33085 Capacity Enhancement b r i e f s S H A R I N G B E S T P R A C T I C E S A N D L E S S O N S L E A R N E D PUBLIC FINANCIAL ACCOUNTABILITY IN PAKISTAN The Impact of PIFRA on Capacity Ismaila B. Ceesay, Sr. Financial Management Specialist, SARFM, World Bank This paper highlights the capacity enhancement support provided under the World Bank­financed Pakistan Improvement of Financial Reporting and Auditing (PIFRA) project and six lessons learned to be considered in designing similar projects: (a) address capacity constraints at every level, that is, indi- vidual, organizational, and institutional, (b) avoid addressing an entire large country in one project, (c) avoid introducing state-of-the art technology in an environment of largely unskilled professionals, (d) avoid too many project components, (e) ensure ownership and commitment by the project agency, and (f) ensure collaboration among donors. Strengthening Pakistan's Financial · Government budgeting, accounting, and financial Accounting, Reporting, and Auditing reporting. This component is using a fully auto- System mated, integrated, and interfaced financial The Government of Pakistan, conscious of the need accounting and budgeting system under a new to improve its accountability systems and processes, accounting model. As a result, the federal as is implementing within its financial management well as the provincial finance departments are reform program the World Bank­supported Pakistan now preparing government budgets under the Improvement of Financial Reporting and Auditing new chart of accounts, using the new accounting (PIFRA) project. PIFRA is designed to support intro- model devised under PIFRA. The project has duction of a top-to-bottom government budgeting, also achieved progress in implementing the accounting, and auditing system. Beginning its first accounting module in eight pilot sites at the fed- phase in 1997 and still ongoing, PIFRA has reached eral, provincial, and district levels, representing a satisfactory level of implementation about 20 percent of government financial trans- Based on a diagnostic analysis of the status of actions. Capture of about 80 percent of central accounting and auditing functions, the project was government financial transactions is expected designed to achieve the following overall objectives: with full project implementation. · Improve public sector accounting and financial · Government auditing. This component is provid- systems, including budgeting ing guidelines for introducing international · Provide the basis for enhancing public sector auditing standards and capacity building on accountability modern auditing techniques and methodologies, using automated tools for auditing automated · Support improved institutional capacity for eco- accounting systems, including planning and nomic policymaking and management. sampling techniques. With the audit manuals To achieve these objectives, the following compo- already developed, the project is providing the nents comprise the fundamental ingredients to requisite audit software for audit testing and enhancing public sector accountability: account analysis and will train auditors in use of A P R I L 2 0 0 4 NUMBER 6 the software as well as audit planning and mon- of the Comptroller General of Accounts (CGA) and itoring. Under the new accounting model, agencies preparing the accounts at each level of gov- Pakistan will adopt the International Public ernment, as well as the Auditor General's office. To Sector Accounting Standards on cash accounting fulfill outreach and transparency objectives, PIFRA II and also facilitate progress toward accrual will provide basic IT knowledge infrastructure and accounting by adopting modified cash account- fully involve users of PIFRA information within the ing. This will provide the basis for the reporting various tiers of government. framework, against which an audit opinion can The salient features of the components of the pro- be formed. In the meantime, a few of the posed PIFRA II, apart from continuing implementa- provinces have begun performance audit imple- tion of PIFRA I deliverables, are as follows: mentation, thus, supporting institutionalizing of · Strengthening government financial manage- "value for money" audit practices. ment policy and capacity, including building of a · Institutional development. This component cov- highly skilled internal audit staff through train- ers (a) improvement of training facilities for ing and recruitment and developing a compre- accountants and auditors, (b) human resource hensive set of internal controls, internal audit policymaking in financial management, includ- work programs, and reporting regimes. ing training of accountants and auditors, (c) Successful completion of this component will project management, and (d) introduction of an help achieve adequate financial management automated management information system for across government, ensure easy incorporation of the Office of the Auditor General. With introduc- local government financial data into provincial tion of PIFRA, the audit and accounts functions and national accounts to meet devolution needs, have been divided; as a result, the Auditor and achieve sufficient professional capacity to General of Pakistan is now no longer responsi- bring the entire accounting chain to