Report No. 25729
Country Hndanc                     Accountabffl'y Assesment
February, 2001
Peru Country Management Unit
LCC6C Unit
Latin America and Caribbean
Document of the World aank
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*        WORLD BANK REPORT
LATIN AMERICA AND THE CARIBBEAN REGION
FINANCIAL MANAGEMENT AND ACCOUNTABILITY
TEAM - LCOAA
II          INTER-AMERICAN DEVELOPMENT BANK
PERU
COUNTRY FINANCIAL ACCOUNTABILITY ASSESSMENT
February 2001
This document was prepared by Paul Sisk ( World Bank FMS LCC6C) with the
cooperation of Lynnette Asselin (IDB INT/FIS) the Inter-American Development
Bank, William L. Dorotinsky (World Bank PRMPS), Marco Antonio Reyes
(Consultant), Nelly Ikeda and Ana Maria Arteaga (Peru Resident Mission)



Table of Contents
I     Executive Summary
II   Introduction
III   Findings and Conclusion on the Fiduciary
Framework
IV    Control Environment
V     Government Auditing
VI    Disbursements
VII   Accounting/Reporting
VIII Budgeting/Personnel
Annexes
I Financial Administration Legislation
II Review of Audit Standards
III Detail on Budget Processes
IV People Met
V Acronyms
VI Action Plan



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I   Executive Summary
The financial management tools at the disposal of the
Congress and the Executive Branch comprise 1) robust financial
administration legislation, 2) highly trained and dedicated staff in
financial management posts, in particular in the CPN and the
CGR, and 3) a highly effective integrated financial management
system.
On the other hand, the executive overrode its own controls by
selective application of the integrated financial management
system and evaded the fiscal oversight checks and balances by
under-funding the Supreme Audit Institution's program. At the
same time, the two bodies with legal and ethical responsibility to
provide oversight, i.e. Congress and the Supreme Audit
Institution (CGR) , did not insist on their respective rights to
delve into high risk and significant areas of public spending
which are now revealed as sources of corruption.
The Defense and Security Spending represented in 1999
fiscal year 21.7% of the total Central Government spending and
27.4% of discretionary spending but the Ministries of Defense
and Interior were outside of the integrated financial management
system and the Supreme Audit institution did not effect its
external control over Defense. In that year through the allocation
of scarce cash resources by the Ministry of Economy and
Finances the approved budget of the defense and security
functional area was effectively funded 100% while the social
services functional area's budget was funded 88.7% and economic
services only 79.8%.
The integrated financial management system (SIAF-SP) provides
a powerful repository of detail on financial transaction wherever
it is applied and the budget structure provides the basis for
effective historical cost accumulation against the goals set in the



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Institutional Plans of each entity whether controlled through
SIAF or ad hoc systems. This information is put to good use both
by the Ministry of Economy and Finance and by the spending
entities and has resulted in effective budget control, optimum cash
management and informed decision making. It has not, however,
resulted in effective external reporting, and therefore has not
contributed to transparency, because of the i) the lack independent
verification of integrity on the components of Ministry of
Defense, ii) the limited dissemination of the report on execution
and financial position of the public sector, and iii) the absence of
reporting of execution by Program.
Primary in any plan to restore transparency and accountability to
the public sector are i) the effective oversight by Congress of the
budget process and review of the allocation of available funding
of the approved budget, ii) more detailed and frequent reporting
on expenditure to the Congress and    iii) the unfettered
surveillance and reporting by an auditor general of the acts and
reports of the executive.



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II Introduction
In line with the planning memo and the Initiating Memorandum
this CFAA-Peru looks exclusively at the public sector financial
accountability arrangements and its primary aim is to assess their
strengths and weaknesses as they relate to the use of Bank funds
particularly under non-investment lending operations.
Financial accountability refers to the requirement for one
party to report on the deployment of funds entrusted to that party
by another party through independently verified disclosures such
as audited financial statements. For effective management of
economic resources by government a financial accountability
framework is essential and should include:
i) a legislative framework that is relevant to the current
financial reporting environment,
ii) application of appropriate accounting standards and
reporting format,
iii) competent financial staff,
iv) independent and *competent review of financial
operations and reports,
v) adequate financial management is implied in financial
accountability and comprises: cash management,
planning, control and supervision of financial operations.
The Peru assessment was based on a CFAA questionnaire taken
from the Financial Management Sector Board Proposal of
November, 1999 which addresses these issues.
The body of the report analyzes existing financial accountability
processes under the headings of its principle components and are
grouped as they relate to common legislation or systems e.g. i)
Govermment Audit Function ( National Control System SNC) ii)
Disbursements  iii) Accounting and Reporting ( National



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Accounting System and SIAF) and iv) Budgeting and Personnel
(Budget law and regulations).
Specific weaknesses relevant to the fiduciary framework are
presented in Findings and Conclusions on the Fiduciary
Framework along with the overall conclusion and the actions
which could improve the fiduciary framework.
Particular appreciation is expressed for the cooperation received
from the management of the Auditor General ( CGR), the
National Accountancy Office ( CGN) and the Ministry of
Economy and Finances.
III Findings and Conclusions on the Fiduciary Framework
(1) Financial Independence of the Supreme Audit Institution
The independent verification of integrity function, assigned under
the law to the Peru's Supreme Audit Institution (Contraloria
General de la Repu'blica- CGR) is undermined by the executive
through limited funding of its program. Despite guarantees in the
Constitution and in the National Control System Law to keep a
budget in real terms the CGR's budget has been shrinking in real
terms and as a percentage of the annual budget of the Central.
Government. CGR's proposed work program for 2001 calls for a
staff of 915 while only 615 positions have been approved.
(2) Supreme Auditor's Programming and Access to Evidence
The Political Constitution and the National Control Law stipulate
the obligation and the right for the CGR to plan and effect audits
of any area of the public sector without restriction to access to
information. The history of reviews by the CGR indicates a
failure to effect or supervise the external control function in the
Ministry of Defense. Given the significance of this budget, at
15% of the Central Government budget, and the high relative risk
of the operations it is clear any risk analysis of the public sector



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would demand the regular intervention of the CGR. Effectively
the CGR did not have access or freedom to review operations in
this ministry.
(3) Reporting on Audit Findings
The influence which a Supreme Audit Institution may exert is a
function of the reports on findings and their dissemination. The
CGR's report on the Annual General Accounts, which provides a
consolidated financial picture, receives the same distribution as
the General Accounts of which just 3 copies of the 1999 report
were circulated. The auditor's report on the General Accounts is
highly relevant and informative to any user of the financial
reports since it reveals the reliability of the reports and informs on
entity specific financial management deficiencies.
Similarly the special examination reports on topics of control or
on specific allegations are presented only to the Head of the
executing unit. As such neither the Congress nor the public is
adequately informed on the state of control in the executive
branch.
(4) Prosecution for Malfeasance
The state has closed only 26 out of 303 cases brought against
public officials for malfeasance from 1993 to Mach 2000. The
opinion of the CGR is that this poor result arises from the absence
of specialized courts to try this type of offence and the limited
resources available to the CGR to pursue these through their own
Public Prosecutor.
(5) Ethics in Government and Anti-Corruption
The current approach to Ethics in Government is not supported by
comprehensive legislation, funding or enforcement of an anti-
corruption plan. The CGR developed and published a proposal for
a national anti-corruption plan which would bring Peru's approach



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and legislation in line with the practices applied in other countries
in the region. There has been no response to this initiative to date.
(6) Performance Auditing
The recent update of the law on the Annual General Accounts
mandates the CGR to render an opinion on the management
performance of the consolidated public sector. The CGR has
formulated a strategy to provide some response to this mandate
but it is not clear from the law what is meant by the requirement.
Given the limited resources under which the CGR is operating
and the significant areas which must now be subject to special
examinations in response to allegations and the renewed interest
of Congress in fiscal oversight, the effort for the perfunctory
review of management performance should be subject to a cost
/benefit analysis and discussed openly with Congress.
(7) Disbursements
The SIAF-SP integrated financial management system was
extended in 2001 to the Ministry of Defense and the Ministry of
the Interior. This system ensures simultaneous updating of budget
controls, bank controls and financial accounting. Where,
however, advances are used the system must book these in a
pending account while the detailed support of the eventual use is
presented. In the case of these Ministries bookings to the budget
control is effected at the time the advances are made on the basis
of the intended use, there is therefore no assurance of the eventual
presentation of adequate documentary support.
(8)  Financial  Management   in  Municipalities  (  Local
Governments!
The SIAF-SP Coordinating Unit in the Vice Ministry of Hacienda
is designing a municipal version of SIAF. As evidenced from the
CGR's reports   most municipalities neither have adequate
financial management systems nor are in a position to develop
these with the sophistication to comply with the current financial



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administration legislation. The significance of this weakness is
that it undermines the credibility of the municipal administration
and is an impediment to their development. Given the urgency of
the need in the municipalities the Vice Ministry should review the
priority assigned to this development.
(9) Reporting
The integrated financial management system (SIAF) is the
repository of the information of all financial transactions of the
Central Government and decentralized entities which are using it.
The information provided by SIAF-SP is consolidated with the
financial statements from the municipalities and the state
enterprises generated through customized systems to produce a
public sector wide comprehensive financial and budget statement.
The budget structure provides for historical cost accumulation at
the level of project/activity which corresponds to the specific
objects in the Institutional Operating  Plan  from  the
project/activity level, and at the Program level which is the
aggregation of the projects/activities and corresponds to the
general objective in the Plan. This is excellent management
accounting information and is used effectively to control spending
and to cost activities related to the outputs implied in the
objectives. The financial reporting external to management, i.e.
that which goes to Congress does not, however,   report
accumulations at the Program level which would be pertinent to
Congress and any else reviewing the performance of the spending
agencies.
Similarly reporting outside management is done only annually
through the Annual General Accounts which has an extremely
limited distribution and is available to the Congressional Review
Committee only six months after year end.



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It should also be noted that there is an effective override of
Congressional review of the annual accounts for the executive
since the executive is empowered by the Constitution to pass a
bill on the Accounts should Congress not approve these within a
specified term.
(10) Budgeting
Congressional control of the use of public funds, however, is
undermined in Peru by 1) the allocation of available funding by
the Ministry of Economy and Finance among the approved
budget envelopes whereby the executive can assign its priority to
discretionary spending without Congressional input, and 2) the
use of Emergency Decrees to effect budget changes and approve
supplements.
Conclusion on the Fiduciary Framework
Three different control environments can be distinguished in the
Peruvian public sector: (i) the Central Government and its
decentralized entities, (ii) local governments, and (iii) the public
sector enterprises. While all three are subject to common financial
management legislation and regulations the risks, compliance,
processes and supervision vary.
The public sector enterprises, which are of least significance to
the Bank's risk, are supervised by the Fondo Nacional de
Financiamiento de la Actividad Empresarial (FONAFE) and have
adequate financial management systems as evidenced by their
timely compliance with reporting requirements and the positive
audit opinions issued by private audit firms in accordance with
the demands of the National System of Control.
Municipalities, on the other hand, are characterized by weak
financial management systems. While most do manage to present
plans and budgets in line with DNPP directives and to report



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budget execution and accounting closings on time for inclusion in
the   Annual General Accounts (out of a total of 1826
municipalities 1658 reported on time for inclusion in the 1999
Annual Accounts) the quality of the reporting, however, is poor as
judged from the auditors opinions on the sample subject to
external review in the work on the Annual Accounts by the CGR.
The Central Government and its decentralized entities benefit
from the discipline imposed through the SIAF system which
provides optimum cash management, as this is concentrated in the
DGTP, budget control through the automated controls of budget
availability, and timely and accurate reporting as this is automated
and linked to the cash and budget booking. This system was only
recently extended to the Ministry of Defense and Ministry of the
Interior where it is not applied to its fullest extent.
Peru is exemplary in the creation and application of public sector-
wide financial management components such    as:  the
comprehensive coverage of the Auditor General (CGR), the
uniform accounting standards, charts of account and procedures
which allow the preparation of consolidated reports by the
National Accountancy Office and the uniform budgetary
classifications and guidelines issued and monitored by the DNPP.
Peru's Fiduciary Framework to support non-investment lending
would, however, comprise in addition to the existing controls a
plan to achieve the following:
Supreme Audit Institution
The Congress must exercise its influence over the budget process
and ensure that the CGR budget is not jeopardized and that it
fulfills the legal minimum under the National Control Law.
Congress should insist on an annual in-depth audit of the Ministry
of Defense with the specific objectives to i) ensure that uses of
funds were made in accordance with procurement guidelines and



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ii) ensure that advances to regional operations are fully supported
by adequate external documentary support.
All final audit reports from the SAI should be given the widest
possible circulation, e.g. an abstract of these, at least, should be
emitted no longer than six months following conclusion of the
field work and made available to the public.
The Attorney General and the Fiscal Committee of Congress
should establish a review task force to set and effect a strategy to
address the ineffectiveness of the state of pursuit of charges of
malfeasance.
It is appropriate for the executive to convene a commission to
analyze the technical merit of the CGR proposal in terms of how
it would arrest corruption and how it fits in the overall strategies
of modernization of the state.
The CGR should present to the executive and the Congress an
analysis of the work implied in the mandate to report on the
Performance of Management in the Annual General Accounts
with conclusions on what comfort can be derived from the
resulting opinion compared to the cost of the related work.
Disbursements
The extension of the Integrated Financial Management System to
the Ministries of Defense and Interior must be made with the
fullest requirements for supporting the ultimate uses of the funds
advanced.
The development of a municipal version of the SIAF integrated
financial management system should be assigned greater priority
so that this may be available within the coming fiscal year.
Reporting



