Technology and Corruption: The Case of FMIS Bill Dorotinsky The World Bank March 26, 2003 IACC Seoul, Korea

Outline What is an FMIS? What are elements of an FMIS? What is an “integrated” FMIS? What constitutes a “good” IFMIS? Why invest in an IFMIS? IFMIS and Corruption Bank Experience Summary

What is an FMIS? Definitions System that: tracks financial events and summarizes information supports adequate management reporting, policy decisions, fiduciary responsibilities, and preparation of auditable financial statements Should be designed with good relationships between software, hardware, personnel, procedures, controls and data Generally, FMIS refers to automating financial operations

What are core and non-core FMIS systems? Definitions What are core and non-core FMIS systems? Core systems General ledger, accounts payable and receivable. May include financial reporting, fund management and cost management. Non-core systems HR/payroll, budget formulation, revenue (tax & customs), procurement, inventory, property management, performance, management information

What is “integrated” FMIS? Definitions What is “integrated” FMIS? Can refer to core and non-core integration But, generally, four characteristics* Standard data classification for recording events Common processes for similar transactions Internal controls over data entry, transaction processing, and reporting applied consistently Design that eliminates unnecessary duplication of transaction entry *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management Improvement Program. Washington, D.C., November 2001.

What constitutes a good system? Definitions What constitutes a good system? Ability to* Collect accurate, timely, complete, reliable, consistent information Provide adequate management reporting Support government-wide and agency policy decisions Support budget preparation and execution Facilitate financial statement preparation Provide information for central agency budgeting, analysis and government-wide reporting Provide complete audit trail to facilitate audits *from Core Financial System Requirement. JFMIP-SR-02-01. Joint Financial Management Improvement Program. Washington, D.C., November 2001.

Why invest in an IFMIS? Reduce errors of multiple data entry Accelerate reporting Enable data-matching, error detection Enable more analysis Accelerate auditing, exception reports Enable better oversight, management

An IFMIS and Corruption Improved internal reporting Improved detection Data-matching Improved detection Improved Analysis Improved trend detection Automated Audit Trail Better follow up Improved External Reporting Higher probability of detection

Assumptions comprehensive public finance system accuracy of records integrity of database reconciliation of bank, fiscal records corruption is within FMS domain other soft systems functional

Other soft systems of import Internal audit External Audit Timely, comprehensive reports to legislature/public Internal controls

What does Bank experience suggest? Public sector corruption sources not captured fully well in public financial management Soft systems are weak HIPC expenditure tracking results FMIS investments often fail

Public corruption Public Assets Non-public Assets Political Officials Theft of public goods, funds contract steering Nepotism Bribery/influence peddling/state capture Career Officials Theft of goods, funds Contract steering Abuse of office Bribery

HIPC Expenditure Tracking ‘soft systems are weak’ (Percent of countries not meeting each benchmark) 100% Note: Based on 24 countries’ Final Assessments 90% 80% 70% 60% 50% Meets GFS definition of general government 40% Timely functional reporting from class system Audited accounts to legislature within 1 year Projections integrated into budg. formulation Quality of internal audit (effective or not) Accounts closed within two months of y/e 30% Fiscal & monetary data reconciled 20% Extra (off) budget expend. Data on donor financing Pov. Red. Exp. Identified Classification of budget Low level of arrears Regular tracking Month reports 10% Outturn close? 0% Benchmark number: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Formulation Execution Reporting Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, 2002. See http://www.worldbank.org/hipc/hipc-review/tracking.pdf

Bank experience with FMIS If success is defined as… delivered as-specified ex ante 43 % delivered as specified delivered on-budget 50 % delivered on budget delivered on-time 21 % delivered on-time … then, only 21 % were successful

More Bank experience with FMIS But, these indicators only looks at project, not impact on over-all financial management, operations Improvements to reporting? Staffing changes? Generally, no or weak performance indicators in projects no baseline broader impact assessment difficult. However, in self-assessed sustainability 25 % unsustainable 69 % likely sustainable 6 % highly likely to be sustainable

Summary IFMIS/technology enabling tool for transparency and anticorruption But not substitute for attention to institutional environment (‘soft systems’) underlying factors (e.g. comprehensiveness) May not target prime areas of corruption May not be optimal investment for anticorruption