Technology and Corruption: The Case of FMIS

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Technology and CorruptionThe Case of FMIS

• Bill Dorotinsky
• The World Bank

March 26, 2003 IACC Seoul, Korea
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Outline

• What is an FMIS?
• What are elements of an FMIS?
• What is an integrated FMIS?
• What constitutes a good IFMIS?
• Why invest in an IFMIS?
• IFMIS and Corruption
• Bank Experience
• Summary

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What is an FMIS?
Definitions

• System that
• tracks financial events and summarizes
  information
• supports adequate management reporting, policy
  decisions, fiduciary responsibilities, and
  preparation of auditable financial statements
• Should be designed with good relationships
  between software, hardware, personnel,
  procedures, controls and data
• Generally, FMIS refers to automating financial
  operations

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What are core and non-core FMIS systems?
Definitions

• Core systems
• General ledger, accounts payable and receivable.
  May include financial reporting, fund management
  and cost management.
• Non-core systems
• HR/payroll, budget formulation, revenue (tax
  customs), procurement, inventory, property
  management, performance, management information

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What is integrated FMIS?
Definitions

• Can refer to core and non-core integration
• But, generally, four characteristics
• Standard data classification for recording events
• Common processes for similar transactions
• Internal controls over data entry, transaction
  processing, and reporting applied consistently
• Design that eliminates unnecessary duplication of
  transaction entry

from Core Financial System Requirement.
JFMIP-SR-02-01. Joint Financial Management
Improvement Program. Washington, D.C., November
2001.
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What constitutes a good system?
Definitions

• Ability to
• Collect accurate, timely, complete, reliable,
  consistent information
• Provide adequate management reporting
• Support government-wide and agency policy
  decisions
• Support budget preparation and execution
• Facilitate financial statement preparation
• Provide information for central agency budgeting,
  analysis and government-wide reporting
• Provide complete audit trail to facilitate audits

from Core Financial System Requirement.
JFMIP-SR-02-01. Joint Financial Management
Improvement Program. Washington, D.C., November
2001.
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Why invest in an IFMIS?

• Reduce errors of multiple data entry
• Accelerate reporting
• Enable data-matching, error detection
• Enable more analysis
• Accelerate auditing, exception reports
• Enable better oversight, management

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An IFMIS and Corruption
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Assumptions

• comprehensive public finance system
• accuracy of records
• integrity of database
• reconciliation of bank, fiscal records
• corruption is within FMS domain
• other soft systems functional

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Other soft systems of import

• Internal audit
• External Audit
• Timely, comprehensive reports to
  legislature/public
• Internal controls

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What does Bank experience suggest?

• Public sector corruption sources not captured
  fully well in public financial management
• Soft systems are weak
• HIPC expenditure tracking results
• FMIS investments often fail

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Public corruption
Public Assets Non-public Assets
Political Officials Theft of public goods, funds contract steering Nepotism Bribery/influence peddling/state capture
Career Officials Theft of goods, funds Contract steering Nepotism Abuse of office Bribery Bribery
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HIPC Expenditure Tracking
soft systems are weak
(Percent of countries not meeting each benchmark)
100
Note Based on 24 countries Final Assessments
90
80
70
60
50
40
Timely functional reporting from class system
Meets GFS definition of general government
Audited accounts to legislature within 1 year
Projections integrated into budg. formulation
Quality of internal audit (effective or not)
Accounts closed within two months of y/e
30
Fiscal monetary data reconciled
Extra (off) budget expend.
20
Pov. Red. Exp. Identified
Data on donor financing
Classification of budget
Low level of arrears
Regular tracking
Month reports
Outturn close?
10
0
Benchmark number
1
2
3
4
5
6
7
8
9
10
11
12
13
14
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Execution
Formulation
Reporting
Source Actions to Strengthen the Tracking of
Poverty Related Public Spending in Heavily
Indebted Poor Countries (HIPCs), World Bank and
IMF, March 22, 2002. See http//www.worldbank.org
/hipc/hipc-review/tracking.pdf
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Bank experience with FMIS

• If success is defined as
• delivered as-specified ex ante
• 43 delivered as specified
• delivered on-budget
• 50 delivered on budget
• delivered on-time
• 21 delivered on-time
• then, only 21 were successful

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More Bank experience with FMIS

• But, these indicators only looks at project, not
  impact on over-all financial management,
  operations
• Improvements to reporting? Staffing changes?
• Generally,
• no or weak performance indicators in projects
• no baseline
• broader impact assessment difficult.
• However, in self-assessed sustainability
• 25 unsustainable
• 69 likely sustainable
• 6 highly likely to be sustainable

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Summary

• IFMIS/technology enabling tool for transparency
  and anticorruption
• But not substitute for
• attention to institutional environment (soft
  systems)
• underlying factors (e.g. comprehensiveness)
• May not target prime areas of corruption
• May not be optimal investment for anticorruption