Integrated Financial Management Systems Ghana: A Demonstration

Mr. Chairman, Your Excellencies, Distinguished Guests, Ladies and Gentlemen, I am greatly honored to be invited to participate in this conference and indeed privileged to be asked to make a presentation on recent developments in governmental financial management in my country, Ghana, and more specifically to describe efforts to implement an integrated financial management system in Ghana.

I must begin by making clear that Ghana has not implemented an integrated financial management system (IFMS) yet. Therefore, we cannot demonstrate an IFMS that is operational. The Government of Ghana (GoG) is currently engaged in an attempt to implement an IFMS. So far, we are into the ninth month of a two-year program to implement this system. We are cautiously applying all the rules in the book to ensure that the system is successfully implemented. However, we are also concerned about the unique circumstances under which we operate, and are therefore paying particular attention to the peculiarities of our own environment and how they will make or break our system's implementation process. In this paper I intend to share our experiences during this implementation phase. I therefore think that "The Development and Implementation of an IFMS: A Ghanaian Demonstration," would be a more appropriate title for my presentation.

I will begin with a brief account of Ghana's experience preceding this effort at an IFMS implementation, from the perspective of key issues and earlier initiatives to address those issues. Thereafter, I will describe the program that is currently introducing IFMS in Ghana, including some of the peculiarities of the Ghanaian context that are affecting the implementation effort. My conclusion will consist of recommendations on how we think some of the most common pitfalls of this process can be avoided.

Country Experience: The Antecedents
Economic Decline and Institutional Breakdown

Ghana, like many non-oil producing countries, suffered from the energy crisis of the mid-1970s in no small way. The large increases in the price of oil from OPEC countries forced non-oil producing countries to scramble to find scarce foreign exchange (hard currency) for meeting oil import requirements, to the detriment of other sectors of the economy which also depended on foreign exchange. The oil crisis destabilized the Ghanaian economy in a serious way, exacerbating latent structural problems and managerial inadequacies.

The long-standing existence of a command economy, with its controlled prices, highly subsidized services and consumer products, bloated state-owned industries and over-employment, all contributed to a heavy public sector burden on national resources. Coupled with these was the mismanagement of the economy which was greatly facilitated by the absence of reliable information and policy formulation.

In this setting, it was perhaps inevitable that the oil crisis would set in motion a series of serious problems that threw Ghana's economy into a steep cycle of decline. The absence of hard currency led to shortages of imported goods, import license rationing and hyperinflation. Capital projects ground to a halt, existing infrastructure quickly deteriorated and the nation's institutional framework began to break down. During this period, which lasted from the late 1970s into the early 1980s, the management of the public sector was anything but rational. The lack of information suitable for macro-economic management combined with poor accounting and auditing to create a bleak outlook for all who cared about the government's financial management system.

In an effort to stabilize and subsequently rescue the economy, the government adopted an Economic Recovery Program (ERP) in 1983, aided by a World Bank-funded Structural Adjustment Program (SAP).

The SAP embraced market-oriented policies that relieved the government of the burden of subsidizing a bloated public sector. Specific measures included loosening price controls, liberalizing trade, devaluating the cedi (national currency), downsizing the public sector, and privatizing and divesting government of its interests in parastatals . These measures effectively halted the decline of the economy and brought a measure of stability, putting Ghana back on the path to controlling its public finances and managing the system rationally.

Public Financial Management Issues and Early Initiatives

Ghana's recent economic problems, combined with a series of public expenditure reviews conducted by the World Bank between 1985 and 1990, helped to expose a number of critical issues that must be resolved in order to bring efficiency and effectiveness to Ghana's financial management system. These problems included a poor budgeting system, the size and structure of the civil service, personnel and payroll problems, ineffective auditing, a lack of expenditure reporting, incomplete aid and debt information, and the low skill level of professional accounting personnel.

Unfortunately, these problems were treated as discrete issues, and efforts to address them were conducted in an isolated, piece-meal way, when what the country needed was an integrated, system-wide approach.

Weaknesses in the budgeting system were handled first, with attention focused on the Capital Budget and later on the Recurrent Budget.

In 1986, a multi-year programming of the Capital Budget known as the Public Investment Program (PIP) was adopted in an effort to rationalize capital project selection by matching the expenditures with resource availability. Later that year, a task force was set up to develop norms for recurrent expenditures and later to computerize the budgetary process.

Public sector payroll costs, known as "Item 1" in the budget, have been and continue to be a serious concern to the government, since they account for about 70 percent of the total recurrent budget. The structure of the civil service itself has been determined to be largely responsible for these high payroll costs, and the government had consequently been considering options for reforming the civil service.

