June 2006PFMS1 Integrated Public Financial Management Systems (PFMS) Cem Dener ECSPE  Definitions  Evolution of Treasury Systems  Design and Implementation  Information & Communication Technology  PFMS Projects in ECA  Recommendations

June 2006PFMS2 Public Financial Management System (PFMS) is designed to  support all financial operations,  collect accurate, timely, complete, reliable and consistent information on all public financial events,  provide adequate management reporting,  support government-wide and agency policy decisions,  produce auditable financial statements. Definitions

June 2006PFMS3 Public Financial Management Cycle Asset / Inventory Mgmt Procurement/ Purchasing Mgmt of Budget Authorizations Commitment of Funds Payments and Receipts Mgmt Cash Management Debt and Aid Management Budget Review & Fiscal Rep. Audit and Evaluation Budget Preparation Policy Development and Review 0 Budget Execution Payroll Calcs HR Mgmt F M I S Web Publishing

June 2006PFMS4 Core Treasury System includes the following components:  Budget Execution and Monitoring  Accounting (general ledger, management of payments and receipts)  Cash Management  Financial Reporting  Purchasing / Commitment  Asset / Inventory Management Components Other Public Financial Management System components:  Macro Economic Forecasting  Budget Preparation and Approval  Debt and Aid Management  HR Management /Payroll Calculations  Support for Financial Control and Auditing  Web publishing  Financial Management Information System The combination of above components is referred to as integrated PFMS  Operational support for Spending Units

June 2006PFMS5 Evolution of Treasury Systems Treasury development process: (Treasury Reference Model) 1.Establishment of legal and institutional frameworks 2.Definition of coverage 3.Definition of system functionality 4.Design and implementation of Information Systems

June 2006PFMS6 Evolution of Treasury Systems 1. Establishment of legal and institutional frameworks  Legal : Approval and implementation of the organic budget law  Organization : Establishment of a countrywide MoF / Treasury organization  Personnel : Allocation of adequate qualified staff for MoF / Treasury management and operations

June 2006PFMS7 Evolution of Treasury Systems 2. Definition of coverage  Treasury control over government financial resources (Treasury Single Account)  Coverage of central budget (all government transactions are routed through treasury)  Coverage of extra budgetary funds and off-budget funds  Coverage of local (sub-national) governments

June 2006PFMS8 3. Definition of System Functionality PFMS ModuleCommon Implementation Options  Macroeconomic Forecasting Existing Models / LDSW  Budget Preparation LDSW / COTS  Core Treasury System COTS + General Ledger + Management of payments Interface with banking system (TSA) + Management of receipts Interface with revenue collection + Purchasing / Commitment Interface with procurement agency + Cash / Fund Management Interface with banking system (TSA) + Financial reports + Asset / Inventory Management  Operational support for SUs Interface for spending units (LDSW)  Internal Debt management LDSW / Interface with Debt Mgmt System  External Debt and Aid mgmt. Interface with Debt Mgmt System  Personnel database (HR mgmt)LDSW / COTS  Payroll calculations LDSW / COTS  Support for Auditing Locally developed reports  Management Information SystemCOTS [ COTS : Commercial Off-The-Shelf Software LDSW : Locally Developed Software ]

June 2006PFMS9 Evolution of Treasury Systems 4. Design and implementation of information systems  Secure countrywide network infrastructure  Development of web-based application software  Central servers and data storage/backup units  Standard field hardware  System and network management tools  Technical maintenance and support systems  System safety / security and business continuity solutions  Web publishing (web portal)

June 2006PFMS10 Treasury System Project Lifecycle A.Design phase (9-18 months)  High Level Functional Design: Legal and institutional framework  Detailed Functional Design: Coverage, functionality, scope, budget execution, budget classification, chart of accounts, reporting  Technical System Design: Technical architecture, software, hardware and networking requirements, implementation plan  Component sizing and preparation of procurement specifications B.Procurement phase (9-18 months)  International Competitive Bidding (ICB) for the development of application software (usually two-stage)  ICB for the installation of hardware and network equipment C.System integration and implementation (18-36 months) Design and Implementation

June 2006PFMS11 C.System integration and implementation (18-36 months)  Application Software (SW) design to meet functional requirements  SW customization and parameterization + locally developed SW  Communication infrastructure  Network (NW) equipment, and cabling  Hardware (HW) installations – central and field offices  Security solutions (incl. support for digital signature)  Pilot implementation  Training  Countrywide implementation (replication)  Data entry and migration  Backup and recovery solutions  Business continuity solution  Technical support and maintenance  Call Center / Help Desk operations  Documentation and manuals + web publishing Design and Implementation

