Report No. 30953-PAK November 19, 2004 J; .- -: '14' e '' t '4 ' I L _ ~ ~ a _ Pj * m _ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~_________ _ _ Q Document of_the World Bank a ~ ~~~~~~~~~~~~~~~~. .... ......-. . ... wr-~ oumn of th Worl Ban Sindh Provincial Financial Accountability Assessment GOVERNMENT FISCAL YEAR July 01- June 30 CURRENCY EQUIVALENTS Currency Unit=Pakistan Rupees (PKR) US$1=PKR 59.45 (November 19, 2004 Floating Inter Bank Rate) ACRONYMS AND ABBREVIATIONS AERC - Applied Economic Research Center AG - Accountant General, Sindh AGP - Auditor General of Pakistan AGPR - Accountant General Pakistan Revenues APR&SD - Policy Reform & System Development CFAA - Country Financial Accountability Assessment CGA - Controller General of Accounts DAC - Departmental Accounts Committee DAO - District Accounts Office(r) FAP - Foreign Aided Program FMC - Fiscal Monitoring Committee FY - Fiscal Year or Financial Year GoP - Government of Pakistan GoS - Government of Sindh ICAP - Institute of Chartered Accountants of Pakistan IMF - International Monetary Fund MTFRP - Medium Term Fiscal Restructuring Plan NAM - New Accounting Model NFC - National Finance Commission NRB - National Reconstruction Bureau NSFCB - New System of Financial Control and Budgeting NTWFP - North West Frontier Province PAC - Public Accounts Committee of the Provincial Assembly PAO - Principal Accounting Officer PFC - Provincial Finance Commission PIFRA - Project for Improved Financial Reporting and Auditing PLA - Personal Ledger Account SAC - Structural Adjustment Credit SLGO - Sindh Local Government Ordinance, 2001 TA - Technical Assistance TMA - Taluka Municipal Administration WAPDA - Water & Power Development Authority UC - Union Council EDO - Executive District Officer DCO - District Coordination Officer TAO - Taluka Accounts Office Table of Contents Preface .................................................................. iii Executive Summary ..................................................................1 Sindh Provincial Government PFM .. Current Problems .. Further Reforms ..3 Conclusion ..4 Chapter 1: Budget Development and Execution .................................................................. 5 Compliance with the Constitution ..5 Rigidities in the Receipts and Expenditure Structure ..6 Impact of Devolution ..7 Regulatory Framework ..0 Payments and Monitoring Expenditures ..11 Recommendations ..13 Chapter 2: Accounting, Financial Reporting and Internal Control Systems of Sindh .......... 14 Benchmarks .14 System in the Provincial Government .14 Issues for the Provincial Government .16 Recommendations for the Provincial Level .19 System in the Local Governments of Sindh .20 Issues at the Local Level: .22 Recommendations for the Local Level ............................ 25 Chapter 3: External Auditing ............................... 27 Audit Arrangements in the Province .27 Recommendations .28 Chapter 4: Legislative Oversight ............................... 29 Inadequate Scrutiny .29 Reform Agenda .29 Recommendations .30 Action Matrix ............................... 31 Annex - Sindh Reforms Program ............................... 33 i it Sindh Provincial Financial Accountability Assessment Preface The Financial Accountability Assessment is a diagnostic tool developed by the World Bank to enhance knowledge of public financial management (PFM) and accountability arrangements in the Bank's client countries. It supports the exercise of fiduciary responsibilities through assessing the strengths and weaknesses of accountability arrangements in the public sector and identifying the risks that these arrangements may pose to the use of public and donor-supplied funds. The Sindh Provincial Financial Accountability Assessment (PFAA) report has been developed to cover the financial management systems as a whole and the particular characteristics of budget development and execution, financial reporting/accounting and internal control, external audit and legislative oversight. The final chapter contains an Action Matrix for implementation of the recommendations arising from the assessment. This document will be used as a foundation for the government's commitment for programs of institutional reorganization and legal reforms and for the implementation of financial functions under the local government devolution program. The report has been reviewed by members of the government-led Steering Committee and appointed Peer Reviewers and discussed at length among various stakeholders through workshops. The Government of Sindh (GoS) constitufed a Steering Committee comprising Secretary, PAC; Secretary, Social Welfare Department; AG Sindh; Director General Audit,-Sindh; a representative from ICAP; Special Secretary Finance (Budget); and Program Coordinator, Sindh Reforms Program; under the chairmanship of Additional Chief Secretary, Finance Department, to supervise the PFAA. The Steering Committee held a number of meetings with the Bank team and facilitated access to required information. Mr. Ather Zaidi and Mr. Nauman Mahmood, ACA, served as research consultants to the World Bank and provided a draft Report, which was released for review to the peer reviewers on behalf of the Government, and the PFAA Provincial Steering Committee. The Bank contributors included Hasan Saqib, Arif Yaqub, Michael Jacobs (international consultant), P.K. Subramanian, Donna Thompson, Nick Manning, Riyaz Bokhari, Shoaib Ansari, Zarin Naqvi, Ahmad Ahsan and Hanid Mukhtar. Ismaila Ceesay, (Task Leader) took up task leadership at the final stage of the assessment and Naveed Saeed (consultant) carried out further updating of the report in September 2004. Altaf Ahmad coordinated the workshops on behalf of the Bank and arranged publication of the final report. Grateful acknowledgement is given to the cooperation extended by Mr. Fazal ur Rehman, Additional Chief Secretary (Finance); Ms. Nurul Ain Haider Nadeem, Accountant General Sindh; Ms. Naheed Shah Durrani, Coordinator, Sindh Reforms Program; their staff officers; other government counterparts; donors; Council members of ICAP; peer reviewers; and other sector units within the Bank. Thanks are due to Mr. Ishaq Khusro, Chief Finance Officer, Finance Department in the updating and finalization of this report. .i.i Sindh Provincial Financial Accountability Assessment Executive Summary The Sindh PFAA was undertaken during 2003 in support of the Sindh Structural Adjustment Credit and also to support the overall Country Financial Accountability Assessment (CFAA) which was completed in December 2003. The assessment covers budget development and execution, financial reporting/accounting and internal control, external audit and legislative oversight. The report is based upon a series of previous studies and extensive consultation with GoS and other stakeholders. Some delay occurred during 2004 in finalization of the report and a final review was made with the main stakeholders in Karachi during September 2004. Sindh Provincial Government PFM The Sindh PFM system starts with the annual budget set in accordance with medium term objectives of Government. Line departments provide separate budget proposals for the development and recurrent components of the budget. The development proposals are appraised and evaluated by the Planning and Development Department. The overall budget is compiled at the Finance Department. The Budget is debated and approved by the legislature and sent back to the line departments for execution. Receipts of the Board of Revenue and Excise & Taxation are deposited with the State Bank of Pakistan (SBP) or the National Bank of Pakistan (NBP) acting as an agent of SBP. Funds are held in the Provincial Consolidated Fund and the Public Account. Expenditure bills are submitted to the District Accounts Offices for pre-audit and budgetary scrutiny, and payment. These Offices maintain the accounts of the provincial government. Under a current devolution program, new structures were created at the District, Taluka/Town and Union levels with a broader mandate than the previous local bodies. The Local Governments (LGs) will be the sole providers of social services including education, health, water supply, and sanitation. More funds are at the disposal of LGs to be budgeted and spent in accordance with local priorities. There are transitional issues adversely affecting financial accountability at the local level. The Sindh Government (GoS) has embarked upon the Sindh Reforms Program, supported by the World Bank's Sindh Structural Credit to improve PFM. The It includes reform elements for fiscal restructuring, financial management, procurement, and civil service. The Annex lists the main outcomes and performance benchmarks of the Program. A key challenge for GoS in going forward is to implement and sustain the wide-ranging reform program. Current Problems The scale and variety of actions in its reform program provides evidence of the Sindh Government's renewed will to reform. Progress in certain areas has been promising, while it has been slow and difficult in others. There is a need to continue with long term major restructuring reforms in the Civil Service and the financial and performance accountability regimes. Discussions with key stakeholders have indicated an urgent need to consolidate and expand the reforms. Their key concern is how to ensure that the reform process is sustained, and the steps proposed in this PFAA are intended to add momentum.. PFM is to be improved by a mix of long and medium term measures. This assessment notes that there is a longer term need for evolving a comprehensive legal framework of financial management in addition to the more short term strengthening measures already partly underway in the Sindh Reforms Program. The action matrix in this report concentrates on the shorter term measures that can be undertaken without substantial legislative action. I Sindh Provincial Financial Accountability Assessment Budget development and execution The budget development process has become ineffective mainly because of the following factors: * Development of the budget without regard for a medium term vision and agreed sectoral objectives. * Rigidities of expenditure, especially the substantial sums related to employees and debt servicing, which have led to incremental budgeting in place of performance budgeting. * Low allocation of resources for social sectors, thus impeding progress in poverty reduction. * Low participation of civil society and elected representatives in budget-making, conceptualization and monitoring of development projects and programs. * Ineffective control by the provincial legislature over estimates of expenditures, receipts and borrowings - and excessive deficit financing. * Over-use of block allocations to sustain unanticipated expenditures. * Non-amortization of capital projects. * Non-availability of a proper and reliable system of feedback. Budget implementation and monitoring has become ineffective as: * Principal Accounting Officers are not provided with adequate authority nor assisted by any Finance and Accounts Officer or Internal Auditor * Nobody is responsible for scrutiny of the budgetary proposals of the line departments before submission to the Finance Department. The Finance Department are not provided with adequate support to physically inspect, monitor, investigate, exercise effective checks, and undertake intemal audit or other review of the implementation process. They have no control over the payment function. * The Finance Department does not have a proper funds flow model to watch and monitor cash flows. * Financial Rules, especially those relating to procurement, are outdated and do not meet the new challenges adequately. * There is not enough connection between the budget and management functions, as the managers have no budget monitoring information available for decision making. Financial reporting, accounting and internal control Financial management and control systems need to become more effective: * Accounts have been prepared as per the Accounts and Audit Codes. The schedules have been revisited by the Accounting Policy Reform & Systems Development Wing of the AGP Office, and there is a need to provide more relevant budget monitoring financial information to the provincial government. 