In 1987, with the assistance of the Overseas Development Administration of the United Kingdom, the GoG embarked on a Civil Service Reform Program with the goal of modernizing policies, restructuring services and reducing the staff cost burden.

Based on evidence of modest gains in these areas, the World Bank approved a program for Ghana known as Economic Management Support. Resources from this program were used to further improve budgeting, auditing, expenditure reporting, tax administration and payroll/personnel management.

The program also supported efforts to implement a Broad-Based Budget System and to streamline the personnel data system by integrating it with payroll data on a computer platform. A Budget Improvement Working Group (BIWIG) was set up to implement the Broad-Based Budget concept and a computerized Integrated Personnel Payroll Database System. The former would ensure that all donor funds including grants, aid and loans as well as internal flows are reflected in the budget to make it comprehensive, while the latter would help government eliminate 'ghost names' from the payroll and better control staff cost spending.

To address problems in the national revenue sector, the government established a National Revenue Secretariat charged with coordinating revenue-generating activities and policy. Efforts also continued in other areas, such as the establishment of a Debt Recording and Management System intended to create a comprehensive aid and debt database system. A Financial Sector Adjustment Credit also sought to reform the banking sector while making provision for improving the level of skill and competency of accounting professionals in the country.

All these initiatives were as well meaning as they were necessary. However, the results in all cases were disappointing, essentially because the initiatives were not considered from a holistic standpoint. Thus the impact did not transform the government's financial management system and did not help to implement an integrated system. Efforts still continue to be made and the government still continues to look for areas of improvement in its financial management system.

Public Expenditure Reviews and Recent Initiatives

It was in this context that participants at the Consultative Group Meeting of 1990/91 in Paris recommended that the GoG take over preparing the Public Expenditure Reviews (PERs) which between 1985 and 1990 had been performed by the World Bank. It was hoped that these reviews would help to address weaknesses in public expenditure and the financial management system.

In 1993, the first PER performed by the GoG focused on the recurrent budget and identified major issues relating to the budgeting system, expenditure monitoring and expenditure control. Ghana's system of budgeting was basically found to be incremental in approach, with no better rationale or bases for resource allocation. The weak budgetary formulation and control were found to be central to expenditure management problems in Ghana. To help with more effective monitoring, a limited Expenditure Tracking and Control System (EXTRACON) was piloted in a number of GoG ministries between 1993-1995.

The 1994 PER concentrated on the Development or Capital Budget, identifying systematic problems in the preparation and implementation of the Development Budget.

Together, these two PERs summed up the problems affecting the Public Financial Management System in Ghana as follow:

Given the scope of these recurring problems, the GoG thought it better to consider a more comprehensive and integrated approach to resolving them. The idea of a Public Financial Management Reform Program (PUFMARP) was thus conceived and debated. A consensus in favor of the integrated approach as the best solution led to a decision to seek financing in order to implement that program. At the same time, a National Institutional Renewal Program (NIRP) was also being conceived to address the governmental institutional framework and policy formulation process. Later in 1994 NIRP was launched as a Public Sector Reform Program.

Then, in 1995, the GoG introduced the first policy-guided budget hearings intended to relate resource allocation to policy objectives.

In 1995 another PER was carried out which supported this course of action and formally helped to launch the Public Financial Management Reform Program-Ghana's first real attempt to implement an Integrated Financial Management System. Despite the formal launching, the PUFMARP was not actually established until 1996, following the recruitment of a Project Management Team and the establishment of a Secretariat.

Public Financial Management Reform Program

This section examines the program that the Government of Ghana is currently pursuing to implement an Integrated Financial Management System known as the PUFMARP. PUFMARP is a bold and comprehensive medium-term strategic program aimed at revamping and integrating all aspects of government's financial management system and computerizing it. It takes a holistic view of the issues identified in the Public Expenditure Reviews, and is set to deal with them in a complete manner. It is multi-donor funded, but is led by the International Development Association of the World Bank.

Program Objective

The ultimate objective of PUFMARP is to enhance the efficiency, accountability and transparency of the financial management functions of government so as to enable government maintain macro-economic stability.

Program Components and Objectives

The program is divided into a number of components to ensure that all key aspects of the system are provided for. The core component is the Budgeting and Public Expenditure Management System (BPEMS) which is aimed at reforming the budgeting, accounting and financial reporting sub-system, and at providing a computer platform to run the entire financial management system.

The other components are those described as satellite sub-systems. They include Revenue Management and the Revenue Agencies, Cash Management, Aid and Debt Management, National Procurement, Comprehensive Auditing and Fiscal Decentralization. Each of these sub-systems are subject to reviews, assessments and implementation and are designed to interface well with the core BPEMS sub-system.