June 2006PFMS12 Technical Assistance (TA) requirements vary depending on the existing institutional capacity  Development of the legal, regulatory and operational framework  Review/revision of existing budget classification and chart of accounts  Development of GFS / IPSAS compliant financial reports  Development of PFMS functional requirements  Design of technological architecture  Preparation of the technical specifications and bidding documents  Technical support during the implementation of Treasury/PFM system  Data conversion and interfaces with other systems  Training  Project management Design and Implementation (contd.)

June 2006PFMS13 Information and Communication Technology  Modern integrated PFM systems are designed and implemented as web-based applications  Implementation of the PFMS includes the following ICT components: [0]Establishment of countrywide network connections (communications lines) as Government contribution [1]Development of web-based Application Software (ASW) as a combination of customized package + locally developed software [2]Installation of central servers (database & application servers) and data storage units (fiber disk arrays) at the main system center & business continuity center [3]Installation of standard field hardware (domain servers, user workstations and peripherals) in central and field offices [4]Installation of network equipment, system and user management and engineering support solutions  Completion of countrywide network (physical) connections [0] by the Government is a precondition for signing the contracts with suppliers.

June 2006PFMS14 Technology Architecture 3-Tier Web-Based B C C 1 2 M S C Local Server Firewall Database Server(s) MoF / Treasury District Offices Spending Units Application Servers Web Server Collection Point (city center) FR line FR line Spending Units Internet Virtual Private Network Tunnelling Encryption Special DU lines for towns PCs / Thin Clients [ 2 ] Central Servers [ 3 ] Field Hardware [ 0 ] Wide Area Network District Offices 3 [ 4 ] Network Equipment [ 1 ] PFMS Application Software PFMS DB MSC : Main System Center BCC : Business Continuity Center

June 2006PFMS15 Web Based PFMS Model User Terminals System Center Database Server Application Servers Users Web Server Internal Audit Payroll Calcs. Asset/Invent Mgmt Budget Preparation Core Treasury System General Ledger Purch./Commit. Accts Pay/Rec Cash/Fund Mgmt Fin. Reports HR Mgmt/Pers DB Org/Workflow Mgm Web Portal COTS LDSW Internal + External PFMS Opr sup for locals COTS DB MoF, TDOs, Central Line Ministries and Gov Agencies Local finance directorates, local public authorities, municipalities Internal Access External Access LDSW DB LDSW : Locally Developed Software COTS : Commercial Off-The-Shelf SW VPN Internet 12 3 Interfaces PFMS DB

June 2006PFMS16 PFMS Functional Modules and Beneficiaries Integrated PFMS model proposed for Ukraine T Transactions P Plans C Contracts A Accounts R Reports I Interface TSA Treasury Single Acct Spending Units Local finance directorates, public authorities, municipalities, public institutions [ ~50,000 ] Integrated PFMS Ministry of Finance Treasury IT Dept FMIS + Business Continuity Center MoF IT Dept I I I State Property Fund MoE - Public Procurement Dept Internet & Intranet PFMS Web Portal External Users Reports T, P T, C T,P,C,A Main Civil Service Department Internal Audit I P, R Payroll Calcs. Asset/Invent Mgmt Line Ministries & Departments P, R K R UReports Debt Mgmt Budget Formul. PFMS Mgmt. Center I State Customs Service T, P I State Tax Administration T, P Core Treasury System General Ledger Purch./Commit. Accts Pay/Rec Cash/Fund Mgmt Fin. Reports Acct for localities Macro Econ Forec Treasury / PFMS BCC + Data Warehouse Statistics Institute I P, R HR Mgmt/Pers DB National Bank of Ukraine TSA 27 Oblast Treasury Dept 640 Rayon Treasury Div AS Kazna I Other Gov Agencies/Depts T Financial Reports

