Reporting

Current cash-based accounting practices are generally well-established and accounts are frequently reconciled (with the exception of revenue accounts).
However, incomplete computerization has weakened the timeliness and quality of accounting. Annual reporting and financial statements are timely and of acceptable quality (although there are some gaps in content). Within-year reporting is weak and is not publicized.

There is no national Public Sector Accounting Standard (Now NPSAS developed).

The audited consolidated financial statements and annual revenues and expenditure statements do not include accounting policies and explanatory notes as required by International Public Sector Accounting Standard (IPSAS).

Accounting, Recording
However, the consolidated financial statements issued by Financial Comptroller General Office(FCGO) for government use include basic accounting principles and assumptions.

The financial statements prepared by the line ministries, FCGO and Office of the Auditor General (OAG) do not reconcile since the accounting system does not allow recording non-cash transactions (direct payments and commodity grant or aid or turnkey projects) due to which FCGO faces difficulties in providing true and fair picture of such transactions.

6. External Scrutiny and Audit

Annual financial statements are audited by an independent Auditor
General in a timely manner and the report is discussed by a Public Accounts Committee (PAC), although this was weak in the recent past owing to the political situation.

There is, however, little evidence of follow-up for clearing

"irregularities" identified by the Auditor General. The annual audit reports, follow-up activities and external scrutiny focus more on "irregularities" as opposed to correcting systemic issues.

External scrutiny was also weakened by:

long political uncertainty,

lack of public access to information (including accounts of local governments; contracts) and ,
weak process to engage the legislature in discussing the MTEF and in scrutinizing the budget.

7. Donor Practices
Despite progress in recent years (toward general and sector-specific budget-support), much remains to be done to meet the principles of Nepal's 2002 Foreign Aid Policy (and the Paris Declaration and ), In particular, the quality of financial information provided by donors is weak and, The proportion of aid that uses national procedures is much below 50 percent.

NEPAL PFM High Level Performance Indicators Set

(PEFA Report 2008)

NEPAL: PFM High Level Performance Indicators Set

(PEFA 2008) Performance Performance High Level Indicators (PI) Indicators 28+3

Thematic Groups and Indicators

I. CREDIBILITY OF THE BUDGET
Aggregate expenditure outturn compared to original approved budget Composition of expenditure outturn compared to original approved budget Aggregate revenue outturn compared to original approved budget Stock and monitoring of expenditure payment arrears

Score

A. PFM OUTTURNS B. KEY CROSSCUTTING ISSUES

C. BUDGET CYCLE

PI-1 PI-2 PI-3 PI-4

B C A D+

II. COMPREHENSIVENESS AND TRANSPARENCY

PI-5 Classification of the budget

PI-6
PI-7 PI-8 PI-9 PI-10

Comprehensiveness of information included in budget documentation

Extent of unreported government operations Transparency of inter-governmental fiscal relations Oversight of aggregate fiscal risk from other public sector entities Public access to key fiscal information

B
C C D+ B

III. POLICY- BASED BUDGETING

PI-11 PI-12 Orderliness and participation in the annual budget process Multi-year perspective in fiscal planning, expenditure policy and budgeting

C+ C+

Performance High Level Indicators

Performance Indicators (PI) 28+3

Thematic Groups and Indicators

IV. PREDICTABILITY AND CONTROL IN BUDGET EXECUTION
Transparency of taxpayer obligations and liabilities Effectiveness of measures for taxpayer registration and tax assessment Effectiveness in collection of tax payments Predictability in the 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 expenditure Effectiveness of internal audit

Score
C+ C D+ C+ C+ C C C D+

PI-13 PI-14 PI-15

C. BUDGET CYCLE
D. DONOR PRACTICES

PI-16 PI-17 PI-18 PI-19 PI-20 PI-21

V. ACCOUNTING, RECORDING and REPORTING

PI-22 PI-23 PI-24 PI-25
Timeliness and regularity of accounts 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 statements

C+ C C+ C+

VI. 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 external audit reports

D+
D+ D+

DONOR PRACTICES
PI-29 PI-30 PI-31
Predictability of Direct Budget Support Financial information provided by donors for budgeting and reporting on project and program aid Proportion of aid that is managed by use of national procedures