2 Sindh Provincial Financial Accountability Assessment * Internal controls and internal audit are insufficient and cannot meet the growing demands of the tight fiscal environment. Accounting, and financial reporting are improving but technical capacity management and organization issues need to be resolved. Financial management systems are largely manual except for some in-house computerization initiatives and roll-out of the new automated accounting system under PIFRA. In the short to medium term, hybrid financial records will remain cumbersome and lack the accessibility and flexibility of on-line reporting. At the district and sub-district levels, financial accountability is governed by different rules and procedures. And among local government bodies, the application of these rules and procedures varies considerably. The financial reporting to the district authorities is very weak. The internal audit function needs special attention at all levels. External audit The Department of the Auditor General faces new challenges including certification of accounts and audit of newly created LGs. More performance auditing is needed in the Province. PAC review of reports have shown substantial potential for many more audit observations to be resolved through Department Accounts Committees (DACs) and not referred to the Parliament. Inadequate use of DAC process to resolve audit observations have heightened the load of PAC. Legislative oversight The PAC has not met for long periods and accounts and audit reports go un-reviewed; the amount of legislative review is therefore very weak. There remains substantial pending work for the newly established PAC, which requires both institutional as well as resource strengthening. Further Reforms To build the capacity of the provincial government in the long run, it is necessary to undertake the following capacity building measures: * Create fiscal space by undertaking a long-term program of civil service reforms, reducing debt servicing expenditure, and enhancing revenue. * Develop a balanced fiscal relationship between the three tiers of govemment and make the provincial government more responsible and accountable. * Improve effectiveness of expenditure by making civil servants more responsive to the needs of the people through changing the incentives in the civil service structure. * The PAO should play a pivotal role in improved budget implementation with adequate technical and professional support to monitor and evaluate the departmental agenda. * Invigorate commitment to embracing the PIFRA project and rigorously support the progressive implementation of the country-wide IT-based FMIS. * Enhance the participation of the elected representatives of the people, civil society and other stakeholders in planning, execution and review processes. * The accounting function should be a separate and professional cadre. * Improve the adequacy of current budgetary processes by moving toward program budgeting. 3 Sindh Provincial Financial Accountability Assessment * Improve audit efficiency and effectiveness, especially in performance auditing and in resolving audit observations with departments. DACs should be re-energized. Audit should plan for coverage of all significant assets of the government and outcomes of important development projects. * Make the operations of the legislative oversight committees more continuous and build their research capacity through an institutional development program. * Develop a program for more effective Public Finance Legislation to ensure sustainability of the Sindh Reforms Program. * Achieve internationally acceptable fiscal transparency standards. Conclusion The assessment in this report concludes that there are substantial opportunities for consolidating current reforms and for introducing further institutional reforms to strengthen public financial management and accountability. This assessment proposes a time-bound action plan for moving forward on each of the areas of the reform and capacity building in the Action Matrix at the end of this report. Within the spirit of a trajectory of change and reform as delineated in actions embodied in the Action Matrix, the overall risk rating in the PFM performance for the Province is set at 'Medium'. The GoS has embarked upon wide ranging reforms to improve financial management. It will need to apply sustained efforts and in certain areas require sustained support of the GoP. Until these reforms are completed, some fiduciary risks to the Bank and other donor funds managed through mainstream accounting, financial reporting, internal control, and external review systems of GoS will remain. The on-going PIFRA implementation has already introduced significant changes from past practices in financial management, but a significant investment is required to capture these benefits. 4 Sindh Provincial Financial Accountability Assessment Chapter 1: Budget Development and Execution 1.01 The following elements of the budget process have been examined: (a) Compliance with the Constitution (b) Rigidities in the receipts and expenditure structure (c) Impact of devolution (d) Regulatory framework (e) Payments and monitoring of expenditures Compliance with the Constitution 1.02 The basic framework for the development, authorization, implementation and review of Provincial Government's annual budget is provided by the Constitution of the Islamic Republic of Pakistan. (Articles 115,118-126 read with Articles 160-167). Articles 118-126 describe the procedure for development and authorization while Articles 160-167 deal with the financial relationship issues between the federation and the provinces, including monitoring and review of budget implementation. 1.03 Delivery of services and fiscal management would be enhanced by more explicitly using the vision of the Constitution to relate expenditure proposals more closely with service delivery plans and sectoral objectives. 1.04 There is no constitutional provision regulating the provision of loans and grants to outside agencies though these do carry fiduciary risk. Most of these loans and grants are advanced to LGs, statutory bodies or non-profit organizations. 1.05 Legislation is inadequate and it is necessary to develop a program for legislation to cover the following: (a) the payment of moneys into or issue of moneys from the Provincial Consolidated Fund, and the custody of the Fund, (b) the receipt and issuance of money on account of the Public Account of the Province, and the custody of the moneys, (c) the borrowing of money or giving of any guarantee by the Provincial Government, and, (d) loans and grants provided by the Provincial Government to other agencies. 1.06 The Annual Budget Statement consists of receipts and expenditure. Articles 120-124 of the Constitution provide that approval of the Assembly is required for all expenditures during the year. The estimates of receipts are not subjected to such a discipline. The receipts estimates are often inflated to meet the proposed expenditure to minimize the expected net deficit. There are no statutory restrictions on the executive to keep expenditure within the actual or estimated receipts or to keep the deficit within a prescribed margin. This has led to persistent deficit financing in the past. 1.07 A longer-term solution is the enactment of a Budget (Development & Implementation) Law, specifically restricting expenditure to specified limits. The Federal Government has already drafted a Fiscal Responsibility and Debt Limitation Law, which can be used as a model in Sindh. In the interim period, reasonable receipts estimating and some fiscal restraint is needed in the budget development process. 5 Sindh Provincial Financial Accountability Assessment 1.08 The Annual Budget is treated as a one-time exercise of matching available resources with projected expenditure, without a medium or long-term vision and without considering socio- economic realities and constraints. A budget should preferably have an extended continuity and a linkage both with the immediate past and the immediate future, thereby becoming an effective part of public policy. 1.09 The GoS has already developed a Medium-Term Fiscal Restructuring Plan (MTFRP) as part of the Sindh Reforms Program. This program should be presented before the Provincial Assembly for information and debate along with the annual budget. As the MTFRP is a rolling plan, it would need discussion by the Assembly, as an annual feature, to emphasize the medium term vision of the government. This would also provide an opportunity to the government to self- assess its successes and failures. 1.10 The ultimate goal of budget development is the delivery of service. A budget is more meaningful if financial targets are translated into physical targets, with appropriate participation of civil society and elected representatives. By these means, taxpayers can be better assured of the value for their money through appropriate transparency and reporting. 1.11 A detailed plan for developing performance indicators in various areas of service delivery and their integration with the budget development process needs to be developed. The planning exercise should begin with the more important social sectors of education and health. The GoS has started working in that direction but the initiative is still in the formative stage. The proposed Budget Law should specifically provide for performance budgeting to ensure that the budgets become more meaningful and goal-oriented and that the new institution is strengthened over time. A migration toward performance budgeting would mean holding the managers responsible for performance, thereby providing them a flexibility to innovate and manage. 1.12 The Provincial budget development process presently lacks public participation in the absence of a suitable institutional mechanism; and in the absence of significant fiscal space, such participation will not be very effective. It seems that the rigidities of the receipt and expenditure structure currently leave little fiscal space for program implementation. It will require consistent efforts of the provincial government to create fiscal space over the next few years. Possibilities arise, however, to move forward on developing improved institutional mechanisms, including public participation, in budget development as follows: * Constitute Legislative Committees on Appropriations for detailed scrutiny of the budget proposals before submission to the Assembly for approval. This could be achieved by making suitable changes in the Standing Procedure for the Standing Committees of the Provincial Assembly. * Have professional bodies represented on departmental and provincial development working parties and at project/program formulation/review stages. Rigidities in the Receipts and Expenditure Structure 1.13 Sindh has its own structural rigidities. Sindh's salary-related expenditure is substantial at about 60% of its total revenue. A medium-term civil service reforms program targeted at economy and efficiency needs to be an integral part of a long-term plan. 1.14 Debt servicing is also substantial. The delivery of additional services cannot become a priority unless this proportion is changed. Fiscal space for adequate social sector allocations cannot be created until adequate reforms are initiated. Establishment of the Pension Fund by the Sindh Government is a step in the right direction. Pension liabilities are escalating rapidly, interest 6 Sindh Provincial Financial Accountability Assessment rates have gone down substantially and therefore the sufficiency of the funds need frequent monitoring. 1.15 The proposed Budget (Development & Implementation) Law should restrict block allocations to a certain prescribed maximum percentage of the expenditure, so as to minimize the use of the technique, and it is recommended that the practice is finally arrested after 2005. Impact of Devolution 1.16 The introduction of the three-tier district governments in early 2001 has made substantial changes in the administrative framework of the provincial government and has created new challenges. Amendments to the Sindh Local Government Ordinance 2001 (SLGO) dealing with financial aspects of the devolution were introduced in August 2002 and the change process is still underway. 1.17 Under the devolution plan, certain responsibilities have been devolved to the grass-root level, but not the authority. While administration of key services has been assigned to district governments, the power of taxation and revenue generation rests with the federal government. 