Transcript Measuring PFM performance: PEFA

Module 5.3
Measuring the performance of PFM
systems
Module map
1.1 Introduction
1.2 The
Budget
2.2 & 2.3
Planning and
budgeting
1.3 Budget
Classification
2.1
Macroeconomics
of the Budget
4.2 Treasury
Management
3.2 Payroll,
Procurement
& IT
5.1 External
Scrutiny &
Oversight
3.1 The
Budget
Execution
Cycle
4.1 Revenue
3.3 Internal Control
& Audit
5.2
Decentralisation
4.3 Accounting &
Reporting
Administration
5.3 Assessing &
Recapitulation
Measuring performance: What?
• The objectives of PFM-(cf. module 1.1):
• The 3 specific objectives
 Aggregate fiscal discipline
 Allocation of resources in conformity with policy objectives
 Operational efficiency
• PFM “traditional” values: Regularity, timely, fair
procedures
• The role of Parliament in democratic society,
accountability, transparency
Measuring PFM system performance:
tools?
PER CFAA CPAR ROSC EC Audits FRA OECD/DAC NPA PEFA PMF
Review of public expenditure policies and
budgetary outcomes
Review of political incentives
High Level overview of PFM performance
Comprehensive review of PFM functions
Identification of PFM strengths and
weaknesses
Compliance Testing
In-depth analysis of capacity factors
Recommendations for reform
Assess risk to public funds
Track Progress over time
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Measuring PFM performance: PEFA
PEFA Strengthened approach
1.Encouraging a country-led reform program
defined within a Government Reform Strategy
and Action Plan
2.Ensuring a harmonised and donor aligned
program of support for the country reform
program
3.Adopting a common assessment framework
applied to a common pool of PFM information
for measuring and monitoring PFM reform
progress overtime
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Measuring PFM performance: PEFA
Mainly IMF
interest in
PFM
systems
Interest
e.g. WB,
regional
banks
1983
•Many donors
show interest in
PFM because of
increased
preference for
budget support
as aid modality
More
donors
1998
PEFA
Initiative
launched
2001
•Need for result
orientation in
development of
PFM systems and
harmonization of
PFM analytical
work
Paris
Declara
-tion
March
2005
PEFA
Framework
June
2005
•Strengthened
approach
developed by 8
donors and
shared by many
others
The PEFA Design Principles
• Focus on high level performance indicators
applied to central government level
• Widely applicable: Relevant to countries at all
levels of development
• Assessment must be evidence based
• Capable of calibration to capture progress over
time
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The PEFA Design Principles
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Comprehensive: cover all aspects of the PFM cycle
Use data that can be collected cost effectively
Define the achievement based on the 3 objectives
Incorporate a measure of the impact of Donor
practices on PFM performance
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PEFA Model
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PEFA Scope
The Central
Government Budget
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PEFA
• 6 critical areas of a PFM system are
distinguished
• On which performance is measured with a
standard set of
• 28 government performance indicators
• 3 donor indicators, reflecting donor practices
influencing the government’s PFM systems
• Most indicators are composed of various
dimensions: in total 72 dimensions
PEFA Scorings
• Calibration and Scoring
• Specific calibration of scores using a four point
ordinal scale (A, B, C and D)
• Intermediate scores (B+, C+, D+) for multidimensional indicators, where dimensions score
differently
• Arrow ▲ can indicate an improvement not
reflected in change of indicator score
• Two scoring methods:
• Method M1 ‘weakest link among dimensions’
• Method M2 ‘average of dimensions’
Budget formulation and
preparation
Indicators PI-11:Orderliness and Participation in
the annual Budget Process
Scores the existence and adherence to a fixed budget
calendar, the utilisation of clear and comprehensive
budget circulars whose preparation involves political
inputs
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Budget formulation and
preparation
Indicators PI-12: Multi-year perspective in
fiscal planning, expenditure and budgeting
Scores multi-year forecasts, links to the annual
budgets; existence of fully costed sector strategies, the
frequency and scope of debt sustainability analysis
carried out and the linkages between budgets and
forward expenditure estimates
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Predictability and Control
Indicators PI-16: Predictability in the availability of funds for
commitment of expenditures: scores the extent to which cash flows
are forecast and monitored, ceilings for expenditure commitment are
reliably communicated to spending ministries and the frequency and