D D D

Recipient Side: A= 1, B= 3, C+= 8, C= 9, D+= 7, Total = 28

Donor Practice: D = 3

3. PFM Reform Program

PFM Reform
Driving Factors
Structural Adjustment Programme - 1987 Paradigm shift from state intervention to economic liberalization during 90s Public Expenditure Review Commission (PERC) 2000 and 2011

Country Financial Accountability Assessment (CFAA) - 2002 updated in 2005

Country Procurement Assessment Report (CPAR) - 2005 Nepals WTO Accession - 2005 Paris Declaration on Aid Harmonization - 2005 Public Procurement Act - 2007 Public Expenditure and Financial Accountability (PEFA) Report - 2008 Fiscal Transparency Assessment (IMF ) - 2008

Public Financial Management Project (PFMP) - 2009/10 &2011/12

Government commitments in Budget and other policy pronouncements.

PFM Reform...
Rationale
A sound PFM System is fundamental in harmonizing/mobilizing development assistance and creating conducive environment for FDI, An effective PFM system is essential in channelizing all resources through the national system, A good PFM system is instrumental in enhancing governments credibility and trustworthiness, A functional PFM mechanism improves confidence among the Tax Payers, A sound PFM practices integrates and standardizes national system with the global system.

PFM Reform
Strategy & Action Plan

Based on PEFA Report and PFM strategy, PFM Reform Program (2009/10-2011/12) has been prepared and approved by the Government. The PFMRP has identified 6 outcome and 18 output areas including institutional capacity improvement for PFM implementation. 147 immediate and intermediate actions has been identified. Government has initiated separate budget head (Public Financial Management Reform Program (3051153/54) from FY 2009/10 to support PFMRP. Each year more than NRs. 10 Millions of being allocated to support Program. Many donor supported activities also complement to the PFMRP implementation.

PFM Reform
Outputs & Outcomes

Outcome I: Improved Tax Collection

1. Simplified and more understandable tax system for taxpayers, 2. Improved access of taxpayers to their personal data, 3. Provide quality data and statistics to stakeholders, 4. Strengthening Revenue Tribunal, 5. Strengthening of valuation system in line with WTO valuation principle in order to maximize the revenue collection.

PFM Reform
Outputs & Outcomes

Outcome II: Improved Policy based

Budget Formulation
1. More orderly budget formulation process which follows the budget calendar, 2. Improved linkages between fiscal planning, expenditure policy and budgeting, 3. Institutionalization and Internationalization of medium term expenditure framework (MTEF).

PFM Reform
Outputs & Outcomes

Outcome III: Improved Budget Execution

1. Improved internal financial controls over expenditures, 2. Improved debt and cash management, 3. Improved system for the measurement of procurement system.

Outcome IV: Improved Accounting and

Reporting for Financial Information
1. Improved quality and timeliness of government financial reporting, 2. Improved accounting and reporting system.

PFM Reform
Outputs & Outcomes

Outcome V: Improved External Scrutiny

and Audit
1.Improved quality and timeliness of audit, 2.Improved monitoring and implementation of PAC recommendations and directives, 3.Constitute a Government Budget Management and Expenditure Review Commission under the chairmanship of the Member of the Public Accounts Committee (PAC).

PFM Reform
Outputs & Outcomes

Outcome VI: Sustained Reform Efforts to

Improve Public Financial Management

1.Improved PEFA Secretariat capacity to institutionalize the PFM reform process, 2.Improved Institutional Capacity of FCGO to institutionalize PFM reform process.

4. PFM Implementation Structure

President

P E F A

Executive
NPC

Legislative

Judiciary
(Courts)

Constitutional Bodies/Central Agencies OAG

CIAA PPMO NVC

MOF

Central/ Commercial Banks

Parliamentary Committees (Public

Account Committee PAC)

LMs

FCGO
Others:

Depts.

DTCOs

LAs/ Paying Offices

ICAN ASB Ind. Acc/Auditors CSOs

5. Financial Control General Office (FCGO)

Goals and Mandates

Established in 1975
Goals:

Improving Financial Transparency and Accountability

Reducing Fiduciary Risks

Standardizing Accounting and Financial Reporting Enhancing PFM efficiency.
Mandates:

Treasury Management

Accounting and Recording and Financial Reporting

Internal Audit.