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The external reporting on the budget execution should be made at
the program level and should be done half-yearly at least, and
could be done separately for major components of the public
sector and need not be consolidated. This could be incorporated in
the report required by Article 12 of the Fiscal Prudence and
Transparency Law.
Budgeting
Restoring of the control over Budget to the Congress through
limiting the use of Emergency Decrees to their proper use and
applying transparent guidelines for the funding of approved
budgets.
IV Control Environment
The Peruvian Public Sector is divided into 5 categories of entities:
the Central Government (557 entities), the National Fund for
Financing Government Enterprise Activity (42 entities), the
"DNPP" (General Directorate for the Public Budget in English)
Institutions (99 entities), 1,826 municipalities, and 101 Public
Beneficiary Societies.
The Central Government entities have the following hierarchy: 26
sectors that are divided into 141 agencies (pliegos) comprising
557 Executing Units. SIAF-SP is now operating in the 557
Executing Units, which accounts for approximately 63% of the
Year 2001 National Budget.
The National Fund for Financing of Government Enterprise
Activity ( FONAFE) includes the 42 public enterprises such as
Petroperu, Electroperu, TANS, etc., as well as the Social Security
System (ESSALUD). The DNPP institutions include the 8
revenue regulatory, supervisory and administrative entities, 3
service entities, 1 housing fund and 87 municipal enterprises
accounting for 4% of the budget. The 1,826 municipalities are



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divided among the 194 provincial municipalities and only account
for 3-4% of the National Budget. There are 101 Public
Beneficiary Societies in 24 departments and the Constitutional
Province of Callao these are decentralized public entities that
raise 90% of their resources from voluntary and philanthropic
activities or services to the community, their budget impact is
very small.
Many of the basic controls that are to be applied to the use of
government funds are derived from the legislative framework
very often with basic principals laid down in financial provisions
in the constitution and laws related to management of public
finances ( Haslin and Allan 1998).
The responsibilities and rights of the public sector relating to the
administration of financial resources in Peru are provided in an
elaborate set of laws and regulations, a sample of these are listed
Appendix 1. These laws are developed within the objectives and
limitations provided in Chapter IV of the Political Constitution of
Peru which empowers the state to raise funds through taxation
and indebtedness providing conditions applicable to both. Article
76 of Chapter IV sets out, in a general manner, guidelines for
procurement in the public sector. The use of public funds is
strictly controlled through the public sector budget  whose
development and limits are set out in Articles 77, 78 and 79 of
Chapter IV. Reporting on the use of the funds and the financial
position of all entities in the public sector is required by Article
81 which provides specific dates for its submission to the
President and Congress. Lastly the independent verification of
integrity of the financial reporting and reporting on the probity
and compliance with laws and regulations in the use of funds is
provided for by Article 82 wherein the CGR status and
obligations are stated. This financial administration legislation
applies equally to all levels of the public sector, central



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government, decentralized entities, public sector enterprises and
local governments.
In the development of the integrated financial system, however,
the Ministry of Economic and Finance has found that the current
body of laws and regulations are so demanding in terms of the
number of reports and complexity in formats that this represents a
barrier to automation and integration of the components. As such
a inter-institutional Task Force has been set-up to develop a
cohesive stream approach to regulation ( SIGA).
V Government Auditing
Peru Supreme Audit Institution (SAI), the Auditor General of the
Republic (CGR) is experiencing a rebirth with the new and
significant demands which have arisen in the last six months,
demands which originate in the role assigned to this supreme
audit institution in the country's Political Constitution of 1993,
demands for which the CGR is well suited, but demands which
were not being satisfied by the CGR.
The Congress, the transitional government, the electorate and
stakeholders in general have turned to the CGR to shed light on
the state of financial management in Peru's public sector which
has been exposed as the seed of corruption in the country.
Coincident with this rise in demands was a change at the helm in
the CGR with the corresponding changes in key staff and a
change in the institution's strategy. The changes implied under
the new strategy speak to the gap which exists between the full
legal role of the CGR and the role which it was playing. These
initiatives include the development of a Masters Degree program
at local universities in anti-corruption and in public policy, the
decentralization of decision making to the Regional offices,
integration of the work of the internal audit units in the executing



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entities, the direct intervention into areas thitherto considered ( in
practice not in law) outside their scope i.e. the operations of the
Ministry of Defense and the National Intelligence Service, a
rapprochement with Congress and the Ministers in the use and
relevance of CGR findings and finally, a wider dissemination of
the results of the work of the CGR..
The shift underway should address the weakness noted by the
OAS's Mission on Strengthening Democracy in Peru where the
section on Supervision and Balance of Powers of the report
makes an explicit recommendation for the Congress to strengthen
its oversight of the CGR.
The principal objectives of a SAI should be set out in laws and be
generally known to the public and particularly to elected officials
who comprise the authorizing bodies for raising and using public
sector resources. While the objectives may vary given the
particular institutional arrangements in different political and
cultural settings the underlying common thread is to make a
contribution to the transparency and accountability of
governments.
INTOSAI members agree 20 years ago on the role of a SAI, in the
preamble to their " Lima Declaration on Guidelines of Auditing
Precepts" they state:
-whereas the orderly and efficient use of public funds constitutes
one of the essential prerequisites for proper handling of public
finances and the effectiveness of the decisions of responsible
authorities:
- whereas the specific objectives of auditing, namely, the proper
and effective use of public funds, the development of sound
financial management; the proper examination of administrative
activities; and the communication of information to public
authorities and the general public through the publication of



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objective reports, are necessary for the stability and the
development of states in keeping with the goals of the United
Nations;
Section 1. Purpose of the Audit
The concept and establishment of audit is inherent in public
financial administration as the management of public funds
represents a trust. Audit is not an end in itself but an
indispensable part of a regulatory system whose aim is to reveal
deviations from accepted standards and violations of principals
of legality, efficiency, effectiveness, and economy of financial
management early enough to make it possible to take corrective
action in individual cases, to make those accountable accept
responsibility, to obtain compensation, or to take steps to prevent-
or at least render more difficult - such breaches.
This is generally accomplished by reviewing the acts of the
executive branch and reporting to the legislature on the legality of
the government's financial administration and on the reliability,
relevance, and completeness of their reporting and the economy,
efficiency and effectiveness of the use of public sector resources.
This reporting provides transparency either by revealing failures
and abuses or by confirming as reliable the government's
accounts on its operations. The accountability is up to the powers
(judicial and legislative) to hold the executive responsible for
their acts through the application of sanctions afforded by the law.
The attributes and powers of an entity which has the SAI role in
the state include i) independence from influence of those subject
to review, ii) the tenure of the head of the SAI should be free
from threat of removal for carrying out his or her duty and iii) the
institution should be ensured adequate funding to effect its
mandate. The SAI must also be self-sufficient in technical matters
relevant to its work and be free to effect review of their election
without restriction to information on government operations.



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Outputs of the SAI comprise the reports and opinions on the
financial statements, the results from special investigations, and
recommendations in control and use of public resources.
The following examines the mandate, attributes and outputs of the
independent verification of integrity function in Peru's public
sector.
Mandate    (Watchdog for whom?)
Peru's supreme audit institution (CGR) has a clear primary
mandate stated in Article 82 of the Political Constitution wherein
it is charged with " supervising the legality of the execution of
the public sector budget, public credit operations, and generally
the operations of the entities of the public sector. Implied in
Article 81 on the presentation to the General Accounts by the
executive is the responsibility of the CGR to audit and report on
these accounts. This mandate is interpreted and regulated through
the National Control System law (SNC) where Article 1 of the
law stipulates that the system must supervise the correct, efficient,
economic, and transparent use of public resources and the
performance of public officials in compliance of norms and in
obtaining the targeted results.
The SNC sets out the components and objectives of the statutory
ex-post control function in the public sector entities. Under the
law the independent verifiers of integrity of public sector records
and of the probity of the conduct of public officials comprise not
only the CGR but the internal audit units (OAIs) of the spending
departments and the private audit firms ( SOAs) wherever
engaged by the state under audit terms of reference.
While the law distinguishes internal from external audit their
objectives are indistinguishable and the CGR has the
responsibility for the quality of all government audit work and the
authority to invoke the OAIs wherever deemed necessary. The



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law recognizes CGR as the oversight body of the national system
of control, it is subordinate to no other authority in carrying-out
its control function and is guaranteed unlimited access to records.
The CGR has articulated and communicated a clear a mission to
fill the mandate assigned in law which may be translated to
English as follows:
We are the regulating body of the National Control System which
supervises the correct administration ofpublic resources through
audits, government control and the development of standards to
promote the effectiveness, efficiency, transparency and probity of
public management.
We hold high standards of quality in the service we offer and our
principal strength is our staff, their professionalism, capacity to
innovate, and particularly their devotion to their work, high
morals and integrity.
We are at the service of the Peruvian Society and their
institutions acting with objectivity and impartiality, our goal is to
be recognized nationally and internationally as public sector
leader in contributing to Peru's development.
The strategic objectives selected by the CGR to achieve their
mission include: improving the quality of government audit,
consolidating the development of the National Control System
(SNC), leading a national effort to promote a culture of honesty
and transparency in the use of public resources and establishing
channels of communications with the citizens, Congress, and the
media thus strengthening CGR's role and contributing to greater
government control and audit.
As for CGR's primary mandate of reporting on the general
accounts and the legality of budget and credit operations it



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combines the review of the general accounts financial statements
with the review of the budget execution and the credit operations
and, as such, the auditor reports on these three areas in 3 separate
opinions but from the work of one coordinated operation. Work to
support these opinions is carried out by the OAIs in the spending
entities and by private firms in state enterprises. Only an
immaterial portion of the financial operations of the public sector,
mostly small municipalities, are subject to these opinions.
As for reporting on the efficiency and economy in the use of
public resources and supervising the conduct of public officials
the CGR conducts, or supervises the Internal Audit Offices who
conduct, special investigations planned in response to their risk
analysis or to specific allegations of misconduct originating in the
Congress or in general public. The mandate in regard to value for
money or performance auditing was made more explicit in 2000
with a change in law on reporting on the General Accounts of
resources in the prior year. In 1999 CGR's mandate was
broadened to include audits and reporting on the environment and
natural resources.
Duties assigned to the CGR which are line functions comprise the
review and approval of additional budgets for cost overruns in
excess of 15% on construction projects, the review of the all
donations to the country, and the review of certain bidding
processes and the supervision of the project "vaso de leche".
CGR's mandate is clear, in line with international best practices,
supported in law and well translated in a mission statement and
specific objectives.
Independence
The issue of independence must be examined both from the legal
statues as well as from the practice which CGR has chosen to
follow.



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Tenure of the Auditor General
The Constitution does provide the legal basis for the
independence from the executive of the Auditor General once
appointed, the AG is nominated by the President but confirmed
in the position by the Congress, the term in office is for 7 years
and non-renewable ( presidential term in office is 5 years, but
may be reelected to another term). The AG can then only be
removed by Congress and this only on the grounds of serious
misconduct or error.
The record under the democratic regimes (1980 to present)
indicates that of the 4 AGs who served in this post, before the
incumbent, 2 completed their full term, one was removed for
gross negligence and one was removed with the dissolution of
congress in 1992, an act by the executive. The incumbent is
subject to a congressional commission investigation on her
performance in a prior post at the Customs office. It is not clear
why these issues were not adequately dealt with before the
Congress confirmed her in the post. This raises questions as to the
interest and capacity of Congress to supervise the CGR under the
Fujimori administration. The record of shorten terms in office by
the heads of the supreme audit institution does challenge the
concept of independence of this post from influence of the
executive.
Financial Independence
The CGR operates under the SNC law which presents the
authority and responsibilities of the CGR. Article 31 of the law
provides that the CGR's budget will stay constant in real terms
from one year to the next. Article 17 states that the CGR is the
oversight body of the SNC and that it has functional,
administrative and financial autonomy.



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Such provisions are meant to free CGR from subordinating its
work program to the influence which the executive may exert
through the budget process. A review of the budgets executed
from 1998 through to the approved budget for 2001 indicates that
the approved budget for 2001 is 5% lower in nominal terms than
the 1998, this implies a significant reduction in real terms.
Another indication of the gap in resources in the CGR is the
staffing proposed in line with the minimum plan of action to the
mandate in fiscal 2001, the CGR requested a staff of 915 and only
two thirds, or 615, was approved. Although the CGR has the right
to invoke the internal audit offices this is already implied in the
plan and the shortfall is determined after considering the
contribution from the use of OIA and private audit firms. The
executive similarly applies influence over the CGR through the
discretion they have in approving salary levels implied in the
budget submissions. They have been no increases in CGR salaries
since 1996.
The allocations are ultimately decided by Congress but the
relation between the MEF   and Congress in the budget
development allows little recourse to the CGR in opposing MEF.
An example of the limitations accepted by CGR is the fact that
there is zero capital budget for fiscal 2001, given the accelerating
technological advances in financial management it is unwise to
leave IT resources stagnant even for a year.
Programming and Access to Records
The CGR is free and empowered to set its scope as it sees fit to
best comply with its mandate. While much of the work in the
CGR and other organs of the National Control System is
committed to the review of the General Accounts, there is ample
discretionary resources to address the significant or sensitive
operations of the public sector that represent the largest risks.



