44 Reasons Why Your Government Financial Management System Failed

Imagine the following scenario…
You are a finance minister. Your government began an implementation of a Financial Management Information System (FMIS) more than 5 years ago. Problems persists. Why?
Your FMIS, or what we call Government Resource Planning (GRP), includes many core and non-core functions. This environment could be a portfolio of custom-developed and Commercial-Off-The-Shelf (COTS) software. Most of the government budget cycle is covered. Associated non-financial functionality is integrated, such as human resources with payroll. This portfolio includes most of:

  • Government Performance Management
  • Core Public Financials Management
  • Government Treasury Management
  • Public Expenditure Management
  • Government Receipts Management
  • Civil Service Management

A poor government financial management international assessment

Imagine that you have received a recent Public Expenditure and Financial Accountability (PEFA) assessment, using the 2016 framework.  PEFA is designed to evaluate government Public Financial Management (PFM) effectiveness.The PEFA demonstrated low marks (D and D+) for many of the elements that GRP automation is meant to assist:

  • Budget reliability (PI-1 to PI-3)
  • Public access to fiscal information (PI-9)
  • Public asset management (PI-12)
  • Public debt management (PI-13)
  • Predictability and control in budget execution (PI-19 to PI-25)
  • Accounting and reporting (PI-27 to PI-29)

You recognize that PEFA assessments are considered diagnostic and not prescriptive. You need to develop a plan to improve public finances and fiscal stewardship based on the deficiencies identified. You also hope to improve your country PEFA score in 2 years. You seek to identify the root causes of the deficiencies. And, prioritize fixing them. You wish to use the PEFA results to encourage government fiscal management improvements.
You’ve learned that FreeBalance government customers in peer governments have superior scores in these measures. You also find out that FreeBalance customers in less developed countries have similar or superior measures. You realize that FreeBalance is mainly known as a provider of COTS GRP systems, the FreeBalance Accountability Suite, with better implementation success rates than alternatives. You wonder whether FreeBalance can you without replacing your existing investment. You’ve discovered the risk of making significant changes to systems.
As a social enterprise, FreeBalance seeks potential solutions for the national government that optimizes the technology investments made, so replacement of your GRP with the FreeBalance Accountability Suite is a last resort. And, FreeBalance has developed diagnostic tools to help you. 

GRP contribution to PEFA assessments

An effective GRP should help governments improve fiscal stewardship across all 8 PEFA pillars. PEFA measures the outputs and outcomes from people, processes, and practices supported by GRP technology. The technology contribution differs across all measures. Aspect of GRP software that are particularly relevant are:

  • Budget Planning with workflow and analysis enables credible budget plans, transparent budget documents, public investment and capital budget plans, while supporting multiple year policy-based approaches
  • Expenditure Controls managing commitments and obligations enables budget execution to plan consistency, budget execution control and predictability, and government accounting
  • Revenue Administration handling tax and non-tax revenue enables revenue reporting, and tax mobilization
  • Public Debt Management when integrated with other GRP components enables liquidity and liabilities management
  • Asset Management including investment, fixed and capital assets enables asset optimization
  • Payroll Management when integrated with human resources and financial systems enables salary predictability and control, which is often the largest expenditure for many government organizations
  • Procurement when integrated with commitment controls enables value for money management for budget execution control, an important consideration given that some governments spend around 20% of country GDP on procurement
  • Fiscal Reconciliation through payment, bank, suspense accounts, revenue and expenditure integration enables accurate and effective reporting and can improve liquidity
  • Fiscal Reporting enables timely statutory and transparency reporting, timely and accurate reporting on the government fiscal position with quarterly and annual reports that support audit and scrutiny
  • Fiscal Transparency driven from GRP data enables budget transparency, audit and scrutiny
  • Forecasting including scenario planning and built on GRP data enables budget plan accuracy, policy-based analysis, and revenue and expenditure predictability

Typical problem patterns

You realize that technology is only part of the answer. The best possible technology can be implemented poorly. Few financial management assessments get to the root causes of problems. You know that root cause analysis is difficult because people, process, and practice elements are at play. And, much of the literature focuses on high-level characteristics that are not particularly useful for you.
We have identified 39 problem patterns  in PFM reform and in the implementation of GRP core and non-core systems. These occur regardless of solutions selected by your government. The choice of bespoke development, or any COTS solution could mitigate or exacerbate these design, implementation, and practices problem patterns. Although, you know that COTS and custom are not binary choices, so you are looking to ways to extend what works.

