1. 1 Use of National Systems in Mexico Mrs. Gloria Coronel Fiduciary Forum April 29 – May 3, 2008 1300 New York Avenue, Washington, DC 20577 Phone (202) 623-2874 Fax (202) 623-157901 Inter- American Development Bank VPC/PDP

2. 2 Reduce transactional costs Avoid duplication Promote country “accountability” regarding expenditures and reflect that execution is a responsibility of borrower Reduce PEUs Indicator 5: Promotes use of National Systems (NS) to: The use of national systems covers: (a) Procurement (b) Financial management: budget, reporting and auditing Use of National Systems in Mexico Paris Declaration Agreements

3. 3 Financial control: Budget: 1. Incorporation in annual budget 2. Funds subject to country budgetary execution 3. Funds processed/deposited in country´s Treasury 4. Not require Individual bank accounts Reporting: Not require parallel accounting systems Use agreed upon reports generated by country system Auditing: Rely on audit opinion issued by Supreme Audit Institutions (SAI) Not require additional audits Not require different audit standards than those required by SAI Not require that SAI to change their audit cycle to audit funds Use of National Systems in Mexico Paris Declaration Agreements - Indicador # 5

4. 4 Where we are in México? Budget: Incorporation in annual budget and funds subject to country budgetary execution. Complied Loan cost table is simple and, in general, harmonized with the country´s budget/executing agency accounting (in cases of autonomous institutions) Operations with the Government are accounted for in separate budget accounts which identify the loan’s financing resources, contractual local counterpart and non-contractual local counterpart so as to have the total program/project costs. All is under country/Government rules Use of National Systems in Mexico

5. 5 Budget: Funds deposited in the country’s Treasury do Not Require Separate Bank Accounts. Partially complied Operations executed by the central Government have an execution agreement with NAFIN as the financial agent responsible to manage the loan before the IDB. Disbursements are made through a NAFIN account, and this institution transfers the resources to the country´s Treasury. Loans with the central government do not operate with advances. Some autonomous entities do use advances and maintain separate bank accounts as required contractually. Operations with autonomous entities are managed directly with IDB and the accounts in dollars, assigned to the respective executing agency (EA), are in the country’s Treasury. They maintain separate Bank accounts as required by the contract. Use of National Systems in Mexico

6. 6 Reporting: 1.Not required parallel accounting systems and, 2.Use standard reports generated by the country system Partially complied Systems: It is not required a parallel accounting system but there is duplication of effort when transferring expenditures to other systems/sheets in order to convert those expenditures into dollars based on a daily exchange rate or monthly average exchange rate Report on expenditures: Public executing agencies’ reports are delivered at an aggregate level (i.e. by states and transactional summaries) in local currency. The report in dollars is prepared in Excel sheets. In a few cases, a system or “queries” have been designed to generate these reports. Autonomous entities produce the reports in Excel, entering or copying data for conversion and presentation. Use of National Systems in Mexico

7. 7 Reporting: 1.Not required parallel accounting systems and, 2.Use standard reports generated by the country system Partially complied Reports: When there is a financial agent like NAFIN, the EA presents all reports to NAFIN for review. Until recently, NAFIN requested copy of supporting documentation for payments. In March 2008, NAFIN also agreed not to required EAs to provide copies of support documentation for payment, a practice IDB discontinue several years ago. While conversion of expenditures to its equivalent in another currency is required, the Borrower or EA will need to develop/keep systems or tools to facilitate this process. The MDBs should harmonize and simplify this requirement. Use of National Systems in Mexico

8. 8 Auditing: Rely on audit opinion issued by Supreme Audit Institutions (SAI); Not required additional audits; Not required different standards than those required by SAIs; Not required that SAI to change their audit cycle to audit funds. Not complied The Federation’s Supreme Audit (ASF) does not audit any MDB project. Based on the national law, audit processes begin 6 months after the end of the period/exercise and reports to the Senate are presented 9 months after or a total of 15 months after the close of the accounting period. External auditors selection to review EFA for MDB projects and other audits required by the country are coordinated by the Secretariat for Public Functions (SFP) and the EA contracts the audit. Use of National Systems in Mexico

9. 9 The indicator 12 of the Paris Declaration recommends harmonization among the multilateral agencies on requirements and procedures as well as carrying out jointly evaluations of country capacity and its monitoring. In Process PDP/CME, IBRD-ME y SFP are working together to develop standardized and harmonized TORs for project audits. (Harmonization in procurement is well advanced) SFP contracts more than 300 audits per year. It has approx. 70 eligible audit firms in the country. All of those firms are considered eligible by the World Bank; but not all are for IDB. In 2007, there were efforts to carry out a PEFA; but there was no interest by the World Bank and there is no evidence of the country’s interest. In 2008, the World Bank has begun PEFA at the sub national level. Use of National Systems in Mexico Harmonization

10. 10 Problems/obstacles: Variety of executing agencies with their own accounting and budgetary systems, which makes difficult to conduct only one evaluation/assessment to determine the reliability of financial controls and records Lessons learned: Use of country system approach and efforts to avoid parallel systems have focused on operations with the Government. We need to work on simplification and use of EA systems for TC operations. Cost table must have a DIRECT relation to the EA chart of accounts. Project Team Leaders need to change their approach and begin by considering and knowing the chart of accounts of each EA. Use of National Systems in Mexico

11. 11 http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=837000 Living with Sovereign Debt – How to Limit the Risks of Sovereign Finance.http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=837000 http://www.oecd.org/dataoecd/53/56/34580968.pdf Declaración de Paris - españolhttp://www.oecd.org/dataoecd/53/56/34580968.pdf http://www.oecd.org/dataoecd/55/58/39858712.doc - definitions for Survey Paris Declarationhttp://www.oecd.org/dataoecd/55/58/39858712.doc http://www.oecd.org/document/33/0,3343,en_21571361_39494699_39497377_1_1_1_1,00.html dedicated website for monitoring the Paris Declaration.http://www.oecd.org/document/33/0,3343,en_21571361_39494699_39497377_1_1_1_1,00.html http://www.oecd.org/dataoecd/43/34/39413124.pdf ‘ how to build Monitoring and Evaluation Systems to Support Better Governmenthttp://www.oecd.org/dataoecd/43/34/39413124.pdf http://www.oecd.org/dataoecd/53/7/34583142.pdf Harmonizing Donor Practices for Effective Delivery, vol 2http://www.oecd.org/dataoecd/53/7/34583142.pdf http://www.oecd.org/dataoecd/32/23/37848494.xls 2005 OECD budget survey of Latin-America Phase I of the survey developed by the Budgeting and Public Expenditures Division of the OECD Public Governance and Territorial Development Directorate. It has been reviewed internationally by experts in the fields of budgeting and public management. Phase I pre-tested the questionnaire in selected Latin American countries. This phase was conducted in conjunction with the Inter- American Development Bank and the London School of Economics and Political Science.http://www.oecd.org/dataoecd/32/23/37848494.xls Suggested Reading