Financial Control General Office (FCGO)

Structure
President
Council of Ministers

MOF

FCGO
Central

Arrears Recovery Office

District Treasury Control Offices (DTCOs) (75)

Pension Management Office

Total Pesonnel Strength : 4900 1. Officer - 1350 2. Others - 3550

Financial Control General Office (FCGO) Treasury Functions

Cash Management of Government

Management of inflows Management of outflows and Management of cash balances

Budget execution, Accounting, Recording and Financial Reporting

Internal Audit of all Public Expenditures.

6. Budgeting, Accounting and Reporting

Government Budget Cycle

NPC/NDC
Constitution

Policy Review
Outcome/Impact Evaluation Annual Review and Policy Updating

Strategic Planning
3 years Fiscal Targets Policy Targets Resource Management Expenditure Priorities

Long Term Plans Periodic Plan Dev. Thrust/ Priorities

NPC/MOF

Reporting & Auditing

Integrated Financial Reporting (FCGO) External Audit Parliamentary Oversight (PAC)

FCGO/ DTCO/ OAG

Govt. Policy & Program MTEF Sectoral Business Plan Special Commitments (MDGs) Priorities(P1,P2,P3) Projections

Budget Execution Accounting & Monitoring

Maintenance of Books of Accounts Monthly and Trimester Reports (Financial and Physical) Internal Audit Annual Review.

NDAC/ MDAC/ DDAC

Funds Release (Authorization, Annual Program, Directives) Program Implementation

Budget Preparation
Revenue and Expenditure Projection Programmatic and Financial Plan Ministerial Allocations Legislative Approval

NPC/ MOF/ LMs

Procurement/ User Committee Transfer of Funds/Grants

Resource Committee (NPC Level) Budget Ceilings Sectoral Program Procurement Master Plan

Accounting and Financial Reporting

F I N A N C I A L R E P O R T I N G

MOF
BMIS

OAG

FCGO
F M I S

Line Ministries

DTCOs

Line Departments

L M B I M S

Spending Units (4000)

Maintains Books of Accounts

ACCOUNTING

7. Key PFM Reform Initiatives Public Expenditure And Financial Accountability (PEFA)

PEFA & Nepal

PEFA Assessment was conducted in 2007-08 and Report published in 2008 with 31 performance indicators (of which 3 are Donors related) which are recognised globally, Based on PFM strategy, Development Action Plan (DAP) has been formulated identifying 147 immediate and intermediate activities to be performed, PEFA Steering Committee (12 Member Chaired by Finance Secretary) and Working Committee( 7 Member Chaired by PEFA Coordinator) formed in 2009, PEFA Secretariat established in 2009 which is led by a Coordinator with 7 professional staff, PEFA Implementation Units (PIUs) formed both at Centre (15) and Local Level (48) till mid April 2012, The Secretariat is accountable to the PEFA Steering Committee.

PEFA & Nepal...

PEFA Aims at:
Strategic allocation of resources Efficiency in delivering services Transparent and accountable management of public resources

PEFA tries to :
Institutionalize the PFM reform processes and build capacity Establish performances milestones and monitor them Review PEFA progress periodically, assess the performance indicators and reports accordingly Conduct meetings, seminars and workshops on PFM related areas Liaison with development partners to mobilize resources for PFM/PEFA

PEFA Core Objective is to :

Reduce Fiduciary Risk through strengthening systems, processes and institutions.

PEFA & Nepal...

PEFA is considered as an Integrated Public Financial Management Reform agenda of Government of Nepal. PEFA is perceived as a framework to improve financial transparency and accountability of public expenditures. It is understood as a tool to reduce fiduciary risk and to improve fiscal discipline by way of strengthening PFM institutions, systems and processes. It is also accepted as a means to improving PFM efficiency in the country. Nepal is the only country to establish the separate PEFA Secretariat !

PEFA & Nepal...

