On 12th May 2015, General Secretariat of PFM Committee (GSC) conducted a meeting on “Public Financial Management-Technical Working Group Meeting”, big meeting room, building D of Ministry of Economy and Finance (MEF). The meeting was chaired by H.E. Dr. Aun Pornmoniroth, Minister of MEF and was attended by all representatives from Development Partners (DPs), General Departments of MEF, and all Line Ministries. In this meeting, DPs had given general and specific comments to the meeting as below:
A. General comments
1. DPs congratulate the MEF, concerned government ministries, and the RGC for continued progress on PFMRP. Under the updated Consolidated Action Plan 2 (CAP 2-New) significant progress has been made in payments to staff and creditors through the banking system. Budget transparency has improved as reflected in (i) the Budget presentation workshop held at the National Assembly in November 2014; (ii), the Public Forum on the 2015 Budget Law in December 2014; (iii) the publication of the 2015 budget in brief; and (iv) the Public Forum on the Macroeconomic Framework and the 2016 Budget Strategic Plan. DPs remain committed to supporting the RGC in the advancement of the PFMRP.
2. DPs congratulate the MEF on the finalization of the Revenue Mobilization Strategy (RMS) adopted by the RGC. The adoption and implementation of the RMS, which focuses on revenue administration, revenue policy, and monitoring and evaluation, is a key step toward accelerating the generation of government that is necessary for improving and increasing public services provided to the Cambodian people. We look forward to the regular monitoring on the implementation of this strategy.
3. DPs welcome the clearance of previous outstanding cash advances in 2015 budget so that “clean” budget balances are reported in the FMIS. DPs encourage the MEF to explore appropriate option for reducing and eventually eliminating large cash advances. Large cash advances, namely project and investment advances undermines the Treasury Single Account (TSA) and limits the government’s ability to produce complete and timely financial reports. The FMIS provides the opportunity to streamline commitment processes and facilitate timely payment. The FMIS will eliminate the need for cash advances because the budget allocation is available immediately. DPs suggest the MEF explore establishing contracts with clear payment installments and deliverables (similar to those applied to private service providers) for all public institutions supplying and providing goods and services to the government. This option will eliminate acquittal/reconciliation problems at the year-end and is in line with the RGC’s program budgeting policy objectives of achieving greater budget accountability and transparency.
4. DPs welcome the progress in budget integration with the update of SOP/FMM to integrate donor financed project expenditures into annual budgets and Budget Strategic Plans. This change is reflected in the 2015 budget, which classifies donor-financed resources in ministries’ budgets and allocates domestically financed capital spending to all ministries. We also appreciate the MEF efforts to reduce the size of the unallocated budget and other earmarked expenditure items. With recognition of the efforts to provide more visual presentation of the national and sub-national administration budget package, we encourage further integration of the two to provide a user-friendly overall budget for public use.
B. Specific FMIS related comments
1. DPs congratulate the FMIS Project Management Working Group (FMWG) for leading the FMIS implementation and the significant progress made so far. As confirmed during the recent FMIS mission conducted by the World Bank, the “go live” date for the FMIS is July 2015, thanks to significant progress in a number of areas. First, the Budget Department has been able to load the 2015 budget in accordance with the 2015 Budget Law and the new account code structure. Second, installation of the main Data Center for the FMIS including the servers, storage and communication facilities was completed in January 2015 and is operational. DPs also commend the General Department of Internal Audit of MEF which recently completed a comprehensive and technically challenging audit of the Data center. We also note the recent establishment of the ITD Help Desk.
2. DPs note the MEF’s commitment to align with the standard workflows and business processes provided in the PeopleSoft software. A two-step “add and confirm” will be adopted while the streamlining of the existing processes occurs in parallel. DPs encourage the MEF to streamline the existing processes as closely to PeopleSoft workflow as possible to enable timely processing of all required payments, and would welcome more information about MEF plans to proceed with this challenging task. A focused training program is needed to ensure that Treasury/Budget and MEF departments end users become familiar in the use of the new system and the revised “to-be” business processes as implemented in the new system to carry out their day-to-day work. .
3. The FMIS project implementation cycle is at a critical stage. The next six to nine months will determine whether the systems implementation deliverables and the phased “go live” of the system agreed between the Government (MEF) and the contractor can proceed. DPs urge all parties involved, namely the Government staff and the contractor to focus on their respective tasks outlined in the updated project implementation plan, and work together to ensure they are satisfactorily completed on time.