23
The choice of operations should be driven from a risk analysis.
Under this analysis the significance of spending in the Ministry of
Defense and the nature of operations should have led to regular
coverage, however, CGR did not intervene, during the Fujimori
administration, directly in these areas or influence the work of
the Internal Audit in this Department. Similarly the omission of
any horizontal review of the use of the proceeds from the sale of
state enterprises is not consistent with a risk analysis driven
program.
It is indicative of the limited supervision that Congress provided
that no questions were raised on the matter of scope of the annual
plan and that no specific review was requested in the areas of
Defense or use of the privatization proceeds.
It is noted that the CGR has explicit legal rights under the
National Control Law to access any information and the right to
examine any records of any nature in the government entities
even if these documents are related to state security (secret)
operations.
Dissemination of AG Reports
The International Organization of Supreme Audit Institutions in
the Lima declaration clearly commit Auditor Generals to wide
dissemination of findings, the spirit of the provision is to give the
widest circulation possible to ensure extensive discussion of the
findings and corrective action. In addition to any opinion of
financial statements there should be an annual report summarizing
the activities and most importantly the findings and
recommendations arising from all audits.
The two main outputs of the SNC are the opinion on the General
Accounts (with the budget and public credit opinions) and the
reports of the special examinations. The former is the product of
thousands of man hours, the single most demanding undertaking



24
of the AG in any given year and takes up to 25% of the control
resources in the public sector. The subject of the report is the
most important public document on the use of public funds. Only
three copies of the 1999 annual financial statements, ( the general
accounts) were distributed,  to MEF, the President of the
Republic, and to the Review Committee of Congress. While this
in now under review the reports of findings of special
examinations are circulated just to the head of the audited entity.
It is clear that the maximum oversight body, the Congress, must
have access to these to evaluate performance and risks in the
executing agencies.
Congress may call the CGR at any time but there are 3 regular
presentations by the CGR:
- with the Congressional Fiscal Oversight Commission to inform
on the work carried-out and results of the CGR during the year.
- with the Congressional General Accounts Review Commission
to present its findings on the audit of the General Accounts.
- with the Congressional Budget Committee to support and
explain the budget proposal.
Capacity
The experiences and development of CGR in the 1990s are
presented in the CGR report "Memoria de una Gestion-CGR
1993-2000" and can be summarized as follows.
While the CGR was dedicated to recovering the operating
capacity of the National System of Control and of CGR itself in
the period from 1994 to 1999 it had to adopt to a new model of
public sector management which added demands for new talents
and processes. CGR recognized that it suffered from weak
organization, few norms, insufficient infrastructure, absence of
reliable reporting systems, limited funding and uncompetitive
remuneration. In response to this the CGR was reorganized
between 1993 and 1995, increasing technical capacity and



25
assigning staff for sector specialization by level of government.
In 1995 the Internal Audit Function in governments units was
strengthened.
The CGR of Peru is the current Head of the Latin American
Associations of SAIs and is active in committees on auditing for
the public sector. This leadership is indicative of the technical
capacity of the institution as is the record of internal standard
setting like the NAGU (or Standards for Government Auditing)
which compare favorably to the INTOSAI guidelines.
The audit standards and their application in the CGR and the
work supervised by the CGR clearly place the CGR in a
technically sound position. Most recently, however, the CGR is
limited in the number of specialized staff, professional
development for current staff, and the information technology
available.
Follow-up and reporting on findings
Under a new procedure in the CGR the line managers are
responsible for keeping a database of all audit findings originating
in their sectors. These findings are followed-up by the Audit
Managers and regularly reported to the respective Chief
Executives of the entities and the Congressional Commission on
the Review of the General Accounts. The follow-up is made
through the OAI with detailed routine reporting, the CGR
follows-up with the Department Head on exceptions.
Corruption and Anti Corruption
Transparency International rated Peru in 2000 as number 42 of 90
countries reported in order of least corruption perceived. It
assigned Peru a score of 4.4 out of 10, 10 being highly clean.
Illegal practices by public officials, employees of the public
sector and politicians for self enrichment are treated separately



26
and specifically in the Peruvian Penal Code (1990). Crimes
against the public sector administration are set out in Title XVIII
of the code and comprise the codification of crimes by private
citizens ( chapter 1) and by public officials (chapter 2). Crimes by
public officials specified in the code are abuse of authority,
extortion, embezzlement, and corruption. It casts a wide net
across the public sector. Abuse of authority comprises arbitrary
acts  against citizens, failures  to  perform  one's  duty,
insubordination, desertion and nepotism. Extortion comprises
extortion, collusion, and privilege granting. The code defines
embezzlement as the illegal use or profit from public resources
under one's charge, and considers the misuse of resources
destined to social assistance particularly serious. It further
comprises inappropriate use of state assets, embezzlement,
withholding due payment. Corruption under a separate heading
lists the reception or demand of favors by public officials
intended to influence the performance of his duties, any conflict
of interest, influence peddling and a catch-all provision on illegal
enrichment. There is also a provision on the penalty for those who
bribe an official. The crimes carry minimum sentence of 2 years.
The success of this law in deterring corruption cannot be
determined directly but the record of cases handled by the CGR's
public prosecutors paints a dismal picture of its efforts to bring to
justice offenders who were subject to special examinations by the
CGR. From 1993 to March 2000 of the 303 cases have been
prepared and sent to the courts by the CGR, only 26 have
concluded. Reasons for this poor output arise, in the opinion of
the CGR, include the backlog of cases in the courts, the lack of
specialized courts to try these matters, and the limited resources
available in the CGR to handle and follow-up the cases.
Whatever the cause, wherever the responsibility, the message to
perpetrators is clear, the state has been unable to apply sanctions
for criminal acts against the state's economic interests by public



27
officials. The significance of this failure grows when one
considers the number of allegations brought to the CGR with
grounds for investigation which have been sent to the respective
Audit Managers for special examination. There have been 644
allegations sent to the audit managers in 1999 and 2000,
considering the average value of the cases sent to the courts in
1999 of one million soles there is a possible inventory of millions
of dollars of damages awaiting investigation and frustration in the
courts.
In 1996 money laundering legislation was introduced to the Penal
Code as it relates to drug trafficking. More recently the Banking
Superintendence introduced regulations on the reporting of
suspicious transactions and anti-laundering measures required for
all financial institutions. The regulations are taken from the
CICAT model and their application is closely monitored by the
superintendence of Banks and the external auditors. No one to
date has been convicted under the law which is being reviewed to
treat separately drug trafficking and money laundering.
Anti-corruption
The office of Ethics in Government within the CGR has
underway a number of initiatives pertinent to government control.
Peru signed in July 1997 the Inter American Convention on the
Fight Against Corruption. The convention was ratified by
Congress but the national legislation has yet to be adapted to the
Convention's provisions.
In 1997 the CGR prepared a project on the declaration of personal
assets and commercial interests for government officials to render
more effective the current practices which is not subject to any
verification. The proposal was to permit CGR to audit these
declarations. The proposal was passed twice by Congress and
twice turned down by the executive.



28
The CGR has been active in promoting ethics in government by
organizing forums and publishing experiences of other countries.
Their mandate for taking-up ethics is found in Article 1 of the
SNC which charges CGR with supervising the performance and
conduct of public officials. The CGR published in 1999 a code of
ethics for government auditors and a compendium of
presentations at an international conference on ethics in
government. Most recently the CGR presented and published in
the official gazette a proposal for the establishment of a National
Anticorruption Plan to advance the cause of transparency and
integrity in the public sector.
Value for Money / Performance Auditing
The basis in best practices for performance auditing by the
independent review institution (SAI) is found in the INTOSAI's
position on objectives and scope of the SAI through references to
the aims of the audit which include revealing deviations from
accepted standards of efficiency, economy and effectiveness.
The National Control System law and the CGR mission statement
consider reporting on the efficiency, economy and effectiveness
of government operations and the new law on the General
Accounts ( Law 27213) mandates the CGR to opine in their report
on the General Accounts on the " management performance in the
public sector". Management of performance is considered by the
CGR to mean the integrity of the processes of the public sector
aimed at obtaining its objectives.
While the CGR has in the past , as is common in an SAI's
approach to this mandate, conducted ad hoc and thorough reviews
of areas targeted for efficiency, economy and effectiveness, they
are now required to provide comprehensive and annual coverage
in their review of the General Accounts to arrive on an opinion
for all public sector entities on their performance management.



29
There are two approaches to performance auditing 1) the
substantive studies approach comprising ex-post examinations of
performance of program against some standard and 2) the
systemic approach which focuses on the adequacy of performance
management, including performance information or systems to
produce the information and may include a comparison to good
management practices of the performance management by
looking at the evaluation capacities and measurement systems
within the auditee.
The approach proposed by the CGR comprises 2 levels of work;
the first, like other work on the General Accounts, will be carried-
out by Internal Audit Units as part of their annual plan of control
actions and will comprise the review of the evaluation and
monitoring processes in the entities. The second level is the
consolidation of these reports into a comprehensive report. The
CGR has opted for the systemic approach and will analyze the
application of the performance management system rather than
the effectiveness of the program.
Performance auditing by focusing on results or effectiveness
supports decentralization and greater flexibility for the executing
agencies. Performance management is useful and appropriate
where risk management is applied as fewer controls and
prescriptive procedures are applied, where there is greater
emphasis on measuring performance and there is more direction
and less direct involvement from the Central Administration. The
auditor, through performance auditing, may ensure the integrity of
performance measurement information systems and by reviewing
the approach to risk management.
It is not clear that the Peruvian Public Sector is geared to such an
approach or how this undertaking will detract in resources from
the primary mandate. The CGR should present to Congress its



30
analysis of the costs and benefits of the work implied in the new
mandate.
Internal Audit
The SNC law recognizes government auditing as the objective ex-
post examination of the financial and administrative operations of
public sector entities. Government auditing comprises financial
and operational auditing as well as special reviews designed to
investigate specific allegations. The CGR as the oversight body of
the SNC has the responsibility to oversee all government auditing
functions and has the right to order work to be carried out by any
of the government auditors as it deems fit. Resolution No 162-95-
CG also requires the CGR to supervise the compliance of the
work of the OAIs with government auditing standards.
The Internal Audit function is regulated in the SNC law under
which the OAI are one of the 3 sources of government auditors.
As such the mandate of the OAIs is identical to that of the CGR,
their work comprises the same objectives, they work to the same
standards, and ultimately must carry-out direct orders from the
CGR.
In practice the OIA leave 20% of their time available for
unscheduled requests for the CGR for special examinations.
Additionally the OlAs do the financial and budget audit reported
in the CGR opinion on the General Account. The annual program
of work and each OIA report is reviewed and approved or
observed by the CGR, in keeping with their oversight
responsibility and in fulfilling their specific responsibilities.
Specifically in the cases of the Ministry of Defense and the
National Security Agency neither the plans nor the reports are
reviewed.



31
The spending departments are effectively staffed by internal
auditors, there are 623 internal audit units throughout the public
sector covering all but the very small municipalities.
Outputs
The auditor general's report on the general accounts expresses an
opinion on the universe of the public sector financial position, and
the results of the year. This can be done because the MEF,
through the CPN, generates comprehensive timely reports for the
whole public sector and independently for each entity and in
consolidation. Similarly the CGR can direct and use the work of
the OAI to conduct the review of the controls and reported
figures. The figures are submitted to the CGR by March 31st and
the figures with the auditor's opinion are sent to the President and
Congress by August 31St ( prior to 2001 this was by Nov 15). The
auditors report incorporates all significant qualifications from
audits on the individual entities included in the sample subject to
audit.
In the report on the General Accounts the CGR also expresses an
opinion on the compliance by these entities with the budget law
and regulations, this implies a review of the legality and correct
presentation of the expenditures. Similarly the CGR reports on
fairness of the Statement of Public Debt.
Through this exercise the Executive can determine reliably the
destination of its spending and better gauge the performance of its
ministries given a true picture of their costs. This independent
verification of the government reports is of immeasurable value to
the Congress in closing the circle of their authorization of the use
of public funds and the public should be particularly interested
and appreciative of these tools in providing oversight of the
executive.



32
The AG follows generally accepted auditing standards in the
review and reporting on the audit and the work being done fulfills
the clear mandate to report on the general accounts.
Evaluation
Explicit in the annual budget law is the requirement for evaluating
by the executing agency of the advance toward goals stated in the
annual program and reporting on this. The evaluation is based on
the advance in indicators which are agreed to and included in the
budget program. The report of the indicators includes the
commentary by the agency on factors affecting performance.
An institutional evaluation is carried-out every semester by the
Budget Envelope and comprises reporting the achievements of the
targeted goals, comparison of actual income and expenditures to
budget, activity costing and the identification of corrective action.
These evaluations are reported to the National Budget Office
(DNPP), CGR and the Budget Committee of Congress. The
evaluation of the effect of the budget execution is done by MEF
each quarter. The CGR considers these reports and the systems
that generate them in their review of the budget exercise in
arriving at their opinion on the budget reports.
Conclusion on Fiduciary Framework- External and Internal
Audit
The limitations placed explicitly, by the executive, on the CGR
through under-funding relative to its constitutional mandate and
legal entitlements (SNC law) and the self-imposed ( until the
recent crisis) of not insisting on the review of certain significant
government operations, in particular the Ministry of Defense, as
well as the limited dissemination of the auditors reports have
denied the public of this assurance of scrutiny of the use of public
funds.
VI Disbursements



33
Structure of Public Sector in Peru
Cash Management (Treasury) System
General Directorate of the Treasury System (DGTP)
Article 18 of the Organic Law of the Ministry of Economy and
Finance, and the related regulations, established the General
Directorate of the Public Treasury (DGTP), as the rector
organization for treasury operations with direct dependency on
the Vice Minister of Finance (Hacienda).'   The DGTP is
responsible for centralizing the collection and management of
public sector funds. It issues and evaluates norms and procedures
for the management of all public funds, whatever their source.
Treasury directives are obligatory for all UEs, unless they are
expressly excluded from the system by law. The Vice Minister
participates in the decision making process of public financial
management in general.
The DGTP is divided into eight offices, each with a distinct role:
* General   Office:  responsible  for  planning,  direction,
coordination, and control of all the treasury mission and
functions.
* Executive Office: provides administrative assistance and
support as well as being delegated as the immediate authority
over the other Treasury offices.
* Legal Office. responsible for drafting, issuing, circulating and
evaluating the norms and procedures for the treasury system as
well as carrying out studies and investigations on public funds
administration, and issuing opinions on the proposed legal
dispositions related to government financial management.
lThe Ministry of Economy and Finance in Peru has two Vice Ministers: Vice Minister of the Economy
and Vice Minister of Hacienda.