acceptable ble for preparation of the accounts he audits. technical, operational, and quality standards. PIFRA I delivered an internal audit manual; · Other policy support for economic management. PIFRA II will roll out use of the manual to all This component covers the cost of selected stud- government departments with appointment of ies on economic and financial issues to lend internal auditors in departments. support to the ongoing macroeconomic, struc- tural, and fiscal reform program in Pakistan. It · Expanding PIFRA systems implementation and will also entail revision of government financial capacity by (a) covering remaining sites, (b) rules for consistency with the new accounting extending the systems network for wider model and design of a "comprehensive reconcili- selected access and interface, (c) developing an ation framework" for interfacing PIFRA overall systems and data architecture to ensure accounting systems with the banking (State compatible information flows among the differ- Bank and National Bank of Pakistan) and rev- ent layers of the national government, (d) con- enue departments. This component has already ducting in-depth user training nationally, and improved the professional capacity of economic (e) building IT capacity by recruiting fixed-term departments (Finance, Economic Affairs, and technical professionals. Successful completion of Planning) and the Central Bureau of Revenue, these subcomponents is instrumental to achiev- producing more reliable and comprehensive ing full government financial accountability and macroeconomic data for decisionmaking. transparency. Consultants are being recruited to work on the · Modernizing the Auditor General's Office by, reconciliation framework for public accounts. among others, restructuring, upgrading, retool- To consolidate PIFRA I achievements and sustain ing, and consolidating professional capacity in and deepen the accountability framework in financial certification audits and value for Pakistan, the Auditor General of Pakistan requested money audits. Successful completion of this that PIFRA II be designed and appraised by the component would support independent verifica- World Bank. PIFRA II will support the government's tion and certification of accountability systems ambitious reform program, including capacity build- and processes used in the Government of ing, automation, transparency, and devolution of Pakistan. The audit manual produced in PIFRA I power and information. The project contains strong will support auditor training in PIFRA II. capacity-building components to support the Office A P R I L 2 0 0 4 NUMBER 6 · Strengthening communication and change man- 1. Improved ability of project financial officers agement. In tandem with modifications in to prepare project financial management staffing and systems associated with the project, reports and annual accounts for audit in a communication and change management com- accordance with Bank guidelines ponent shall facilitate consultations with and 2. Enhanced understanding by auditors of information for key stakeholders, both inside auditing requirements for Bank-financed and outside the government. projects and the specific issues to watch for in doing performance-based auditing Other Nonproject Accountability Enhancement Initiatives 3. Focusing the attention of Accountant General staff on procedures to adopt in Apart from the project-supported activities that integrating and consolidating project enhance financial accountability described above, receipts and expenditures in the whole of numerous other initiatives are in place to entrench government civil accounts consistent with good practices in Pakistan's accountability frame- the guidelines of the Controller General of work: Accounts. · The World Bank regularly organizes regional CGA conferences to discuss ways to improve As part of the capacity enhancement strategies for accounting and reporting, including gradual parliamentary public accounts committees (PPACs) adoption of accrual accounting in the public sec- at the federal and provincial levels, the following tor in South Asia Region countries. The first few activities are being programmed: conferences held along this line have positively 1. World Bank­supported technical assistance influenced the Pakistani authorities to embrace to PPAC secretariats to support their mem- ideas on international reporting standards and bers in designing work plans, procedural contemplate the gradual progression of the guidelines, and reporting standards and PIFRA project toward adoption of accrual accomplishing timely reviews of audited accounting in select departments under pilot accounts and reports. Regular ongoing ses- arrangements. sions between Bank staff and PPAC secre- tariats are also resulting in concrete actions · A meeting of South Asia regional Auditors to clear backlogs of reviews of audited General, now being organized, will build capaci- accounts and reports of the federal and ties of individual countries' Auditors General provincial governments submitted by the through sharing of experiences, commitments, Auditor General of Pakistan to PPACs. and potential exposures in applying interna- tional standards on auditing consistent with 2. Periodic donor-supported in-country semi- International Organisation of Supreme Audit