4. DPs urge the RGC to discuss the scope of the next phase of FMIS (Phase 2). The current phase of the FMIS Project is planned to be completed during 2016. Starting discussions now as to whether or not the government intends to proceed to Phase 2 will avoid a significant gap between phases during which key staff, most likely, will move to other positions. Additionally, current experience and knowledge will be hard to maintain and important momentum gained under Phase 1 implementation will be lost. The slower the system is rolled out, the more expensive and longer the next phase will be. Below are some possible scopes of the next phase of FMIS:
a) Payroll system: The payroll system will require modification to be able to allocate payroll costs by programs to ensure program budgeting is fully implemented as envisioned. Without allocation of payroll costs, program budgets will not capture a significant cost associated with the program. Additionally, consideration should be given to whether or not a HRMIS system that includes information beyond payroll should be part of the next Phase.
b) Budget Preparation Module: Building on the recently developed budget compilation system used by the budget formulation department, a fully integrated Budget Preparation Module under the next Phase will assist with loading the budget by programs.
c) Additional System Functionality: Accounting for projects will require further consideration. In the current phase, the government portion of project funding will be captured in FMIS; however, the donor portion of the project will not be captured in FMIS. To ensure budget comprehensiveness as envisioned under the BSP, DPs recommends that a Phase 2 requirement include capturing donor funding under project budget classification segment so that total project costs will be captured in FMIS.
d) Fix Asset Module: Given that the government is interested in capturing fixed assets, a fixed asset module included in a Phase 2 will provide the functionality needed for asset accounting.
e) Line Ministry Coverage: The benefits of the FMIS will be fully realized when the system is rolled out to all line ministries. This will devolve financial management and control to the line ministries while maintaining centralized payment system at the Ministry of Economy and Finance under the TSA and a much more advanced public financial management system. Ministries would be able to prepare and submit their budgets online, initiate contract and payment requests, and perform routine budget management activities.
C. Other specific comments
1. DPs congratulate the GSC on improved quality of reporting on progress of the PFMRP. The progress report, particularly Q3, which involves the description of progress of CAP2 new, provides improved detail along each objective of the CAP2 new. DPs encourage further improvement by providing elaborated discussion on planned activities and result achieved instead of high level summary, for example, set of activities 11.3 achieved less than 50% (page 9 of Khmer version; page 10 of English version).
2. We note that budget execution in Quarter 1, 2, 3, and 4 of 2014 have consistently slowed compared to the same period in 2013 and lower than the target of 15% in Ql; 45% in Q2; 67% in Q3; and 96% in Q4:13.4% in Q1; 33.3% in Q2; 56.2% in Q3; 94% in Q4 of 2014 vs.19% in Ql; 37.3% in Q2; 60.5% in Q3 of2013; and 96.1% in Q4 of 2013. We would welcome explanation on this slow execution.
3. DPs note continued advancement on the program based budgeting work: the manual on expenditure procedure and financial control context of program budgeting has been developed; the law, sub-decree and legal procedure pertaining to program budgeting have been reviewed and updated; and program budget training documents has been updated. DPs would welcome more reports and workshops on progress made in actual implementation of program budgeting at line ministries.
4. DPs highly appreciate the MEF’s effort to roll out PB from the 10 ministries to an additional 15 ministries as well as to sub-national level in 2015 and 2016. DPs encourage MEF to develop a strategic medium term capacity development and training plan for ministries and agencies at the central and provincial levels to ensure full implementation of program and results-based budgeting is realized.
5. DPs noted in the progress reports that “Treasury Single Account has been further strengthened” and that there is continued challenge with cooperation in identifying separate accounts in commercial banks. For example, the Q2 report states that “separate Bank accounts were opened and were tracked and identified, but with no detail information about the Bank and lack of cooperation in providing information on the new account in commercial banks”. DPs would welcome plan to address this challenge.
6. DPs urge that progress reports be prepared on a timely basis so that decision and corrective measures can be discussed, developed, and implemented to improve the implementation of PFM.
At the end of the meeting, the Minister emphasized the importance of FMIS which it is an infrastructure as a foundation to move the PFMRP implementation on Budget Credibility, Program Budgeting, financial accountability, and the support for implementing PFMRP successfully and sustainably. He also mentioned that the cash advance has been realized a problem and MEF will discuss on work on this problem. For the payroll system will need to have a further study and discussion with the relevant ministries. Overall, the Minister strongly agreed on those comments reflected by the DPs.
The meeting was adjourned at 12:30 am with fully understanding, cooperation and friendship.