The Design and Implementation of Treasury Systems Ali

The Design and Implementation of Treasury Systems Ali Hashim Lead Specialist, Europe and Central Asia Region World Bank 09/08/2004 1

Part I : Treasury Systems- Basic Concepts 2

Why Treasury Systems ? • Better control over expenditures, fiscal deficits, and arrears • More accurate and timely information for decision making and accountability • Better cash management and reduction of idle balances • Better accounting and timely reporting 3

Why Automated Treasury Systems ? • Rapid compilation and consolidation of data from across a country wide network of offices • Integration of transaction classification and posting with transaction processing • Automation of many controls and procedures 4

Why Automated Treasury Systems (contd. )? Without some automation the data required for economic management may simply not be available with the required degree of timeliness and accuracy 5

What do Treasury Systems do? • Record initial budgets, revisions, spending unit expenditure plans • Distribute budget appropriations, spending limits and warrant allocations • Record commitments • Record receipt of goods and services • Authorize payments to suppliers • Give payment instructions to Bank • Record revenues and other receipts • Enable posting of all transactions, enforcement of controls, accounting and comprehensive reporting 6

What legal and institutional reforms are needed prior to work on systems design? • Budget management law that provides a framework for management of public funds • GFS compliant Budget classification system/Chart of Accounts • Banking arrangements for consolidation of funds in a Treasury Single Account at the Central Bank • Re- engineered functional processes and institutional arrangements for TSA based for payment and receipts processing • Cash management unit within treasury 7

How does a Treasury system fit in with the other systems for Government Fiscal Management ? • Macro economic forecasting • Budget preparation • Budget execution, accounting and fiscal reporting • Cash management • Debt management • Revenue administration • Civil service management • Auditing 8

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Indicative Implementation Schedule Legal and Institutional Framework Functional Design, Budget Classification, Co. A, Procedures and Manuals Technical Design Systems Procurement Gap Analysis, S/W Parameterization /Customization Change Management & End User Training Pilot Systems Implementation Systems Replication 12 12 -18 months 24 -36 months

Part II: Implementation Experience 13

The World Bank has financed a number of Treasury Systems Projects world wide. • In some countries these projects have involved building on and repairing existing financial management arrangements • In transition economies, they have required setting up institutional structures and accompanying systems, ab-initio, as these countries move from centrally planned to market economies 14

Functional reform priorities focused on reforming the budget execution process, setting up a Treasury and associated systems and procedures. Key features of the model: • Introduce a GFS complaint Budget classification structure and Chart of Accounts • Place all Government finances under the control of Treasury in a Treasury Single Account (TSA) at the Central Bank to improve cash management • Centralize payment and Receipt processing through the Treasury to ensure that expenditures are for approved items and receipts are banked promptly in the TSA 15

It has been relatively easier to implement Treasury systems, ab-initio, at green field sites such as Countries of the Former Soviet Union In countries, e. g. Turkey Pakistan, where the reform required that old systems be reformed and modernized, greater difficulties have been experienced which included resistance to changes in the organizational and legal framework, processes and procedures. 16

Some Treasury Systems Projects. Financed by the World Bank • Kazakhstan Treasury Modernization Project • Ukraine Treasury Systems Project • Russia Treasury Development Project- (under prep) • Hungary Public Finance Management Project • Turkey Public Finance Management Project • Pakistan Improvement in Financial Reporting and Accounting-PIFRA-project 17

Institution Building / Technical Assistance Projects with Treasury Components • Kazakhstan • Ukraine • Azerbaijan • Turkmenistan • Albania • Armenia • Uzbekistan -under preparation • Slovakia- under preparation 18

Kazakhstan Treasury Modernization Project approved: July 1966 Loan amount: $15. 8 million Government Financing: $5 -10 million Project Status: • Treasury Organization / Legal Framework in place • Offices in Oblasts and Rayons • Payments and Receipts Centralized through Treasury • Interim Computer System was first Installed • ORACLE- FINANCIALS based full function system installed and working 19

Ukraine Treasury Systems Project Approved: March 1988 World Bank Loan: US $16. 4 million Government financing: 10 -15 million Status: • Treasury Organization/ Legal framework in place; business processes re- engineered • Payments and receipts centralized through Treasury for both central and local government • Automated Treasury system installed and working at HQ, 27 oblasts, and about 650 rayons 20

Russia Treasury Development Project approved June 2002 World Bank Loan $231 million ( Ist Tranche) Estimated Cost $400 million Status: • Treasury Organization, Legal framework in place, business processes re-engineered • Payments and receipts processed through Treasury • Treasury Single Account established at Central Bank of Russia • Assorted Interim systems in use • New systems to be implemented under this project 21