Project design patterns

Project concept and design often contributes to poor GRP outcomes. Patterns include:

  1. Requirements Disconnect: Hiring external experts to produce tender documents who are unfamiliar with the country context, fail to diagnose real needs, or follow personal biases on what should be important
  2. Best Practices Mimicry: Specifying the use of so-called “best practices” that are inappropriate for government capacity, do not match government legislation, or are solutions to problems that governments do not have
  3. “Paving Cow Path”: Specifying following processes used in software that is to be replaced, rather than rethinking based on modern automation 
  4. Poor Sequencing: Following a PFM reform sequence that does not match the government context of what out of budget execution, budget planning, revenue mobilization, public investments, procurement, payroll, and audit reform will have the largest positive effect given capacity constraints
  5. Reform Fatigue: Envisioning unrealistic numbers of process and legal reforms combined with installing too many financial modules
  6. IT Focus: Seeing GRP primarily as an information technology concern, rather than as reform and transformation 
  7. Technical Focus: Seeing GRP primarily as a finance ministry technical concern, rather than something that will need to roll out across the government
  8. Coverage Lacking: Building GRP based on finance ministry needs rather than the public finance needs of ministries, agencies, departments, sub-national governments, and parastatals
  9. Rigid Project Management: Building unrealistic milestones, and rigid waterfall style processes, rather than recognizing that original specifications are likely faulty, and agile processes are often more effective
  10. Status Fallacy: Favouring and selecting large Commercial-Off-The-Shelf (COTS) software manufacturers and large systems integrators, with the false believe that this will advance government perceived status
  11. Governance Structure Disconnect: Dealing indirectly with COTS software manufacturers through systems integrators who may not understand the chosen software in the government context, or who may seek to increase revenue through customization and frequent change orders
  12. Rip and Replace Many Systems: Implementing a single solution designed to replace multiple systems, often in the hundreds, that had limited integration, with the view that all sorts of efficiency will be achieved ignoring the special nature and workflow of many of the systems

Project implementation patterns

Inadequate GRP implementation practices often contributes to poor GRP outcomes. Patterns include:

  1. Political Will Lacking: Expecting that the software will just happen with limited insight from political leadership, no fully dedicated  staff, no qualified staff, or significant staff government project team turnover 
  2. Incentives Mismatch: Mismatching incentives with success such as rewarding public servants if schedules are met (sign-off occurs even when test cases fail) or rewarding public servants to find fault with vendors (fining vendors even when test cases succeed)
  3. No PFM Knowledge: Hiring implementation consultants who understand technology and products but have no government or PFM expertise
  4. Poor Change Management: Assuming that users will use GRP software after rollout, or that organizational change management is something done at project kickoff and through periodic newsletters
  5. Inappropriate Capacity Building: Building capacity through product training without PFM, project, or IT training and mentoring; that can be complicated when training is provided by those who are unfamiliar with the PFM domain
  6. Lack of Integration and Interfaces: Integrating with required subsystems through manual methods or poor integration practices
  7. Ineffective or Disconnected Budget and Accounting Classifications: Creating charts of accounts classifications that are not consistent with government data needs, do not support international standards, are different between budget and accounting classifications, or not supported in subsystems like payroll and procurement
  8. Disintegrated Controls: Attempting to duplicate and maintain commitment, segregation of duties, and approval controls across systems, or subsystems have no government controls
  9. Process Complexity: Building processes that require too many stages of approval that does not reflect inherent risk and civil service capacity
  10. Legal Framework Fallacy: Customizing GRP to run antiquated processes on the mistaken view that any change will require legal reform
  11. Ineffective Reports: Developing reports that are not exception-based, predictive, or reflect government concerns such as budget and cash availability
  12. Late Change Orders: Expecting that changes to software can be accomplished very late in projects
  13. Highest Paid Person: Deciding based on opinion of senior government or senior project staff takes precedent over facts and insights from more qualified staff
  14. Schedule Slavery: Following the original schedule usually at the detriment of user training, acceptance testing, and low-cost implementation improvements
  15. Late Sign-Off: Delaying milestone approvals that cascade throughout the project building up change resistance