Key Initiatives
PEFA Orientation Programs, Seminars, Workshops and PFM related Trainings, PEFA Website (www.pefa.gov.np), PEFA Newsletter (Bi-Monthly in local language) and PEFA Journal

( Six Monthly in English)

Small Grant for Internship / Thesis and Mini - Researches on PEFA /PFM Innovations Software Development for Debt / Grant / Reimbursement / Fund Management Establishment of National PEFA Resource Center Preparation of Sectoral PFM Manuals/PFM Strategy (Education, Health and Local Government) Preparation of PEFA IEC Strategy and Production IEC Materials Establishment of Local PFM Donors Forum (Meeting every two month)

Debt Sustainability Analysis (DSA) study

Study on establishment of Debt Management Office (DMO) Repeater PEFA Assessment in 2012

Key PFM Reform Initiatives...

Treasury Single Account (TSA)

TSA...
Conceptual Understanding
Treasury Single Account (TSA) is a changed operating system in Nepal Government's Treasury function and cash management. In this system, governments transaction done through single or limited set of (linked) bank accounts operated by District Treasury Control Offices (DTCOs). Unified structure of bank account gives a consolidated view of government cash resources at any given time and government monitors all its receipts and payments for cash management.

TSA...
Objectives

Improve cash management, introduce cash planning and forecasting system, Ensure effective control over aggregate government cash balances, Establish transparent and efficient payment and receipt mechanism, Improve financial reporting system with qualitative data, Enhance efficiency and effectiveness in the use of public resources, Optimize the cost of financing by minimizing the volume and cost of government borrowing, Gainful placement of surplus treasury balance, Reduction on time taken to prepare consolidated financial statement.

TSA...
Benefits
Complete and real time information on government cash resources, Accurate and reliable cash flow forecasting, Improved operational and appropriation control, Day to day information about government treasury and timely information on Integrated Treasury. Short-term forward estimates of cash flow imbalances (after full functionality TSA), Harmonization of forward cash planning with government borrowing (after full functionality TSA ), Zero-balance Single Account for payment and receipts in place of multiple accounts, Single check issuing agency in place of multiple check issuing agencies.

TSA...
Rationale More than 4000 spending units More than 14000 bank accounts Idle cash balance in various government accounts Weak cash management Virtually no cash planning and forecasting system Non-harmonization of public debt management with cash management of government Delays in financial reporting No accurate information about Treasury Balance on time.

TSA
Initiation and Coverage
Recommended by IMF (Study Report) in December 2009, Government of Nepal decided to implement TSA system in January 2010, Piloted in two districts (Lalitpur and Bhaktapur) in 2009/10, Rolled out in 20 more districts in 2010/11, Revenue TSA also piloted in one district in January 2010, Further rolled out in 16 districts in July 2011, Implemented in 38 districts till now Revenue, Expenditure and Deposits (Retention money) captured 22 additional districts will be expanded by mid July 2012, Remaining 15 districts will be covered by mid 2013, TSA with Full functionality is expected by 2014.

TSA
Implementation Modality

Each DTCO opens zero-balance accounts at a bank for expenditure, revenue, and deposit transactions Existing Accounts of Spending Units (SUs) are closed SUs send payment requests to DTCOs DTCOs prepare checks and handover to the SUs. Checks are prepared and handed over within 2 hours. DTCOs do not handover the checks directly to suppliers unless SUs request for payment through the Bank A/C. Banks daily report the expenditure and revenue transaction to DTCOs for daily settlement of net dues. DTCOs send verified bank statement to the NRB (Central Bank) same day. The NRB settles net cash position with commercial banks same day.

System of Receipts
Without TSA

Commercial Bank
Remittance to NRB- Lag between receipt from the payer and onward remittance not verifiable

NRB (Central Bank)

Intimation to DTCO on aggregate revenue receipts

Revenue Collectors

DTCO

Revenue tendered

Daily / Monthly account of aggregate revenue collection

Revenue Payer

45

System of Receipts With TSA

End-of-day report for settlement with TSA at NRB Daily Settlement

Commercial Bank

Head Office

NRB

Daily Reports

Revenue tenderer

DTCO

FCGO

Revenue Collector

System of Disbursements
Without TSA
NRB
(Central Bank)