nars, workshops, and study tours for PPAC Institutions standards. The Auditor General of members and regional enhancement of Pakistan has however begun effective applica- their capacity and understanding of PPAC tion of the standards in his public sector audit- roles and responsibilities. One such pro- ing. gram, recently carried out for South Asia PPAC members under World Bank aus- · World Bank country financial management staff pices, increased PPAC understanding of are gearing themselves to provide periodical their invaluable role in the accountability workshops for the Accountants General's staff chain. (provinces), selected CGA staff (federal), selected Auditor General's staff (federal and Lessons Learned provinces), directorates general for provincial For a variety of reasons, implementation of new and district audit staff, and project financial offi- public financial management systems is gener- cers; these workshops would cover project ally slow. Actors in the implementation chain tend accounting, reporting, and auditing guidelines to resist change, which is sometimes exacerbated by consistent with new Bank policies on World opportunities for illicit advantage offered by weak Bank­financed projects. Results from these internal control processes over a large volume of interventions include the following: financial transactions. The PIFRA experience has provided a number of ership of or commitment to the objectives of lessons learned for consideration in designing simi- other components. lar projects: · When multiple donors are interested in project · Capacity constraints needing attention existed at success, collaborative arrangements with them every level: human resource, organizational sys- should exist from the beginning to increase tems and structures, and the broader "institu- momentum toward effective implementation. tional" level (policies, culture, norms, and The problems encountered in PIFRA implementa- behaviors). Although slow, PIFRA implementa- tion are now being largely averted, partly through tion has been addressing the full range of con- intense dialogue among the Bank's task team and straints: skills shortages and weaknesses project implementation and management units. The through improved human resource policies, critical phase (registering of implementation suc- training programs, and manuals; organizational cesses, including full migration from legacy to constraints through new financial and account- PIFRA automated systems at some pilot sites) is ing systems and changes in organizational now being completed. Collaborative arrangements responsibilities (e.g., dividing audit and with other donors--International Monetary Fund, accounts functions); and inadequate enabling Asian Development Bank, and U.K. Department for environment through policy support to macro- International Development--to recognize PIFRA economic, structural, and fiscal reform pro- implementation progress as part of their prescribed grams. overall financial management reform agenda with · Trying to address an entire large country in one the Government of Pakistan are equally increasing project was overly ambitious. Implementation the momentum of project implementation. With full was made more difficult by the unanticipated achievement of project objectives and provision of radical devolution of the federal state's responsi- additional support under PIFRA II, it is hoped that bilities to several lower tiers of government. Pakistan will soon boast an unparalleled public sec- · Introducing state-of-the-art technology in pro- tor financial accountability system within the devel- cessing financial information was probably oping world. inappropriate in an environment of largely unskilled professionals. A less ambitious Peer reviewers: Abid Hasan, Operations Adviser, approach would have been more realistic. SACPK, and Hanid Mukhtar, Senior Economist, · The project design had too many components, SASPR making difficult and perhaps unachievable demands on management coordination. Reference · A project should not be anchored in a single World Bank. 2003. Pakistan Country Financial Accountability institution if that institution is only one of sev- Assessment. Report Number 27551-PAK (December). eral involved in implementation and lacks own- About World Bank Institute (WBI): Unleashing the Power of Knowledge to Enable a World Free of Poverty WBI helps people, institutions, and countries to diagnose problems that keep communities poor, to make informed choices to solve those problems, and to share what they learn with others. Through traditional and distance learning methods, WBI and its partners in many countries deliver knowledge- based options to policymakers, technical experts, business and community leaders, and civil society stakeholders; fostering analytical and networking skills to help them make sound decisions, design effective socioeconomic policies and programs, and unleash the productive potential of their societies. WBI Contacts: David Potten, Lead Specialist, Country Programs Tel: 202-458-7873, Email: dpotten@worldbank.org Imtiazuddin Ahmad, Sr. Operations Officer Tel: 202-458-1878, E-mail: Iahmad2@worldbank.org Visit our website for more information and download the electronic copies of all Capacity Enhancement Briefs: http://www.worldbank.org/capacity A P R I L 2 0 0 4 NUMBER 6