1.18 A key issue for the future is the working relationship between the provincial and district governments. As per SLGO 2001, the Chief Executive of the province can only issue directives to the district governments to prevent any grave threat to public peace and order; for handling emergencies and providing relief, protection, and security for the people and the State. The district government is otherwise independent of the Provincial Government. The Local Government Ordinance, though dealing with a provincial subject, has been included in the sixth schedule of the Constitution (i.e. it has become a law that can not be altered, repealed or amended without the previous sanction of the President). This provision is likely to create strains and complications in the relationship of the two levels of governments. This is especially so as the devolved departments are the social sector departments which provide basic services to the people. 1.19 Although the service departments have been devolved, the employees still belong to provincial services and hence a conflict of interest could arise surrounding the disposition of the employees. 1.20 The federal and provincial governments have allocated development funds to members of the assemblies for small projects in their constituencies. The implementation mechanism of these projects through the devolved departments and agencies is likely to create problems of coordination, monitoring and accountability. 1.21 The SLGO 2001 provides a well-structured plan for governance at grass-root levels but relies on an ideal environment. Devolution for the district governments will work better if they are regulated properly, and are made less dependent on the taxes collected by the federal/provincial governments. Involvement by the provincial government in their day-to-day affairs needs to be limited to appropriate levels. Some of the important provisions of the Ordinance 2001 are: * The budget shall not be approved if the sums required to meet estimated expenditures exceed estimated receipts. * Formation of a Provincial Finance Commission (PFC), consisting of ten members including the Chairman (four ex-officio, three professionals, one Zila Nazim, one Taluka Nazim and one Union Nazim). The PFC shall recommend a formula for distribution of resources, distribution of allocable amount, making of grants in aid by the government to the LGs, and any other related matter. The recommendations shall be based on fiscal need, fiscal 7 Sindh Provincial Financial Accountability Assessment capacity, fiscal effort and performance. The PFC shall also present an annual report on fiscal transfers and LG resources. 1.22 The SLGO 2001 also provides for the establishment of a Provincial Local Government (PLG) Inspection Commission, headed by the Minister for Local Government, to conduct annual and special inspections of the LGs and submit reports (annual reports on the overall performance) to the Chief Executive of the Province. The Commission has been constituted. For an efficient working of the PLG Commission, the following are needed: * simple performance indicators in the devolved departments; * linkage between the district budgets and the performance indicators; * the formula for allocation of resources gives a weight to performance efficiency and administrative innovations; * the Commission has a reasonable representation from civil society, and * the report is made public. 1.23 The GoS established a PFC in June 2002 to formulate a divisible pool for distribution of resources between the province and the districts; prepare benchmarks of revenue and expenditure for the two governments that are consistent with their respective mandates; determine provincial retained and allocable amounts; develop fiscal distribution criteria, minimizing inter-regional disparities by means of equalization grants from provincial governments to economically weaker districts; and to suggest parameters for achieving fiscal discipline. 1.24 A proper fiscal transfer mechanism has been evolved by the PFC in which revenues are predictable and governments have some incentives to levy taxes and user charges, with due regard to long-term economic growth of their communities. The district governments have some flexibility to formulate budgets that reflect local preferences. The transfers are transparent and operate without informal or hidden incentives and deterrents. It, however, provides no flexibility or adjustment mechanism if the actual transfer of revenue is less than the budgeted revenue. The district governments are likely to face serious constraints if the revenue targets are not realistically fixed by the federal government. On the whole, it is a good beginning and it is expected that with passage of time, the institution of district governments would be placed on sound grounds. 1.25 Devolution has to cope with rigidities in the existing budget allocations for the district governments - high dependence on the federal/provincial government for resource generation, a narrow base of own resources, inadequate resources for maintenance and creation of assets, most resources spent on establishment charges where there are questions about efficiency, competence and integrity. As a result, district governments have very little fiscal space to undertake meaningful reforms and development initiatives. Centralization of resource generation and conduct of service reforms are crucial issues to address. Unless these are adequately addressed, the new tier of governance is likely to be unresponsive to the needs of the people. 1.26 Basic principles of budgeting have been prescribed through the new amendments in SLGO 2001, and the detailed process is to be prescribed through a set of subsidiary rules. The NRB has prepared four manuals, but except for the Local Government Accounts Manual the following Manuals are still in the draft stage and have not yet been made a part of the Ordinance: * Local Government Fiscal Transfers * Local Government Budget Code * Local Government Revenue Mobilization 8 Sindh Provincial Financial Accountability Assessment 1.27 It is essential that these manuals be put in place immediately after necessary vetting by the stakeholders, so that the district governments can become fully operational. 1.28 State Bank of Pakistan Account IV has been established for operating District Funds. The monies are to be transferred from Account I to Account IV, on a cash basis. The funds then become part of the District Fund, and any savings at the year-end will not revert back to the province (being non-lapseable transfers). This provides an additional resource to the district governments, but would deprive the provincial government of the benefit. It would certainly improve the quality of district budgeting in relation to allocable expenditures, but would reduce the flexibility of the provincial government in managing its affairs. 1.29 The provisions relating to Account IV have not been implemented fully and there are still some problems of transition. These problems have mainly arisen because of inadequate instructions from the NRB, lack of understanding at the provincial government level, and ineffective communication between Finance Department and the AG, Sindh. These issues appear to be transitory and are likely to be resolved over time. 1.30 The PFC award does not clearly specify the sharing arrangements for TMAs and Union Councils from the District Government. The arrangements applicable in the last year remain in force. The new decision about the devolution of property tax changes the revenue structure of the two tiers of government. Property tax has always been a local tax and its reversion to the district government is a step in the right direction. It would, however, reduce the provincial tax base considerably. The representatives of the TMAs and UC very strongly believe that more specific distribution of resources is in their favor. This is, however, an issue that would have to be looked into thoroughly by the PFC. 1.31 The Taluka Municipalities in the province had been following their own budget and accounting formats and classification, based on cash accounting (except the Karachi Municipal Corporation which follows accrual-based accounting). 1.32 The municipal administration has its own peculiar accounting and information needs. It should be ensured that the accounting classification and formats meet all the existing and future information needs of Taluka Municipal Administration. 1.33 The accounting and budgeting staff of the TMAs need adequate training in preparing the municipal budgets and accounts as per modified formats, before the new manuals are effectively introduced. A time schedule for the conversion of existing system to the modified system needs to be prepared. 1.34 Taluka Councils also follow different budget and accounting formats, on cash basis. As such their budget and accounting formats also need to be amended to bring them in line with the provincial government. 1.35 The accounting and budgeting staff of Taluka Councils need adequate training in preparing the 'budget and the accounts as per modified formats, before the new manuals are effectively introduced. A time schedule for conversion of existing system to the modified system needs to prepared and followed. 1.36 UCs are small administrative units. They are presently following a very simple budget format. The SLGO 2001 has enhanced their role and functions. 1.37 Despite the non-availability of skilled staff at UC level, it is necessary that their budgeting and accounting system be expanded to include the following operations to avoid any misuse of resources: 9 Sindh Provincial Financial Accountability Assessment * Creation of record of assets (for verification) * Accounting for the support to Citizen's Community Boards (CCBs) 1.38 It would also be necessary to bring the accounting and budgeting formnats of the UCs in line with the formats followed by the provincial and district governments, so that all accounting information is aggregated on a uniform basis. UC staff would need to be trained for that purpose. 1.39 Most of the EDOs (Finance & Planning) are generalists and have no specific background in planning and budgeting. A detailed program of their training needs to be developed and implemented to prepare them for the new responsibilities. It should also be examined if EDOs (Finance & Planning) should be drawn from cadres having a professional background. 1.40 The Budget Manual of GoS is outdated. It was last published in 1955. The new draft Budget Manual prepared by the National Reconstruction Bureau has not yet been made a part of the SLGO 2001. It has not been examined by the Finance Department of GoS and the Comptroller General of Accounts to see if it adequately meets the requirements of the district governments. 1.41 The GoS needs an updated Budget Manual and Financial Rules in view of the major changes introduced in the financial management framework of the province as a result of amended provisions of the SLGO 2001. GoS has already initiated spadework in this area. Further amendment of the financial rules consistent with the PIFRA business processes would be required in the coming years when PIFRA implementation would have advanced significantly in the Province. 1.42 The following additional measures may help to strengthen budget management and control: * Better timeliness of releases; * Effective cash flow monitoring; and * Recognition of contingent liabilities. Regulatory Framework 1.43 As per amended SLGO 2001, the Provincial Government has no lien on 'Provincial Allocable Amount' (PAA) and as such is required to place the PAA at the disposal of district governments, in accordance with the award of the PFC, without any discretion. The release of funds in relation to budget implementation, therefore, relates to the 'Provincial Retainable Amount' (PRA) only. 1.44 Approval of the annual budget by the provincial assembly and its authentication by the Chief Minister does not mean that the funds have been placed at the disposal of the field offices for meeting the expenditures. There exists a detailed regulatory framework for the purpose. 