Hungary PFMP Treasury Component Project Approved 1998 Estimated Cost $15 million Status: • Treasury Organization, Legal framework in place, business processes re-engineered • Payments and receipts processed through Treasury • Treasury Single Account established at Central Bank of Hungary • Custom developed treasury system installed and in use • Covers Central Government transactions 22

Critical success factors • Government commitment and management support • Good project management • Interagency Cooperation • Orientation and training • Technical Skills • Management of Change 23

Commitment and Support of the MOF -1 • A Government wide payment and accounting system, has implications for multiple agencies and possibly for multiple levels of government. Implementation of such systems therefore requires the full and active support of the MOF. • It is difficult to get senior policy makers in the MOF actively involved if reform measures are framed in terms of resolution of an accounting problem, e. g. non-conformity with international accounting standards, use of an archaic chart of accounts, lack of timely reporting etc. • The danger is that this strategy will focus primarily on the reform of the organization and processes related to the accounting function. 24

(Support of the MOF 2) Such projects should be framed primarily as initiatives designed for reform of the expenditure management systems rather than merely accounting systems reform. This raises the importance of the problem to a level where senior level policy makers in the country and their counterparts in donor organizations can relate to it. Linkages can then be established between the Treasury development program and requirements under policy based lending from both the Bank and IMF and the MOF started taking an active interest in ensuring that 25 project milestones were met.

Project Management and Interagency Coordination Needs to be headed by a competent public sector manager from the functional side who enjoys the respect of his colleagues and superiors in the Government service system and should have adequate financial and administrative authority. • Core group of professionals need to be set up from the core functions, who are trained and can act as change agents as the system is rolled out. • Representatives of participating agencies need to be represented on the team to manage the interface with their agencies. • Project secretariat should have specialist staff with experience in the installation of large scale IT systems 26 and IT procurement

Orientation and Training -1 • A large number of stake holders in various agencies need to become familiar with project scope, advantages (what it will do for them) and timeline. • A very large number of staff need to be trained in the actual use of the system. • This number and the training task could appear overwhelming if a training plan is not prepared in a structured manner. 27

Orientation and Training – 2 • Training effort needs to be coordinated closely with implementation plans and focused to specific requirements of a given site implementation • Training should be imparted just before implementation • Most staff need to know only specific features of the system • Help Desk; Hand holding clinics. 28

Technical Skills and Capacity: Lack of career prospects for technical IT staff within Government has been a major area of concern for sustainability of such projects This could be remedied within the context of an overall civil service reform effort- this is however, a long term measure Other solutions: • Hire specialist IT staff on contract at private sector salaries • Outsource the technical operations and maintenance of 29 the system

Management of change Need to overcome opposition from vested interests who perceive the new systems as a threat • advantages of new system need to be recognized by MOF management and opposition resisted • perception of the system being a threat has to be removed Lack of incentives for change in a civil service Setting • Bureaucracies are normally risk averse. • Give examples where this has been done successfully • Show case intermediate results at international 30

Extending the central system to sub-national levels This has posed problems in many countries. Sub- national levels of Government normally like to be able to control payments without reference to a functionary of the center. The solution to this problem has to be found in the context of the local political economy and the relationships between the central and sub-national governments. In general if the central government is the sponsor of the project then the project should be restricted to central government payments and receipts. If the central government wants to extend its control to provincial level payments then it should have some financial leverage and control over provincial finances; e. g. it should be funding a major portion of the LG budget. Two types of solutions Use of same system across multiple levels of government Use of common standards, Co. A and data exchange 31 protocols

Realistic time frames for reform program The functional reforms have taken several years to be implemented. Sustaining management support over long periods has been a problem. Linkage to IMF program and/ or SAL operations has often been used to reinforce commitment Some times interim technical solutions have been implemented to support these reforms followed by full function systems. This has proved useful. The whole process has can easily take 8 -10 years Procurement delays using Bank procedures 32

ECA- Technical Infra Structure and Capacity Technical capacity has not been a major constraint in ECA Relatively good quality telecommunications Expertise in the technical areas is relatively easily available from the local private sector. However, there is a dearth of expertise in the Functional areas. Pay and remuneration in Government is a key constraint. 33

Some closing words • Institutional and political economy issues are more difficult to resolve and take more time for resolution than technical issues • Reform of underlying fiscal management processes should be the basis for systems design 34