Commercial Bank

Request to NRB to credit commercial bank from government account

SU

DTCO

Checks to suppliers for goods and services

Monthly account seeking replenishment

Supplier

System of Disbursements With TSA

End-of-day report for settlement with TSA at NRB

Daily Settlement

Commercial Bank

NRB
Head Office

Daily Reports

Supplier
Disbursement to supplier

DTCO

FCGO

Payment Requests

SU
48

Web based Data Management System

LEGEND: TSA DECS (38 Districts) Non - TSA DECS (20 Districts) Data Sharing Through Internet / Phone line (17 Districts)

Nepal Public Sector Accounting Standards

(NPSAS) and International Financial Reporting Standards (IFRS)

NPSAS and IFRS

Nepal Public Sector Accounting Standards (NPSAS) have been prepared based on cash based IPSAS in 2009. Government has Approved the standards in 2009, and decided to implement it gradually. Orientation, Seminars, Workshops, Training on NPSAS/IPSAS/ IFRS being conducted at national level. NPSAS will be piloted in two ministries by 2013 and rolled out in others gradually, PEFA has entered into a MoU with Accounting Standard Board (ASB) to prepare a IFRS convergence strategy and plan, Policies and strategies for implementing Commitment Accounting are initiated, Additional efforts needed to institutionalize the system.

Other Reform Initiatives

New Economic Classification and Charts of Accounts

Government has adopted New Economic Classification and Charts of Accounts based on GFS 2001 (IMF) from 16 July 2011. This also includes Functional Codes based on COFOG and Donors Codes as well. Previous code was based on GFS 1986. The new system is expected to: globalize the Nepals accounting and reporting system bring clarity and avoid confusions improve financial reporting, transparency, accountability and efficiency of overall public financial management.

IT based Reform Initiatives

District Expenditure Control System (DECS) Computerized Government Accounting System (CGAS) Budget Management Information System ( BMIS) Line Ministry Budget Management Information System (LMBMIS) Revenue Accounting System (RAS) Public Expenditure Tracking Survey( PETS)- Education, Road, Local government Integrated Financial Management Information System (IFMIS) Sub-Regional Hubs (12) for IT Strengthening at local level Software Development (Debt, Investment, Treasury Management, Budget Execution, Reimbursement etc.) FCGO Website (www.fcgo.gov.np) updated PEFA Website (www. pefa.gov.np) launched Mandatory e-tendering above NRs. 20 million of procurement.

Other Policy Reforms

MTEF/MTBF initiated to fund multi-year contracting and ensure funding for priority projects (P1), OD study to review structure of FCGO and DTCOs in the context of federalism, Strengthening Internal Audit system (through Restructuring, Training, Retraining, IA Resource Book, Training Manual, ToT etc.), Government Budget Management and Expenditure Review Commission Report , High Level Public Enterprises Management Board constituted to review the management of SOEs. Local PFM Donors Forum (Meeting every two month) being initiated. Aid Management Platform (AMP) for transparency and Aid Predictability is functional Online web-based Aid information system has been set up in the MoF and given access to development partners and key Line Ministries.

WB/MDTF Supported SPFMP

Strengthening PFM System -Treasury System, Financial Reporting and PFM Capacity Development Project (2011-1014) has been signed on 31st October 2011 with the World Bank led Multi-Donor Trust Fund . PEFA Secretariat has been designated as the implementation agency of the project. US $ 6.7 million (US $ 4.3 millions by the MDTF/World Bank and US $ 1.7 millions by the government) grant Project has three components- TSA, NPSAS/IFRS and Capacity Development of PEFA Secretariat to implement the PFM reform programs. A separate Office of Auditor General Strengthening Project focusing on Risk based Audit is also signed with the World Bank/ MDTF.
SPFM project is considered as a model project to initiate PFMRP Phase I activities.