1.45 Release of funds in relation to PRA can be divided into three parts: salaries, non-salary current expenditure, and development expenditure. Salaries are paid by the AG/DAO, on a monthly basis, on receipt of an appropriation order issued by the Finance Department. The Finance Department releases non-salary current expenditure on a six-monthly basis. The development funds are, however, released for each scheme on a quarterly basis after due scrutiny by the Finance Department. The arrangements (except relating to salary payments) are changed without a prior warning in case the Finance department faces an unexpected resource crunch. 1.46 The Finance Department is responsible for overall financial management of the province, but it cannot assume full responsibility for micro-management. Its responsibility in relation to scrutiny and authorization of itemized expenditure should end with the approval of the budget. If an expenditure has been approved in principle, authenticated and budgeted, it is the PAO 10 Sindh Provincial Financial Accountability Assessment who should take over the responsibility of ensuring that the expenditure is incurred with due care, in the prescribed manner, and for the purpose it was approved. 1.47 The above principle has already been accepted in case of devolved departments, where the PAO (i.e. DCO) is supported by an EDO (Finance and Planning) to assist in matters of financial management. Financial management and control is a management function and it should be so placed. 1.48 The Finance Department, after approval and authentication of the budget document, should only be responsible for monitoring the revenue and expenditure to ensure that they are in line with the projected cash flow and that salary allocations are not re-appropriated to non-salary functions. The Finance and executive departments should agree to the projected flow of resources at the beginning of the fiscal year (which may be reviewed after mid-year and if necessary, suitably amended to meet the exigencies of the situation). The release of funds should be based on the agreed schedule. This procedure would be in line with the 'New System of Financial Control and Budgeting' introduced by the Federal Government. 1.49 Public sector financial management models in the federal, provincial and the district environments are similar. In all cases, the PAO is responsible in respect of the expenditure incurred against the budget grant(s) by his Ministry/Division or the District. 1.50 The existing delegation of powers (which was last updated in April 1991) has become redundant. It is essential that the responsibilities of the heads of the administrative departments, as PAOs, are properly defined and they are delegated adequate powers to manage the budget allocations placed at their disposal and are provided with professional assistance to do so. 1.51 The legal structure of the district governments also includes a new and important concept of public-private participation especially in the execution of development projects. There is a need to extend this concept into the functioning of 'retained departments'. This would result in economy of available resources and improving effectiveness of new initiatives. The concept of public-private partnership would have to be adapted to match the specific environments of each department. The PAOs should be motivated to innovate the design of the new relationships. 1.52 While GoS has taken some steps to decentralize procurement to the administrative departments to increase efficiency, the procurement of goods, civil works and consultants' services is carried out through outdated and ambiguous rules and regulations. The application of these rules is further distorted by the practices that have grown over the years to hinder genuine competition for government business. The current rules allow officials wide latitude in applying the rules, resulting in inefficient procurement that provides little transparency and value for money. The legal and regulatory framework also does not provide an effective means for settling disputes or addressing the grievances of suppliers, contractors, or consultants. 1.53 The GoS has decided to improve the overall legal and regulatory framework for procurement by taking steps in FY03 which include: (a) revising procurement rules, manuals and codes, to consolidate and simplify processes, increase competition and transparency and introduce a code of ethics, (b) developing and adopting standard bidding documents, and (c) establishing a fair and effective mechanism for redress of grievances. The GoS also plans to enact a Procurement Law, legislating the fundamental principles of good public procurement practices to promote economy, efficiency and transparency. Payments and Monitoring of Expenditures 1.54 An element of uncertainty in the picvincial financial management system emerges from the decision of the federal governmic L to keep the payment function, especially in relation to 11 Sindh Provincial Financial Accountability Assessment procurement of goods and services, outside the purview of the PAO. This results in an inefficient system of payments. The Federal government has departmentalized the payment function of some major departments and the Accountant General - Pakistan Revenues only deals with residual entities. Opening Personal Ledger Accounts (PLAs) has been used by some entities as a mechanism to eliminate uncertainty involving financial flows but this does not provide a system of adequate checks and balances. The Controller General of Accounts (CGA) has now been mandated to pre-audit all payments and, as a consequence, he has now decided that PLAs be closed as quickly as possible and all departments should revert to the centralized payments system for effectively monitoring. 1.55 The GoS is presently operating about 3 Assignment Accounts and 243 PLAs. Assignment and PLA Accounts provide an efficient payment system but without adequate checks and balances, as administrative departments do not have professional staff support to ensure due care. 1.56 The provincial government and the AG should develop a program for departmentalized accounting framework to replace the Assignment & PLA Accounts. This policy requires support from the CGA to decentralize accounting responsibilities to departments from the current centralized framework. 1.57 Good government should have specific targets for delivery of services. It should be responsive to the needs of the people and have a built-in feedback mechanism about the outcome of programs. GoS does not conform to this standard, as monitoring of budget implementation has never been a priority. As a matter of fact, no linkage has been established between the application of resources and their outcome. 1.58 Monitoring requires that the financial budget be translated into physical outputs. Building even a rudimentary system of monitoring requires effort. 1.59 The Provincial Government had no system in place for monitoring even financial data of revenue and expenditure, until recently. One reason for this is that accounting is not a function of the provincial government. The AG Sindh works for the CGA and has no functional relationship with the Finance Department of the provincial government. The AG is only required to prepare Annual Appropriation Accounts and Finance Accounts for audit and for eventual submission to the provincial legislature. The AG is not obliged to conform to any standards in compiling these accounts. The accounts that the A-G produces are neither accurate nor reliable or consistent. 1.60 The AG also provides a Monthly Civil Account to the Finance Department. This is actually a copy of the trial balance. After completion of the fiscal year, the AG prepares supplementary accounts and then the final accounts of the province, after carrying out adjustments and corrections. The annual accounts do not reflect the true financial position of the province. 1.61 The duality of control of DAO both by the Finance Department and AG would need to be reviewed and resolved. 1.62 The Federal Government constituted a Fiscal Monitoring Committee (FMC) in 1999, through discussion with the IMF, which is monitoring the reconciliation of departmental revenues and expenditures, inter-governmental accounts and suspense accounts. This has improved the reliability of fiscal data substantially but the exercise is still limited to function-wise expenditure data. GoS has taken a new initiative under Sindh Reforms Program and engaged a consultant to develop a reconciliation mechanism for all transactions of the Provincial 12 Sindh Provincial Financial Accountability Assessment Consolidated Fund and the Public Account. It is expected to help improve the quality of provincial accounts. Recommendations 1.63 The following recommendations are made: * Update the Budget Manual and Sindh Financial Rules * Improve the performance indicators information in the budget and develop a viable program budgeting plan which holds PAOs accountable for results * Add representation from professional bodies in project/program development cycle * Limit block allocations * Present the MTFRP before the Legislature for discussion * Arrange training for district level staff involved in budget development and planning * Develop 'Flow of Funds' Model to monitor Cash Flows * Promulgate Procurement Law and improve procurement documentation 13 Sindh Provincial Financial Accountability Assessment Chapter 2: Accounting, Financial Reporting, and Internal Control Systems of Sindh Benchmarks 2.01 Key operational principles which are generally relevant to good accounting, financial reporting and internal control are: (i) the quality of the control environment, particularly the accountability chain within the civil service, its ethical framework and the competence of the staff assigned to the functions; (ii) the clarity of roles and responsibilities; (iii) up-to-date accounting and internal control procedures; (iv) the capacity of the system to provide timely and accurate information consistent with International Public Sector Accounting Standards; and (v) the adequacy of monitoring and risk assessment systems. 2.02 At the policy level, good financial management and accountability systems must provide information about the risks of fiscal indiscipline and instability, increasing geographical inequalities and difficulties arising from decentralization. They should promote capacity for pro-poor budgeting, high quality annual accounts, well-managed expenditure monitoring, timely auditing and effective accountability and follow up at local levels. 2.03 Internal auditing is an independent, objective assurance and consulting activity. It helps Government to accomplish objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. System in the Provincial Government 2.04 Drawing & Disbursement Officers (DDOs) in the spending departments submit expenditure bills for endorsement of payment authorization to the DAO. DDOs also keep records of financial transactions and the PAO of the department draws up departmental financial statements using these records. The accounting at all levels is on a cash basis and accruals are only made in respect of some debt instruments. Separate dead stock registers are maintained to record assets. 2.05 The following figure presents the system of accounts headed by the CGA. Provincial AGs report the provincial accounts to the CGA based on summaries obtained from the DAOs/TOs. The DAO receives the bills from DDOs, performs pre-audit and budgetary control before endorsing bills for payment to the State Bank of Pakistan (or National Bank of Pakistan as an agent of SBP), and records the transaction in the govermnent accounts. 14 Sindh Provincial Financial Accountability Assessment CONTROLLER GENERAL OF AC OUNTS PROJECT GM (MIS) MAG & Its SUB z COORDINATOR OFFICES ; PIFRA y . AGPR & Its SUB PROVINCIAL CHIEF AO - e ; OFFICES AGs v, t DEPARTMENTALISED ACOUNTS --------DISTRICT ACCOUNTS / PWD Divisional Accountant N Lni ; ~ >OFFICERS / v DISTRICT N TREASURY OFFICERS ..