Government Finance Statistic and New Budgeting and Accounting Classification Structure

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Government Finance Statistic and New Budgeting
and Accounting Classification Structure

• CAUCASUS REGIONAL MEETING
• March 2006

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Presentation Focus

• Overview of Accounting Reform Project in Armenia
• New Economic Codes
• New Functional Codes
• New Account Code Structure
• Problems Encountered
• Moving Forward

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Second Generation Accounting and Reform Project

• Government financial management information
  system (GFMIS)
• International Public Sector Accounting Standards
  (IPSAS)
• Chart of accounts in compliance with Government
  Finance Statistics (GFS) 2001

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Second Generation Accounting and Reform Project

• All of these initiatives result from IMF / World
  Bank conditionalities without a real
  understanding of the implications or the work
  necessary to implement

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IPSAS

• IPSAS Standards are international financial
  reporting standards for the public sector
• IPSAS Standards are issued by the IPSAS Board of
  the International Federation of Accountants
  (IFAC) www.ifac.org

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IPSAS

• Status
• Cash Based Standards Approved by Steering
  Committee with Transition to Accrual
• Steering Committee Approved Work Plan
• Cash Based Standards Have Been Unofficially
  Translated into Armenian
• MoFE staff is preparing statements based on 2005
  financial information

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IPSAS

• Key Dates
• Identification of problems to implement cash
  based standards 3/31/2006
• Strategy to implement the standards and
  transition plan for accrual based standards
  6/30/2006
• It is expected that a new reporting format to
  comply with the new standards will be developed
  for use by January 1, 2007

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IPSAS

• Problems and Issues
• Currently using the Soviet Manual from 1980 which
  is a coding structure and describes entries
• There are no financial policies
• Lack of understanding about
• Accrual based IPSAS and unwillingness to go
  backwards
• What financial reporting standards mean
• There is no certification process or training for
  governmental accountants and external auditors

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New Economic and Functional Codes

• The primary focus was on meeting a conditionality
  that required compliance with GFS 2001.
• As GFS only addresses economic and function
  codes, this was the original focus.
• We spent two years developing the codes and the
  annotated manual

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New Economic and Functional Codes

• Objectives of the new economic and functional
  coding structure were expanded to
• Comply with both GFS and IPSAS
• Allow for cash basis with transition to accrual
  basis
• Allow for cash based budgeting and accrual based
  accounting
• Ensure consistency for a GFMIS
• Provide enough detail for financial management
  purposes

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New Economic and Functional Codes

• GFS 2001
• Published by International Monetary Fund
• The primary purpose is to provide a framework
  suitable for analyzing and evaluating fiscal
  policy
• GFS is a statistical reporting system NOT an
  accounting system
• The GFS manual focuses on the accrual basis, but
  cash reporting will be implemented first

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New Economic and Functional Codes

• New Economic and Functional Codes
• Used for Budgeting and Accounting
• Replace Functional Codes
• Replace the Balance Sheet, Revenue and Expense
  Codes Used for Budgeting and Reporting
• Impact All State Budget Institutions, Local
  Self-Governing Units and NCEs and JSCs

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New Economic Codes

• Breakdown of the Fields
• Class
• Category
• Group
• Synthetic
• Analytic
• Sub-Analytic

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New Economic Codes

• Ten Classes
• Balance Sheet
• 000000 Non-Financial Assets
• 100000 Financial Assets
• 200000 Liabilities
• 300000 Net Assets / Equity

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New Economic Codes

• Ten Classes
• Expenses
• 400000 Current Expenses
• 500000 Outflows For Non-Financial Assets
• 600000 Outflows For Principal Repayment and
  Acquisition of Financial Assets

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New Economic Codes

• Ten Classes
• Revenues
• 700000 Current Revenues
• 800000 Proceeds From the Sale of Non-Financial
  Assets
• 900000 Proceeds From Borrowing and The Sale of
  Financial Assets

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New Function Codes

• Breakdown of Function Code
• Section 2 Digit
• Group 1 Digit
• Class 1 Digit

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New Function Codes

• New Codes By Section
• 1100 GENERAL PUBLIC SERVICES
• 1200 DEFENSE
• 1300 PUBLIC ORDER AND SAFETY
• 1400 ECONOMIC AFFAIRS
• 1500 ENVIRONMENTAL PROTECTION
• 1600 HOUSING AND COMMUNITY AFFAIRS
• 1700 HEALTH
• 1800 RECREATION, CULTURE AND RELIGION
• 1900 EDUCATION
• 2000 SOCIAL PROTECTION

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New Function Codes
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Account Code Structure

• The primary focus was to meet the conditionality
  that the current structure comply with GFS 2001.
• The new codes were integrated into the current
  framework
• Further work is being done to expand and
  modernize the structure before a GFMIS is
  implemented

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Account Code Structure

• Further Work Is Needed To
• Accommodate program budgeting needs
• Meet reporting needs of individual budget
  Institutions
• Provide for a richer administrative hierarchy

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Account Code Structure

• Further Work Is Needed To
• Include all future information needs even if they
  will not be used in the short-term
• Ensure that each segment is uniquely numbered to
  facilitate reporting
• Ensure all field segments are uniquely defined so
  there is no overlap in definition

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Account Code Structure

• A uniform classification system is a system for
  classifying economic events and transactions. It
  represents the basis for
• Budgeting and Accounting
• Financial Reporting
• Statistical Reporting
• Internal Management Reports

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Account Code Structure

• A classification system does NOT dictate the
  basis of budgeting or accounting or financial
  reporting

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Account Code Structure

• Flexible
• Must meet all of the financial information and
  needs of all levels of government
• Parliament and Government
• Ministers
• Managers, budget staff, accountants and other
  internal staff
• International organizations / donors

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Account Code Structure

• Current Structure in Armenia
• Administrative / Organization
• Geographic
• Functional
• Economic
• Assets
• Liabilities Equity
• Revenues
• Expenditures
• Program

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Account Code Structure
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Account Code Structure

• Budget Control Versus Accounting
• Budget control can be at a different level than
  the accounting

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Account Code Structure
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Account Code Structure
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Problems Encountered

• IMF provided technical oversight, but the
  oversight was provided by an economist and an IT
  individual neither of whom understood GFS or
  accounting needs and concerns.
• Current focus on function and the program link to
  function will necessitate reformulating many
  programs.

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Problems Encountered

• Lack of cooperation by the MoFE Budget Department
  over the past two years
• The philosophy that MoFE knows best and no input
  by State ministries and agencies and communities
  is needed
• Training must be conducted for 70 State
  ministries and agencies and 900 communities

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Moving Forward

• Implementation Dates
• Development of the 2008 budget
• Reporting as of January 1, 2008
• Now have the attention of MoFE Budget Department
• Working cooperatively with the EC, UNDP and USAID
  local government projects
• Agreement from World Bank to focus on the cash
  basis and not to use the transaction codes for
  now

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Moving Forward

• Workshop has been conducted with State ministries
  and budget analysts
• Workshops planned in April for communities and
  oversight agencies
• Training plan is being developed
• Identifying changes needed to current Treasury
  and Budget systems