June 2006PFMS17 Typical PFMS Network Infrastructure District #n District #2 IP Network Countrywide VPN Regional / District Treasury Office PoP MoF PSTN TC Dedicated line Backup line F/O conn. Backup ISDN-PA District #1 District #2 District #n District # 1 Dedicated lines (online connections) [e.g. Frame Relay] On demand lines (online/offline) [e.g. Dial-Up or ADSL] All regional offices Internet access Line Ministries and Gov Agencies in Kiev Internet PoP FMIS + Business Continuity Center PoP Treasury PoP Backup Internet F/O conn. PFMS System Center Regional Treasury Office MAN Kiev Metropolitan Area Network State Property Fund MoE - Public Procurement Dept Main Civil Service Department State Customs Service State Tax Administration Statistics Institute Line Ministries & Departments K R U (Internal Audit) Other Related Gov Agencies HRMIS Budget Process Revenues Procure-Payroll-IA Data Exc FMIS + Business Continuity Center PFMS System Center Treasury / PFMS FMIS / Data Warehouse + BCC

June 2006PFMS18 Central Servers and Field Hardware  Central servers (database and application servers) and main networking equipment located at System Center (SC).  A disaster recovery solution is highly recommended. Treasury head office (system center) can be connected to the Business Continuity Center (BCC) through a separate fiber optic line.  BCC servers can be used to host the Data Warehouse (FMIS) to avoid overloading of operational servers at system center.  Central network and system management tools.  Workstations, servers and peripherals for treasury district offices. Information and Communication Technology

June 2006PFMS19 Information and Communication Technology Application Servers Treasury Head Office Tape Backup Business Continuity Center Cluster Sys Mgmt Sys Admin 10/100/1000 Switch VPN Router Support Call Center Router IP network 10/100/1000 Switch Tape Backup FDA Sys Mgmt Security Admin Router S D H 1000 Mbps 100 Mbps 100 Mbps Load Director S D H F/O Ring F/O Ring LAN Backbone WAN Backbone F F F Firewall S D H DB Server DBAS S D H Fiber Disk Array Load director Typical System Centers and Central Servers

June 2006PFMS20 Treasury/PFM System Network Infrastructure Network solution for a web-based system [on-line operation]  All Treasury District Offices (TDOs) are connected to the central Treasury office located at the center (usually within the MoF).  A Virtual Private Network (VPN) is established to form a secure intranet in which all public financial data can be transmitted in encrypted format.  This VPN is also used as the main communication platform of the Treasury/MoF offices by providing services, internet access and other utilities.  Voice over IP (VoIP) services can be utilized to reduce internal telecommunication costs of the Treasury/MoF offices. Solution for the spending units of line ministries and local gov [off-line / on-demand]  Selected spending units and local gov units can be connected to nearest TDO through off-line or on-demand [e.g. Dial-Up (DU) or Asymmetric Digital Subscriber Line (ADSL)] connections to enter transactions and to get their financial reports. ICT - Network

June 2006PFMS21 Information and Communication Technology THO IP Network Internet Router Firewall Web & security server WWW, FTP, Mail DB and Application Servers 100 Mbps S D H Router AAA Server 10/100/1000 Switch Gatekeeper (VoIP) Router PSTN Dial Backup Server Router VPN Router BCC F/O Ring PBX Fax Tel 2 x PRI H.323 Router Digital Voice Router LAN Backbone WAN Backbone NW management system Network Security VoIP System HS Modem MoF HO internal users Business Continuity Center S D H Typical Central Network Equipment

June 2006PFMS22 Observations  Development of the core treasury system is an important milestone for the implementation of a countrywide Public Financial Management System (PFMS), which enables integration and exchange of information available in various systems (e.g. Treasury, Tax, Customs, Central Bank) developed by different agencies.  The Financial Management Information System (FMIS), as the main decision support and monitoring system for public finance, is based on centrally available information gathered from all important components of the PFMS.  Development time for a fully functional treasury system in some transition economies and developing countries varies between 3 to 5 years. Large scale implementations of the treasury systems may take even longer.  Total cost of ownership of treasury system implementation depends on a number of factors, such as institutional capacity, scope, desired functionality, number of users and implementation method.

June 2006PFMS23 PFMS Projects in ECA

June 2006PFMS24 PFMS Projects in ECA

June 2006PFMS25 PFMS Projects in ECA

June 2006PFMS26 Recommendations Development of modern integrated PFMS according to the best practices is a complex task, which should be designed as a separate project. Implementation of such wide spread changes would require:  Government commitment and management support at the highest levels to ensure that the change process is completed smoothly  Inter-agency coordination and user involvement in system design  Building institutional capacity and technical skills starting from the preparation phase  Development of project management and technical support units within the MoF/Treasury for implementation and sustainability of new systems