* ,: i f GOVERNMENT \ / \ ( / PROVINCIAL FINANCE GOVERNmENT s tz z / _DEPARTMENTS DDOs SUB ee i X z t TREASURIES a) STA TUTES i. The Constitution of Pakistan -1973 ii. The Controller General Of Accounts Ordinance, 2001 iii. Chart of Classification (Updated in 1998) iv. Accounts Code Volumes I to IV v. Treasury Rules vi. Local Government Ordinance, 2001 b) STANDARDS i. Cash basis of accounting ii. Single entry recording system iii. Negligible computerization iv. International Accounting Standards in Development Authorities c) STRENGTHS i. Inspection & internal audit mechanism within the CGA framework ii. Centralized accounting, pre-auditing & budgetary control mechanism iii. Mostly experienced staff d) WEAKNESSES i. Lack of computerization ii. Lack of informative & innovative reporting iii. Functional classification cannot be consistently applied iv. Lack of professional staff 2.06 The World Bank's financed Project for Improvement of Financial Reporting and Auditing (PIFRA) is to complete its first phase by May 2005 and includes coverage of the Sindh Finance Department and AG's Office and some DAOs. The accounting and financial reporting manuals for the New Accounting Model (NAM) have been developed using a new five-segment Chart of Accounts (CoA) in place of two-level codes. 15 Sindh Provincial Financial Accountability Assessment 2.07 PIFRA will extend the IT based SAP accounting system to all DAOs in the province during its proposed second phase in 2005-2008. Issues for the Provincial Government Shortage of Resources at Accounting Units and Line Departments 2.08 There is a shortage of technical staff in the accounting offices. There are a large number of vacant positions. Persons with appropriate skills are short in numbers. Trainings conducted recently were either theoretical or introductory. These need to be more skill based and experiential. There are also deficiencies in required infrastructure and equipment. 2.09 There are few incentives to reward good performance. The motivation level is not very high and the work focus is more on pre-audit and less on the accounting and financial reporting. 2.10 There is a shortage of staff with accounting knowledge to assist the DDOs in following the prescribed rules and regulations especially in the Education and Health departments. The DDOs and their assistants need to be properly trained, particularly when the rules are changed. 2.11 There are deficiencies in the availability and use of accounting instructions. 2.12 The accounting procedures are very old and difficult to learn. The combined accounts codes are very detailed and not user friendly and many chapters/details stand obsolete due to changed environment over the years. In addition, relevant laws and rules are not provided free of cost. Changes are not timely and updated periodically particularly at the DAO level. Indications are that the majority of staff is not familiar with the contents and application of the accounting and reporting requirements of the procedures. Method and Basis of Accounting 2.13 The method of accounting is single entry and the cash basis of accounting is used. The single entry method gives chances for misappropriation and misstatements. This is a transitional issue, as PIFRA supported implementation of NAM will change to double entry and will record commitments. Record of Assets 2.14 The record of assets (dead stock register) has not been integrated or reconciled with accounting records and no detailed asset accounting is being done. The purchase of an asset is recorded as an expenditure. PIFRA implementation provides for some asset accounting, and information about public assets will need to be collected. Accounts Reconciliations 2.15 Public Accounts, inter-government accounts, suspense/sundry accounts, deferred liabilities and public debt have not been reconciled on a periodic basis. This may affect the accuracy and presentation of, and disclosures in, the Finance Accounts of the provincial governments in addition to causing delays. 2.16 In order to resolve the issues mentioned, GoS (Finance Department) has engaged a firm of consultants to study the public accounts mechanism of the provincial government to identify how the system can be strengthened and streamlined to provide a reconciled, true and fair view of transactions within the existing framework of accounting principles and produce accurate account balances. 16 Sindh Provincial Financial Accountability Assessment 2.17 The system requires monthly reconciliation of accounting data of transactions in Provincial Consolidated Fund (Account # 1) with the records kept at the line departments. DDOs reconcile their records with the Accounts Office concerned. The DDO level reconciliation has been achieved to 95%. The information is compiled head-wise separately in departments and by the AG and is to be reconciled again at the aggregate level. These reconciliations of compiled information are poor and would be unnecessary if AG compilations are correct and are provided to the departments. 2.18 The internal controls in the accounting offices should be strengthened to maintain the accuracy of information during compilation of reconciled DDO data. This departmental information compiled head-wise by the AG should be sent to the departments concerned for managerial purposes so that the department does not need to compile its own information in a duplicate effort. Reconciliation lags (about 5%) at the DDO level reduces the chances of effective reconciliation at the district and departmental level. 2.19 The State Bank Deposit Register is required to be reconciled daily with the scroll sent by SBP, or NBP acting as an agent of SBP. This exercise is not being done daily because of practical difficulties. For many sub-treasuries the scroll of relevant NBP branch comes to the District Accounts Offices on a bi-weekly basis and the lack of daily reconciliations can result in errors in the accounting data. 2.20 The Food Account with SBP is mainly maintained for the wheat trading by the provincial government and is known as Account No. 2. All the receipts and payments relating to sale and purchase of wheat are in this account. Proper profit and loss statements and running accounts statements to indicate the net annual activity are not being prepared. There is a need to keep accounting/costing records of stock and incidentals separately. The net activity in this account is included in the annual budget of the provincial government and provides only an indirect disclosure of the profit/loss of the trading activity. Chart of Classification 2.21 The existing structure of functional classification cannot be consistently applied to identify any specific data element. At places it identifies a Department or a Division's Headquarters, at other place it refers to a function or an activity and at certain other places it identifies the objects of expenditure. 2.22 The NAM CoA will improve the provision of accounting information to the stakeholders and the state of financial accountability. Low Level of Computerization 2.23 There are some computerized accounting units (AG Sindh, Hyderabad and Sukkur DAOs) but the accounting systems are mainly manual and therefore the record-keeping is laborious and lacks the information flexibility and real-time reporting available through computers. The ratio of use of computer systems in the District Accounts Offices is low compared to Punjab and NWFP. 2.24 As PIFRA is the first country-wide computerization project of this scale and complexity, it entails high risks. At present, SAP R/3 system is being implemented at AG Sindh, AGPR sub- office Sindh, and DAO Hyderabad. Later the system will be replicated to all DAOs and Finance Departments. Duality of Control of Accounting Staff 2.25 The accounting offices for the provincial government are staffed by two cadres. One is the federal staff under the hierarchy of the accountant general and the other the staff of the 17 Sindh Provincial Financial Accountability Assessment provincial finance department (treasury staff). The administrative control of these staffs vest with the parent department although they serve together. There are 6 DAOs in Sindh which are from the Finance Department. This duality of control causes management issues leading to functional problems e.g. staff posted out without prior approval of DAO concerned. Reconciliations of Tax Receipts and Study of Revenues Potential 2.26 The receipts for provision of public services are recorded on a cash basis. The record of receivables for registered consumers/taxpayers is not available in most cases. In case of availability of such records, this is not linked or reconciled with the physical outlets/users. In addition, there is no periodic reconciliation for the receipts records in the line departments with those of the Bank and Accounts Offices. There needs to be a study of possible other sources of provincial revenue and the potential size of the revenues. Local Government Accounts 2.27 The summary of accounts of the funds disbursed to the LGs or those spent by the LGs are not consolidated in the provincial financial statements to present a province-wide figure of sectoral spending that can be used in effective poverty reduction monitoring and planning. Financial Reporting Schedules 2.28 The AG provides monthly, quarterly and annual reports to various stakeholders in respect of provincial accounts including the FMC, CGA, Director General Audit and Finance Department. Monthly compilations are also sent to the line departments. Weak Internal Controls 2.29 As per reports of the Auditor General, the internal control systems are quite deficient. The internal control system is very old and obsolete requiring comprehensive exercises to identify and remove redundant and useless controls. New efficient controls compatible with the existing environment and threats should be devised and implemented. A framework for a periodical and independent assessment of internal controls to meet new requirements is needed. The controls should manage the various risks confronted to the public resources and should be more focused towards prevention of any losses rather than detection and correction after the incidence of such losses. The PIFRA project shall support the province in this direction. 2.30 Standard Operating Procedures (SOPs) for the internal audit function have been developed by the provincial government. These SOPs are essentially covering the internal controls to be managed by the executive to safeguard public resources. The nomenclature should be changed from 'internal audit' to 'internal controls'. The rules and guidelines for internal audit need to developed separately as internal audit should be an activity that is separate from the management's activity. Public Enterprises 2.31 Public enterprises are attached to different line departments. No consolidated picture is produced of the overall financial expenditures and revenues for provincial entities. The contingent liability on the provincial government in respect of these enterprises/bodies is not known. Deductions for utilities (e.g. WAPDA) charges are made from government transfers to the provincial government. Reform Agenda 2.32 The GoS is committed to improve the quantity and quality of fiscal information disseminated to the public to ensure fiscal transparency and thereby strengthen financial accountability. A 18 Sindh Provincial Financial Accountability Assessment senior officer has been posted as Chief Finance Officer in the Finance Department to manage the reform effort . 2.33 The Sindh Govemment is gearing itself to implementing the integrated financial management system (PIFRA supported reforms), based on modified cash accounting principles, which can meet intemationally accepted standards of completeness, accuracy, reliability, timeliness and usefulness, and especially where Intemational Public Sector Cash Standard reports are equally generated. It wishes to situate the responsibilities for accounting functions in a manner that promotes ownership of and accountability for good financial management within the executive arm of Govemment. It seeks to establish the public accounting system as a robust platform for transparency in the management of public funds, for economic decision making within Govemment to promote program efficiency and effectiveness, and for provision of auditable financial information to various stakeholders within the province and federation as well as to donors and international financiers. 2.34 The GoS is also making efforts to accomplish the financial management and accountability goals set in the context of the IMF Standby Arrangement and the World Bank's Structural Adjustment Credit. 2.35 The GoS is committed to become more transparent and expedient in its procurement processes and therefore, a draft Public Procurement Act and draft Guidelines for Procurement of Goods have been prepared by the government. 2.36 A Pension Act has been enacted. Recommendations for the Provincial Level 2.37 Continued commitment to the reform agenda in place - Since the reform agenda by GoS and PIFRA cover major issues, full commitment is needed for their success. 