The World Bank Brown Bag Seminar

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The World Bank Brown Bag Seminar
Automating Financial Management Information
Systems in Post-Conflict Environments Lessons
from Kosovo (12 January 2005)

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• Agenda

• Welcome and Introductions
• Kosovo The Context
• Specific Challenges
• The Goal
• Key FMIS Requirements
• Why FreeBalance
• Overview of Current Financial Management
  Framework in Kosovo
• Future Plans
• Lessons Learned and Reasons for Success
• Panel Discussion / Q A
• FreeBalance Demo

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• Kosovo

Serbia

• 30 municipalities 25 majority Albanian, 5
  majority Serbian
• Estimated Population 1.7 million
• Ethnic mix 88 Albanian 7 Serbian 5 Other
• 2004 Estimated GDP 1895 million euro
• Estimated 2.06 billion euro of donor investment
  to date since 1999
• Budget Revenues exceeding 600 million euro per
  year

Montenegro
Albania
Macedonia
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• Centuries of Struggle

1389Serbs defeated by Turks in Kosovo. Serbia
ruled by Turkey for next 500 years. Kosovo takes
its place at the heart of Serbian nationalist
history. 1974Kosovo established as an autonomous
province of Serbia. 1989Autonomy is revoked by
Serbian President Slobodan Milosevic. 1992Ethnic
Albanians establish a shadow government. 1999A
cease-fire is broken. NATO war planes begin an
air campaign against military targets throughout
Yugoslavia. UNMIK established by Resolution
1244. 2001 First election of provincial
institution of self governance. Government
ministries established. 2005 UN to initiate
review of Kosovos Standards Before Status
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• International Mandate

"The task before the international communityis
to help the people in Kosovo to rebuildtheir
lives and heal the wounds of conflict."UN
Secretary-General Kofi Annan
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• Specific Kosovo Challenges

• Post-Conflict
• Physical infrastructure badly damaged or
  non-existent before conflict began further
  deteriorated during and post conflict
• Government organizational structures, policies,
  and processes needed from ground up
• Human capacity needed strengthening
• Urgent need for process to receive, allocate, and
  control donor funds

Serbian Police Station 5 blocks from FreeBalance
offices
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• The Goal

• Establish a Central Fiscal Authority to manage
  Kosovos fiscal issues, including Treasury
  Budget Fiscal Policy Tax Administration
  Customs Macroeconomic Analysis and Reporting
  Internal Audit.
• Form a team of experienced international advisors
  to ensure best practice design and implementation
• Recruit, train and mentor local staff
• Select and implement a financial management
  methodology to underpin the operations of the
  Central Fiscal Authority

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• Options Considered

• Paper ledgers (manual system)
• Excel / Access
• Locally-developed software
• Commercial Off-The-Shelf (COTS) software

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• Key FMIS Requirements

• Financial management system to help control
  government financial processes
• Protect the integrity of the revenue raising and
  expenditure process (donor confidence)
• Transparency and accountability
• Must comply with multiple accounting and
  reporting requirements WB TRM, IMF GFS, IPSAs,
  best-practices, donors, creditors, local rules,
  and regulations
• Local capacity building and sustainability
• Multi-language capability (Albanian, Serbian and
  English)
• URGENCY

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• The Early Days

• Late 1999 meeting with WB and IMF about
  challenges in transition governments.
• Early 2000 FB arrives in Kosovo
• 26 days later FB Foundation installed original
  configuration six months of data captured -
  reports to CFA and donors
• No custom code configuration regularly modified
• Procurement

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World Bank / IMF TRM - FreeBalance Alignment
Banking Systems
Debt Management Systems
Interfaces
Interfaces
Payment Systems
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• The BearingPoint / FreeBalance Solution

• FreeBalance is designed specifically for
  government
• Rapid deployment
• Flexible configuration
• Processes not over engineered (intuitive easy
  to learn)
• Scaleable
• Expandable solution (core system can be extended
  via modules)

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Process Flow

• Overview of Fiscal Management Framework

• System/electronic processing of transactions
• Central database system with direct access
  connectivity to municipalities and regional
  offices enabling processing of transactions, and
  real-time access to the information for reporting
  needs
• Revenues collections posted to G/L
• Daily back-ups of the database to ensure no data
  is lost

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Process Flow cont.

• Overview cont.