PEFA &PFM IEC Materials

8. Nepal Portfolio Performance Review 2011

(Approved by the Cabinet)

Issues / Challenges and Agreed Actions

1. Public Financial Management

Issues and Challenges
Poor understanding of PFM reform process and not fully owned and acknowledged by the concerned stakeholders

Agreed Actions
Formulate Communication Strategy to raise awareness and Orientation Trainings on PFM/PEFA Support Research and Analysis on high priority PFM areas Capacity development of Internal Auditors Revision of Internal Audit Manual Develop Risk-based Audit Manual

Weak Internal Audit and inadequate Internal Control Mechanism

Weak Quality External Audit

2. Public Procurement
Issues and Challenges
Inadequate capacity on Public Procurement Lack of fairness in competitive biddings Lack of trained staffs in PPMO and PEs Low compliance with Public Procurement Law

Agreed Actions
Stakeholder Capacity Development on Public Procurement Development of e-GP System Initiation of accreditation program Undertake Compliance Performance Indicator (CPI) and Agency Performance Indicator (API)

3. Improving Human Resources Management

Issues and Challenges
Incomplete Personnel Database System and lack of networking
Frequent transfer of project staff Low motivation and incentive not linked with results and performance Incoherent capacity development programs

Agreed Actions
Complete PIS Data entry covering (i) transfer, (ii) vacancy, (iii) scholarship/trainings and (iv) disciplinary actions related information of all levels of staff. Prepare data analysis framework Management audit of development projects (focusing transfer of project staffs.) Prepare Transfer Guidelines of five more ministries Performance- based incentive plan will be rolled over, maintaining it in DOCPR, to more government agencies/projects including PPMO and districts with TSA system Prepare and approve Human Resource Plan by MOGA Develop Need assessment framework for "Training for All " policy

4. Managing for Development Results Issues and Challenges Weak linkage of planning and budgeting Weak M&E system Agreed Actions
Continue implementation of Business Plan already prepared for 13 agencies and replicate and expand it to 5 more agencies Strengthen implementation of Result based budgeting in existing two agencies Department of Transport Management and Traffic Management Office Develop results framework in one GON agency Continue M&E system strengthening measures Assess the implementation progress of RBME Guidelines in P1 and donorfunded projects.

5. Mutual Accountability
Issues and Challenges
Aid Transparency: Aid Management Platform (AMP) reporting requirements about transparency are not met. (Baseline: October 2011: 35% of DPs fully meet AMP reporting requirements.) Aid Predictability: Aid is less predictable (Baseline: 25 % gap between planned and actual disbursements.) Use of National Budget System: Lack of Compliance of national budget system (Baseline: 45% of total external aid through treasury) Prevalence of Parallel PIUs : (Baseline: 68)

Agreed Actions
70 % of DPs report planned disbursements for next 3 Fiscal Years. (April 2012 status: Only 10% of DPs fully meet these requirements. On average 46% of projects meet the requirements.) 70 % of DPs report actual disbursements trimester and for the mid-term budget review. (April 2012 status: 60% of DPs fully meet the reporting requirements. On average 78% of projects meet the requirements.) Maximum 20% gap between planned and actual DP disbursement by end of FY. (April 2012 status: Actual disbursements represent 68% of planned disbursements (all donors), and 62% (core NPPR donors only). However planned disbursements are underreported (see above). Improvement in the use of national system- total external aid using the treasury, national procurement and audit system increase. (April 2012 status: 53% of disbursements reported between July 2011 and March 2012 go through national treasury (same figure for NPPR core donors and for all donors). Reduce parallel PIUs in DP supported projects in government sector.

10. Issues and Challenges

Poor understanding on PFM/PEFA among the key stakeholders Weak inter-agency coordination and cooperation to enhancing PFM Ritual IA, Poor quality Audit Reports (Both IA and Final audit) Commitment Accounting not yet introduced Large portion of the public expenditure is incurred in the last month of the fiscal year posing threats to a healthy PFM system. Very weak initiation to architect PFM in the context of proposed Federal structure of the country Complicated procurement legislation and poor HRD for public procurement Procedural rather than result oriented PFM working culture

Issues and Challenges...

Ascertain overall Treasury position of GoN is difficult (as current FMIS do not capture many of the transactions required to be disclosed under the IPSAS and NPSAS. Missing data includes Investments in public enterprises, Debt Management, Domestic Borrowings, Direct payments and Commodity Grants, Balances of non-freezeable accounts of GoN and local bodies, Donor Accounts, Government Assets, Pension Management , Contingent Liabilities of Government, Advances etc.) Pension Management System has no sophisticated software support. Hence, hugh amount of government expenditures are out of the real time reporting. Access to Aid information and other financial reports is weak. Disbursement from donors is much less than commitment. Reimbursement is frequently delayed. Long time taking to prepare Consolidated Financial Report of GoN.