34
* Control and Administration of Treasury Instruments Office.
coordination, administration, and control of government
treasury instruments.
* Collection Control Office: evaluates and reports on those
revenues that are administered by the Treasury in coordination
with the collection agencies and the National Bank, and ensure
the devolution of excess taxes paid.
* Resource Distribution Office. provides the programmed funds
to the government entities that receive treasury funds.
* Programming Office: develops the Expenditure and Payment
Calendar, based on the information entered into the SIAF-SP
system by the UEs and in accordance with the Commitment
Calendars approved by the National Budget Office as well as
the Cash Budget approved each month by the Cash Committee.
It is also responsible for the evaluation of expenditures as a
basis for the formulation of the Cash Budget.
Role of the DGTP
Cash Committee
The original intent of forming a Cash Committee was to evaluate
the cash budget execution and determine the amounts and sources
of financing necessary for budget equilibrium. However, in 1992
as part of the strong austerity reform, the Committee was charged
with ensuring strict control of public expenditures and budget
equilibrium according to Ministerial Resolution No. 325-92-
EF/II.
For that reason, the Cash Committee still convenes within the
first six days of each month to report on the revenues and
expenditures from ordinary sources, their distribution and a
description of the operations during the month. This report is
submitted to the Congressional Budget Committee. It is through
the use of the monthly cash budget that the Committee assures



35
that estimated resources are available to meet the needs of the
programs while taking into account the objectives of the
economic policy in the short term. Development of the report is
done in coordination with the National Budget Office Director,
the Directors of Public Credit and Treasury. The members of the
committee are the Vice-ministers of Finance and Economy,
National Budget Director, General Managers of the Central Bank
and the National Bank.
National Bank ( El Banco de La Nacion)
Law No. 16000, dated January 27, 1966 created the National
Bank to act as the exclusive and compulsory financial agent of the
government. This law was later modified in 1992 when the Tax
Code authorized the tax administration to contract the collection
services to any entity in the banking and financial system. At the
end of 1992, Legal Decree No. 25907 approved the elimination of
the exclusive regimen of the National Bank when it permitted the
public sector entities, with the exception of funds administered by
the Treasury, to select the banking and financial entities in which
to deposit their funds and realize whatever type of banking and
financing operations necessary.
Likewise, in Supreme Decree No. 07-94-EF and modifications
(Emergency Decrees No. 09-94 and 13-94), the National Bank
was given the authority to provide its services and carry-out its
functions with economic, financial and administrative autonomy
while subject to the Ministry of Economy and Finances sector
policies. Thus it is classified as an enterprise of the economy and
finance sector and is included under the FINALE category and
responsible to the Superintendence of Banks and Insurance and is
subject to the National Control System.
Its Board of Directors is composed of the Vice Minister of
Finance, who acts as President, the Vice Minister of Economy



36
and two representatives of the Executive Branch designed by
resolution of the Minister of Economy and Finances.
The objective of the National Bank is to carry out banking,
financing and collection operations for the public sector including
the central government, regional governments, local governments,
decentralized public institutions as well as national universities
and other decentralized autonomous agencies.
Attributes of the National Bank
The National Bank is responsible for providing the following
services to the organizations mentioned above:
* Centralize the revenues and funds resulting from the collection
of all taxes levied by the tax administration, including the
corresponding commissions.
* Payment of Treasury resources according to the instructions of
the DGTP. It is delegated to carry out operations with the sub-
accounts of the public treasury.
* Collection of taxes and reception of deposits in the checking,
saving, and term accounts in both local and foreign currencies.
* Payment of fiscal resources according the instructions of the
respective heads of the organizations
* Act as the government financial agent and participate in
exterior operations that are required by the government
entities, with the authorization of the MEF and within the
framework of the treasury system.
* Administer or invest its own foreign currency as well that
delegated by the Treasury.
* Provide financing facilities to the central government, regional
governments and local governments, of which will not be
subject to the limits established by the Law of Banking,
Financing and Insurance.
* Custodian and assignment of all administrative and judicial
deposits as established in the civil code.



37
. Act as representative and intermediary of other banking or
financing entities as well as carrying out with these group the
operations that are necessary for the accomplishment of their
functions.
* Act as corresponding bank with other banks as required
. The National Bank is prohibited from providing its services to
persons or entities of the private sector except in the instances
where it is expressly indicate by it statutes, such as in the case
of those public enterprises that are being privatized.
The National Integrated Financial Management System
(SIAF-SP)
SIAF-SP is a mandatory budget control system which covers all
the central administration executing agencies, in the case of
resources provided by the National Treasury SIAF-SP is used to
review,
record and effect the disbursements.
Disbursements and cash management, at least in the Central
Government and decentralized entities, are indivisible from the
integrated financial- management ( SIAF-SA) developed to
support these operations. This system is run under Treasury (
Hacienda) and comprises the operating and maintenance of the
software and records for all transactions in the Central
Government and Decentralized Entities. The system initially
comprised an integrated budget control ( booking both approved
budget detail and charges against these on the basis of a priori
issuance of warrants by the system) with Treasury/cash
management whereby individual payments are given explicit
prior authorizations and funds are placed in the related entity's
disbursement bank account for specific payments. It now includes
general ledger accounting and financial statement generation.



38
The use of this system became compulsory with the emission of
the Vice Ministerial Resolution No. 029-98-EF/l1 (dated October
22, 1998) "established SIAF-SP as the mandatory system for the
recording of all data related to revenue and expenditure
execution that are carried out in the Executing Units (UEs) of the
Public Sector Budget, at the national level, under the
responsibility of the Director General of Administration
information on financial and budget execution for the revenues
and expenditures of the public sector spending agencies." 2
Article 2 of the resolution stated that the recording of transactions
should be carried out on an on-going basis, according to the
procedures and norms approved by the rector organizations of the
systems related to Government Financial Management.
In Fiscal Year 2001, 561 Executing Units, virtually all the Central
Government, are entering transactions through the SIAF-SP
system.  SIAF-SP has provided very strict budget execution
control since the Treasury must authorize all payments by the
National Bank and Treasury authorization is only possible
through the system. This has given the Government improved
cash management since payments are only made when actually
due by having the National Bank transfer the funds to the UEs
bank accounts and then alerting the UEs through the SIAF-SP
system. The expansion to include financial accounting which was
successfully applied to all Central Government and Decentralized
entities by 2000 and now provides reliable and timely information
to the Accountant General who is responsible for preparing the
Annual Public Sector Financial Statements.
The treasury and budget modules were not extended to the
Ministry of Defense and the Interior until 2001 and given the
nature of their operations its proper application is obstructed.
Proper use of SLAF implies charging the budget only once full
2 Resolution Vice Ministerial No. 029-98-EF/ 1I as published in El Peruano on October 23, 1998.



39
documentation is presented from the ultimate payee or benificary;
in the case of these ministries, however, the budget is charged at
the time the advance is made and in the amount of advance
provided the local operations from which payment of goods and
services will be made.
It is important to understand that the SIAF-SP of Peru has a
different focus than other SIAFs in Latin America. The SIAF-SP
is an executing system it is neither a budget formulation tool nor a
budget assignment tool.  SIAF-SP is based on the budget
framework and its tables, but it has been designed as a cash
management tool and is tied to the DGTP's relationships with the
spending agencies. Recording of transactions, at the Executing
Units (UEs) is organized into 2 parts:
. Administrative Register ( records expenditures in the 3 stages
of commitment, accrual and payment)
. Accounting Register ( records transactions according to
government accounting categories and in accordance with the
accounting rules)
The Accounting Register requires that transactions are previously
recorded in the Administrative Register. The accounting system is
not totally automated in that a separate routine must be initiated.
The system has 2 clearly defined elements:
Single Registry
The single registry concept is related to the single recording of
each UE expenditure and revenue transaction and the automatic
transmission of this information to the appropriate rector
organizations which include: The National Office of Public
Budget (DNPP), the Treasury Office (DGTP) and the Accountant
General (CPN).



40
Payments Management (only for those operations financed with
Treasury resources)
The UEs can only record their payments in SIAF-SP when they
have received the Treasury's authorization for payment. Once the
DGTP determines that it is appropriate to make the payment, the
authorization is transmitted to the National Bank. Based on the
authorized payment request, the National Bank issues a transfer, a
check or a money order, based on the information in the system,
and the principal account is automatically debited.
As mentioned above, SIAF-SP became the official system for
recording the UEs expenditure and revenue operations thereby
substituting for various budget, accounting and treasury registers
and reports. Each month the UEs receive, through SIAF-SP, the
Commitment Calendar prepared by the Budget Office and
approved by the Cash Oversight Committee. The UEs then record
in SIAF-SP their expenditure and revenue operations, information
that is transmitted to the MEF for verification and approval. The
Law of Fiscal Prudence and Transparency (Law No. 27245 dated
December 29, 1999) requires that the MEF publish within 60 days
of the end of each semester, a report on the degree to which the
Multi-annual Macroeconomic Framework objectives are being
achieved. Information from the SIAF-SP system is used to
prepare this report.
The SIAF-SP has 3 main elements: commitment, accrual and
payment (and in certain cases, disbursement).  To record a
commitment, it is necessary to use a specific expenditure
classification, a financing source, and the objective corresponding
to the expenditure. The system verifies that the operation is in
accordance with the monthly Commitment Calendar and within
budget limit criteria. The UE can only commit those amounts
approved in the Commitment Calendar.



41
Recording an accrual is done once the UE receives the
verification that the goods or services have been provided. It is
impossible to enter an accrual without a commitment. The
commitment establishes the limits and other criteria and the
accrual can be entered in the same month or in a later month than
the obligation.
Recording the payment request requires not only a previous
accrual,  but  also  the   corresponding  treasury  payment
authorization, applying the "best date"3 concept. The payment
request record may be for the same month or a later month than
the accrual record.
The treasury authorized payment request authorization (transfer,
check and money order) for the UE is transmitted, via the system
to the National Bank when it is executed, making the direct
transfer or payment. The single registry in the UE is automatically
updated with the correct disbursement information then made by
the National Bank.
All expenditures, revenues and other complementary operations
are accounted for using the SIAF Operations Table, a matrix that
integrates budget classifications with the government chart of
accounts.
The SIAF-SP is currently operating on-line in all of the 557 UEs.
One can conclude that it has been successfully established as the
single registry and management tool for budget execution.
The system constitutes a mechanism for the UEs to record all
expenditure operations, from all financing sources as well as
revenues. For Fiscal Years 1999 and 2000, the number of
operations recorded during the January - December 1999 and
January - December of 2000 periods covered a level of 98% of
3 In English the "best date" concept is similar to the prompt payment concept, i.e. that date that provides
for the lowest price to the government, and/or is most conducive to good cash management.



42
the commitments of the Commitment Calendar. This excluded
the 5 spending agencies of the Defense Sector and the 19
spending agencies of the Interior Sector for security reasons.
In summary the products of the SIAF system comprise
improvements in Financial Management by the Treasury, timely,
reliable and adequate comprehensive data base of financial
transactions, monitoring of the sector and spending agencies
budget execution. The advantages of the SIAF Data Base is that it
provides timely and consistant information to the financial
management system rector organizations, allows for obtaining
consistent budget, financial, and accounting statements, allows for
budget execution follow-up at various stages and provides a
global consistent vision of government financial resources
availability.
In SIAF Coordinating Unit's work in second generation
development they have completely installed the management
consultation module in all sectors and spending agencies, have
completed the development of the statistic module and the debt
programming system for the DGCP. It was installed at the DGCP
in January 2001. Similarly they have completed the design of the
Procurement module and the asset sub-ledger module is being
incorporated  into  SIAF-SP  in  coordination  with  the
Superintendent of National Assets.
Municipal systems, on the other hand, is a major area for the
future. Although the design of this module is underway it will be
provided to the municipalities in a phased manner basically using
the SIAF-SP that has been used since 1999 at the central level
UEs with the adjustments to control revenue and expenditures
from their own sources.
Additionally, since the beginning of the year, the MEF has been
designing the systems for human resources administration and for



43
procurement. These modules will be implemented in the spending
UEs and will streamline the management of these areas as well as
the management capacity of the heads of the sectors and spending
agencies.
Municipal Financial Management
Peru is divided into 24 departments, 192 provincial municipalities
and 1,825 district municipalities. The provincial municipalities as
well as the district municipalities receive transfers from the
central government, which, together with local tax collection
(principally property tax) finance  urban development and
services. The local governments manage approximately 4-5% of
the public sector resources.
There is a high level of diversity in the local levels of
management capacity, particularly in the tax and financial
management areas and except for large provincial municipalities
the local governments do not have management and information
systems. Additionally, local tax administration is not immune to
problems of evasion and the budget management is neither
systematic nor integrated with other processes such as treasury
and accounting.
The SIAF-SP has not been implemented in the locals
governments although  the national SIAF system  can be
replicated and adapted to the necessities of local governments.
Most local governments have expressed a need for support for the
development of these systems.
Public Enterprises and Decentralized Entities
Between 1994 and 1996, because of the sale of the financial
enterprises of the government, the liquidation of the development
bank and of the advances in the privatization process the Office of
State Institution and Organizations (OIOE) was formed and the
National Financial Corporation, (CONAFI), and the National



44
Development Corporation (CONADE) were dissolved while
their functions were transferred to OIOE, now the technical
secretariat of FONAFE, with the oversight of the functions
related to the administration of the public enterprises.
SIAF is not operating in the public enterprises for treasury and
budget purposes but it is being used for the financial accounting
sent to the National Accountancy Office.
The following modules have been developed and put into
operation in 42 FONAFE entities on January 2, 2001:
management agreements, deposit and collections, government
stock and bonds, budget evaluation, general data of the entity and
budget formulation.
Conclusion on Fiduciary Framework
The SIAF-SP has brought effective budget control to the Peruvian
Financial Management. This is best illustrated by the 1999
Financial Statements where only 2 spending agencies exceed their
expenditure budget- the Ministry of Defense by 9.1% and
Ministry of the Interior by 7.7%. Neither of these entities was
part of the Central Government entities that were included in
SIAF-SP. SIAF--SA ensures timely and reliable reporting of
financial results and position where it is applied, full application
to the Ministry of Defense and Interior must be effected if the
benefits of the system are to be realized.
VII Accounting/Reporting
The National Accountancy Office (CPN), created under Law
24680 which introduced the National Accounting System, is
charged with preparing the General Accounts or Annual Accounts
which must be presented to the Auditor General (CGR) by July
31 of the following year ( now June 30th).