• Multi-language system capabilities (in two local
  languages) to support cultural and ethnic
  diversity and integrity in accordance with laws
  and regulations
• System forms enable standardization of forms used
  by all budget spending units - helps prevent
  corruption and data entry mistakes
• Timely processing of government payroll (70,000)

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Financial Internal Control

• Overview cont.

• Central Fiscal Authority functioning as Ministry
  of Finance and Economy with competence in budget,
  treasury, and taxation budget classification and
  planning system implemented internal audit and
  control system implemented and a transparent and
  rigorous procurement system established.
• Financial Legal Framework underpinned by KFMIS by
  integrating key processes and decisions into
  KFMIS - commitments, approving and spending
  public monies

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Financial Internal Control cont.

• Overview cont.

• Enhanced internal controls within budget spending
  units by creating separate roles (functional
  classes) and groups of users (user groups) with
  access to the system in accordance with budget
  spending units position hierarchy
• High quality certification program for the budget
  spending units and their staff, to ensure the
  correctness of data and reduce errors during
  transaction processing

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Capacity Building

• Overview cont.

• Specialized training program in budget planning
  and execution and procurement processes for
  Cabinet of Ministers, Provincial Assembly, CFA,
  line ministries, and municipal staff
• Help Desk is established to provide daily support
  and advise to all users from all budget spending
  units for a better transaction work flow
• Extensive ongoing training and certification
  program no independent certification, no access
  to the system

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Transparency

• Overview cont.

• Comprehensive public information and consultative
  program to disseminate information on new budget
  planning and execution system
• Increased transparency in all areas of
  expenditures and revenue collection
• Timely Monthly, Quarterly, and Annual Reports all
  produced from KFMIS

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Additional Functionality

• Overview cont.

• BPK interface 95 of all payments transmitted
  electronically to central bank
• 5000 Vendors entered in and stored in system
  linked to unique bank accounts
• Upgrade of key software and hardware this will
  commence large rollout of new functions in 2005

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• Future Plans

• VPN and network connections to 80 new Central
  Agency Users
• Procurement Module to underpin new Procurement
  Law
• Assets Module to be piloted in 2 municipalities
  in early 2005
• Further utilization of the Revenues Module to
  improve cash management

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• Future Plans cont.

• Automation of Bank reconciliations
• Creation of multiyear commitments and
  appropriations to underpin MTEF implementation
• Targeting MFE paperless interface with all clients

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• Lessons Learned

• The Kosovo environment was unique, the fiscal
  management requirements were NOT
• System implementation can be achieved in a matter
  of weeks, financial management reform takes years
• Success breeds success donor funding flows to
  successful projects gov is energized by
  progress
• Donor cooperation and coordination was essential
  (our thanks to World Bank, USAID, CIDA, Sida)
• Donor funding is time sensitive and need driven
• Ongoing buy-in from key stakeholders is critical
  for long-term success (there are winners and
  losers in change external encouragement)

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• Reasons for Success

• Think big, start small, scale up
• Phased implementation to allow absorption of key
  reforms
• Achieve high-profile wins early to ensure buy-in
• Ownership within the government
• Comprehensive Training Program and mentoring of
  local staff - some are still with Treasury after
  five years
• High quality team of international budget
  planning and execution, procurement, and FMIS
  experts are necessary to ensure best-practice
  design and implementation
• Long-term sustainability - total cost of ownership

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• Conclusions

• Automated FMIS is an early building block in
  creating good governance transparency,
  accountability and anti-corruption.
• This is a Team Effort
• Core of best-practices experts in the real issues
  and challenges of these countries
• Software solutions that are effective, affordable
  and understandable
• A few key sponsors in the government
• A supportive community donors and others (WB
  IMF).
• The right team can dramatically increase the
  probability of success

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Thank You
For more information Please contact Mr. Bruce
D. Long Bearing Point Email
bruce.long_at_bearingpoint.com Tel [phone]
Mr. Ken McDonald - FreeBalance Inc. Email
info_at_freebalance.com Tel [phone] ext
129
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• Acronyms in This
  Presentation

• MFE (Ministry of Finance and Economy
• MTEF (Medium Term Expenditure Framework)
• KFMIS (Kosovo Financial Management System)
• CFA (Central Fiscal Authority)
• BPK ( Bank Public Kosovo)
• US AID (U. S. Agency for International
  Development)
• CIDA (Canadian International Development Agency)
• SIDA (Swedish International Development Agency)
• BE (Bearing Point)
• FB (FreeBalance)