The World Bank Brown Bag Seminar Automating Financial

The World Bank Brown Bag Seminar Automating Financial Management Information Systems in Post-Conflict Environments: Lessons from Kosovo (12 January 2005) 1

Agenda n n n Welcome and Introductions Kosovo – The Context Specific Challenges The Goal Key FMIS Requirements Why Free. Balance Overview of Current Financial Management Framework in Kosovo Future Plans Lessons Learned and Reasons for Success Panel Discussion / Q & A Free. Balance Demo 2

Kosovo • 30 municipalities – 25 majority Albanian, 5 majority Serbian Serbia Montenegro • 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 Albania Macedonia 3

Centuries of Struggle 1389 Serbs defeated by Turks in Kosovo. Serbia ruled by Turkey for next 500 years. Kosovo takes its place at the heart of Serbian nationalist history. 1974 Kosovo established as an autonomous province of Serbia. 1989 Autonomy is revoked by Serbian President Slobodan Milosevic. 1992 Ethnic Albanians establish a shadow government. 1999 A 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 Kosovo’s “Standards Before Status” 4

International Mandate "The task before the international community is to help the people in Kosovo to rebuild their lives and heal the wounds of conflict. " UN Secretary-General Kofi Annan 5

Specific Kosovo Challenges n n n Post-Conflict Physical infrastructure badly damaged or nonexistent 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 6

The Goal n Establish a Central Fiscal Authority to manage Kosovo’s 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 7

Options Considered n Paper ledgers (manual system) n Excel / Access n Locally-developed software n Commercial Off-The-Shelf (COTS) software 8

Key FMIS Requirements n n n n 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, bestpractices, donors, creditors, local rules, and regulations Local capacity building and sustainability Multi-language capability (Albanian, Serbian and English) URGENCY 9

The Early Days n Late 1999 meeting with WB and IMF about challenges in transition governments. n Early 2000 – FB arrives in Kosovo n 26 days later FB Foundation installed – original configuration – six months of data captured - reports to CFA and donors n No custom code – configuration regularly modified n Procurement 10

World Bank / IMF TRM - Free. Balance Alignment Banking Systems Debt Management Systems Interfaces Payment Systems 11

The Bearing. Point / Free. Balance Solution n Free. Balance is designed specifically for government n Rapid deployment n Flexible configuration n Processes not over engineered (intuitive – easy to learn) n Scaleable n Expandable solution (core system can be extended via modules) 12

Overview of Fiscal Management Framework Process Flow n n 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 13

Overview cont. Process Flow cont. n Multi-language system capabilities (in two local languages) to support cultural and ethnic diversity and integrity in accordance with laws and regulations n System forms enable standardization of forms used by all budget spending units - helps prevent corruption and data entry mistakes n Timely processing of government payroll (70, 000+) 14

Overview cont. Financial Internal Control n 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. n Financial Legal Framework underpinned by KFMIS by integrating key processes and decisions into KFMIS commitments, approving and spending public monies 15

Overview cont. Financial Internal Control cont. n 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 unit’s position hierarchy n High quality certification program for the budget spending units and their staff, to ensure the correctness of data and reduce errors during transaction processing 16

Overview cont. Capacity Building n Specialized training program in budget planning and execution and procurement processes for Cabinet of Ministers, Provincial Assembly, CFA, line ministries, and municipal staff n Help Desk is established to provide daily support and advise to all users from all budget spending units for a better transaction work flow n Extensive ongoing training and certification program – no independent certification, no access to the system 17

Overview cont. Transparency n Comprehensive public information and consultative program to disseminate information on new budget planning and execution system n Increased transparency in all areas of expenditures and revenue collection n Timely Monthly, Quarterly, and Annual Reports all produced from KFMIS 18

Overview cont. Additional Functionality n BPK interface – 95% of all payments transmitted electronically to central bank n 5000 Vendors entered in and stored in system linked to unique bank accounts n Upgrade of key software and hardware –this will commence large rollout of new functions in 2005 19

Future Plans n VPN and network connections to 80 new Central Agency Users n Procurement Module to underpin new Procurement Law n Assets Module to be piloted in 2 municipalities in early 2005 n Further utilization of the Revenues Module to improve cash management 20

Future Plans cont. n Automation of Bank reconciliations n Creation of multiyear commitments and appropriations to underpin MTEF implementation n Targeting MFE paperless interface with all clients 21

Lessons Learned n n 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 n Success breeds success – donor funding flows to successful projects – gov is energized by progress n Donor cooperation and coordination was essential (our thanks to World Bank, USAID, CIDA, Sida) n Donor funding is time sensitive and need driven n Ongoing buy-in from key stakeholders is critical for long-term success (there are winners and losers in change – external encouragement) 22

Reasons for Success n Think big, start small, scale up n Phased implementation to allow absorption of key reforms n Achieve high-profile wins early to ensure buy-in n 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 n n n 23

Conclusions n n 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). ¨ n The right team can dramatically increase the probability of success 24

Thank You For more information Please contact: Mr. Bruce D. Long – Bearing Point Email: bruce. long@bearingpoint. com Tel: +1. 703. 747. 5564 Mr. Ken Mc. Donald - Free. Balance Inc. Email: info@freebalance. com Tel: +1. 613. 236. 5150 ext 129 25

Acronyms in This Presentation n MFE (Ministry of Finance and Economy n MTEF (Medium Term Expenditure Framework) n KFMIS (Kosovo Financial Management System) n 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 (Free. Balance) n n n 26