45
The CPN is responsible for the regulation and supervision of the
financial information system in the public and private sectors, for
setting accounting standards and procedures for both sectors,
reporting the financial position of the public sector. The CPN is
headed by the National Accountant General (CGN) who is named
by the President for a 5 year period and as head of the CPN he
presides over the Accounting Standards Council (CNC).
Members of the CNC include the CGN, representatives from the
Securities Commission, the Banking Superintendence, the
Federation of Accounting Bodies, and the Lima Association of
CPAs, the faculties of Accountancy in the Universities, the
Chamber of Commerce and 5 government departments. The
CNC is the body where the National Accounting System debates
accounting standards which are subsequently set and published
through the CPN.
Public sector accounting standards, compatible with IFAC
standards, are codified and published by the CPN along with a
comprehensive group of Technical Bulletins.
Article 81 of Peru's Political Constitution stipulates that the
Annual Accounts (Cuenta General) be presented with the
corresponding report of the Auditor General (CGR) by the
President to Congress by November 15 of the following year. The
Annual Accounts are reviewed and reported on by the Review
Committee within 90 days. Congress must state its position on
the accounts within 30 days following the report on the
Commission. If Congress does not state its position within the 30
days, the Committee Report goes to the Executive, this can be
criticized on the grounds that the Executive may approve its own
accounts hence no accountability to Congress. The constitution,
in any case, provides no recourse should the accounts be
unsatisfactory. It is also significant that the Annual Accounts do
not report cost accumulation or budget execution by Program (or



46
sub-program or project/activity) which is essential to match cost
with the specific objective stated in the Program.
In Peru, the objectives of the General Accounts are to provide
information on the management results of the budget, finance,
and the economy and to serve as an oversight tool for government
activity.
The General Account is very comprehensive and includes: the
universe of the collection and spending agencies that are under
the Annual Budget Law and that administer public resources
according to special laws as well within the referenced framework
of fiscal execution evaluation material, the economic aspects that
include the evolution and results of the macroeconomic indexes
utilized in the economic, fiscal, monetary and tax policies, the
global aspect that includes the financial statement and
complementary statements on budgetary, treasury, public debt,
management and the use of funds and Balance sheet as well as
statistical information on the behavior of taxes  and the
information for decentralized agencies and budgetary entities.
The Accountant General and the SIAF-SP team collaborated
together on the document "Closing Accounts of Fiscal Year
2001". The product has permitted the spending agencies to not
only close their books, but also generate the Financial Statements,
Complementary Budget Information and Annexes for the General
Account. This Closing module through the use of the SIAF-SP
system transmits the information to the appropriate "pliego"
where it is then consolidated and transmitted to the Integrated
Accounting System that forms the General Account.
The Accounting Module, for its part, permits the Accountant
General to prepare the Financial and Budgetary Statement within
the framework of the General Account. It should be noted that 29
pliegos (109 spending agencies) used the Accounting Closing



47
module in 1999. In 2000, the closing was done in 537 spending
agencies (138 pliegos). The information is transmifted directly to
the Accountant General for incorporation into the General
Account.
Conclusion on Fiduciary Framework
The government accounting and policies applied to the public
sector in Peru are highly appropriate and applied to the entire
universe of the public sector contributing to an exceptionally
useful process which permits the consolidation of the entire
sector's consolidated results and financial position.
All financial information reported on an activity or an entity falls
into one of two groups: 1) financial accounting reports and 2)
management accounting reports. The first is designed to satisfy
external and regulatory requirements such as those of the security
exchange commissions for listed companies and those required to
include in published accounts of the relevant ministry or national
accounts. The content, frequency and format are determined by
the external authorities and are uniform for all the reporting units.
The second is designed to support line management in conducting
the affairs of an operation, their content, frequency and format are
determined by the nature of the operation and priorities of the
management.
Overall then Peru's public sector reporting is oriented to
management accounting reporting with an extraordinarily detailed
and useful database on the transactions available through the
SIAF in the Central Government and Decentralized Entities, and
ad hoc systems in other instances, which accumulate costs in line
with a budget which is structured in detail along the lines of the
budget which flows from the objectives stated in the Institution
Plan.



48
The external or financial accounting reporting to the oversight
authorities ( Congress) and other interested parties like the public,
is, on the other hand, infrequent at only once a year with no
interim information and limited in that no Program costs are
reported.
VII Budgeting and Personnel
In this assessment public sector budgeting is considered to
comprise the continuous process that translates to financial terms
the plans and work programs of a specific period and adjusts its
pace of execution to the available cash flow. It can be defined,
as well, as the act by which the executive power forecasts and the
legislative branch authorizes for a specific period the collection
of revenue under the law and the undertaking of expenditures for
the proper functioning of public services and implementation of
the country political economy.
Legal framework
Peru's political constitution (1993) provides in chapter iv of the
Tax and Budgeting Section the guidelines for the development of
public sector budgeting, accounting and control. The framework
for public sector budget is given in Articles 77, 78, 79 and 80 of
the political constitution. It states that i) the finances of the
government must be budgeted, ii) the budget is proposed by the
executive to the legislature iii) the budget cannot finance
recurrent expenditure through debt, iv) it must contain a debt
servicing line item, v) the legislature cannot introduce budget
items or increase the budget and vi) all budget additions or major
modifications must be modified by the law.
The budgeting process is regulated by law 27209 which is built
on the following principles:
-budget must be balanced
-the budget regulations apply to all public sector entities



49
-public sector resources are fungible
-budget must be comprehensive and all inclusive
-budget must have the detail of income, sources of financing, and
the expenses must be presented by area
-the annual budget law must limit itself to budget matters
-the annual budget law applies to one fiscal year
-all budget related legislation or regulation must be processed by
the Ministry of Finance
-the budget process must consider the prior year's results as well
as the economic forecasts for the year in question
- balanced budget, all uses must be covered by a source, whether
current income or debt.
The Budget Management Law provides the technical basis for the
development and approval of the annual budget laws . The
objectives and legal foundations of the law are presented in
Section I of the Law as well as the organization of the budgeting
system. The budgeting system comprises the budgeting
principals, technical standards, and procedures that govern the
budgeting process as well as the relations between the different
public sector entities. The importance of this law is its orientation
in the budgeting stages: Programming, Formulation, Approval,
Execution, Evaluation and Control and introduces the use of
Strategic Planning as a medium and long term planning
instrument.
The Annual Budget Law, on the other hand, establishes the
specific guidelines which all public sector entities must follow in
the stages of budget Approval, Execution, and Evaluation and
Control, and provides the specific Austerity Standards applicable
to the year. It is on the basis of the Annual Budget Law that the
other administrative systems are developed, Procurement, Law
26850, Public Sector Personnel and Payroll Laws, as well as the
Treasury and Disbursement Laws, the Government Accounting
Law, No 24680, and the National System of Control Law.



50
The National Budget Office, the entity responsible for overseeing
public sector budgeting, operating under the power granted by
Law 27209, issues annually the Technical Directives for the
programming and development of the budget as well as the
standards for the budget process in approving, executing, and
control.
In 1999 a ministerial resolution was issued requiring the use in all
public sector entities of the integrated financial management
system (SIAF) provided and operated by the Ministry of
Economy and Finance to support budget, accounting and treasury
control and operations.
The budget is built around Budget Envelopes referred to as
"pliegos" in the legislation which are the public sector entities
assigned budget allocations for the accomplishment of its
objectives. The Budget Envelope is divided into functions,
programs, subprograms and projects and activities.
The general budget law makes it clear that Budget control will be
carried out by the National Budget Office and comprises
reporting the execution against approved budgets, it also states
unequivocally that no official can commit or pay funds without
the corresponding budget availability. The maximum authority of
the agency shares the responsibility with any official for any
budget overrun. The law does require the entities to carry-out an
evaluation of achievement of results through measurement of
physical advances. Infringement on the general or specific budget
laws and regulations is punishable by administrative sanctions
and civil and penal responsibility as appropriate. The annual
budget law communicates the amounts approved and special
provisions applicable to specific year.
Budget Management



51
The annual budget is the national document which is the principal
tool used under the constitution by the government to express a
series of decisions which aim to accomplish the governments
goals: 1) assign resources to strategic priorities, 2) achieve macro
economic stability,  3) achieve efficiency, economy and
efficiency in the use of public sector resources. For this end the
Peruvian state has developed techniques and procedures
expressed in laws which allocate financial resources for a specific
period by levels of organization and cost category determining the
limits for each sector and public entity in line with the
government priorities and within the available resources. These
techniques extend to the timing and quantifying of the release of
funds during the budget period, as well as specific limits in
spending  in areas like   personnel, and on the budget
modifications.
Peru introduced in 1997 results-based programmatic budgeting,
with the emphasis on the identification of results or work
undertaken and the related costs. Objectives, activities, and the
related costs are presented under the organizational structure of
the government. This methodology is aimed at achieving greater
efficiency and effectiveness in the use of government financial
resources by monitoring the indices associated with the advances
to the targeted results.
In Peru's public sector all budgets are developed with the Multi-
Annual Sectoral Strategies agreed to in advance which give the
mission, vision and the objectives of the sector for a 5 year
period. The entities within the sector develop Institutional
Operative Plans (POIs) with general and specific objectives and
programs and activities to work toward these objectives. These
POIs are formal budget support and they lay out by quarter the
indices for measuring the advance toward the targets and they
form the basis for costing to arrive at the budget proposal.



52
Centralization of standard setting is an overriding principal of the
law, the National Office of Public Sector Budgeting in the
Ministry of Finance is charged with this responsibility. The
responsibilities within the budgeting system are as follows:
- the National Office of Public Sector Budgeting is the maximum
standard setting authority for budget matters, its functions include
i) overall programming of income and expenditure, ii) prepare
the budget bill proposal and emitting relevant standards, ii)
continuos improvement of the budget process, iv) emitting
opinions on budget matters.
- the Budget Envelopes ( pliegos) represent the institutional unit
in the budget since they are the entities which are assigned
budgets for a given set of objectives, these can only be created by
law, each local government represents a budget envelopment.
- the Budget Envelope Head is the executive of maximum
authority , this is the same executive for purposes of the
Procurement Law #26850 and its regulations. The functions of the
Head include: 1) establish institutional objectives in line with the
sector objectives 2) set priorities in the use of funds assigned and
3) coordinate the work between the budget office in the envelope
and the executing units.
- the Budget Offices in the Envelopes are the direct link between
the National Budget Office and the Envelope, they ensure the
proper development and control of the budget, specifically they
1) carry out the programming, budget preparation and control and
evaluation for the Envelope 2) ensure the reliability of the
monthly programming of expenditures in line with the attainment
of the targeted results 3) propose budget modifications within the
Envelope 4) gather and report the budget information 5) report on
the advance of budget execution 6) prepare the reports of
institutional evaluation.