2.38 Capacity building of the accounts offices is needed in terms of appropriate staff strength, their certification and training, provision of infrastructure and equipment. 2.39 Devise an effective incentive mechanism to boost the morale of the trained and certified accounting personnel that are needed. 2.40 A draft 'Sindh Govemment Internal Audit Ordinance, 2004' is currently under review by the provincial govemment for finalization and needs to be promulgated. 2.41 The reconciliation issues not covered by the Public Accounts exercise need attention and separate studies are required to reconcile different data sets and underlying records maintained with different agencies. 2.42 Institutionalize the reconciliations of the foreign aided projects with relevant stakeholders including the project staff, SBP, Economic Affairs Division and AG. 2.43 Finalize the issue of duality of control in the DAOs and make uniform control over all staff in DAOs. 2.44 Update the Financial Rules and Treasury Rules by including enforcement of intemal controls, deleting obsolete items, use of new terminology, relevance for NAM etc. Provide these at DAO level free of any cost in a timely fashion. 19 Sindh Provincial Financial Accountability Assessment 2.45 Plan and conduct stock taking of the fixed assets, verification of the dead stock registers and linking of the assets system to the accounting system. This will prepare for the full implementation of NAM. 2.46 Prepare a consolidated financial picture of the public enterprises under the control of the provincial government and assess contingent liabilities . System in the Local Governments of Sindh 2.47 Under the local government program, LGs have been formed at three levels: District, Taluka, and Union. The plan is to devolve powers to the grass root level where people can be empowered to monitor the basic services provision financed by the public funds and to improve equity in the distribution of resources. The devolution of power to local level provides fiscal decentralization where the elected representatives of the people make decisions about where money is spent and their decisions can be monitored by the people on a continuous basis so that those who spend the money can be held accountable. 2.48 The rationale behind development of new financial management systems and modification of existing systems is to keep the stakeholders (management, elected representatives, citizens etc.) informed about government activities and their financial impact. Efficient functioning of financial management systems will provide transparency leading to greater accountability and citizen involvement. 2.49 The main objective of the local government program is to empower District, Taluka/Town, Union and later on Village/Mohalla as independent financial units where no higher level can exercise undue interference in the responsibilities and authorities of the lower level. An independent financial management system will provide the information needed by the decision makers and other influence groups at each level. These financial management systems must be capable of providing the consolidated information in an accurate and timely manner. Three centralized and comprehensive accounting systems are envisaged, i.e. one for each local government. District Accounting 2.50 The Auditor General of Pakistan is responsible under Article 170, to determine the form of accounts of the Federation and the Provinces and submit the reports to the President or the Governors who will in turn submit them to the respective Assemblies. Two Ordinances [The CGA (Appointment, Functions and Powers) Ordinance, 2001, and The Auditor General (Functions, Powers and Terms of Conditions of Service) Ordinance, 2001] have been promulgated to replace the Pakistan (Audit and Accounts) Order, 1973. These ordinances segregate duties between audit and accounts functions. 2.51 The CGA, has the overall responsibility: .....to prepare and maintain the accounts of the Federation, the Provinces and district governments in such forms and in accordance with such methods and principles as the Auditor- General may, with the approval of President, prescribe from time to time ... ; to authorize payments ...; to prepare and maintain accounts of such organizations as may be assigned ....; to provide .. District Governments with such information as such Governments may from time to time require. (Section 5, CGA Ordinance, 2001) 2.52 Under the supervision of the CGA, the AG of each province are responsible for recording the transactions using the District Accounts Officers (DAOs). They also deal with matters of accounting policy and procedure at the Provincial level. 20 Sindh Provincial Financial Accountability Assessment One Set of Books with District Accounts Officer 2.53 The DAO represents CGA at each district and has prepared and maintained accounts for the Federation and the related province. The CGA Ordinance, 2001, requires the CGA to keep the accounts of the district also. The DAO will be the responsible officer in this regard to provide periodical and ad-hoc reporting to the district authorities. The DAO will make all the disbursements from the Provincial Funds (the allocated share of the district from the Provincial Consolidated Fund) vis-a-vis the local funds (the district's own source revenues). 2.54 If two separate set of books are maintained for each of the funds, there will be two incomplete statements relating to each entity (school, college, hospital, water supply scheme etc.) each showing expenditures from a separate fund. The required consolidation and checking will be difficult. One set of books is preferable. 2.55 The DAO will record the transactions made by the line departments from the provincial and the district budgets separately in different sets of books. The devolved departments will continue providing services to provincial departments for inter-district and large projects, which the province will be executing. Any attributable fiscal transfers from the province in relation to this specific service provision by the devolved departments will be recorded to give effect to its nature as such. Similarly, any establishment or other costs incurred by the province on behalf of the devolved departments will be charged to these departments. Financial Reporting Functions to District Authorities 2.56 Before the promulgation of the CGA Ordinance, 2001, the DAO was not responsible to provide any reports to district authorities. Therefore, the present system of accounting and financial reporting does not meet the needs of local officials. There is no reporting channel available to the district level at present and a financial reporting system is needed. The existing system provides reporting to the Federal and Provincial level in different formats for the different accounts maintained. 2.57 The district will be responsible for generation of its own resources and using them. LGs will be empowered to re-appropriate funds received from the provinces. A financial reporting framework is needed at the district government level for the stakeholders that provides financial information at appropriate intervals with sufficient detail to help the Council make informed decisions. Similarly other stakeholders will be better able to monitor the activities and be in a position to be answerable to the LGs. 2.58 The LGs need internal budgetary, cash flow, cost and investment reports. These can be utilized for financial and trend analysis for the service efforts, costs, and performance indicators. The reports are difficult to compile because of the level of staff and competence available and the prevailing form of the records. Efforts should be made to develop and use such analysis reports on a step-by-step basis at both the DAO office and by the Finance Officer under the DCO. 2.59 Financial reporting is the basis for sound decision-making and is the most important element of the managerial functions. It enables managers to perform planning for both short term and long term controlling, and also support the managers' in timely and accurate decision making. Financial reports provide data for preparing budgets, forecasts such as projected cash flows for a quarter or for the year. The management is entrusted with the responsibility of ensuring that the organization as whole is working towards achieving the goals of the organization. In addition to this, the management has to take remedial actions for keeping the whole organization on the right path. 2.60 The role of the DAO in the district will be enhanced because s/he will be now be coordinating with the district governments as their accounting manager in addition to his duties as the 21 Sindh Provincial Financial Accountability Assessment representative of CGA in the district. He will furnish periodic accounting reports to Nazims and Naib Nazims. He will be closely coordinating with these district authorities and will provide any financial information required by them for planning, controlling and decision- making. Taluka Accounting 2.61 The Taluka administration is entrusted with four functions: (a) Rural-urban Planning (b) Land development (c) Municipal services (d) Finance and accounts 2.62 Under the LGO 2001, the Taluka administration will operate independently for the provision of services to the Taluka citizens in the area of municipal functions, rural-urban planning and land development. A Taluka Accounts Office (TAO) should function in a similar manner in the Taluka as the DAO in the district. The Taluka DDOs/TOs should send their bills for disbursements to the TAO and these bills will be subjected to compliance checks and budgetary controls before endorsement of payment and recording. The processed bills will be returned to the DDOs and the accounts will be updated and reconciled on receipt of disbursement scroll from the bank. The revenues should be recorded on receipt of details from the bank and these will be reconciled with the records of collection agencies. 2.63 The sub-treasuries functioning at the Talukas work like a post office or messenger, as they collect the bills for disbursements periodically from the DDOs stationed in the Taluka and bring these bills for processing to the DAO. After the processing at DAO, payment instruments (endorsed bills or cheques) are returned to the DDOs. These should continue working as such in the future since the amounts involved are not material for setting up of a new and separate elaborate payment processing infrastructure. 2.64 TAOs can be established by transferring the accounting staff in the local bodies functioning at the district or Taluka/town levels. These personnel should be trained for the centralized accounting and reporting for the Taluka. Union Accounting 2.65 The Union Secretary keeps the original supporting documents with the bills in order and in safe custody, and is required to prepare the annual financial statements for audit and provide any detailed information and documentation in this regard. Issues at the Local Level: Merging of Account # 4 with the Local Funds 2.66 The Sindh Local Government Handbook contains relevant laws, instructions from the Local Government and Rural Development Department, bye-laws, and rules under the repealed Local Government Ordinance, 1979. The Local Government and Rural Development Department is the provincial department which supervises the operations of local bodies in rural as well as urban areas. These local bodies include municipal committees, union councils, zila councils, development authorities etc. The Local Government Handbook does provide for a chart of classifications to be used by the local bodies for budgeting and accounting for the transactions in each account head but these account heads are not coded. Therefore, the local bodies generally do not use the account coding except a few metropolitan corporations where the 22 Sindh Provincial Financial Accountability Assessment accounting system is automated or is in the process of automation. The same chart of accounts is being used by the LGs for the budgeting and accounting of local funds. 