Governance and Anticorruption Issues Public Financial Management

Interpreting the PFM Cycle Budgeting – Estimation and allocation Funds Flow – Sourcing, channeling and custody Expenditure – Procurement and payments Accounting and Reporting – Systems and Standards Auditing – Independent compliance monitoring Oversight – Public Accountability

Budgeting Typical Issues Integrity of Budgeting Process – Is it aligned with development objectives? – Are key stakeholders appropriately engaged? – Is it led by a knowledgeable team? – Is the Budget used as a control tool? Integrity of Cost Estimates – Are they supported by empirical evidence? – Has market research been done? Is Budget designed to be a Control Tool? – Remedial action on variances?

Funds Flow Typical Issues Multiplicity of Financing Sources. Complexity (bureaucracy) of the funds flow process. Multiplicity of spending units. Multiplicity, location and custody of Bank Accounts Deliberate delays in releasing funds.

Expenditure Typical Issues Procurement Efficacy of the Procurement Process Assets Safe custody of high value commodities Payroll Payroll Fraud Cash Payments Significant Cash Payments and Control over Documentation Control over Documents supporting Results Comparing payments with deliverables

Accounting Typical Issues Systems Records Compliance Robustness of accounting systems Internal controls Segregation of duties Management override Timely monitoring of Control Accounts Timely accounting for Advances Complete documentation Records Payment processing rules Compliance with accounting standards Timeliness of routine reporting Examples of common weaknesses in accounting

Financial Reporting Typical Issues Undue delays in meeting routine reporting deadlines Inconsistencies between Reports and Underlying Records Intentional and unintentional errors that remain undetected Quality of Reports and Compliance with Standards Simplicity of Reports

Oversight Who Detects Fraud in Government? Stakeholder access to timely, complete and relevant information. Existence of effective complaint handling arrangements. Independently monitoring resolution of reported issues. Source: 2010 Global Fraud Study by the Association of Certified Fraud Examiners –based on 1,843 fraud cases occurring between January 2008 and December 2009 in 106 countries.

What does this all means? Awareness Preventing fraud and corruption is everyone’s business The health sector deals with large volume of high value items that are susceptible to misappropriation Controls can only be as effective as the people who exercise them

What does this all means? Skepticism The big issue is not whether fraud will happen – it’s when will it happen Exercise a high degree of skepticism and follow up all leads Risk management should include a continuing process of identifying and responding to weaknesses

What does this all means? An Enabling Environment Effective corporate governance and fraud prevention is dependent on the “tone at the top” Independent oversight is a key deterrent. Corporate culture should include the space for staff awareness and open discussion.

Discussion Sahr Kpundeh Senior Public Sector Specialist & GAC in Projects Focal Person for Africa Region The World Bank, Washington DC