Post-implementation practice patterns

Inadequate GRP use practices often contributes to poor GRP outcomes. Patterns include:

  1. Poor Legal Framework: Operating GRP systems based on outdated legal frameworks that introduce poor practices, particularly in controls
  2. Practice Does Not Follow Process: Working around legal framework and good practices such as sharing passwords to circumvent segregation of duties, using incorrect account codes for expenditures rather than requesting budget transfers, splitting acquisitions to fall under public procurement minimums, or payments handled outside the system
  3. Recording Not Controlling: Utilizing the GRP system as a recording system for transactions that have already occurred, leading to work-arounds and inaccurate data
  4. Distrust and Duplication: Duplicating GRP transactions with paper because the system is distrusted or there are job concerns, leading to efficiency reduction
  5. Incredible Budgets: Developing budgets that are not credible, resulting in frequent budget transfers, supplemental budgets, and working around commitment controls
  6. Government Priorities Disconnection: Creating budgets and expending funds based on departmental concerns rather than on government priorities like national development strategies and visions
  7. Staff Turnover: Losing qualified staff to other ministries or the private sector
  8. Government Silos: Attempting to manage public finances when there a strong and uncooperative organizational units for functions such as debt, taxation, public investments, and payroll
  9. Over-Centralization or Over-Decentralization: Managing public finance processes too centrally such as approving every commitment in the finance ministry, or too de-centrally such as providing budget transfer discretion when there is not sufficient capacity
  10. Political Interference: Changing spending priorities based on short-term political thinking such as for reelection campaigns
  11. Lack of Transparency: Limiting disclosure of priorities, budgets, spending, revenue, procurement or public investments within government and with the public that limits accountability 
  12. Ignoring Evidence: Making decisions based on dogma or past thinking contrary to clear information from GRP systems 
  13. Poor Forecasting: Managing public finances without scenario planning or adequate forecasting of potential commitment overages and liquidity requirements, for salary changes, currency fluctuations, trade tensions, or natural disasters
  14. Poor IT Infrastructure: Hosting GRP technology with inadequate server capacity, limited fault tolerance, lack of patching, legacy technology, or poor IT management practices
  15. Sunk Cost Fallacy: Continuing to invest time and money into GRP systems that can not adapt to real government requirements, future reforms, or public service capacity 
  16. Cash-Based Vulnerabilities: Operating using a cash basis for accounting can hide when transactions occur often increasing payment arrears
  17. Cash and Budget Disconnect: Managing expenditures based on cash availability, or managing expenditures based on budgets with no integration with liquidity compromises cash planning and budget reliability

What’s your next step?

You may be able to plan system modernization based on the 39 patterns. You may need diagnostic assistance from companies like FreeBalance that have 30+ years of financial management expertise. You might benefit from some of the tools that we’ve developed for packaged government advisory services. Or, you may need a packaged service to empower your modernization. Relevant packaged services for improving GRP systems include:

  • Governance Empowerment
    • Determines PFM and transparency priorities to improve governance that can be measured by international assessments
    • Focus: policies, processes, and practices
  • GRP Empowerment:
    • Identifies GRP system integration, performance, and technology risks to optimize governance capabilities while maximizing investments
    • Focus: systems, digital infrastructure, and IT practices
  • Modern Finance Ministry Empowerment
    • Recommends changes in finance ministry operating environment and policy footprint to better achieve government goals
    • Focus: policyorganization effectiveness and capacity
  • Change Management Empowerment
    • Enhances ministry change efforts for important projects
    • Focus: stakeholder analysis, value proposition, and communications
  • Digital Transformation Empowerment
    • Creates ministry digital priorities for open data, civic engagement, service delivery, and government effectiveness
    • Focus: digital readiness, systems integration, and design thinking

If you’re interested, or have found a 40th pattern, you can:

  • Leave a comment on this entry with your connect
  • E-mail info@freebalance.com
  • DM me, @dalytics, on twitter


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