Empower Public Finances at Reasonable and Sustainable Cost
Sponsored by the Korean Public Finance Information Service, the African Development Bank, and the World Bank, these virtual sessions explored country experiences with Public Financial Management (PFM) reform and GovTech implications. Recordings of all sessions are available at the World Bank FMIS Community of Practice site. The webinars confirmed many of the patterns that have emerged in the past decade.
Learnings and Recommendations
Many government financial systems are financially unsustainable (or impossible to support ongoing reform and modernization).
- Context: costs for one custom-developed system described was astronomical, while costs to maintain two ERP systems are so high that governments are looking to creating custom-developed solutions. The systems promoted by one of the sponsors demonstrated the need to replace existing custom-developed systems to support reform and technology modernization.
- Focus: cost questions during webinars and cost answers diverged (some cost questions were avoided by presenters)
- Observation: few governments fully track the Total Cost of Ownership (TCO) making for wide ranges in estimates – many seem to include civil service costs as free
- Track full costs, including public service costs, because civil servants are not free
- Recognize that software licenses are not reflective of overall costs
- Build a cost model that includes reform and system upgrades including personnel costs
- Recognize that (some) COTS systems are adaptable to change and modernization and that ERP systems, originally developed for the private sector, often require as much customization as custom systems
- Recognize the cost implications of custom-developed systems that may not have controls and security that COTS have
- Timelines for implementation can go on for a decade, therefore, reducing time to positive returns, a sustainability factor that ought to be considered
- Insist that vendor consultants build government capacity to increase self-sufficiency and reduce future costs
- Ensure that consultants, even those provided by donors, migrate away from operational work and focus on technical assistance
Integration of multiple systems is not the same as interoperability and limits effectiveness.
- Context: integration among financial management systems used by governments are critical to support controls, decision-making, and fiscal transparency – this becomes more critical in the GovTech era when these “systems of record” need to support systems of engagement, intelligence, and innovation.
- Focus: silo standalone systems were considered a poor practice (but, the degree of integration among some systems presented were vague)
- Observation: public finance professionals need to understand the differences between interfaces, integration, and interoperability because of the PFM implications.
- Recognize that standalone financial management subsystems restrict interoperability
- Leverage public finance metadata (like the Chart of Accounts) as key concepts for Enterprise Service Buses (ESB)
- Develop a risk-based approach for interoperability that recognizes the vulnerability for real-time, near real-time, periodic, and batch integration by module
- Build visions about the integration among systems of record, engagement, intelligence, and innovation for GovTech
Governments often announce the desire to support modern “best practices” like accrual accounting.
- Context: support for so-called “best practices” was mentioned a few times, with one country describing the mission to support IPSAS accrual standards (although, many speakers used the term “good practices”)
- Focus: “best practice”” are a good signalling mechanism to stakeholders, but most of these like accrual accounting and performance budgeting are only realistic in more advanced economies
- Observation: “best practices” is consultant-speak – sounds great – mostly meaningless in most public finance contexts (many advanced economies fail to support these, while emerging economies discover barriers to adoption)
- Recognize that “best practices” is more of a signal than reality
- Progressively activate better practices over time based on the changing government context and civil service capacity
- IPSAS accrual ought to be a future aspiration for all governments
- Implement core interoperable systems before considering artificial intelligence or blockchain in production (although, testing these might motivate creating an interoperable public finance backbone)
Change management continues as the main inhibitor for government financial management system success
- Context: change management was described as a key challenged by almost all country presenters
- Focus: while any large information technology project generates change problems, incentives and institutional structures in government increase change resistance in government compared with the private sector
- Observation: the organizational change management problem in public finances seems more of a certainty than a probability because of practice transformation and perceived threats of automation
- Recognize that change management experts are necessary for success, but insufficient in government without embedding in all project activities
- Stakeholder and user engagement needs to be constant and consistent (communications should not be “periodic”)
- Agile processes with user engagement supports change, especially small wins that demonstrate progress and win over public servants
- Identify change agents to build momentum and deal with change resistance
- Understand that politics plays a role in change resistance in some countries, so projects need to be sensitive to divergent political views
Capacity building challenges change management as main inhibitor of public financial management success.
- Context: capacity building was part of success and challenge factors by many country presenters
- Focus: any new system requires building capacity to support legal reform and technology modernization
- Observation: capacity building is often thought to be training, with one presenter describing the benefit of certification programs and civil service contracts to retain staff – rather than through multiple modalities
- Realize that “train the trainer” programs economize on costs at the expense of outcomes unless trainer are domain experts
- Build up mentorship and knowledge management to augment training
- Recognize that generic public finance training is useful, but often lacks direct applicability in many countries
- Develop capacity programs that includes public finance, software product, project management, and information technology elements
Total cost and reliability concerns limit adoption of open source in government financial systems.
- Context: open source use among countries presenting was limited
- Focus: open source is not necessarily free, and not necessarily less expensive (full TCO) than commercial software
- Observation: open source dominates software middleware with databases, operating systems, application and web servers more for quality than price
- Recognize the open source middleware is often more secure and effective than commercial options
- Realize that open source requires some assembly, so governments with lower information technology capacity may be wise to use commercial tools
The elimination of ghost workers is a common success use case for civil service management systems (rather than core FMIS).
- Context: presenters using civil service management software described the cost benefits of reducing fraud
- Focus: many emerging market and developing nation governments have “phantom employees” who are not working, or working and drawing pensions, or have passed away
- Observation: elimination of ghost workers is considered as a “quick win”, yet often has political consequences in many countries
- Augment civil service management systems with biometrics
- Realize that salary fraud and petty corruption might be indicative of poor civil service salaries – a problem that technology does not solve
- Integrate civil service and asset registries to track responsibility
Between the lines: it is possible for software vendors to provide more fiscally sustainability solutions, and software that adapts to future reform unlike most custom-developed software or ERP systems.
How does FreeBalance achieve low TCO compared to alternatives?
- PFM focus = global practice knowledge in many public accounting contexts, thanks to working in all implementations, sets company direction and priorities
- PFM product focus = the FreeBalance Accountability Suite™, designed exclusively for government, is more adaptable to current and future government needs through configuration
- PFM methodology focus = improves time-to-results and helps governments with PFM reform strategies
- PFM mandate = innovation in product, process, and services to make the most sustainable IFMIS alternative
For more information on how FreeBalance could help your country’s PFM reform agenda, please get in touch.