53
The budget structure is built around an Institutional Level referred
to as Envelopes, within this the activity is organized by Function;
that is, the role of different activities in the entity, and within
these by Programs which relate to general strategies, partial
objectives are covered by Subprograms and Activities/ Projects
relate to specific objectives. Income is classified in 2 ways , by its
economic nature (current, capital, transfers, financing internal and
external, financing with prior period balances) by its source.
Expenditures, on the other hand, are classified as current or
capital and by the object of expenditure.
The Municipalities must follow the budget guidelines and submit
their budgets in time for their inclusion in the consolidation
although the budget of municipalities is not dependent on the
approval by the Central Administration. The state enterprises and
Sector Super-intendancies prepare and approve their budgets on
the basis of the guidelines given by FONAFE.
Budget Process
Law 27209 stipulates the 4 stages of the budget  process
Programming and Formulation, Approval, Execution, and Control
and-Evaluation. These stages are also subject to the annual budget
laws and budget regulations and resolutions.
Relative to Programming and Formulation, Law No 27245 was
passed in December 1999 on Fiscal Prudence and Transparency
which introduces to the budget process i) multi-year mid-term
macroeconomic and fiscal parameters ii) transparency in the
macroeconomic assumptions and fiscal projections basis and iii)
standing deficit and debt limits. The law limits the deficit to 1%
of the GDP, limits spending increases to 2% in real terms, and
limits the increase in total debt to the amount of annual deficit.
The Transparency provisions, on the other hand, call for 1) the
development and publication of multi-annual (3 year)



54
macroeconomic framework, 2) a declaration of the principals of
fiscal policy to be signed by the Minister, and estimates for the
public sector income and expenditures and for investment and
public debt. This macroeconomic framework should be sent to the
Central Bank, by April 15 each year, for their opinion on its
compatibility with monetary policy and goals, after which the
framework and the opinion of the Central Bank are published.
This framework should go to Congress with the Budget proposal
by August 31St. The framework is used by the Sectors in the
development of Multi-annual Sector Strategic Plans. During the
budget exercise for FY 2001 a National Plan was agreed which
consolidates the Sector Plans and was the basis for the preparation
of the Institutional Operating Plans in each Budget Envelope.
In the first quarter of each year, the National Budget Office
estimates the demands for social sector spending and sets
priorities for the next year's spending; tax revenue is also
estimated  and  the   corresponding  additional  financial
requirements. On the basis of this estimate the MEF determines
the level of spending to be financed by Regular Resources and
communicates to each Envelope the proposed Allocation.
The entities develop proposals from the agreed Sector Strategies
to achieve the objectives identified in the plan. The proposals lay
out the general, partial, and specific objectives and propose
corresponding programs, sub-programs, and projects or activities.
The projects/activities are costed-out to determine the budget
proposal.
The Budget's Functional and Programmatic Structure is
determined by each Head within each Envelope in accordance
with Institutional Objectives of each year. The respective
Envelopes prepare a proposal within the allocated amount and
sends these to the National Office where they are consolidated
and a Budget bill proposal is prepared for consideration by the



55
Council of Ministers. The Budget bill must be presented to
Congress by August 30.
The Law of Balanced Budget establishes the sources of financing
for the budget while the Law of Public Debt sets the limits for
internal and external indebtedness as well as the procedures for
debt operations.
The budget bill is approved by the cabinet and submitted by the
President to the Congress, the budget is presented in two parts
Central Administration and Decentralized Entities. The Municipal
governments approve their own budget but do present their
budget for inclusion in the Annual General Accounts. The Office
of Public Credit within MEF determines the requirements for debt
services and this amount is earmarked for this purpose. Congress
must convene an extraordinary session of Congress within 48
hours of receiving the Budget bill, the Balanced Budget and
Public Indebtedness Bills. The Budget Bill must be first
considered by the Congressional Budget Committee. The
Committee must present its position on the Proposal to Congress
by November 15. The Proposal is then presented to Congress for
debate, it is during this stage that proposals can be made to the
executive, any changes have to be incorporated in a new proposal
from the executive for these to be considered in the law. A
Budget Law must be approved by December 10th otherwise the
Proposal Bill will be enacted. The Budget Law is published in the
official gazette before the beginning of the budget period.
Each Budget Envelope Head then receives the Official Report on
the budget which is the programming and budget for their entity.
The structure of this is as follow:
-detail of the Functional Programmatic Structure
-detail of Income for the Envelope
-detail of Expenditure for the Envelope:
Unit



56
Function, Program, Sub program, activity, project
Financing Source
Group of Expenditure
The Head approves the Opening Budget ( Presupuesto
Institucional de Apertura - PIA) on the basis of the Official
Report which must be set up by the Budget Officer in the
Envelope before the beginning of the budget year. Copy of the
Resolution approving the PIA and the Official Report are sent to
the Budget Committee in Congress, the Auditor General and the
National Budget Office. The Initial Institutional Budget
Envelopes for the Ministry of Defense and Ministry of the
Interior are sent directly to the Budget Committee of the
Congress and the Vice Ministry of Finance.
Changes to the Budget Envelope totals can only be effected
through changes in the budget law. Changes between Executing
Units or in totals of Executing Units require a resolution from the
Head of the Budget Envelope. Authority to approve changes
within an Executing Unit, i.e. from one Program to another, may
be delegated from the Head to the Executing Unit and changes
within Programs, i.e. from one Project/Activity to another, may
be effected under the responsibility of the Executing Unit where it
is justified to meet the Program's goals. All changes must be
processed through the National Budget Office and reflected in the
SIAF system. The Executing Unit is free to reassign resources
among objects of expenditure, except for compensation. All
modifications are recorded and controlled by the Budget office of
the Ministry of Economy and Finances (MEF).
The execution stage is defined in the budget law as the concrete
flow of income and expenditure forecast in the budget in line with
the monthly income and expenditure programming, quarterly
expenditure allocation and programming, the calendar of
commitments and budget modifications.



57
The monthly Calendarization is the mechanism by which the
Ministry of Finance, through the Dept of Treasury, authorizes the
entities to undertake expenditures, through this process the
Treasury can match its income with liabilities being assumed and
through the centralized cash management minimize its lending.
Control and evaluation comprise the monitoring of results during
and following the execution. In Peru there are 3 levels of control
(budgetary, legal and political) and 2 levels of evaluation
(institutional and global).
Budgetary control is conducted by the National Budget Office
through the comparison of physical and financial advance against
the approved budgets to determine the extent of accomplishment.
At the level of each Envelope the budgetary control implies i)
verifying that the execution in each month stays within the
approved levels of the calendar of commitments, ii) keeping the
level of expenditure within the quarterly program of expenses, iii)
analyzing the progress toward the targeted goals. It is noted that
excellent cost accumulations, right down to object of expenditure
within the project/activity level, are effected on the basis of the
budget structure through the SIAF-SA for the use by the
Executing Unit, the Budget Envelope and the National Budget
Office. Reporting to Congress, and the public, however, does not
extend to the Program level. Also where the SIAF-SA system is
not used the accumulations ( Defense and Interior) the execution
is not reported by Program.
Legal control implies the monitoring that all relevant laws,
standards and regulations are obeyed. Political control is the
responsibility of the Congress and comprises the oversight of the
use of public sector resources.
Institutional evaluation is the responsibility of the Budget
Envelope, and is carried out each semester and comprises



58
determining the effectiveness in attaining the goals, comparing
the execution against the estimates, comparing the costs of
specific activities against the budget and formulating corrective
action. Global evaluation is done separately for the Central
Government and for the Decentralized Entities, it is done
quarterly and annually and is concerned with the effects of the
execution. Law 27212 specified the due dates for the evaluations
in FY 2000.
Municipalities
While the municipal budgets are not included in the annual
budget law they are subject to the National Budget Office's
directives on budget preparation the budgets are dependent on
approval by the MEF. Municipal revenue originating in the
budget law or central administration include the royalty for
petroleum, royalty on mining, a share of customs duties, and
transfers from the Municipal Compensation Fund. The
distribution of these resources among the municipalities is
determined by MEF on the basis of DS No 006-94-EF. The
municipalities also raise revenue from their taxes, donations and
transfers. Recording and reporting is not made through the
integrated accounting system ( SIAF).
Personnel
Expenditure on personnel is supported by an annual plan included
in the budget package which details every approved position for a
budget period along with the salary and benefits to be paid. This
personnel plan (CAP) is reviewed and expressly approved by
MEF, salary changes in the year are not permitted and changes in
the number of positions need MEF approval. The CAP approves
positions and salaries by category of position. The salary of the
positions under the regime of Law 276 relate to a government
wide pay scale ( about 20% of the public sector employees) in
which case the MEF review ensures that the budget is developed
from this scale Where the positions are covered by Law 728 each



59
position relates to a individual contract in which case the MEF
refers to market parameters to compare the salary proposed.
Personnel files are kept by the Human Resources Dept's in the
individual entities, the payroll department reports to HR and
submit the payroll for each month as part of the commitments
which must be paid. The authorizations for the payment of
remunerations, as well as pensions, are issued by the Treasury
through the SIAF-SP on the basis of the accrued expense and paid
in accordance with the "Chronogram of Payments" announced in
the Official Gazette.
PEM Progress Over Past 5 Years
The application of the robust budget legislation and elaborate
tools described above, however, is undermined by practices
identified in the Public Expenditure analysis prepared by William
L. Dorotinsky for the Peru Institutional Governance Review. Two
areas pertain specifically to the fiduciary framework which are
the use of Urgency Decrees and the allocation of cash resources.
Urgency Decrees- Decretos Legislativos de Urgencia
Peru's 1993 Constitution grants the President authority to issue
two primary types of decrees, legislative and urgency. Article 104
allows the Congress to delegate to the President the authority to
legislate by decree, subject to conditions of an authorizing statute
passed by Congress. Article 118, section XIX, gives the President
authority to dictate extraordinary measures through emergency
decree in economic and financial matters, though Congress has
the authority to modify or derogate these decrees.
The Constitution does require all Presidential acts to have
ministerial authorization to be valid (Article 120), and assigns to



60
the President of the Council of Ministers the duty of authorizing
emergency, legislative and other decrees (Article 123, section III).
Further, Article 128 of the Consecution does state that Ministers
are responsible for their own acts and for presidential acts they
authorize, and for criminal acts or Constitutional violations
incurred by the President.
But, since the President of the Council of Ministers and all
Ministers serve at the pleasure of the President, this is not an
effective check. The frequency with which the President of the
Council of Ministers has changed attests to the limited
institutional check this feature has on Presidential decision-
making.
Between 1994 (the first year under the new Constitution) and
2001 (March), Congress passed 1,152 laws or legislative
resolutions, while the President issued 870 decrees (86 % of
which were urgency decrees). Chart 1 shows trends in use of
Chart 1: Urgency and Legislative Decrees
versus Legislation, 1994-2001
250 -:1ii
200 - S  _   - -   |           _ -     _     E Urgency Decrees
l  Legislative Decrees
5L  Leys, Resolutions
50                                ~~~~~~~~~~~~~~~~Legyislature)
1994 1995 1996 1997 1998 1999 2000 2001
executive decree authority versus Congressional legislation and
resolutions for 1994 through 2001 (March).



61
In practice, Congress exercises no oversight and serves as no
counterbalance to Presidential decree authority. The unchecked
authority of the President to rule by decree undermines
accountability of the executive, and hinders the development of
other political and social institutions that might broaden
participation and develop a social consensus towards national
policies.
Of the 748 urgency decrees issued between 1994 and 2001, 27 %
directly amended the budget, and a further 41 % had a clear effect
on the budget or public finances.
In Peru, Congress is effectively shut-out of the budget process
once the initial budget is enacted. Urgency decree authority gives
the executive complete discretion on budget changes. The volume
of small changes to the budget approved by decree suggests that
changes are being addressed piecemeal, and not within any
comprehensive view of how individual requests fit into the total
envelope. While MEF may have authority to assure individual
items fit within the macro fiscal envelope, the volume of single-
issue transactions may pose a threat to macro fiscal discipline. It
certainly undermines Government-wide consensus in favor of
executive preferences.
It is important to note, however, the Congress does have the
authority to curb Presidential abuse of urgency decrees and other
decrees, but has not exercised this authority to any great extent.
Despite the decline in strength of political parties over the past
decade, Congress has not developed a sense of its role in
Government and society, or a sense of institutional identity that
may lead it to rise above partisanship to protect its role and
prerogatives.



62
Budget Execution and Cash Management
As noted, once the annual budget is passed, the MEF allocates the
budget into quarterly budgets. These in turn are broken down by
spending ministries into monthly cash requirements. Finally,
these monthly cash requirements are limited by the MEF each
month based on cash availability. The primary objective of this
tool is to assure annual cash outflow is no greater than revenues --
- or to assure macro balance. Generally these commitment limits
average around 80 % of approved budget levels.
Use of cash outflow control is one of the first, most basic tools for
controlling government spending and insuring macroeconomic
stability. Over time, one would hope that the system evolved
towards commitment controls, with commitments tied to budget
levels, which are themselves tied to conservative revenue
estimates under the macroeconomic framework.
There are no objective or public criteria for cash allocation, and
no transparency in the process for determining cash limits. This
allows wide scope for differential treatment of programs on non-
objective criteria, wide discretion for political considerations to
influence cash allocations, and wide potential for decisions on
cash allocations to alter actual priorities of the Government as
represented in the annual, Congressionally-approved budgets.
Conclusion on Fiduciary Framework- Budgeting
All public entities in Peru come into existence under specific
legislation which states the purpose and the objectives of the
relevant entity, the entity once created is required to approve its
internal Regulation on Organization and Functions (ROF), its
specific objectives, as well as a manual on functions laying out in



63
detail the division of duties. Additionally the entity budget
proposal is supported by a Institutional Operating Plan which
details the objectives targeted in a specific year. Public money is
clearly defined in the laws on Treasury and the use of the funds
regulated in the legislation of budgeting which is unequivocal on
the subordination of the use of any and all funds to the budgeting
process.
This legislation is widely disseminated and the public sector
officials are aided with a great deal of regulations in the
application of the laws. The Peruvian financial management laws,
in particular the budget preparation and control provisions,
contain all the essential features of a modem, effective and
transparent budgeting process. The fiscal policy objectives which
are widely communicated and in line with the IMF program form
the basis of the annual budget preparation. Specific rules on the
limitations in use, austerity measures etc. are published. The
budget is developed under the macroeconomic parameters
determined at the outset and widely disseminated. A provision for
contingencies is kept under the control of MEF to ensure that the
deficit limit is not exceeded. With this approach, the
administration was able to contribute to macroeconomic stability
by controlling the government deficit.
The budget data is classified and presented in line with the
structure of the strategic and program goals of every entity. All
income and expenditures are included (there are no extraordinary
items) expenditures are organized by function program and
expense object. The principal objectives of each entity are clearly
stated in the budget documents and the financial and physical
advance toward these is regularly reported and subject to
independent verification by audit. Budget execution is reliably
reported through an integrated accounting, budget and treasury
system.



