1. Tanzania: PEFAR 2008 Building PFM systems and Reducing Fiduciary Risk Presentation to the General Budget Support Annual Review 2008 Ubungo Plaza, Dar es Salaam November 25, 2008

2. 2 1. Background 2. Diagnostics 3. Reducing Fiduciary Risk: 1.Systems 2.Revenue 3.Expenditure 4.Cash Management 5.Fund Flows 6.Procurement 7.Internal Audit 4. Next Steps Overview

3. 3 Tanzania has consistently been ranked as having one of the best PFM systems in sub Saharan Africa. Background

4. 4 Background Community of interest : Governments preferred aid modality is budget support Wants to see greater use of country systems – Paris Agenda Improved accountability to domestic institutions Build systems to reduce fiduciary risk DP’s wish to provide budget support in situations where the level of risk is acceptable Where there is a credible reform program underway Fiduciary challenges are being adequately addressed

5. 5 Background

6. 6 Background

7. 7 The revised strategy for PFM Reforms was finalized in July 2008. Diagnostics

8. 8 Two reports reviewed fund flow arrangements. Diagnostics

9. 9 A Cash Management Study is underway. Diagnostics

10. 10 PEFA assessment for 2008 is being finalized. Diagnostics

11. 11 Diagnostics Two reports looked at PFM systems.

12. 12 Fiduciary Issue 1: Systems Core systems have significant weaknesses and are not adequately interlinked. Tax, HR, Procurement, Cash Management, Debt Management, Budget Preparation etc. are all stand alone programs. MOFEA (Nov. 24, 2008): “…there are multiple uncoordinated IT initiatives across the Government and we believe this is the problem to sort out.”

13. 13 Fiduciary Issue 2: Revenue There is no central revenue database. MOFEA cannot reconcile revenue collections in Line Ministries with amounts actually deposited in BoT. Revenue retention schemes complicate the situation. MOFEA (Nov. 24, 2008): “Testing of the database is expected to start in March 2009”.

14. 14 Fiduciary Issue 2: Revenue Budget execution of the development budget in 06/07 was 39%. In 06/07 $202 m. of budget support from UK, Norway and Japan not recognized as revenue from August 06 to July 07.

15. 15 Fiduciary Issue 3: Expenditures Some software components – such as the budget reallocation module continue to be dysfunctional after 10 years. Bank reconciliation has been and remains a major challenge. Just one account – 16:140 (Miscellaneous Deposits) had T.sh 1 trillion of outstanding reconciliations to process. (July 08) Around 80% of monthly transactions between MOF and BoT are not reconciled through the auto reconciliation process. MOFEA (Nov. 24, 2008): “From our point of view we recognize this as a fundamental problem to the operation of IFMS.”

16. 16 Government needs to gain control over its own cash from commercial banks. Fiduciary Issue 4: Cash Management

17. 17 Erratic fund flows result in the build up of arrears and adversely impact service delivery. Fiduciary Issue 5: Fund Flows

18. 18 Fiduciary Issue 6: Procurement Procurement remains a major area of concern. In FY 08 only 42% public bodies responded to PPRA’s request for information. Of the ones that responded, average level of compliance for MDA’s was 45%.

19. 19 Fiduciary Issue 7: Internal Audit Internal audit remains the weakest component of the control framework. It has consistently been rated “D” in PEFA assessments.

20. 20 Next Steps PFM reforms require a dynamic team and dedicated leadership. PFMRP Phase III is to be launched on November 27,2008. There is need to focus on improving the IFMS, revenue recording, bank reconciliation, cash management, fund flows, procurement and internal audit. We look forward to supporting MOFEA to ensure that the program achieves its objective to improve systems and reduce fiduciary risk.

21. 21 Asanteni Sana