2.67 There are two frameworks for accounting: one performed by the CGA for the federal and provincial accounts and the other is accounting done by the local bodies. According to the amended Local Government Ordinance, 2001, the two funds being dealt with in different accounting systems are to be merged into one District fund for which accounting is to be done by the DAOs using the instructions given by the Auditor General. This merging of funds has not yet been achieved resulting, for the present, in two separate budgets and two different sets of accounts being prepared in respect of each local government. The two fund stream should be merged and a strong financial accounting and reporting system should be evolved in each local government. This may also require additional resources to enhance the capacity of the DAOs. Karachi City District Accounting 2.68 A separate accounting system for Karachi City District is in place. The volume of work, fund, infrastructure and human resources involved in case of Karachi are high as compared to other Districts. There are concerns that there will be problems in replacing this system by PIFRA systems. A uniform system is however desirable for financial reporting in the Province and districts, and a special assessment may be needed of the desirability of replacing the Karachi system with SAP or building an interface. Public Accounts have not been established 2.69 Under the amended Local Government Ordinance, 2001, every Local Government (LG) has to keep certain types of liabilities in the Public Accounts. This Public Account mechanism is not yet designed. Adaptation of Federal and Provincial Accounting System to the Local Governments 2.70 The accounting and information needs of the Federal and Provincial Governments are quite different from those of LGs due, inter alia, to the following reasons: 1) LGs have no authorization for incurring debt, 2) most LG services are competitive to the private sector, 3) cheques drawn by LGs may be dishonored by the Bank, 4) less credibility due to limited sources of funds available to LGs, 5) close proximity to the community serviced and hence the target audience for reporting, 6) additional transparency and accountability requirements under LGO. These require more disaggregated information for the LG decision-makers and communities in a timely manner than would otherwise be required at federal and provincial levels. Forestry Accounting 2.71 The Forestry Department has been devolved to the District Government as an office of the Agricultural Group of Offices. Its accounting has to be done according to the normal procedures applicable to other offices in the group. To date the accounting and payments framework is as per pre-devolution. Therefore the Forestry Department of district Dadu is drawing payments from DAO Hyderabad. This could lead to reconciliation and reporting issues. Liability for GP Fund and Pensions of Local Employees 2.72 There is a need for quantification of liability in respect of pensions and the GP Fund of bodies' employees, which, under the LGO, will be taken up by the new LGs. Planning is needed to retire liabilities where the assets transferred are less than the liabilities affixed. 23 Sindh Provincial Financial Accountability Assessment Reporting to District Authorities 2.73 The DAOs are not providing any periodical reports to the District Authorities. DCOs and Nazims are asking banks to send the statements of receipts and expenditures. The accounting services through the DAO need to be improved. Internal Audit 2.74 The internal audit offices in the LGs have not been established and operationalized. LG Internal Audit Rules and Guidelines have not been notified. Cash Management 2.75 Under the LGO 2001, LGs are empowered to manage their finances independently. Therefore the surpluses and deficits in bank balances will have to be managed by the LGs themselves for smooth running of operations. The treasury management functions, in addition to safeguarding of cash and internal controls, include the following: i) Depository procedures ii) Bank reconciliations iii) Managing cash flows (short-term surpluses and deficits) iv) Investment policies v) Banking services 2.76 The Account # 4 for the district governments is being operated on an actual cash transfer basis, which means that the district governments will have cash balances in their bank accounts. Earlier, the Account # 1 operated on a reimbursement basis where cash was only transferred to the relevant disbursing branch of the SBP or NBP concerned once it had disbursed a certain amount. Therefore, the DAOs only reconciled the receipts and payments with the bank and no balance was carried forward to the next day. Now, after the opening of Account # 4, the NBP is still sending one combined scroll on the old pattern for both the transactions in Account # 1 and Account # 4. The opening and closing balances in the Account # 4 are not reflected. Any misclassification by the bank will go undetected and can lead to serious reconciliation problems. 2.77 Cash inflows are cyclical and can vary widely at different times during the year. For example, cash inflows will be strongest immediately after a tax or utility billing. While cash outflows or cash requirements can also vary, those patterns are often more stable and easier to ascertain. 2.78 On other occasions, the cash requirements are difficult to predict, for example, during a major construction project. This requires additional controls to be implemented by the DAOs and close co-ordination with the banks. The banks will have to provide services to facilitate cash management for each local government and assist in cash forecasting so that it can help governments in smoothing its cash flows. Government managers have to monitor the cash flows closely, whereas the assistance from the banking sector experts will be very valuable. 2.79 Section 120 of LGO, 2001 states that "No local government shall incur any debt except in the manner provided in this Ordinance", but the short-term cash flow management under a long- term arrangement with the banks must be allowed. The terms of such a service from the banks may be individually negotiated by each district. Otherwise it may be economical if the provincial governments on behalf of all LGs negotiate with a large scheduled bank. 2.80 The Provincial Government transfers amounts to the LGs under the PFC award but withholds the salary component of provincial employees serving in LGs and the development funds. This treatment causes two problems. First, the savings on account of these items are not transferred to the LGs thereby reducing the due share of LGs under the provincial finance award. Second, the AG is required to pay these salaries and development expenditure from Account # I and 24 Sindh Provincial Financial Accountability Assessment therefore record in provincial accounts for reconciliation of SBP deposit account. DAOs are instructed to charge this amount to respective LGs where these employees are serving. This makes a double count of the charge. AG is aware of the issue and is planning to implement an accounting solution to the problem. 2.81 The procurement instructions for the LGs have not been issued. These have to be issued by the Provincial Government under the Local Government Ordinance. Similarly the Zila Ombudsman and Complaint Cells are not posted/established as per law for the redress of grievances. 2.82 The newly created EDO (Finance & Planning) lacks resources and technical capacity to manage the finances of the District Government; an urgent solution to this problem is needed. The officers posted lack the requisite background in finance, and therefore, the management expectations of the District Governments are not being properly met. Recommendations for the Local Level 2.83 Other options for extending the scope of the PIFRA project to the local level, other than the functionality available in SAP, would need to be explored for reasons of simplicity and cost- effectiveness. This option should have the capability to interface with SAP for wider government reporting. 2.84 Framing of the LG Budget Code, and clarification of Forest Accounts procedures, need to be done. 2.85 Organize a study for the analysis of the Accounting System of Karachi City District and an options analysis for the final shape combined accounting of local and provincial funds needs to be undertaken. 2.86 Establish Taluka/Town Accounts Offices and adapt an accounting framework for accounting in LGs, if decision is so taken. 2.87 Plan the skill-based training for all accounting staff including local level accounting staff to improve accountability. 2.88 Establish effective internal audit units in the LGs. For effective financial accountability and governance, the establishment of internal audit offices under the LGO, 2001 to provide value addition, and framing of draft subordinate legislation (ADB FD TA) is very important. 2.89 Merge the provincial accounts in the LGs with their own source revenues and move towards the mainstream budgeting, accounting and auditing processes. 2.90 Commission exercises to quantify the liabilities of the local government in respect of the old local bodies employees' terminal benefits and develop a strategy for retiring that liability. 2.91 The DAOs should be instructed to provide necessary reporting to the District Authorities, and establish the Public Accounts for the district governments. 2.92 Devise and operationalize a consolidation/aggregation framework for the local government accounts into the provincial finance accounts and later into the national accounts. 2.93 The institutional reorganization demands a careful design of new policies and procedures for internal controls to safeguard resources and to protect against financial and non-financial risks and threats. This is pertinent because the restructuring of departments can initially loosen the traditional controls (ob/responsibility/resource assignments, segregation of duties, checks and balances etc.). There will be a potential risk that opportunists will benefit and threaten the success of the devolution plan. Efforts must be made to devise a control environment where a balance of protective, detective and corrective control procedures can be implemented in all the 25 Sindh Provincial Financial Accountability Assessment functional departments of the district, Taluka and union, particularly as regarding financial accountability. 2.94 Build awareness, information sharing, and research capacity of the local government functionaries and elected representatives at the local level. In particular there is need to train these officials in financial management to augment the training initiatives already undertaken by the provincial government either independently or with the assistance of development partners. 2.95 Establish the offices of Zila Ombudsman and Complaint Cells. 2.96 Improve the procedures of cash management in coordination with the SBP and NBP, initiate a comprehensive reconciliation framework, and revise the reconciliation process for Account # 4. 2.97 Develop the capacity of the EDO (Finance & Planning) through training to effectively carry out the planning and finance function in the District Government. 26 Sindh Provincial Financial Accountability Assessment Chapter 3: External Auditing Audit Arrangements in the Province 3.01 The Auditor General of Pakistan (AGP), is the extemal auditor of GoS, as per Article 170 of the Constitution. The Constitution places no limitations on the Auditor General on what to audit and what not to audit. His observations should relate to the accounts of the province and should be placed before the Provincial Assembly. 3.02 The Auditor General's (Functions, Powers and Terms and Conditions of Service) Ordinance 2001, enacted in pursuance of Article 260 of the Constitution, provides that the AGP shall certify the accounts of the province and the district governments, and submit the certified accounts with such notes, comments, or recommendations as he may consider necessary. 3.03 The AGP had been conducting compliance and regularity audit of provincial transactions and reporting the non-compliance in his audit reports. Although the methodology for conducting the audits has been improved, certification audit, being a new concept in public sector auditing in Pakistan, has yet to take root. PIFRA is supporting the development of the AGP's office in this matter. 3.04 The statistics show that 92.3% of audit resources are being utilized for regularity audit, 6.5% for certification audit and only 1.2% for performance audit. Resource allocations to different types of audit need to be reviewed so that performance audit is given increased importance. 