INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 3.1 – Special issues: Payroll, Procurement and...

INTRODUCTION TO PUBLIC FINANCE MANAGEMENT

Module 3.1 – Special issues: Payroll,

Procurement and IT.

Module map

• Fraud

• Corruption

Key Risks

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Payroll, Procurement and IT

• Payroll procedures, processes and risks

• Procurement methods and best practice

• Use of IT, challenges of large IT projects

Module Outline

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Module Outline

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Share of government spending

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% Payroll Goods & services

South Africa 35 28

Jamaica 32 21

Moldova 26 22


• Effective control is achieved by segregation of three sets of data files:

• Personnel and payroll data is to be updated promptly & may be linked or one database

Payroll Management - 1

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Payroll procedures, processes and risks

funded posts - payroll

personnel database

Payroll Management - 2

• Personnel files are dynamic – starters, transfers, and terminations

• Restricted access to data, clear authorization

• Audit trails for all changes

• Controls over standing data on wage rates, taxation etc

• Payroll audits and checks undertaken regularly

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• Ministry of Establishments – controls the number and grades of posts and the personnel budget

• Public Service Commission – manages the appointment and promotion of staff (nominal roll)

Above two functions may be combined

• Central Payroll (Ministry ofFinance) – often decentralised

Personnel management

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• i) Degree of integration and reconciliation between personnel records and payroll data.

• (ii) Timeliness of changes to personnel records and the payroll

• (iii) Internal controls of changes to personnel records and the payroll.

• (iv) Existence of payroll audits to identify control weaknesses and/or ghost workers.

PEFA on Payroll

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• ActionAid study in 2006 showed that out of a sample of 41 countries with an IMF loan agreement, 18 had a ceiling on the wage bill

• largest group of public sector workers are teachers, the second largest are health workers

• “Wage bill ceilings have been used to protect macroeconomic stability and still may be needed in exceptional cases, but their use should become less frequent” (IMF Board 2007)

IMF public sector wage ceilings

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Module Outline

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Procurement is the process of:

• Identifying what is needed – procurement plan

• Determining who is the best person or company to supply this need – ordering/contracting

• Ensuring what is needed is delivered to the right place, at the right time, for the best price, and that all of this is done in a fair and open manner.

PROCUREMENT

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Procurement methods and best practice

Procurement Process

•procurement plan•specification/ bid documents


• Standard list of suppliers• Written quotations• Formal tenders – pre-qualification

Exceptions:• Single source procurement

• Restricted tendering

Procurement approaches

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• Integration of procurement into budget

• No initiation of procurement without available funds

• Segregation of duties.

• Transparency from the bidding stage to contract award (including bid prices)

• Effective Competition

Procurement management - 1

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• Effective competition in the selection of the contractors:• Controls over contract slicing• Adequate advertising• Sealed bids• Tender specification of both compliance criteria as well as

evaluation criteria• Prompt evaluations• Adequate period for complaints/appeals after contract

award

Procurement management - 2

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• Ministerial tender boards – letting contracts

• Central tender boards – letting larger contracts

• Public Procurement Authority – regulation, monitoring, complaints & training

• Central Purchasing Organisation

Institutional arrangements

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• (i) Transparency, comprehensiveness and competition in the legal and regulatory framework.

• (ii) Use of competitive procurement methods. • (iii) Public access to complete, reliable and timely procurement

information. • (iv) Existence of an independent administrative procurement complaints

system.

PEFA on Procurement (PI 19)

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Base-Line Indicators address four pillars :

• Existing legal framework that regulates procurement in the country

• Institutional architecture of the system

• Operation of the system and competitiveness of the national market

• Integrity of the procurement system.

OECD DAC – Methodology for Assessing Procurement Systems (MAPS)

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Assessing Procurement Systems

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Module Outline

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List your three key Advantages and disadvantages of IT

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Advantages disadvantages

Use of IT, challenges of large IT projects

We cannot move for computers!

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• Single integrated computer system for:

• all financial aspects: budgeting, general ledger, procurement payroll etc

• all governments: local, provincial and national

• May bring government into 21st century and facilitate other major changes, but:

• World Bank survey – only 21% successful; took seven years to complete and cost on average $12.3million

Integrated Financial Management Information System (IFMIS)

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Payables

Modules of an IFMIS

Purchasing

Receivables

General Ledger

Invoices/Payments

Revenue

tax & non-ta

x

Approved Budget Estimates

(e.g. MOH)

Fixed Assets

Comm

itmen

t

Contro

l

Cash & Debt Management

Reconciliation

Budget preparation

Salary payments

Payroll

Risks increase where:

• The project is more complex

• Capacity of local officials to critically assess all aspects of the project is limited

• The project is led or heavily influenced by external or foreign consultants

• Informed political support and the willingness to provide appropriate resources is not available

IFMIS can be a high risk approach to development

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• Payroll and procurement are risky areas for fraud and corruption

• Standard internal controls can reduce this

• International standards and guidance available

• Do not be seduced by IT – it is not always the answer

Key messages

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INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 3.1 – Special issues: Payroll, Procurement and...

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