The subsidiary objectives of the sub-systems include the following:

Program Management

The management structure of the program includes a Steering Committee for resolving policy issues and directing the entire implementation exercise. Day-to-day management is handled by highly qualified professionals in the Project Management Team. This team supervises the work of consultants to ensure quality control and due diligence. Consultants are responsible for developing and implementing the various sub-systems, while transferring skills to the Project Implementation Teams that are composed of Government of Ghana counterparts seconded from various governmental agencies to work on the project full-time. Together, these groups of professionals are responsible for the entire implementation exercise.

Implementation Strategy

While project tasks for the BPEMS components are initially planned to be undertaken over two years, improvements to the system and replication to non-pilot areas is expected to take place over a five-year period. To ensure a smooth implementation exercise, the tasks have been planned over three phases.

Major activities include studying, developing and defining a new set of functional processes, transaction documents, forms and information flows relating to the budgeting, accounting and financial reporting functions of the government's financial management system. The envisioned deliverables include a revised budgetary classification; a functional design for an Expenditure Monitoring and Information System; specifications for software, hardware and related facilities; a new Chart of Accounts; complete transactions documents; application systems; and a technology architecture with specifications for hardware, software and communication systems. The implementation will include computer installations, testing, customization, piloting and replication over seven out of twenty-two ministries.

The regulatory framework, organizational issues and capacity enhancement areas are essential to the success of the program. Thus, a System High Level Design, intended to show the new institutional arrangements and legislative reforms needed, would precede systems specification and implementation. The training would be part of the implementation exercise and would be based on the development of manuals, guidelines and departmental instructions.

Developing and Implementing the Integrated System:
A Ghanaian Demonstration

In our efforts to develop and implement our Integrated Financial Management System, two key questions remained upmost in our minds. Firstly, we wondered how we would ascertain the achievement of component objectives, and secondly, how to ensure that the needs of all components are not only sufficiently reflected in the implementation activities but that they would interface well with each other in the integrated system. Other matters of concern were the nontechnical issues which affect the implementation process. Thus, our implementation strategy made provision for the resolution of all such issues.

Technical Requirements

The Ghanaian experiment is benefiting from the experiences of other countries and is applying all the standard rules in the book to ensure that the implementation of its Integrated Financial Management System is successful, meets the needs of users and will stand the test of time. Thus, the Government of Ghana has taken measures to ensure that all the prime requisites of an Integrated Financial Management System are provided for in PUFMARP's project design and implementation process.

The existence of a budgeting system, a treasury, public credit and accounting all constitute the core requirements of any integrated financial management system. Other areas such as the legal framework, the organizational issues, human resource requirements and information are all part of the elements of PUFMARP. Thus, technically, all the right concepts and components have been considered and planned for. What is left to be done is to ensure that the latter are adequately covered by the consultants.

Ghanaian Peculiarities

In Ghana, there is absolute consensus on the need to develop an integrated financial management system. All the governmental agencies understand the wisdom in having a reliable, accurate and efficient information system which can be used for effective policy formulation. However, what may be described as long standing suspicions and mistrusts between the Ministry of Finance and the governmental agencies is perhaps one major problem, but by no means the only one, which can adversely affect the implementation process. Other problems peculiar to the Ghanaian environment include the implementation process; the implementation of competitive reform programs in the other governmental agencies; low remuneration for retaining well-trained and competent technical personnel; donor coordination; danger of engaging consultants who may want to implement pre-cooked systems; and an on-going decentralization program.

Traditionally, the MoF has not been able to provide all the resource needs of the governmental agencies (known as MDAs) in the right amounts and at the right time. The MDAs have therefore always viewed the MoF as seeking to control their (MDA) budgets, not giving them the freedom they need to plan and operate their budgets.

On the other hand, the MoF has mentioned that it has responsibility for ensuring macro-economic balance and stability and avoiding huge deficits which could spur inflation. Additionally, the MoF has not been confident about the capability of the MDAs to manage effectively, and report accurately, because they often lack the technical expertise and effective systems to do so. Thus the "long arm" of the MoF has to be stretched far enough in the interest of effective monitoring of MDA spending while holding back where these is the need to ensure stability.

The problem also exists because of the implementation of other reform programs within the MDAs, most of which have a financial management system component perhaps competitive to that of PUFMARP. In fact, because of this mistrust, the MDAs prefer to develop their own budget classifications, chart of accounts and implement their own accounting packages which would not facilitate integration.

The question then remaining is, how do we overcome this barrier and get the MoF and MDAs to work together in the interest of smooth implementation. The government, for its part, has taken measures to address these problems. Firstly, some of the MDA suspicions arose because some personalities have been entrenching the status quo to strengthen their positions and power. They were able to do this because they had been in their positions for decades. The government therefore effected transfers, so as to put in key positions, people who are reform minded and would like to see the system successfully implemented. Thus key chief directors and directors were transferred and new ones appointed.