3.05 The now defunct Adhoc Public Accounts Committee (PAC) took up the review of the backlog of Audit Reports. Two issues still need to be addressed (a) to ensure timely preparation and submission of the audit reports as in the recent year, and (b) the Public Disclosure of the Audit Reports. When the Audit Reports are laid before the Provincial Assembly they should become public so that Public Representatives can raise issues in the Audit Reports. The Provincial Assembly should carry forward the responsibility of Public Disclosure to the general public through the media. 3.06 The most recent report of the PAC available publicly is on the provincial accounts for 1992-93. The Adhoc PAC has expressed following important views on these audited financial accounts, some of which are as follows: (a) there were significant inaccuracies in the figures contained in the accounts for some departments. (b) material weaknesses regarding the methods and procedures in classification and reconciliation of accounts. (c) "In the case of a large number of audit paragraphs, Administrative Departments appear to wait until the date of the actual meeting of the PAC prior to producing the relevant papers required by Audit. In many cases the required documentation was fairly routine, which raised the question as to why these has not been produced to Audit in the first place. The need for better coordination between Administrative Departments and the offices of the various directorates of the Pakistan Audit Department is apparent. Increased communication at a personal level between Administrative Secretaries and the Director General, Audit to be encouraged. " 3.07 The above report also indicates the lack of effective communication between audit and the auditee organizations. This is evident from the PAC view that out of 369 audit observations 27 Sindh Provincial Financial Accountability Assessment 177 observations (48%) could have been settled by mutual discussion between audit and the administrative departments, and of the remaining 192 observations 30% were dropped by the PAC for reasons including that the facts had not been correctly reported. Recommendations 3.08 AGP through the DG Audit (Sindh) should review audit priorities in the province, noting that major expenditure is going into social sector development. 3.09 The Audit Plan should focus more on material allocations especially on projects of significance in terms of impact on national priorities, expenditure management, and the operation of the system of internal control. 3.10 DACs should be activated so that procedural observations can be settled before submission of the audit report to the PAC. 28 Sindh Provincial Financial Accountability Assessment Chapter 4: Legislative Oversight Inadequate Scrutiny 4.01 Legislative oversight is a weak link in the provincial financial management of Sindh. The absence of an effective and systematic institutional mechanism of legislative oversight has allowed the problems in budget development, budget execution, accounting, financial reporting, internal controls, and external audit to develop and continue. Had the standing committee on public accounts been effective, it would have addressed the weaknesses of the system. 4.02 There is a consensus that legislative oversight, through PAC, is essential to ensure an effective financial management in the province. 4.03 An effective and sustainable legislative oversight needs three pre-requisites: * It should be a continuous process. The oversight committee of the legislature, despite being a part of the legislature, should be an independent entity in law. As far as is constitutional, its members should only vacate office when the new members have assumed office. * It should have a prescribed schedule for all the steps in the accountability cycle; beginning from the submission of the audited accounts and ending with the monitoring of the compliance of the Committee's recommendations. * The accountability process should be transparent and open to the public at all stages. 4.04 The PACs are inactive or not functional at all for long periods of time and there are lags in the legislative oversight. This has often created a backlog of unattended audit reports at both the Federal and Provincial levels that go back many years. Delays have also been due to delayed transfer of the report,s and the financial accounts by the Office of the Governor to the Provincial Assembly. 4.05 The role of DACs is very important in the whole accountability framework. However, due to lack of regular DAC meetings, audit observations remain unresolved. This leads to waste of time at the PAC and related follow-up. One main reason for delay in presentation and subsequent implementation of audit reports is that DAC meetings are not held as frequently as they should be. DACs should effectively perform their role by causing the provision of relevant information tQ the auditors and resolving the maximum number of audit points at that level. Reform Agenda (a) The govemment realizes that there is an urgent need to assess the working of PACs across Pakistan and develop measures to enhance the capacity for them to undertake more timely reviews based on audit reports submitted by the AGP. The government also appreciates that there is a need to inculcate greater ownership within the key institution of the government to improve their internal controls and fulfill the related fiduciary obligations to the public through more effective working of the PAC process. The AGP is considering commissioning a diagnostic study on the workings of PACs in Pakistan with a view to further enhancing the performance of these Committees in line with international best practice. The World Bank supported IDF Grant for strengthening the Federal PAC will serve as a prime-mover to other provinces, including Sindh, to improve the performance of their respective PACs. (b) Other improvements in transparency and oversight arrangements have the potential to significantly improve financial accountability in Pakistan. The GoP has committed to 29 Sindh Provincial Financial Accountability Assessment making AGP's reports public. A Freedom of Information law has been drafted and is expected to be promulgated soon. Aggregate Federal and Provincial fiscal data is now being presented in the Ministry of Finance's public website. The important next step will be to introduce fiscal transparency practices in the Provinces. Recommendations 4.06 The newly established PAC requires both institutional as well as resource strengthening. 4.07 PAC should be assisted to schedule sufficient, regular meetings to consider the audit reports and make their own reports. 4.08 The PAC should continue with, and deepen, the current reform agenda and capitalize on the work so far done. 4.09 PAC members should only vacate office when the new members assumed office to ensure continuity of PAC processes. 30 Sindh Provincial Financial Accountability Assessment Action Matrix Domain .4ctions Agency Budget * Update the Budget Manual and Sindh Financial Rules * Budget Wing, FD, December 2005 Development and Execution * Improve performance indicator information in the budget and initiate * Budget wing, FD, SRP, September 2005 the development of a viable program budgeting plan which holds PAOs accountable for results * Limit block allocations * Budget Wing, FD, June 2006 * Add representation from professional bodies in project/program * P&DD, June 2006 development cycle * Present the MTFRP before the Legislature for discussion * Resource Wing, FD, June 2006 * Train staff in line ministries in budget execution * DS B-fII, FD, September 2005 * Enact Procurement Law and improve procurement documentation * IMU, FD, SRP, June 2005 Accounting * Resolve the duality of control in respect of the DAOs in the province * AG, CGA, FD, December 2005 and Reporting * Build staff capacity with major accounting training and certification * AG, CGA, FD, December 2004-06 program * Perfect PIFRA pilots and rollout the system to all districts and sites * FD, AG, CGA,, 2004-07 - on going * Update Financial Rules and Treasury Rules, clarification of Forest * FD, December 2005 Accounts procedures. * Develop a strong internal control framework at all levels of the * FD, December 2005 Province, including districts and tehsils. * Enact Internal Audit Legislation and establish functional internal audit * FD, December 2005 31 Sindh Provincial Financial Accountability Assessment Domain Actions AgenQc functions in all provincial departments and commence roll-out to Districts * PFC, FD, AG, December 2005 - on going * Improve bank and account reconciliation processes at provincial and district levels * FD, LGRDD, June 2005 * Quantify the liabilities of the local government in respect of the old local bodies employees' terminal benefits and develop a strategy for retiring that liability External * Hold DAC meetings and clear audit paragraphs within 3 months of * All concerned departments and district Audit receipt of audit reports governments, December 2004 - on-going * Submit Auditor General's reports and annual audited accounts to the * FD, December 2005 Provincial Assembly within 30 days of presentation to the Governor Legislative * Have PAC Secretariat staff follow up with executive departments to * PAC Secretariat, June 2005 Oversight obtain responses on pending audit reports * Issue instructions to PACs to activate DACs and prepare departmental * FD, December 2004 response to pending audit reports * Use DACs to take action on outstanding reports * Concerned Departments, June 2005 - on - going * Develop greater awareness among PAC members and staff about * PAC and PAC Secretariat, June 2005 practices of legislative accountability * Develop position papers to brief PACs * PAC Secretariat, December 2004 * Discuss PAC findings in Plenary Session of the Provincial Assembly * Provincial Assembly, December 2004 - on -going * Table formal action reports before the PAC * FD, other Departments, June 2005 32 Sindh Provincial Financial Accountability Assessment Annex - Sindh Reforms Program Outcome Performance Benchmark More reliable, Progressively improved reconciled data in all accounting units. comprehensive, timely and accurate information Substantial reduction in "unidentified" financing from public pertaining to the govemment accounts and deposits. financial transaction. Up gradation of the grade levels of DAOs and TAOs (Grade 18/19) Improved internal control environment Significant increase in the number of DAOs posted in the revised upper grade with appropriate qualifications and experience approved Increased credibility of by the CGA. government financial statements with public and Progressively increasing percentage of government transactions the international donor through computerized accounting. community. Establishment of an effective internal audit unit for each Ministry and Department Improvement in financial Appointment of a Provincial Financial Controller management of provincial and local governments Constitution of a Coordination Committee Carry out a provincial financial accountability assessment and agree on a detailed time bound improvement program. Publication of financial reports (half yearly from FY2004 and quarterly from FY2005) along with annual audited financial statements of District Governments Increased deterrence to Incorporation of details of actual cash recovery from audit findings fraud, waste and abuse of due to fraud, waste and abuse reported in the Auditor General's public funds and investment. annual report. More open, productive and Auditor General's recommendation accepted by the provincial PAC answerable government. to be tracked through a Management Information System (MIS). Increased credibility of Percentage of PAC's recommendations accepted by the Government government audited financial for implementation to be tracked through a Management Information statements System (MIS) Posting of audit reports in the web page soon after PAC discussions. Improvement in public Improvement in the legal and regulatory framework for public procurement procurement by revising procurement rules and manuals, standardizing bidding documents, and establishing an effective mechanism to redress complaints from suppliers and contractors. New procurement law legislating good public procurement practices. 33 I