adjustments to budget allocations
Indicators PI-17: Recording and Management of Cash
Balances: scores the regularity, comprehensiveness and timeliness of
reporting on domestic and foreign debt, and on cash balances; and the
controls instituted for contracting loans and guarantees
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Predictability and Control
Indicators PI-18: Effectiveness of Payroll controls: scores the
degree of integration between the personnel database and the payroll,
the timeliness of updates to the personnel records and payroll, the
effectiveness of internal controls to make changes to personnel and
payroll records and the utilization of payroll audits to guard against
ghosts and double dippers
Indicators PI-19: Competition, Value for Money and Controls in
Procurement: scores the degree of utilization of the open tender
method, the justification of the use of less competitive methods and
the existence and operation of a procurement complaints mechanism
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Predictability and Control
Indicators PI-20: Effectiveness of Internal Controls for nonsalary Expenditures: scores the effectiveness of a commitment
control mechanism and the comprehensiveness, understanding of
other expenditure control procedures and the degree of compliance to
the expenditure rules
Indicators PI-21: Effectiveness of Internal Audit: scores the
coverage of internal audit and the degree to which system audits are
carried out; adherence to a fixed schedule of reporting and the extend
to follow up and management response to findings.
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Accounting, Recording and
Reporting
Indicators PI-22: Timeliness and Regularity of Account
Reconciliation: scores the regularity and timeliness of accounts
reconciliation and the clearance of suspense accounts and advances
Indicators PI-24: Quality and timeliness of in-year budget
reports: scores the scope and consistency of reporting format with
the budget of the in-year budget reports; the regularity and timeliness
of the issuance of in-year budget reports and on the accuracy of the
data
Indicators PI-25: Quality and timeliness of Annual financial
statements: scores the completeness of financial information vis-àvis revenue, expenditure, financial assets and liabilities; the timeliness
of the submission of final accounts and the accounting standards
adopted
External Audit and Legislative Oversight
Indicators PI-26: Scope, Nature and Follow-up of External
Audit : scores the audit coverage, audit standards and range of audits
performed; the timeliness of audit submittals to the legislature and the
extent of audit follow up
Indicators PI-27: Legislative Scrutiny of the Annual Budget
Law: scores the scope of legislative scrutiny beyond details of revenue
and expenditure; the establishment and respect of well defined
procedures; the adequacy of the time allotted for the legislature to
review the budget and the adherence to strict rules on the extent and
nature of amendments to the budget
Indicators PI-28: Legislative Scrutiny of External Audit
Reports: scores the timeliness of examination of audit reports, the
extent of hearings on key audit findings and the the issuance of
legislative follow up actions and implementation by the executive
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The PEFA Iceberg – how
comprehensive?
PEFA Assessment
Procurement
Political context
Fixed asset register
Market
Supply chain management
Engaged civil society
Financial administrative
network
Capacity
Quality of expenditure
management
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The weakest link?
the strength of a foundation is
determined by it weakest
footing.
The performance of a PFM
system is determined by the
strength of its weakest PFM
activity.
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As a general rule PFM scores,
like the strengths of
foundation footings, cannot
be averaged
PEFA in practice
 Movements in scorings may vary only slowly over
time
 The weakest link (M1 method) will contributes
further to slow changes in indicator scorings
 Significant improvements may not be reflected in
a score change
 ‘Cherry picking’ of performance indicators without
substantial improvements
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Budget Support and PEFA
Agreed reviewable
milestones
Requirements for
demonstrated progress to
facilitate GBS
disbursements
Measurements in
progress over time
using PEFA
PFM Progress over time
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Key messages
• The PEFA Framework measures the performance
of PFM systems in achieving their objectives
• PEFA generally focuses on the “basics” of PFM
systems
• PEFA can be used to monitor progress in
strengthening systems
• PEFA does not deal with policy issues