64
Congressional control of the use of public funds, however, is
undermined in Peru by 1) the allocation of available funding by
the Ministry of Economy and Finance among the approved
budget envelopes whereby the executive can assign its priority to
discretionary spending without Congressional input and 2) the use
of Emergency Decrees to effect budget changes and approve
supplements.



65
Annex I
Financial Administration Legislation in Peru
Constitucion Politica del Peru'
Sistema de Gestion Presupuestaria
Ley de Gestion Presupuestaria: Ley No. 27209
Ley de Presupuesto del Sector Pu'blico para 1998, aprobada por la
Ley No. 26894
Clasificadores Presupuestarios para 1998: Clasif. Institucional,
Clasif. Funcional Programatico,
Clasif. de Fuentes de Financiamiento, Clasif. de los Gastos
Pu'blicos y Clasif. de Fuentes de Finan.
Maestro del Clasificador de Ingresos
Directiva No. 001-98-EF-76.01 para el Proceso Presupuesto
correspondiente a 1998
Directiva No. 005-97-EF-76.01, aprobada por la Resoluci6n
Directora No. 036-97-EF/76.01, para el proceso Presupuestario de
los Gobiemos Locales, correspondiente a 1998.
Decreto de Urgencia No. 107-97 que aprueba el otorgamiento del
Aguinaldo por Navidad, un
Credito Suplementario en el Presupuesto de 1997 y Normas para
el Cierre Presup.1997.
R.D. No. 033-07-EF/76.01 que aprueba nuevos formatos y
modifica la Directiva del Proceso
Presupuestario de los Gobiemos Locales correspondiente a 1997
aprobada por la
R.D. No. 171-96-EF/76.01
Directiva No. 006-97-EF/76.01 para la Evaluacion del Proceso
Presupuestario 1997 aprobada por la
Resolucion Directoral No. 040-97-EF/76.01
R.D. No. 003-98-EF/76.01 que aprueba la Directiva para el Cierre
y Conciliacion del Pres. Del Sector



66
Pu'blico para 1997 y el Cronograma
Ley de Prudencia y Transparencia No. 27245
Resolucion Ministerial No 182-2000 EF/1 0 Directiva General del
Sistema Nacional de Inversion Public
Resolucion Ministerial No 151 -2000-EF/15 Directiva para la
Evaluacion de los Planes Estrategicas Sectoriales Multianuales
2001-2005
Sistema de Tesoreria
Directiva para la apertura y registro de firmas de sub-cuentas
bancarias de gasto, aprobada por
La Resolucion Directoral No. 041 -97-EF/77.15
Directiva de Tesoreria correspondiente al Ejercicio 1998,
aprobada por la R.D.I. N047-97-EF/FF. 15
Sistema Nacional de Contabilidad
Resolucion del Consejo Normativo de Contabilidad No. 010-97-
EF/00.01 que Aprueba el nuevo Plan Contable Gubemamental
Resolucion de Contaduria No. 067-97-EF/93.01 que aprueba el
Compendio de Normatividad Contable para la vigencia del nuevo
Plan Contable Gubemamental
Sistema Nacional de Control
Ley Organica del Sistema Nacional de Control aprobada por el
Decreto Ley No. 26162
Texto actualizado de las Normas de Auditorias Gubemamental
(NAGUS), aprobadas por la Resolucion de Contraloria No. 162-
95-CG y sus modificatorias aprobadas por las Resoluciones de
Contraloria Nos. 246-95 y 112-97-CG
Instructivo para la formulacion y comunicacion de hallazgos de
auditoria, aprobado por la Directiva No. 006-97-CG/INT
aprobada por la Resolucion de Contraloria No. 112-97-CG
Procedimiento para el control de las donaciones provenientes del
exterior, aprobados por la Resolucion de Contraloria No. 038-95-
CG
Lineamientos para el ejercicio de la Auditoria Intema en las
entidades sujetas al ambito del Sistema Nacional de Control,
aprobados por la Resolucion de Contraloria No. 192-96-CG



67
Lineamientos para cautelar el adecuado procedimiento del control
previo al pago de presupuestos Adicionales de obra pu'blica,
aprobados por la Resolucion de Contraloria No. 193-96-CG
Directiva de Procedimientos para la presentacion de Informacion
sobre Licitaciones y Concursos Pu'blicos de Precios y de Meritos
aprobada por la Resolucion de Contraloria No. 050-97-CG
Resolucion  de  Contraloria  No. 076-97-CG  que  derogo
Resoluciones y Directivas de Contraloria Directiva de
Presentacion Sistematizada de Informacion por parte de las
Entidades sujetas al Sistema Nacional de Control" aprobada por
la Resolucion de Contraloria No. 202-97-CG
Reglamento de Multas, aprobado por la Resolucion de
Contraloria No. 006-95-CG
Otras normas legales relacionadas con la administracion
financiera del Estado para 1998
Ley de Equilibrio Financiero del Presupuesto del Sector Pu'blico
para 1998: Ley No. 26892 Ley de Endeudamiento Extemo del
Sector Pu'blico para 1998N Ley No. 26893 Resolucion Suprema
No. 241-97-EF que autoriza la transferencia de 'equipos para el
Funcionamiento del SIAF SP y dispone que el Vice Ministro de
Hacienda asume su coordinacion
Disposiciones legales relacionadas con la administracion y el
control patrimonial Directiva para la Catalogacion de Bienes
Muebles del Estado: Resolucion No. 158-97/SBN
Reglamento para el Inventario Nacional de Bienes Muebles del
Estado: Resolucion No.157-97/SBN
Procedimiento de Registro y Control de los Bienes Inmuebles del
Estado: Resolucion No. 090-95/SBN
Nuevo plazo para la presentacion de informacion sobre bienes
inmuebles del Estado:
R.N. No. 197-97/SBB
Disposiciones relacionadas con las compras del Estado
Ley de Contrataciones y Adquisiciones del Estado, aprobada por
la Ley No. 26850



68
Decreto de Urgencia No. 003-98 que establece la plena vigencia
del RUA y RULCOP en tanto entre en vigencia la ley de
Contrataciones y Adquisiciones del Estado, aprobada por la Ley
No. 2850
Ley de creacion del Sistema de Evaluacion Intemacional de
Procesos: Decreto Ley No. 25565 Designacion del Programa de
las Naciones Unidas para el Desarrollo (PNUD) como entidad
Especializada para efectos del Sistema de Evaluacion
Intemacional de Procesos aprobado por el Decreto Supremo No.
132-92-EF
Reglamento del Sistema de Evaluacion Intemacional de Procesos
aprobado por el Decreto Ley No. 25565; Decreto Supremo No.
133-92-EF Obligacion de las entidades del Sector Pu'blico de
llevar un Registro de Compras e informar a La SUNAT del
mismo, aprobada por el Decreto Supremo No. 053-97-PCM y sus
modificatorias y ampliatorias: El Decreto Supremo No.
063/97/PCM y el Decreto Supremo No. 003-98-PCM
Cronograma para que las entidades del Sector Pu'blico cumplan
con informar a la SUNAT sobre Sus adquisiciones de bienes y
servicios, aprobado por la lucion Ministerial No. 093-97-PCM



69
Annex II
Detail on the National Control System and the Government
Auditing Standards
National Control System
Decreto Ley 26162 introduced in 1993 created the current
National System of Control (SNC) which comprises the
obligations, roles, and benefits of internal and external review for
integrity of the results reported by the executive branch.
Control under this law is both internal and external but is always
selective and ex-post, the ex-ante controls are responsibility of the
executive entities. The ex-ante controls should be communicated
in all the entities manuals, and should comprise the systems of
delegation of authority, of recording and verification, of asset
protection. The ex-ante is the responsibility of both the
management of the entities who ensures the application of
procedures set by the supreme authority of that entity and the
internal auditor as determined in his annual plans.
The external control comprises the set of policies, norms, and
procedures applied by the CGR and the units of internal auditing,
used to evaluate the collection and use of public funds through
programmed audits and special examinations.
The principles that CGR and the internal audit units are to apply
comprise among others 1) universal application of the SNC to all
aspects of the state entities, 2) integrated character of the results
which are being reviewed, that is the SNC attempts to view
performance of the entity in the context of value for money
considering the stated goals, 3) functional autonomy and the
technical nature of the work of the SNC. Criteria to apply these
laws are those common to integrity reviews, i.e. timeliness,
cooperation with the entity, professional discretion with the
findings and the presumption of innocence.



70
A major objective of the Strategic Institutional Plan is the
performance of the National System of Control, which aims to
review and evaluate the functional relationship of  all the
government in conjunction with the CGR, which is the overseer
and regulating body of the National System of Control.
The attributes of the SNC include:
1) the verification of the correct management and use of public
funds and the supervision of the execution of the public sector
budgets and the management of the public debt.
2) developing recommendations to improve the decision making
capacity of the entities.
3) establish requirements for reporting on performance
4) promote on-going training of civil servants
5) hold the management responsible for their deeds
6) consider all findings resulting from the work of organs of the
SNC as sufficient evidence to initiate processes in the
corresponding forum
The CGR is the controlling body of the SNC, it determines the
roles of the different organizations which make up the SNC as
well as its own organizational structure, the CGR is subordinate
to no one in carrying out its control function and has unlimited
access to records, documents and information of the public sector
entities and is guaranteed under the SNC law funding at least
equal to the prior year's budget. The functions and powers of the
CGR its attributes comprise:
1) demand that the entities carry out the control function
2) supervise the work of other organs of the SNC
3) follow up on recommendation and sanctions resulting from the
control reports
4) order the Attorney General to initiate processes where damages
can be recovered or  where criminal intent was observed and
request the seizure of bank accounts of the accused.



71
5) conduct the annual audit of the state's financial statement (
Cuenta General)
and propose reforms to the administrative systems in the entities
under the SNC.
Government Auditing Standards
Government Auditing, as set out in the National System of
Control Law ( and as is generally accepted as a definition) is the
objective, systematic and professional examination of financial
and administrative operations of the public sector entities carried-
out ex-post leading to a report with relevant findings. This work
must be carried-out in accordance with government auditing
standards. The objectives comprise i) evaluate the correct use of
public funds, ii) verify compliance with laws and regulations and
financial information, iii) gauge degree of accomplishment of
objectives, iv) recommend improvements to the public
management and strengthen internal control in the public sector
entities.
The law of the National System of Control empowers the CGR to
issue resolutions on the implementation of the law, it issued
Resolution No 162-95-CG comprising the Auditing Standards for
the public sector (NAGU). The structure of the standards (
General Standards, Planning Standards, Field Standards and
Reporting Standards) parallel those of INTOSAI ( Basic
Postulates, General Standards, Field Standards and Reporting
Standards), the general postulate are incorporated in the general
Peru standards. To assess the comprehensiveness of the Peru
standards the outline of the INTOSAI standards will be compared
to the relevant sections of the Peru standards.
Basic Postulates
Applicability of Standards: The introduction to the Resolution No
162-95-CG make it clear that the standards apply to work by



72
CGR, the Internal Audit units of the entities as well as to the work
of private audit firms doing public sector work.
Unbiased Judgement: The introduction to the standards state that
the standards are flexible and will be modified as required to
achieve the objectives of the mandate.
Public Accountability: The Political Constitution of Peru charges
the CGR with the responsibility to supervise the legality of the
use of public funds as well as any indebtedness contracted, the
law of the national system of control adds to this the
responsibility of reviewing for efficiency in the use of these
resources.
Management Responsibility & Internal Controls: It is provided in
the law on the national system of control that the entities are
responsible for their internal control which comprises the
financial reporting.
Promulgation of Standards: The national system of control, under
CGR, has an explicit statement on the objective to improve
financial management which implies reform in all its area
including the accounting standards, additionally the CGR is
empowered to emit standards on auditing.
Consistency of Statements: The CGR as regulating body of the
national system of control and as an independent reviewer of the
financial reports can determine if consistency of accounting
standards was applied and whether it is appropriate.
Access to Data: Art 13 of the National System of Control
provides its reigning principles which include the guaranteed
access to all information and right to examine all records and
operations.



73
Activities to be Audited: The entities in Peru as referred to above
comprise the Central, Regional and Local Governments, the
legislative and judicial branches, the Autonomous Organizations,
State Enterprises, Private Enterprises funded by public fund.
Within these CGR's objectives, section 2 of the Conceptual
Framework, include regularity (the attest function) and
performance audits, (evaluating economy, efficiency and
effectiveness) as well as special investigations.
Improving Audit Techniques: Not specifically addressed.
Conflict of Interest: NAGU 1.20 makes it explicit that the CGR
should avoid engagement where conflicts of interest may arise.
General Standards
The general auditing standards refer to independence,
competence, due care and others. The comparison of the Peruvian
standards to INTOSAI is as follows.
Independence: as noted above the CGR is guaranteed budgetary
independence in the Political Constitution can only be removed
by Congress, the CGR published standards NAGU 1.20 . The
CGR's plan is not subject to any interference other than the
general coordination it must reflect with the National Plan and
that it must provide some resources to attend ad hoc requirements
from Congress or the executive.
Competence: The fitness and ability of the CGR to carry-out its
mandate is implied in it's elaborate set of procedures, rules on
adherence to these rules by all parties working on behalf of the
CGR and the as stated in NAGU 1.10 .
Due Care: Section 1.30 of the NAGU clearly presents the
requirements on objectivity, on the use of adequate technical skill
,and confidentiality.



