Public Expenditure PEFA Financial Accountability Procurement and the

Public Expenditure & PEFA Financial Accountability Procurement and the PEFA Program “Strengthening Procurement Capacities in Developing Countries” OECD/DAC – World Bank Roundtable Paris, France Public Expenditure & PEFA Financial Accountability January 22 -23, 2003 Presented by: Richard Allen, Head PEFA Secretariat Page 1

Introduction: PEFA in brief What is PEFA? … Public Expenditure and Financial Accountability Ø A partnership, jointly-financed by the World Bank, European Commission, UK (DFID), and Switzerland (SECO). Ø The Secretariat, based at the World Bank in Washington, DC, was established in December 2001. Ø Steering Committee members currently include: World Bank, IMF, EC, DFID, SECO and the Strategic Partnership with Africa (SPA). Ø Current budget: $5 million over three years. Public Expenditure & PEFA Financial Accountability Page 2

Introduction PEFA partners … The European Commission Possible Future Partners: France The World Bank Norway The International Monetary Fund Public Expenditure & PEFA Netherlands Financial Accountability The Department for International Development (DFID) Canada Switzerland Public Expenditure & PEFA Financial Accountability Page 3

Introduction The scope of PEFA’s interest … PE Process Budget Formulation Institutions PE Policy/ Impact Public Expenditure & PEFA Financial Accountability Budget Execution (e. g. , cash & debt mgnt. , control, internal audit) Governance & Institutional Environment Executive & Legislative Branches of Government Diagnostic Analysis of PEM Systems Economic Analysis of Public Spending Expenditure Monitoring, Reporting & Auditing Public Procurement National & Sub-National Levels PE in Public Agencies & Enterprises Expenditure Incidence Poverty Impact Page 4

What are PEFA’s Goals and Activities? PEFA Goals & Activities Goals ü Reduce transaction costs of assessments for countries ü Enhance donor cooperation and coordination ü Better meet the fiduciary and developmental objectives of client countries and development agencies ü Improve impact of reforms Activities ü Strengthen existing diagnostic instruments and reduce duplication through a fundamental review of their scope and application ü Support the development of benchmarks and performance measures ü Support activities in countries where integrated approaches are being applied ü Disseminate information on good practice and lessons learned ü Work with other organizations that are developing international standards and harmonizing approaches Public Expenditure & PEFA Financial Accountability Page 5

PEFA’s Approach Strategic l Involves a program of work over a medium-term time frame (3 -5 years) l Includes the whole budget cycle l Takes into account institutional and governmental factors, or is part of a wider public sector reform strategy l Includes both diagnostic work and the development of reform programs l l Strengthens coordination at the country level between the development organizations Country Focused Integrated Collaborative l Brings together different instruments and analytical tools l Is linked to the Country Assistance Strategy (CAS) or equivalent l Takes a wider governance and institutional perspective in the analysis and development of reforms l Leads to a Poverty Reduction Support Credit (PRSC) or other budget support operation l Seeks to fulfill the requirements of the individual countries as well as those of external stakeholders Encourages country ownership and participation Working with partners, the Program will support the delivery of this approach. Public Expenditure & PEFA Financial Accountability Page 6

3. Why is a new approach needed? Public Expenditure instruments Examples of diagnostic tools are widespread … and overlapping Expenditure Analysis Budget Formulation Budget Execution Monitoring & Reporting Public Expenditure Reviews (PER) Country Financial Accountability Assessments (CFAA) HIPC Expenditure Tracking Assessments e v ati tr s Illu Fiscal ROSC Country Procurement Assm’t Reviews (CPAR) European Commission (EC) Audits Public Expenditure Tracking Surveys PETS Governance Surveys (e. g. , IGRs, Anti. Corruption, Public Officials, Household Incidence, Poverty, etc. ) Public Expenditure & PEFA Financial Accountability Page 7

Procurement Aspects of the PEFA Program Mapping Review Public Expenditure & CPAR is one of the key instruments under review Benchmarking and Performance Measurement E. g. , OECDDAC/WB Roundtable, country activities Public Expenditure & PEFA Financial Accountability Institutional Review Procurement and other public management reforms in Philippines Country Activities Short-term Measures How to build a “platform” for PFM and procurement reform that promotes longterm development objectives Support for CPARs and other procurement activities as part of an integrated work program, e. g. , Kenya, Madagascar Page 8

Why Procurement is an Integral Part of Public Financial Management Procurement Public Expenditure & PEFA Financial Accountability ü The basic objectives are to obtain goods and services needed to deliver government programs at the appropriate quantity, quality and price (value for money) ü Procurement expenditures are often a significant component of public expenditure and GDP (10 -15%) ü Many procurement projects involve multi-year expenditures ü Procurement is therefore a financial management issue – not just adhering to legal requirements or obtaining goods and services that meet technical requirements ü Inappropriate procurement will reduce both strategic resource allocation and operational efficiency, through inappropriate goods and services and higher than necessary costs. It may also threaten aggregate fiscal control through cost blowouts in major projects. Page 9

How Procurement Fits with Key Themes of Budget Design & Reform 1. Greater Performance Focus in the Budget: • Poor procurement will show higher unit costs • Performance based procurement? 4. Budget Design: • Integrating capital and recurrent budget preparation and execution involves procurement issues Public Expenditure & PEFA Financial Accountability 2. Strengthening Internal Control & Audit: • Procurement is a key element of internal control and internal audit systems • The procurement audit function in Supreme Audit Institutions (SAIs) is important 5. Medium-Term Approach to Budgeting: • Does not require multi-year appropriations, rather a forward look to provide indicative figures for planning purposes • Planning of capital investment programs and projects an integral part of multi-year budgets 3. Accrual Accounting and Budgeting: • Focuses on accountability of total costs, including maintenance and depreciation • Part of the issue of improving the management of public assets 6. Transparency: • Fiscal transparency, as with transparency of procurement transactions, may improve overall fiscal performance and counter corruption 7. Other Applications: • e. Procurement • Public-private partnerships (PPI) Page 10

Mainstreaming Procurement as a Financial Management Activity – An Example • In South Africa, procurement as a technical and peripheral function has been put aside and is being integrated into the overall public expenditure management process • The term “procurement” is no longer used. Procurement officers are called “financial management officers” • Under the name of “Supply Chain Management” traditional budget management in line ministries is being restructured from: Budget Planning Execution Monitoring Reporting & Execution To: Demand Planning Budget planning Acquisition management Logistics Management Disposal Management • Even though “Acquisitions Management” deals with most functions of traditional procurement, each stage of the process engages financial officers, including “procurement” experts. • By doing so, officers in charge of demand planning are better able to prepare a more practical and feasible plan for the logistics and procurement stages later on (N. B. the concept of supply-chain management bas been popular in private companies since the early 1980 s) Public Expenditure & PEFA Financial Accountability Page 11

Q&A & Discussion Public Expenditure & PEFA Financial Accountability Page 12