11. The Way Forward

General Recommendations
Uniform understanding on PFM/PEFA, National and Sectoral PFM Strategy PFM Capacity Development Strategy, Establish National PFM Training Institute PEFA/PFM Information Communication and Education (IEC) Strategy and Action Plan Strong government's commitment towards PFM Reform Establish National/Regional PFM/PEFA Resource Centre in Kathmandu Sectoral Integration of PEFA as an opportunity to improve transparency and accountability of PFM spheres, Institutionalization of the NPSAS/IFRS initiations, Roll out of TSA in all districts with Core Treasury System by 2013, Pension System based Software Expenditure control (capping over expenditures) mechanism, Strengthening the Institutional capacity of PAC, OAG, FCGO, CIAA and NVC to scrutinize the PFM performances. Convert informal economy (40 percent) into formal one to broaden the revenue base.

The Way Forward

General Recommendations
Study on Structure and processes of PFM within the Federal System Reliable network connectivity to enhance IFMIS, Implementation of the PERC Recommendations, Institute of PFM Risk Management System, Develop sectoral fiduciary risk reduction Plan of Education, Health, Local Government, Road etc. Revitalisation of PEFA Steering Committee, Working Committees and PEFA Implantation Units, Repeater PEFA Assessment Provide Tax Payers access to personal data through electronic means PPP for PFM Reform.

The Way Forward.....

Specific Recommendations
Planning/ Budgeting Institutionalise MTEF/BMTF Link medium/periodic plan with MTEF/BMTF Strengthen Sectoral Business Plans Strengthen budget release and monitor its execution Develop and implement Budget Surrender Strategy and processes. Procurement Simplify procurement legislation/procedures Strengthen procurement units Make procurement plan mandatory Conduct procurement assessment periodically Institutionalize System of e-Procurement

The Way Forward.....

Specific Recommendations
Debt Management National Debt Management Strategy Operationalize CSDRMS Software Establishment of Debt Management Office Debt Sustainability Study Institutionalize Debt Management System of global standards. Aid Harmonization Promote Joint Funding Arrangement (JFA) Strengthening Sectoral SWAps Make Aid information available to Public through web. Make arrangement for submitting foreign aid statement received by NGOs to the Parliament Encourage external Development Partners to follow National System.

The Way Forward.....

Specific Recommendations
Audit and Public Scrutiny Establish Ministerial Internal Audit Committee at the Cabinet Activate PAC on PFM reform activities Mainstreaming CSOs in the PFM processes Monitor implementation of OAG, PERC and PAC recommendations Easy access to the people to the PFM related information Develop capacity to implement risk based audit. Reimbursement Strengthen timely reimbursement of Foreign Added Projects particularly the claim, submission of the expenditures details and audits reports. IFMIS Timely submission of Government Consolidated Financial and Audit Report Full integration of all financial transactions into the proposed IFMIS

The Way Forward...

Proposed IFMIS
MacroEconomic forecasting Asset Management

MTEF/MTBF

Human Resource Management Revenue Administration

(Tax, Customs etc.)

FMIS Comprises
Genera Ledger Procurement; Accounts Payable; Banking and Cash Management; Budget Preparation; Budget Execution and Control; Financial and Management Reporting Payroll Foreign Exchange

Internal Audit

External Audit

Banking Systems and TSA Debt Management

Web Publishing and E-governance

Macro Economic Forecasting

The Way Forward...

Sustainability of PFM Reforms
Ownership, Internalization and Mainstreaming

Political Commitment and Bureaucratic support

Cross Cutting
Area Systems, Processes and Institutions
Structural Integration/ Response

Outcome
PFM Efficiency leading to Good Financial Governance

Systematic Harmonization and Virtual Collaboration

Global Standards and Norms

International Development Partners

Thank You Very Much For Your Attention !

Any Queries?