74
Other General Standards: Recruitment of personnel, their
professional development are covered in NAGU 1.20, the use of
procedures is amply covered by the detailed standards, as well as
the numerous guidelines issued as CGR resolutions such as:
Guidelines for Internal Audit in Government Entities, Guidelines
for reviewing the payment of addition budgets, Instructions for
Communicating Audit Findings.
Field Standards
INTOSAI has field standards to be applied to all types of audits
for planning, supervision and review, internal control, compliance
with laws, evidence, and analysis of statements. The CGR's audit
standards cover these areas in the sections on Government Audit
Planning which sets out the steps which can be made before field
work begins including the preparation of audit programs. There is
no guide as to assigning priority to work required under the law
such as the opinion on the Cuenta General.
Supervision and Review
Government standards on conducting the audit which present the
standards for Supervision and Review ( NAGU 3.30), Study and
Evaluation of Internal Control( NAGU 3.10) Compliance with
Applicable Laws and Regulations ( NAGU 3.20) Audit Evidence
(NAGU 3.40)    indicate the requisite levels of sufficiency,
relevance and competence of physical, documentary and
analytical evidence.
Reporting Standards in Government Auditing
To many, including the Congress, the principal contact and
communication with the CGR is through their reports , the
Peruvian standards on reporting are compared to INTOSAI's
standards on Form and Content as follows.



75
Form: While the title, date and signature of the reports are not
specifically covered NAGUs 4.10 to 4.30 do, however, require
that all examinations produce a written report, are timely, and that
provide principles for the presentation of the reports.
Content: NAGU 4.40 indicates what a report must contain, e.g.
statement of the objectives and scope, information on the auditee,
conclusions, observations, and recommendations.



76
Annex III
Detail on Budget Programming and Execution
Programming
It is the central administration through MEF which is responsible
for administering Ordinary Resources and thus preparing monthly
programs for expense and income and for this they 1) set
priorities for expense on the basis of the flow of tax revenue, 2)
identify the foreign exchange requirements 3) match the level of
expense with the outlook of tax revenue.
For Programming at the Budget Envelope level the National
Budget Office establishes the guidelines for the programming
within each Envelope. This Programming of the Institutional
Budget is the basis for the Quarterly Allocation and later for the
Commitment Calendar for each Envelope.
Monthly Programming of Budget Execution is prepared for each
Envelope before the budget year begins. The Monthly
Programming cannot exceed the amount of the budget envelope
in the law, budget categories or sources cannot be modified, and it
must be based on the physical progress toward the goals.This
Programming comprises Monthly Income Programming for non-
regular resources and Monthly Expenditure Programming from
all Sources. The annual budget law sets out priorities to be used in
the monthly programming of expenditures. The monthly
programming of income and expense is recorded in the uniform
and obligatory budget control system "software de programacion
mensualizada del presupuesto".
The Quarterly Expenditure Programming allows the monthly to
be adjusted in line with the level of tax revenue. Quarterly
Allocation establishes the limit for the quarterly programming, of



77
ordinary sources, for the approval of the commit calendar. It is
approved by the National Budget Office in the first 10 days of the
beginning of the month prior to the quarter.
Commitment Calendar
The Commitment Calendar is issued by the Ministry of Finance
in the first five days of each monthly. This is the maximum
monthly authorization to incur budgetary commitments against
the approved Institutional Budget, it is the first phase in execution
so its approval constitutes authorization to initiate this process
and is an indispensable prerequisite to undertaking commitments.
Changes to the Calendar must be requested in the first 10 days of
the month, can only be made through "Ampliaciones" and are
limited by the Quarterly Allocation in the case of Ordinary
Resources and are subject to the availability of cash as determined
by the Cash Committee within the MEF , these   must be
supported detail on changes to the forecasted level of expenditure
and in the case of externally financed activities a specific form
must be filed.
Adjustments to the Quarterly Allocation and Quarterly
Programming of Expenditures are made in cases where the
Increases to the Commitment Calendar exceed the limit of the
quarterly allocation. Uncommitted balance of the Calendar of
Commitments at the end of the month cannot be included in
subsequent months.
Commitment
A commitment must be made by an authorized person, it is the
first stage in the budget execution, it reduces the available balance
of the Institutional Budget, and must be supported by the
corresponding Documents ( purchase or services order, payroll), it
cannot exceed the Commitment Calendar, must have budget
allocation, and it does not imply an obligation to make payment.
Commitments are classified as 1) ordinary, which can be made



78
for exact amounts, have financing, and their accrual and payment
can be made immediately, 2) Estimates, which are made from
projections and are preventive encumbrances for periodic
expenditures.
All commitments must be recorded through SIAF, their total
cannot exceed the authorized amount for Commitments in the
month, and be presented to the National Budget Office in
accordance with published schedule for reporting.
Accrual
The recognition by the Envelope of the obligation to pay is the
accrual, it should follow the confirmation of the receipt of the
goods or services and implies the identification of the payee and
the exact amount of the obligation.
The accrual must follow a commitment, must be authorized by
the Budget Officer in the Envelope, must comprise a
reconciliation of the supporting documentation to the
commitment and the accrual, must be recorded as definite in the
budget control system. The accrual implies the obligation to pay
the supplier and that the supporting documentation has been
reviewed and approved.
The accrual should take place within 10 days of the receipt of the
goods/services and must be recorded in SIAF SP. The National
Treasury Office will follow-up the accruals in order to assign
regular resources to settle these obligations.
The balance of Commitments not accrued in the Calendar of
Commitments period (month) may be accrued in the following
month., total accumulated accruals should never exceed
accumulated commitments. In the case of commitments
outstanding at year-end the accruals will be charged to the Budget
Allocations of the new year. Ending Balances, the budget



79
recognizes the balance of income over expense as a source of
financing for the following year only in the cases of sources
different from National Treasury i.e. income from their own
operational and donations. In the case of National Treasury all
commitments expire at year end, all funds are returned by the
entities at year end. Outstanding payables ( accruals) are paid by
Treasury but these are not budgeted in the following year since
they were reported ( charged) in the preceding budget period.
The Payment
The payment is the final step in the execution, whereby the
accrued amount is settled by and formalized by an official
document. Payment can only be made after all the prior phases
have been completed, the specific procedures established by the
Treasury must be followed and there is cash availability that is:
- if financed with ordinary resources there must be the specific
drawing authorization from the National Budgeting Office
- for accrual against other sources funds must be available.
The balance of unpaid accruals at the end of the fiscal year are
settled in the following against the availability of funds at the
time of payment but without charge to the current year's budget.
Unaccrued commitments which are accrued in the following year
are, on the other hand, charged to the budget allocation of the new
fiscal year.



80
Annex IV
People Met
CPC Oscar Galdos   Gerente     de      Cooperacion CGR
Internacional
CPC          Mario Gerente de Cuenta General       CGR
Fernandez
CPC Delia Becerra  Gerente de Control de Empresas y CGR
Organismos
Eco Gino Alban     Oficina de Atencion de Denuncias  CGR
Dra.        Noemi Oficina de Etica Gubernamental   CGR
Gallegos
Dr. Carlos Paredes Procurador Publica de la CGR    CGR
LLovera
Eco. Maria Alidea Jefe de SOA                      CGR
Gonzales
CPC Jorge Carrillo  Gerente Gobierno Central       CGR
CPC          Janes Supervisor Gobierno Central     CGR
Rodriguez
Dr. Jorge Guzman Sub-Contralor General             CGR
Rodriguez
Dr. Luis Cortavarria  Superintendente  de  Bancos  y SBS
Valores
Dr.  Juan   Carlos Jefe de Regulacion              SBS
Crisanto
Dr. Carla Chiappe  Departamento de Regulacion      SBS
Eco. Juan Mufioz   Director de Normativa           DNPP
Ing. Bruno Barletti  Director  de  la  Coordinaci6n SIAF-
General                         MEF
CPC Oscar Pajuelo  Contador General de la Nacion   CPN
CPC          Lidia Sub-Contadora   General  de  la CPN
Villacosta         Nacion
Roberto Flores     Contador                        PROMU
DEH



81
Wilfredo    Velito Jefe de Presupuesto            PROMU
Riviera                                           DEH
Lic.       Gustavo National Specialist Peru       IDB
Perachena
Lic. Alfonso Parra  Deputy Director Peru Office   IDB
Lic.         Javier Vice Minister of Economy      MEF
Abogattas
Annex V
Acronyms
AG                 Auditor General    Contraloria General
CGR                Office   of   the Contraloria General
Auditor General    de la Repu'blica
CNC                Council         of Concejo Normativo
Accounting         de Contabilidad
Standards
CGN                National   General Contador General de
Accountant         la Nacion
CPN                National           Contaduria Publica e
Accountancy Office  la Nacion
DNPP               National   Budget Direccion Nacional
Office             de     Presupuesto
_Publico
INTO SAI           International      Organismo
Organization    of Internacional   de
Supreme      Audit Contralorias
Institutions
Min Def            Ministry of Defense  Ministerio   de
Defensa
MEF                Ministry        of Ministerio     de
Economy        and Economia        y
Finance           Finanzas



82
PESEM              Sectoral  Strategic Plan  Estrategico
Plan               Sectorial   Multi
Anual
POI                Institutional     Plan      Operativo
Operating Plan     Institucional
PCG                National Code  of Plan      Contable
Accounts           Gubernamental
OAI                Internal    Audit Oficina de Auditoria
Offices            Intema
OAG                Office   of   the Oficina   de    la
Auditor General    Contraloria General
OLACEF             LAC   Organization Organizacion
of Supreme Audit Latinoamericano   y
Institutions       del   Caribe   de
Entidades
Fiscalizadores
SOA                Private Audit Firms  Sociedades Privadas
de Auditoria
SBS                Banking           Superintendencia de
Superintendence    Bancos y Seguros
SGP                Budget Management Sistema de Gestion
System             Presupuestaria
SCG                Government        Sistema         de
Accounting System  Inteligencia
Nacional
SIAF-SP            Integrated Financial Sistema  Integrado
Management         de  Administracion
System             Financiera
SIN               National           Sistema         de
Intelligence Service  Inteligencia
Nacional



83
Annex VI
Matrix for CFAA Action Plan on Financial Management to
Support the Peru Programmatic Sector Loan Agreed to with
MEF and CGR in Aide Memoirs prepared between Paul Sisk
and these entities during Mission to Peru September 9 to 14,
2001.
Action to be Responsi Monitoring
Issue         Taken        ble Party Indicators/Bench Time
mark            Frame
Lack      of The CGR will CGR        Inclusion in the 12 months
Financial    process  with           Organic Law the from  the
Independence the competent           provisions  for PSRL
of the CGR   authorities its         adequate       mission,
Organic Law            financing       September
and   include                          2001.
institutional
regulations on
budget which
will ensure the
preservation
of the   real
term value of
its budget.
Lack of effect The CGR will CGR      Interventions of On-going
ex-post      effect ex-post         the   CGR    in
external     external                MOD   and SIN
control in the control in the        and review  of
Ministry  of Ministry   of           the work of the
Defense.      Defense  and           Office      of



84
the   Security         Internal Audit
Services  in
line with its
mandate in the
Political
Constitution
Need      to The      CGR CGR        Dissemination   On-going
improve  the commits to a            of the reports
reporting  of policy of full
Audit         disclosure  of
Findings      the reports on
all    control
actions.
Need      to The      CGR CGR        Percentage  of 12 months
increase  the commits   to           malfeasance    from   the
effectiveness  initiate inter-       cases completed  PSRL
of prosecution institutional                        mission,
of           agreements                              September
malfeasance   which    will                          2001
and the fight recognize the
against      role  of the
corruption   CGR    in the
fight  against
corruption and
to coordinate
the work of
the
government
prosecutors
with the work
of the CGR
Complete the The MEF will Ministry   MOD    and MI Within 12
Control over ensure    the of        transactions   months
Central      extension  of Economy processed     in from
Government    SIAF-SP to all and     SIAF-SP        PSRL



85
Expenditures  operations of Finance                 mission,
the  Ministry                         Sept 2001
of   Defense
and      the
Ministry   of
the   Interior
and will apply
the procedure
of Encargos to
ensure
expenditures
are booked on
the basis of
supporting
documentation
and       are
processed by
SIEF-SP edits
Inadequate   The      Vice VM    of The             Within 12
Financial    Ministry   of Finance  development of months
Management   Finance  will          a         SIAF from
in       the develop     a          Municipal       PSRL
Municipalities municipal            version         mission,
version    of                         Sept 2001
SIAF
Limited detail The   MEF CPN        Enhancements    Within 12
in       the through   the          in the  Cuenta months
Government's Cuenta                 General and in from
Financial    General  will          Web        site PSRL
Reporting    make                   reporting       mission,
available                             Sept 2001
information
on     budget
execution
down to the



86
Program level.
Similarly
MEF commits
to make keep
updated
financial and
budget
execution
information in
its web page
in a format
and detail that
satisfies
general
public's
enquiries.
Need      to The     MEF VM         Communications Within 12
improve      commits   to Finance   from   MEF to months
Budget       disclose  the          this effect    from
control  and basis     for                          PSRL
transparency  assignment of                         mission,
the     Cash                          Sept 2001
Programming
among     the
approved
budgets  and
agrees     to
inform
Congress
quarterly  on
the    budget
impact   and
detail     of
Emergency
Decrees