Secondly, the government made public pronouncements and indicated its commitment to change in the highest circles by stating that the MoF itself is a subject of the reform program. These have had the effect of building the confidence of MDAs about the program and stimulating more interest in it.

Also, measures were taken to ensure that the MDA reform programs which had financial implications were hinged to or conditioned on their willingness to cooperate with PUFMARP's implementation.

Regarding the incentive mechanism to retain well trained and highly skilled professionals to run the system on its completion, the government has instituted a Salaries Rationalization program to deal with issues of pay. The timing of this, it is hoped, would help facilitate the implementation process.

The role of international donor agencies in the financial management system of GoG has been found to be important. In the past, donor agencies have been known to fund the implementation of accounting systems for the MDAs in a bid to track the use of their funds, and have thus caused a proliferation of accounting packages and hardware throughout the system. Now some of these donors are interested in funding some of the components of PUFMARP. Thus, the need to involve them in supervision of the projects' implementation exercise. Those that have pledged funds for the project such as IDA, ODA, CIDA and European Union have therefore been invited to sit on the steering committee. Additionally, they have been requested to restrain from continuing to fund stand-alone systems in the country. The continued coordination ensures that beneficiary governmental agencies do not thwart PUFMARP's implementation process.

The experience of Ghana in the use of consultants has grown over the years. We are aware of consultants who might not do thorough work but would go through the motions only to introduce pre-cooked systems which may not be relevant to our Ghanaian environment. The MDAs and the government sector are full of hardware and software that are not being used and are gathering dust. Also, the practice whereby donor agencies bring in their inexperienced consultants just to give them jobs is a matter of concern.

The GoG is therefore screening the choice of consultants for every aspect of the project and also scrutinizing their work to ensure that it meets standards and is acceptable. The Project Management Team in Ghana, with the help of the Project Steering Committee, has that responsibility for ensuring that value is added by consultants. Where it is necessary, sub-committees have been formed to examine and assess the consultants activities and deliverables.

Perhaps the single most important means by which this government's efforts at implementing an integrated financial management system is how to program the implementation activities to synchronize well with each other and to ensure that the sub-systems would gain synergies.

In order to do this successfully, it is equally important to involve all stake holders in the confirmation of critical issues and in envisioning the system to be developed. The outcomes of these activities would help program a comprehensive workplan clearly stating the key activities to be undertaken, and their deliverables. This is what we are doing in Ghana and our implementation program now follows this workplan. The involvement of those government official counterparts from stakeholder establishments at every level of activity helps the program to gain acceptance in the MDAs, other than MoF.

The implementation of IFMS in Ghana therefore anticipates both technical and non-technical factors that could make or break the implementation process. The political will and commitment are needed to provide the necessary support to ensure that the non-technical issues are resolved appropriately to facilitate implementation. The foregoing notwithstanding, creativity on the part of the project team and sensitivity to MDA needs are also important in ensuring success. Ghana is making efforts to ensure that all these aspects feature sufficiently in its programme's implementation.

Conclusions and Recomendations

Mr. Chairman, Distinguished Guests, Ladies and Gentlemen, what I set out to do this afternoon was to share with you a demonstration of the Ghanaian experience which is currently on-going. I have in the process, also tried to give you a sense of the background factors which led to the need to develop and implement an IFMS. It has been shown that although the earlier initiatives were found to be helpful, they did not solve the problems in a comprehensive manner.

Mr. Chairman, I have acknowledged in my presentation, the need to ensure that the core technical components of IFMS have to be adequately provided for in order to call a system an IFMS. These include the Budgetary System, Treasurey, Public Credit and Accounting; while the Legal Framework, Human Resource Development and Information System constitute other essential but non-core parts of IFMS. These, I did state are adequately provided for in the Ghanaian attempt at developing an IFMS.

However, Mr. Chairman, I have also emphasized that there are important non-technical factors which have a direct bearing on the chances of success of an IFMS implementation. These, in the Ghanaian example, include a healthy relationship between the executing agency, the Ministry of Finance and the other governmental agencies; the political will and commitment; the role of donor agencies; the competence and commitment of responsible consultants; an incentive programme to motivate and retain competent qualified staff to manage the system; and an effective and creative project management team which would use a participatory mechanism to ensure that ownership of the program spreads to all stakeholders and that its utility is shared by all.

Ghana does not yet have an operational Integrated Financial Management System. However, it has found the need for it and has taken steps to implement one, applying all the rules in the book and utilizing more pragmatic measures. It is not certain how successful Ghana will be even though it is hoped that it will succeed. However, it remains to be seen if we will be successful.

Thank You.